The Attorney General of Texas 

November 24, 1980 

MARK WHITE 

Attorney General 

Honorable Joseph N. Murphy, Jr. 

Executive Director 

Employees Retirement System 

18th & Brazca Streets 

Austin, Texas 78701 

Opinion No. Ml+‘-276 

Re: Liability for mismanagement of 

Employees Retirement System op 

Teacher ~Retirement System funds 

Honorable Bruce Hineman 

Acting Executive Secretary 

Teacher Retirement System 

1001 Trinity 

Austin, Texas 78701 

and related questions 

Gentlemen: 

You have asked what the liability of your respective systems would be 

if an investment or benefit program were negligently administered by an 

officer or employee, and whether the systems might purchase “errors and 

omissions” insurance to protect system employees, committee members, and 

officers against personal liability. 

The Teacher Retirement System and the Employees Retirement 

System are state agencies. ‘Teacher Retirement System v. Duckworth, 264 

S.W. 2d 98 (Tex. 1954). See Farrar v. Board of Trustees of Employees 

Retirement System, 243 ST 2d 688 (Tex. 1951). Cf. Boles v. Board of 

Firemen, Policemen and Fire Alarm Operators’ Trustees, 308 S.W. 2d 904 

ITex. Civ. App. - San Antonio 1957, writ rePd). As instrumentalities of the 

state, the systems themselves are not liable for the torts of their officers or 

employees in the absence of a constitutional or statutory requirement to the 

contrary. e Lowe v. Texas Tech University, 540 S.W. 2d 297 (Tex. 1976); 

52 Tex. Jur. 2d State of Texas S50, at 761. Cf. Teacher Retirement System 

v. Neill, 563 S.W. 2d 873 (Tex. Civ. App.-Waco 1978, writ rePd nr.e.); 

Comanche County v. Burks, 166 S.W. 470 (Tex. Civ. App. - Fort Worth 1914, 

writ ref’d). 

Except for statutory provisions that require the systems to correct any 

unauthorized changes or errors in their records that would increase or 

decrease the entitlement of members, and to adjust future payments 

accorditlgly “so far aa practicable,” we have found no existing laws that 

would deprive the systems of their governmental immunity defense to civil 

actions for negligence in the fiscal management or disposition of assets. See 

- 

p. 880 
Honorable Joseph N. Murphy, Jr. 

Honorable Bruce Hineman 

Page Two (NW-276) 

V.T.C.S. art. 6228a, SlO; Educ. Code 53.59(p). Cf. V.T.C.S. art. 6252-19 (Texas Tort 

Claims Act). You specifically ask about article6252-26, V.T.C.S. That statute does 

not deprive state agencies, their officers or employees of governmental immunity. It 

is designed to furnish a legal defense to officers and employees charged by third 

parties with negligence in the performance of official duty, and to furnish a measure 

of indemnity if the defense is unavailing. See Day and Jacobs, Sovereign Immunity, 31 

Baylor L. Rev. 389 (1979). 

- 

Every public officer is legally bound to faithfully perform the duties of his office 

and is liable to the state if he falls to do so, causing it injury. Brown v. Sneed, 14 S.W. 

248 (Tex. 1890). See 

S.W. 1197 (Tex. &iii. 

.W. 2d 499 (Tex. 1935); Bolton v. State, 154 

V.T.C.S. art. 6228a, SlO; Penal Code $39.01 

Educ. Code S3.06. But absent an aoolicable statute. a oubllc officer in Texas is not 

generally 

and scope 

owed the 

&q&l 

at 167-70: 

App. - A 

P. 2d 1227 

responsible to members of-the public for acts-performed within the course 

! of his public duties, or for failure to properly discharge discretionary duties 

public - at least where he does not act willfully or with malice. See 

v. Jones, 264 S.W. 2d 425 (Tex. 1954); Torres v. Owens, 380 S.W. 2d 30 (TX 

- Corpus Christi 1964, writ rePd n.r.e.1; 47 Tex. Jur. 2d Public Officers S130, 

Cf. Borger Independent School District v. Dickson, 52 S.W. 2d 505 (Tex. Civ. 

mslo 1932, writ ref’d); Grimm v. Arizona Board of Pardons and Paroles, 564 

(Ariz. 1977). 

Both retirement systems are established as corporate entities by constitutional 

sanction, and the standard of care to be exercised by the trustees of each in the 

investment of trust funds is set out by the constitution and statutes. Tex. Const. art. 

XVI, 967; V.T.C.S. art. 6228a, SS2, 7A; Educ. Code SS3.01, .60. Prior to the time a 

right vests in beneficiaries to have funds paid over, the monies managed by the 

respective trustees are public funds, not private funds. See City of Dallas v. 

Trammell, 101 S.W. 2d 1009 (Tex. 1937); Devon v. City of San Asnio, 443 S.W. 2d 598 

(Tex.m. App. - Waco 1969, writ rePd); Lack v. Lack, 584 S.W. 2d 896 (Tex. Civ. 

App. - Dallas 1979, writ rePd n.r.e.); Cook v. Employees Retirement System of Texas, 

514 S.W. 2d 329 (Tex. Civ. App. - Texarkana 1974, writ rePd n.r.e.). Cf. Conlen Grain 

and Mercantile, Inc. v. Texas Grain Sorghum Producers Board, 519 ST 2d 620 (Tex. 

1975). It follows that the failure of a trustee to faithfully perform his duty with 

respect thereto is actionable not at the instance of injured employees or beneficiaries, 

but at the instance of the state. See Tex. Const. art. IV, S25; V.T.C.S. art. 4400. 

- 

In many respects “errors and omissions” insurance coverage is similar to a 

faithful performance bond, but its purpose is not the same. Faithful performance 

bonds are contracts of fidelity insurance. Great American Indemnity Company v. 

w, 229 S.W. 2d 850 (Tex Civ. App. - Austin 1950, writ ref’d). See Tolbert v. 

Standard Accident Insurance Co., 223 S.W. 2d 617 (Tex. 1949); Southernirety Co. v. 

Austin. 17 S.W. 2d 774 (Tex. Comm’n ADD. 1929). Errors and omissions coveraze is a 

formof malpractice insurance designed tb’ protect an insured from the consequeices of 

negligence for which ha is himself liable. It &es not ordinarily cover dishonesty, 

p. 881 
Honorable Joseph N. Murphy, Jr. 

Honorable Bruce Hineman 

Page Three (MN-276) 

intentional fraud, or criminal or malicious acts. See St. Paul Insurance Co. v. Bonded 

Realt Inc., 578 S.W. 2d 191 (Tex. Civ. App. - El Paso), writ rerd n.r.e., 583 S.W. 2d 619 

iTZi?h Attorney General Opinion H-1042 (1977); 13 G. Couch, Cyclopedia of 

Insurance Law, S48:165, at 607 (2d ed. 1965). Faithful performance bonds, on the other 

hand, cover those acts as well as negligence and are designed to protect the person to 

whom the bcmd is given, not the officer or employee whose faithful performance is 

guaranteed. 

Any purchase of errors and omissions coverage for officers and employees would 

inure solely to the pecuniary benefit of the officers and employees thereby protected, 

not to the benefit of the retirement systems. The systems are already protected. 

Each system is specifically empowered to require performance bonds of trustees and 

employees,in such amounts as the respective boards &em necessary (and to pay the 

premiums for them). V.T.C.S. art. 6228a, Slh Educ. Code S3.61. See V.T.C.S. art. 

6003b. The purchase of errors and omissions coverage would serve-& direct public 

purpose. The Texas Constitution prohibits the expenditure of public funds for other 

than public purposes. Tex. Const. art. III, SS51, 52. However, when insurance is 

properly purchased for officers and employees as an element of their compensation, no 

other public purpcae need be shown. Attorney General Opinion H-1042 (1977). 

The purchase of errors and omissions coverage as additional compensation for 

officers lws been upheld where expressly authorized by law. Attorney General 

Opinions MW-156 (1980); H-1042 (1977). See Byrd v. City of Dallas, 6 S.W. 2d 738 (Tex. 

1928). Purchases of insurance as anTemerit of employee compensation can be 

impliedly authorized also. Attorney General Opinion M-989 (1971). In most cases there 

is no implied authority on the part of state agencies to provide additional insurance to 

officers and employees as an element of compensation because the amounts and types 

of compensation to be paid most state officers and employees are fixed by the biennial 

Appropriations Act. See V.T.C.S. arts. 6252-11 (Position Classification Act of 1960, 

681313 (salaries of stateofficers and employees), 6813~ (travel expenses and group 

insurance premiums). We have concluded, however, that the Employees Retirement 

System and the Teacher Retirement System are authorized to furnish such insurance to 

compensated offiears and employees as an element of their compensation if they 

choose to do so. See Attorney General Opinion M-949 (1971). 

- 

The current Appropriations Act makes provisions for contributions by the state 

to match contributions required of the members of each system, but it contains no 

provision for the administrative expenses of either system. Acts 1979, 66th Leg., ch. 

843, at 2627, 2770. As a consequence, the systems are not governed by articles 6813b, 

6813c, or 6252-11, V.T.C.S., or by the Appropriations Act in fixing compensation. 

Attorney General Opinion M-949 (1971). See Attorney General Opinion H-681 (1975). 

The amounts and types of compensation to- paid by the systems to their officers and 

employees are governed instead by the statutes generally governing the systems. 

p. 882 
Honorable Joseph N. Murphy, Jr. 

Honorable Bruce Hineman 

Page Four (MN-276) 

The trustees of both systems are expressly authorized by their statutes to 

approve the compensation of persons employed by the systems so long as the rates and 

amounts approved are not greater than those paid for similar services performed for 

the state. V.T.C.S. art. 6228a, S6A(b)7; Educ. Code S3.590’). Although the total 

compensation they may pay an officer or employee is thus limited, the forms in which 

compensation may be paid are not. Cf. Attorney General Opinion MW-136 (1980). In 

our opinion, the trustees of the Teacher Retirement System and the Employees 

Retirement System, if they choose, may purchase errors and omissions insurance to 

protect compensated officers and employees as a part of the officers’ or employees’ 

total compensation. We note, however, that trustees of the Teacher Retirement 

System and some trustees of the Employee Retirement System are required by statute 

to serve without compensation. Educ. Code S3.59(f); V.T.C.S. art. 6228a, S6A(b)3. See 

Attorney General Opinion H-958 (1977). 

- 

SUMMARY 

Aside from requirements that they correct any errors in 

their records and adjust future payments accordingly, the 

Teacher Retirement System and the Employees Retirement 

System have no civil liability under current law for the 

negligent management of trust assets or benefit programs. 

They are agencies of the state. The systems may nevertheless 

require faithful performance bonds of officers and employees 

(and pay the premiums), but they may provide errors and 

omissions insurance to officers and employees cmly as an 

element of compensation. 

bw-dbw-dg 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Bruce Youngblood 

Assistant Attorney General 

p. 883 
, . 

Honorable Joseph N. Murphy, Jr. 

Honorable Bruce Hineman 

Page Five W-2761 

APPROVED: 

OPINION COMMlTTEE 

Susan L. Garrison, Acting Chairman 

Jon Bible 

Ride Gilpin 

Nancy Lynch 

Bruce Youngblood 

p. 884