DAN MORALES 

Al-rORNRGENERAL ‘ 

QBffice of the !Zlttornep @enerat 

&tate of Qexae 

December 18.1991 

Honorable Joe Lucas 

El Paso County Attorney 

Room 201, City-County Building 

El Paso, Texas 79901 

Opinion No. DM-70 

Re: Whether Local Government Code 

section 282.024 in itself exempts 

municipal purchases of excess or 

surplus insurance. from competitive 

bidding, and related questions 

@Q-127) 

Dear Mr. Lucas: 

Your questions relate to the provisions of a 1985 amendment to the statutes 

governing purchases by municipalities. Those provisions, now codified as section 

252.824 of the Local Government Code. state: 

This chapter does not prevent a municipality from selecting 

a licensed insurance broker1 as the sole broker of record to 

obtain proposals and coverages for excess or surplus insurance 

that provides necessary coverage and adequate limits of 

coverage in structuring layered excess coverages in all areas of 

risk requiring special consideration, including public official 

liability, police professional liability, and airport liability.2 The 

broker may be retained only on a fee basis and may not receive 

1We note at the outset that we tind nothing in Texas law specifically providiq for kensure as 

an “insuraoce broker.” See Ins. Code arts. 21.07 (licensing of iesurancc “agents’), 21.14 (licensing of 

-local r-ding agents” and “solicitors”). You do not spcdscaliy ask about the. effect, if any, of this 

appareot aoomdy in section 252.024, and we do not address it here. 

Z”AnI-‘polieyironcthatprovidestbattheiPrurcrirliablconlyforthcucessaboveand 

beyond that which may be colkctcd on other insurance. BmwnsviUe Fabdcs, Inc. v. Guy Ins. Gx, 550 

S.WJd 332,337 (Tex. Cii. App.--Corpus Christi 1977, tit reed n.r.e.). 

p. 350 
Honorable Joe Lucas - Page 2 (DM-70) 

any other remuneration from any other source. (Footnotes 

added.) 

Chapter 252 of the Local Government Code, the chapter to which section 252.024 

refers, generally requires that municipal contracts requiring expenditures in excess 

of stated amounts be let pursuant to the competitive bidding procedures provided 

for in the chapter. Ia! Q 252.021. 

You state: 

The Director of Risk Management for the City of El Paso is of 

the opinion that the concept of “layered excess coverages” in 

Section 252.024 is broad enough to allow the City to obtain 

proposals through a licensed broker (in lieu of the bid process) 

for all insurance coverages in excess of a given retention amount 

or in excess of a large deductible. 

You ask specifically in this regard: “What are the retention and deductible amounts 

the coverage must be in excess of?” You conclude in the brief submitted with your 

request that section 252.024 “exempts municipalities from competitively bidding any 

insurance that exceeds the stated retention or deductible amounts in an insurance 

policy.” We disagree. 

Concededly, the language of section 252.024 is susceptible of various possible 

constructions. Parsing that language to read that nothing in chapter 252 prevents a 

municipality from selecting a broker “to obtain. . . coverages for excess or surplus 

insurance” arguably supports the interpretation of the provisions offered by the city’s 

director of risk management. In our opinion, however, section 252.024 should be 

construed more narrowly. Actual purchases of such insurance continue to be subject 

to the applicable notice and bidding procedures provided for in chapter 252. See id. 

8s 252.021, 252.041, 252.043; see alro Attorney General Opinion MW-494 (1982) 

(construing similar predecessor language in county purchasing statute to subject 

insurance purchases to competitive bidding). While other provisions of chapter 252 

may permit such purchases to be made without competitive bidding in particular 

cases, see, e.g., id. 5s 252.021 (establishing the threshold purchase amounts for 

purposes of competitive bidding requirements), 252.002(7) (sole-source exemption), 

we do not believe section 252.024 itself operates to exempt such purchases from 

competitive bidding. 

P. 351 
Honorable Joe Lucas - Page 3 (DM-70) 

Exceptions, particularly when they are added by amendment, are generally to 

be narrowly construed. See, e.g., City of Corpus Christi v. L. C. McClaugheq, 284 

S.W.2d 927, 928-29 (Tex. Civ. App.--San Antonio 1955, writ refd).’ Also, there is a 

strong public policy favoring the competitive bidding of public purchases that makes 

us additionally cautious in construing exceptions to the requirements. The purpose 

of the requirements “is to stimulate competition, prevent favoritism and secure the 

best work and materials at the lowest practicable price, for the best interests and 

benefit of the taxpayers and property owners.” Sterett v. Bell, 240 S.W.2d 516, 520 

(Tex. Civ. App.--Dallas 1951, no writ) (quoted in Texas Highwq Comm’n v. Texas 

Ass’n of Steel Importers, 372 S.W.2d 525,527 (Tex. 1963)). 

The provisions of section 252.024 were first adopted in 1985 as part of a bill 

that substantially rewrote former article 2368a, V.T.C.S., and other statutes 

governing city and county purchasing. Acts 1985, 69th Leg., ch. 505, at 2090. In 

1987, article 2368a was codified, without substantive change, in chapter 252 of the 

Local Government Code. Acts 1987, 70th Leg., ch. 149, at 707. The language of 

former article 2368a, providing for municipal competitive bidding requirements and 

exceptions thereto, is worth noting: 

The term “exempted procurements” shall include any of the 

following: 

(1) procurements made in case of public calamity . . . ; 

. . . . 

(6) the purchase of land or right-of-way. 

Acts 1985, 69th Leg., ch. 505, 5 1, at 2090. The list of exempted procurements did 

not include any specific references to insurance purchases. 

Except in the case of exempted procurements, no city [with a 

stated population] shah make a contract requiring an 

expenditure or payment [in stated amounts]. . . without first 

3The contrary rule, calling for liberal construction of exceptions intended to remedy individual 

hardships, would not, we think, apply in interpreting section 252.024. See Caddy v. First Nat’1 Bank, 283 

SW. 277,280 (Tex. Civ. App.--Beaumont 1923, no wit). 

p. 352 
Honorable Joe Lucas - Page 4 (DM-70) 

submitting such proposed contract to competitive sealed bidding 

or competitive sealed proposals.4 

Id 5 2, at 2091. 

If the legislature had intended generally to exempt excess or surplus 

insurance purchases from the competitive bidding requirements now codified in 

chapter 252, we think it would have specifically listed such kinds of purchases among 

the “exempted procurements” provided for at the time the provisions now codified in 

section 252.024 were adopted. No substantive change was intended when the abovereferenced provisions of former article 2368a were codified as part of Local 

Government Code chapter 252. Local Gov’t Code 8 1.001; see id. !jQ 252.021 

(“municipality must comply with the procedure prescribed by this chapter for 

competitive sealed bidding or competitive sealed proposals”), 252.022 (“chapter does 

not apply to an expenditure for” listed items, which were set out as “exempted 

procurements” in former article 2368a). 

We note, too, that your question -- what retention or deductible amounts the 

coverage must be in excess of in order for the purchase of that coverage to be 

exempt from the competitive bidding requirements -- in itself reveals a major 

difficulty in construing section 252.024 as itself exempting municipal purchases of 

surplus or excess insurance from the competitive bidding requirements. The section 

provides no guidelines as to what basic coverage amounts a municipality would have 

to obtain in order to qualify for the exemption for surplus or excess coverage. Your 

brief suggests that section 252.024 “exempts municipalities from competitively 

bidding any insurance that exceeds the stated retention or deductible amounts in an 

insurancepolicy.” (Emphasis ours.) If this were the case, municipalities could avoid 

competitive bidding for virtually all insurance purchases by purchasing minimal 

basic coverage or self-insuring in only token amounts and characterizing all 

additional coverages as “excess or surplus” coverages. We do not believe the 

legislature intended this result. 

The kinds of risks to be insured against that are within the scope of section 

252.024 are those kinds requiring “special consideration,” where “layered excess 

4A municipality may use the competitive sealed proposal procedure only for “high technology 

procurements.” See now Local Gov’t Code $8 252.021, 252.042. Compare id 8 262.030 (permitting 

counties to use the alternative competitive sealed proposal procedure for both high technology items 

and insurance). 

p. 353 
Honorable Joe Lucas - Page 5 (DM-70) 

coverages” might be the most suitable method of insuring against them. We think 

the provisions of section 252.024 address the concern that municipalities might have 

lacked sufficient flexibility under traditional competitive bidding parameters in 

obtaining these sorts of insurance. Case law construing the traditional competitive 

bidding requirements indicates that contact with potential providers outside the 

statutory notice and bidding process might run afoul of those requirements. See 

Sterrett v. Bell, supra, at 520 (“competitive bidding. . . requires that all bidders be 

placed upon the same plane of equality”). In “structuring” the coverages in question, 

however, such contacts with potential providers may be necessary in order to find 

out what might be available in the market, so as to be able to properly formulate bid 

specifications, and in order to locate and alert potential bidders outside the 

circulation range of the medium of notice, ie. “a newspaper published in the 

municipality.“s See Local Gov’t Code 0 252.041 (notice provisions). 

Again, we construe section 252.024 narrowly. Section 252.024 permits municipalities, notwithstanding the traditional competitive bidding requirements in 

chapter 252, to engage a “sole broker of record” to determine what sorts of excess or 

surplus coverages suitable to the municipality’s needs are available and to solicit 

proposals regarding such kinds of coverage. Prior to the enactment of this 

provision, under the law of competitive bidding as developed by the courts, such 

activities may have been restricted. 6 Section 252.024 does not supplant, but rather 

supplements, the traditional competitive bidding provisions of chapter 252. Actual 

purchases of insurance remain subject to the applicable notice and bidding 

requirements of the chapter. The resolution of such questions as what precise kinds 

of surplus and excess coverage are embraced by those provisions, and what 

particular kinds of activities a “sole broker of record” would be authorized to pursue, 

would depend in part on the facts of the particular case. 

You also ask for a “clarification of what ‘selection of an insurance broker’ 

means” in section 252.024. In your brief, you conclude that under section 252.022, 

“the City may ‘select’ . . . an insurance broker without going through the competitive 

bidding process.” However, for reasons similar to those we have given above, we do 

5We understand that a frequently encountered problem in this area has been that no bids are 

received in response to local governments’ notices. 

6The last sentence of section 252.024 provides that the “broker may be retained only on a fee 

basis and may not receive any other remuneration from any other source.* The legislature apparently 

added this provision to offset the anti-competitive potential in the broker’s contacts with providers. 

p. 354 
Honorable Joe Lucas - Page 6 (DM-70) 

not believe that section 252.024 in itself exempts the selection of such broker from 

competitive bidding. The exception created by section 252.024 must be construed 

narrowly. See discussion, supm,. at 3. Had the legislature intended generally to 

exempt such selection of a “sole broker of record,” it would have done so 

specifically. 

Please note, however, that we do not mean to imply that “selection” of an 

insurance broker under section 252.024 could not, depending on the facts of the 

particular case, fall within other exemptions from competitive bidding requirements. 

For example, the exemption provided for in section 252.022 for “personal or 

professional services” may be applicable in some circumstances. See generally 

Attorney General Opinions JM-1136 (1990) (whether services fall within personal 

or professional services exemption from competitive bidding involves fact 

questions); JM-1038 (1989) (nature of particular services determine whether the 

services of a third party administrator are “professional”); MW-494 (1982) 

(specifically not addressing whether employment of an “insurance consultant” would 

be within the exception for personal or professional services). We conclude here 

only that section 252.024 does not in itself create such an exemption. 

SUMMARY 

Section 252.024 of the Local Government Code does not in 

itself exempt municipal purchases of “excess” or “surplus” 

insurance from the requirement that such purchases be made 

through competitive bidding. Nor does that section in itself 

exempt a municipality’s selection of a “sole broker of record” 

from competitive bidding requirements. 

DAN MORALES 

Attorney General of Texas 

P. 355 
Honorable Joe Lucas - Page 7 (DM-70) 

WILL PRYOR 

First Assistant Attorney General 

MARY KELLER 

Deputy Assistant Attorney General 

JUDGE ZOLLIE STEAKLBY (Ret.) 

Special Assistant Attorney General 

RENEA HICKS 

Special Assistant Attorney General 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by William Walker 

Assistant Attorney General 

p. 356