Oregon Advisory Opinions June 27, 1978: OAG 78-86 (June 27, 1978)

OAG 78-86.

The State of Oregon became "self-insured" as of October 1, 1975, in an effort to counter dramatic increases in tort liability insurance premium costs, and because of unwillingness on the part of private insurance companies to provide liability coverage for the state. ORS 278.100; 37 Op Atty Gen 911, 921 (1975). For the same reasons, the legislature more recently provided that

local governments could also self-insure or contract with the state(fn1) or with private companies for liability insurance. ORS 30.282 (1977 Oregon Laws, ch 428); Minutes, Senate Local Government and Election Subcommittee, April 4, Exhibit 2, p. 2. Further, the local bodies may combine those methods of insurance. ORS 30.282. Specifically, ORS 30.282(3) provides in relevant part:

"(3) As an alternative or in addition to establishment of a self-insurance fund or purchase of insurance or both, the governing body of any local public body and the Department of General Services may contract for payment by the public body to the department of assessments determined by the department to be sufficient, on an actuarially sound basis, to cover the potential liability of the public body and its officers, employes or agents acting within the scope of their employment or duties under ORS 30.260 to 30.300. . . ."

Our review of ORS 30.282, its legislative history, and the context within which it was proposed and enacted leads us to conclude that the state and the contracting local governments can and should establish express limits upon the amounts of local liability which the state fund will cover. In particular, we conclude that regardless of the validity of the statutory limits upon governmental liability contained in ORS 30.270, the state is free to contractually limit the amount of local government

tort liability coverage it will provide pursuant to such contract.(fn2)

Indeed, the statutory authorization in ORS 30.282(3) for local public bodies to contract with the Department of General Services is limited to coverage of their "potential liability . . . under ORS 30.260 to 30.300. . ." ORS 30.270 is an integral part of that series of statutes, and if liability nevertheless exists beyond the limitations created by ORS 30.270, this potential additional liability is not liability "under ORS 30.260 to 30.300" but additional liability beyond the authorization for contractual coverage contained in ORS 30.282(3).

Initially, we note that the only obligations of the state to provide coverage for local government tort liability are those created contractually pursuant to ORS 30.282(3). There is no requirement that the tort liability coverage contracts themselves provide for complete indemnification of local bodies by the state. ORS 30.282(3) was not intended to be a panacea for all local government problems in obtaining liability coverage. The statute merely provides options to local bodies by which they may more effectively plan and implement their liability insurance

coverage programs.(fn3) Thus, in addition to participating in the State Liability Fund, the local bodies may also procure liability insurance from private carriers or establish their own self-insurance funds. ORS 30.282(1).

The proposal in SB 479 and the opposition thereto are important in this regard. SB 479 would have prohibited local public bodies from purchasing insurance coverage in excess of the statutory limits set out in ORS 30.270(1). Cities and counties generally opposed the bill, and witnesses from local governments testifying in opposition to the proposal argued that, if SB 479 were enacted, the state should be required to act as the principal underwriter of any excess liability accruing to local public bodies. Minutes, Senate Local Government and Elections Subcommittee, March 11, 1977, Tape 10, Side 1. The bill was eventually tabled. Minutes, Senate Local Government and Elections Subcommittee, May 4, 1977. The inference from the above-stated argument is that, absent an express provision, the local governments assumed (correctly, we believe) that the state would not be liable for tort claims against them. The further inference is that the legislature did not want to create a situation whereby the state would be required to absorb such

excess local government liability.

Moreover, the liability limits contained in the Oregon Tort Claims Act (ORS 30.270(1)) were significant in the legislature's decision to provide for liablity coverage sources other than private insurers. Private insurance carriers would not take into account those liability limits when they established premiums. Minutes, Senate Local Government and Elections Subcommittee, April 4, 1977, Tape 14, Side 2. The major purpose in providing for self-insurance was to lower the costs of providing coverage by recognizing such limits.(fn4) Thus, it was assumed that the liability limits contained in ORS 30.270 would provide upper limits to potential local government liability which the state, pursuant to coverage contracts, could be required to pay. And, it is our understanding that premiums assessed against the local bodies for liability coverage are established in view of such upper limits. If the State Liability Fund were required to indemnify local bodies in excess of the limits set out in ORS 30.270, then a basic purpose underlying the provision for the intergovernmental insurance agreements would be defeated.

For the foregoing reasons, our conclusion is that the limits of State Liability Fund coverage for local government tort liabilities, and the assessments therefor, are matters of contract

to be determined by the Department of General Services and the respective contracting local bodies. There is no requirement that the coverage be limitless, or that the state insure local bodies for liabilities which exceed the amounts specified in the Oregon Tort Claims Act. Rather, it appears that the legislature intended that the state fund coverage amounts be restricted to such limits.

Thus, where liability coverage contracts between the state and local governmental bodies limit the state's coverage to limits set out in the Tort Claims Act, we interpret such provisions to incorporate specific dollar amounts by reference. Such contractually specified amounts would remain in force regardless of a future finding that the present statutory limits upon overall governmental liability are invalid or otherwise unenforceable.

Local public bodies contracting under ORS 30.282(3) should accordingly consider whether additional liability coverage should be obtained from other sources, to be assured of having sufficient coverage if they incur tort liability exceeding the contractual limits.