Opinion ID: 1909098
Heading Depth: 1
Heading Rank: 3

Heading: Use of District Management Levy Fund For Fleet Services Program Management Fees.

Text: A. Relevant Statutes. As previously noted, a school district that establishes a district management levy fund under section 298.4 may use monies from this fund only for specified purposes. One such purpose is the costs of insurance agreements under section 296.7. Id. § 298.4(3). Section 296.7 provides in pertinent part: 1. A school district . . . may . . . enter into insurance agreements obligating the school district . . . to make payments beyond its current budget year for one or more of the following mechanisms to protect the school district . . . from tort liability, loss of property, environmental hazards, or any other risk associated with the operation of the school district or corporation: a. To procure or provide for a policy of insurance. b. To provide a self-insurance program. c. To establish and maintain a local government risk pool. Id. § 296.7(1). B. Parties' Contentions. The department interpreted the term insurance agreements in a traditional sense, holding an agreement must at least transfer the risk of loss from one party to another to fall within the statute. The association criticizes this interpretation, arguing section 296.7 allows a school district to use the district management levy fund for any mechanism that protects the district from any risk associated with the operation of the school district. It argues the legislature's authorization of self-insurance programs and local government risk pools indicates section 296.7 is not limited to only traditional insurance agreements or insurance policies. The department rejects the association's broad interpretation of the statute for several reasons. First, it asserts, the plain language of section 296.7 limits the included mechanisms to insurance agreements in the form of a policy of insurance, a self-insurance program, or a local government risk pool, none of which encompasses the fleet services program agreement. Second, it contends if the fund could be used for any expenditure that protects the district against any risk, there would be no limit to what expenses could be transferred out of the general budget and into the district management levy fund: The purchase of a sprinkler system or rental of an off-site computer data back-up site reduces the risk of disruption to the delivery of educational programs which could result from fire or a computer system crash. Similarly, inoculation of teachers with flu shots or hepatitis vaccine offers protection against teacher illness and protects against the potential cost and disruption to the operation of a school caused by teacher absences and the hiring of substitutes. Finally, the department points out the limitations on taxing and spending authority contained in the basic school finance formula, see id. §§ 257.1-.4, would be readily circumvented under the association's interpretation, thereby thwarting the legislative goal in controlling school spending: to equalize the amount of funds available to finance the education of every child in the state regardless of where the child lives. Exira Cmty. Sch. Dist. v. State, 512 N.W.2d 787, 793 (Iowa 1994). C. Discussion. We focus our discussion on the core requirement of section 296.7 that regardless of what mechanism a district chooses to employ (a policy of insurance, a self-insurance program, or a local government risk pool), that mechanism must be an insurance agreement that protect[s] the school district . . . from tort liability, loss of property, environmental hazards, or any other risk associated with the operation of the school district. Iowa Code § 296.7(1). The department suggests this language restricts covered mechanisms to those that accomplish the traditional purpose of insurance: protection against the risk of loss. The association interprets the phrase any risk associated with its operation literally and broadly to mean any risk, not necessarily a risk of loss. Based on our study of the statute and relevant authorities, we are convinced the department's interpretation of section 296.7(1) is not irrational, illogical or wholly unjustifiable. The goal of statutory interpretation is to ascertain legislative intent, and that intent is determined by the words chosen by the legislature. Auen, 679 N.W.2d at 590. Consequently, to determine whether the contract between IJUMP and the districts is an insurance agreement that protects the school district from a risk associated with the operation of the school district, we must identify what the legislature meant by insurance and risk. Because these terms are not defined in the statute, we look to prior decisions of this court and others, similar statutes, dictionary definitions, and common usage. Gardin v. Long Beach Mortgage Co., 661 N.W.2d 193, 197 (Iowa 2003). In addition, we consider the context of the provision[s] at issue and interpret the provision[s] consistent with the entire statute of which [they are] a part. State v. Kamber, 737 N.W.2d 297, 299 (Iowa 2007). We begin with the common meaning of the word risk. Black's Law Dictionary defines risk as [t]he chance of injury, damage, or loss; danger or hazard. . . . Black's Law Dictionary 1328 (7th ed.1999). The general dictionary definition is similar: possibility of loss or injury. Merriam-Webster's Collegiate Dictionary 1008 (10th ed.2002). Significantly, the common meaning of this term is consistent with its usage in the context of insurance. A leading treatise on insurance law suggests that the primary attribute of insurance is the assumption of a risk of loss and the undertaking to indemnify the insured against such loss.  1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 1:9, at 1-16 (1995) (emphasis added); accord 1 Eric M. Holmes & Mark S. Rhodes, Holmes's Appleman on Insurance 2d § 1.3, at 16 (1996) (noting common-law definition of insurance describes insurer's obligation to pay `upon the destruction, loss or injury of something in which the [insured] has an interest' (emphasis added) (quoting Mass. Gen. Laws ch. 175, § 2 (1935)) [hereinafter  Appleman on Insurance 2d]; 43 Am.Jur.2d Insurance § 2, at 49 (2003) (Insurance, therefore, is a means of distributing the risks of loss.  (Emphasis added.)). Another notable treatise in this field states: In the insurance contract, the risk of an actual loss is distributed (socialized) among a large group of persons exposed to a comparable risk of loss.  1 Appleman on Insurance 2d § 1.3, at 11 (emphasis added). Loss means destruction, a person or thing or an amount that is lost, or the amount of an insured's financial detriment by death or damage that the insurer becomes liable for. Merriam-Webster's Collegiate Dictionary 687. Finally, we note the other contingencies against which the school district may protect itself by using an insurance agreementtort liability, loss of property and environmental hazardsall contain an element of injury, loss or damage. Based on these considerations, we think it is rational, logical and wholly justifiable to interpret section 296.7(1) as permitting only insurance agreements that pay for mechanisms protecting the school district against a risk of loss. The participant agreement for the fleet services program does not protect the district against a risk of loss. As the department concluded, the fleet services program is a budget-billing plan that allows the district to defer payment of fuel costs in excess of the guaranteed price to the next fiscal year. Under the program, there is no loss incurred by the district, and the district remains liable for the full cost of its fuel purchases. The fleet services program does not provide loss protection. The association argues the possibility of high fuel costs is not the only risk insured by the fleet services program: School districts fund their fuel expenditures from their general fund. Therefore, unanticipated increases in fuel expenditures during the fiscal year may at times force school districts to reduce educational programs or services for the students. IJUMP is intended to protect school districts from this risk of disruption in the delivery of educational programs and services. Although avoidance of a disruption in the delivery of educational programs and services may be the goal of districts participating in IJUMP's fleet services program, there is no provision in the contract between IJUMP and the districts that even remotely addresses the coverage of losses caused by a realization of the risk of such a disruption. The department's refusal to interpret section 296.7(1) as authorizing expenditures from the district management levy fund for any mechanism that assists a district in merely avoiding a loss was not irrational, illogical, or wholly unjustifiable. Not only is the department's interpretation dictated by the language of the statute, such a dramatic expansion of a district's ability to transfer expenses out of its general formula funding would undermine the limitations on spending imposed by the school finance formula. We also reject the association's argument that the legislature intended to give districts wide latitude in spending the district management levy funds because section 296.7(1) authorizes the use of non-insurance mechanismsself-insurance plans and local government risk pools. See Iowa Code § 296.7(5) (stating a self-insurance program and a local government risk pool are not insurance and not subject to regulation under Iowa's insurance laws). Section 298.4(3) only authorizes expenditures for  insurance agreements authorized by section 296.7, and section 296.7 only authorizes school districts to enter into specifically described  insurance agreements. (Emphasis added.) We think the legislature's use of the term  insurance agreements in both statutes demonstrates its intent that the self-insurance programs and risk pools permitted by section 296.7(1) be alternatives to traditional insurance and not arrangements with a wholly different purpose. A review of pertinent authorities reveals that self-insurance and risk pools, while not insurance, are recognized alternatives to insurance that are designed to accomplish the same purpose as the purchase of an insurance policy: protection against risks of loss. As one treatise explains: In self-insurance the company, governmental entity or individual chooses not to purchase insurance but rather retains the risk of loss. In order to protect against losses, the self-insured will often set aside funds on a regular basis to provide its own pool from which losses will be paid. This can be analogized to the situation where a party purchasing traditional insurance pays premiums to the insurer on a regular basis. However, in a self-insurance situation there is no shifting of the risk from the individual person or company to a larger group. 1 Appleman on Insurance 2d § 1.3, at 10 (emphasis added); accord St. John's Reg'l Health Ctr. v. Am. Cas. Co., 980 F.2d 1222, 1225 (8th Cir.1992) (stating in a self-insurance program, the risk of loss  is retained by the person who bears the risk (emphasis added)); State v. Continental Cas. Co., 126 Idaho 178, 879 P.2d 1111, 1116 (1994) (Self-insurance occurs when an entity, rather than purchasing insurance to cover potential losses, elects to pay off its losses as they arise, or to set aside fixed sums into a reserve account to pay off intermittent losses. (Emphasis added.)); Cordova v. Wolfel, 120 N.M. 557, 903 P.2d 1390, 1392 (1995) (stating self-insurance is a process of risk retention whereby an entity `set[s] aside assets to meet foreseeable future losses ' (emphasis added) (quoting Robert E. Keeton & Alan I. Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Doctrines and Commercial Practices § 1.3, at 14 (1988))); Physicians Ins. Co. v. Grandview Hosp. & Med. Ctr., 44 Ohio App.3d 157, 542 N.E.2d 706, 707 (1988) (Self-insurance is the retention of the risk of loss by the one upon whom it is directly imposed by law or contract. (Emphasis added.)); Black's Law Dictionary 807 (defining self-insurance as [a] plan under which a business sets aside money to cover any loss  (emphasis added)). Thus, self-insurance, like an insurance policy, contemplates protection against a risk of loss. Local government risk pools commonly have the same purpose. In City of West Branch v. Miller, 546 N.W.2d 598 (Iowa 1996), this court discussed a risk pool that had been formed by county governments. The pool self-funded certain risks and purchased private insurance for other risks. City of West Branch, 546 N.W.2d at 599. We observed that with respect to the self-funded coverages in the risk pool, the pool pays the claims from the pool of money collected from pool members. In effect, pool members share and pay the claims. Id. at 603; accord Dobrowolska ex rel. Dobrowolska v. Wall, 138 N.C.App. 1, 530 S.E.2d 590, 595 (2000) (holding that in order to constitute a risk pool, the risks of two or more municipalities must be put in one pool for payment of all claims of all entities). Thus, the purpose of risk pooling is to spread the risk of loss. Consequently, local government risk pools are simply another way for districts to protect against a risk of loss in lieu of purchasing a policy of insurance. We conclude the inclusion of self-insurance and risk pools in section 296.7(1) does not indicate a legislative intent to broaden permissible expenditures from the district management levy fund beyond those associated with protecting against risks of loss traditionally covered by insurance policies. Given the commonly understood meaning of risk in relation to insurance, self-insurance, and risk pooling, the department was not irrational, illogical, or wholly unjustified in refusing to expand the definition of risk to include an arrangement that does not involve an actual loss.