City, state AG differ on insurance

The Lebanon City Council split 4-2 on which liability insurance company it would use recently, and now an opinion has it in disagreement with the state attorney general on whether the purchase was handled correctly.
Oct 7, 2013

The Lebanon City Council split 4-2 on which liability insurance company it would use recently, and now an opinion has it in disagreement with the state attorney general on whether the purchase was handled correctly.

On July 30, the council voted to end its longstanding relationship with Tennessee Municipal League Risk Management Pool and go with Lebanon-based THW Insurance Services, which is Travelers insurance.

Before the vote, Councilor Rob Cesternino said he hoped whichever the council chose to go with, that carrier would be more visible.

“Whatever representative we have they need to represent that product and be our de facto risk manager,” Cesternino said.

Councilor Tick Bryan said at the time he couldn’t vote for the Travelers insurance proposal because he believed the whole insurance proposal situation was done wrong from the beginning.

“This should have been done six months ago, and we shouldn’t be sitting here now in the position we’re in,” Bryan said. “I just don’t appreciate the whole way this was done.”

Since the decision, Mayor Philip Craighead said it has paid off to go with Travelers. He said a fire that destroyed a supply building at Don Fox Park about a month ago was a good example. The fire started when a worker left coals cleaned from a grill at the park in a bucket and the bucket inadvertently left in the building.

“They have done everything they promised and more,” Craighead said. “After the fire, they waived a $10,000 deductible on the building.”

But a recent opinion released by Attorney General Robert Cooper indicates the council didn’t follow the state bid law in its decision to go with Travelers.

“Under these statutes, a local governmental entity in Tennessee may only purchase liability insurance without the necessity of any legally required public bidding if the liability insurance is purchased through a plan authorized and approved by any organization or governmental entities representing cities and counties,” Cooper said in his opinion released Aug. 23.

According to the opinion, since TML is represented by governmental entities, a decision by the council to renew its contract with TML would have been acceptable under state bid law. But since Travelers is a private company, the opinion said the council should have sought bids.

The opinion was requested by state Sen. Jim Tracy, R-Nashville, who could not recall who asked him to request it, according to Stephanie Jernigan, Tracy’s research analyst.

But city attorney Andy Wright said a TML attorney requested the opinion during conversations about the insurance decision at the time. Wright said even though he agreed with seeking the opinion, he disagrees with the opinion itself.

Wright said the difference of opinion is based on the definition of liability insurance. Cooper lists previous cases regarding products while Wright has another set of precedents regarding services.

“It all boils down to whether insurance is viewed as a product or a service,” Wright said. “I believe it’s a service because that’s what insurance companies provide. I don’t think what they do could be characterized as a product.”

Wright agrees a product would fall under the state bid law, where services wouldn’t.

Wright said TML attorneys don’t plan to challenge the council’s decision in court.

“The council can decide to do whatever it wants because it controls the purse strings,” Wright said.

Otherwise, Wright said he plans to re-approach the issue in April when work begins again on the city’s budget and liability insurance is up for renewal again. 

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