B-141922, MAY 27, 1960, 39 COMP. GEN. 793

B-141922: May 27, 1960

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POSTAL MATTERS - PUBLIC LIABILITY INSURANCE - STAR/ROUTE CONTRACTS THE INCLUSION OF A PUBLIC LIABILITY INSURANCE REQUIREMENT IN STAR/ROUTE CONTRACTS IS A MATTER WITHIN THE DISCRETION OF THE POSTMASTER GENERAL. IF IT IS ADMINISTRATIVELY DETERMINED THAT A PUBLIC LIABILITY INSURANCE REQUIREMENT TO COVER THE RISKS OF THE CONTRACTORS IS NECESSARY TO THE PERFORMANCE OF STAR/ROUTE CONTRACTS NO LEGAL OBJECTION WILL BE MADE. A SYSTEM OF SELF-INSURANCE INSTEAD OF COMMERCIAL INSURANCE TO ENABLE STAR/ROUTE CONTRACTORS TO COMPLY WITH THE PUBLIC LIABILITY INSURANCE REQUIREMENT IN THEIR CONTRACTS IS A MATTER WITHIN THE ADMINISTRATIVE DISCRETION OF THE POSTMASTER GENERAL. WHICH WAS ENACTED TO AFFORD STAR/ROUTE CONTRACTORS THE BENEFITS OF CONTRACT RENEWAL AND COMPENSATION ADJUSTMENT.

B-141922, MAY 27, 1960, 39 COMP. GEN. 793

POSTAL MATTERS - PUBLIC LIABILITY INSURANCE - STAR/ROUTE CONTRACTS THE INCLUSION OF A PUBLIC LIABILITY INSURANCE REQUIREMENT IN STAR/ROUTE CONTRACTS IS A MATTER WITHIN THE DISCRETION OF THE POSTMASTER GENERAL, AND IF IT IS ADMINISTRATIVELY DETERMINED THAT A PUBLIC LIABILITY INSURANCE REQUIREMENT TO COVER THE RISKS OF THE CONTRACTORS IS NECESSARY TO THE PERFORMANCE OF STAR/ROUTE CONTRACTS NO LEGAL OBJECTION WILL BE MADE, EVEN THOUGH THE COST OF THE INSURANCE MIGHT BE REFLECTED IN THE CONTRACT PRICES. A SYSTEM OF SELF-INSURANCE INSTEAD OF COMMERCIAL INSURANCE TO ENABLE STAR/ROUTE CONTRACTORS TO COMPLY WITH THE PUBLIC LIABILITY INSURANCE REQUIREMENT IN THEIR CONTRACTS IS A MATTER WITHIN THE ADMINISTRATIVE DISCRETION OF THE POSTMASTER GENERAL. TO MAKE PUBLIC LIABILITY INSURANCE COVERAGE FOR STAR/ROUTE CONTRACTORS A CONDITION PRECEDENT TO RENEWAL OF THE CONTRACTS AND TO MAKE A PRICE ADJUSTMENT TO THE CONTRACTORS WHO COMPLY WITH THE INSURANCE REQUIREMENT PRIOR TO RENEWAL WOULD BE PROPER IN VIEW OF THE ACT OF AUGUST 2, 1946, 39 U.S.C. 434, WHICH WAS ENACTED TO AFFORD STAR/ROUTE CONTRACTORS THE BENEFITS OF CONTRACT RENEWAL AND COMPENSATION ADJUSTMENT; HOWEVER, IT IS SUGGESTED THAT THE AMOUNT OF THE INSURANCE, EXCEPT FOR MINIMUM AMOUNTS, SHOULD NOT BE ADMINISTRATIVELY PRESCRIBED AND THAT AN EXPRESS DISCLAIMER OF GOVERNMENT LIABILITY PROVISION BE INCLUDED IN THE INSURANCE REQUIREMENT.

TO THE POSTMASTER GENERAL, MAY 27, 1960:

YOUR LETTER OF FEBRUARY 4, 1960, REQUESTS OUR DECISION ON SEVERAL PROBLEMS DISCUSSED THEREIN, ARISING IN CONJUNCTION WITH THE CONSIDERATION BY THE POST OFFICE DEPARTMENT OF WHETHER STAR ROUTE CONTRACTS SHOULD REQUIRE THE CONTRACTORS TO CARRY PUBLIC LIABILITY INSURANCE IN STATED AMOUNTS.

AS OF JULY 1, 1959, THERE WERE 10,869 CONTRACT ROUTES IN THE STAR ROUTE SERVICE OF THE POST OFFICE DEPARTMENT, INVOLVING AN ANNUAL EXPENDITURE OF OVER $64 MILLION. STAR ROUTE CONTRACTS DO NOT PRESENTLY CONTAIN A PUBLIC LIABILITY INSURANCE REQUIREMENT. SUCH INSURANCE, EXCEPT FOR APPLICABLE STATE LAW, IS WITHIN THE DISCRETION OF THE INDIVIDUAL CONTRACTORS. IN THE ABSENCE OF INSURANCE, OR BEYOND THE INSURANCE CARRIED, THE CONTRACTOR IS IN EFFECT A SELF-INSURER.

THE CONTEMPLATED ADMINISTRATIVE ACTION GIVES RISE TO THE QUESTION OF THE AUTHORITY OF THE POST OFFICE DEPARTMENT TO REQUIRE PUBLIC LIABILITY INSURANCE OF ITS STAR ROUTE CONTRACTORS SINCE IT REASONABLY MAY BE ASSUMED THAT THE POSTAL SERVICE WILL DIRECTLY OR INDIRECTLY HAVE TO BEAR THE COST OF THE INSURANCE. DOUBT IN THE MATTER IS STATED TO STEM FROM A DECISION OF JANUARY 12, 1956, 35 COMP. GEN. 393, WHEREIN IT WAS HELD THAT THE USE OF APPROPRIATED FUNDS FOR THE PURCHASE OF INSURANCE COVERING A RISK ASSUMED BY THE GOVERNMENT WAS NOT IN KEEPING WITH THE ESTABLISHED POLICY OF THE UNITED STATES TO ASSUME ITS OWN RISKS. BUT THE INSURANCE HEREIN CONTEMPLATED IT NOT TO COVER A RISK OR LIABILITY OF THE GOVERNMENT. THE POST OFFICE DEPARTMENT IS OF THE VIEW THE FEDERAL TORT CLAIMS ACT (28 U.S.C. 2671-2680) DOES NOT AUTHORIZE AN ACTION AGAINST THE GOVERNMENT BECAUSE OF THE NEGLIGENT OR WRONGFUL ACT OF A STAR ROUTE CONTRACTOR- STATUS NOT BEING THAT OF "AN EMPLOYEE OF THE GOVERNMENT" WITH MEANING OF THE ACT. CF. STATE OF MARYLAND, FOR USE OF HUMPHREY V. MANOR REAL ESTATE AND TRUST CO., ET AL., 176 F. 2D 414. THUS THE CONTEMPLATED PUBLIC LIABILITY INSURANCE WOULD COVER A RISK, NOT OF THE GOVERNMENT, BUT OF THE CONTRACTOR, AND INVOLVE AN ORDINARY BUSINESS EXPENSE USUALLY REFLECTED IN THE CONTRACT PRICE. WE THEREFORE DO NOT VIEW THE DECISION OF JANUARY 12, 1956, AS APPLICABLE TO SUCH INSURANCE.

THE PROPRIETY OF INCLUDING A PUBLIC LIABILITY INSURANCE REQUIREMENT IN CONSTRUCTION CONTRACTS WAS CONSIDERED IN A DECISION OF SEPTEMBER 30, 1938, 18 COMP. GEN. 285, TO WHICH YOU REFER. IT WAS STATED THEREIN:

WHILE THE MATTER IS NOT WHOLLY FREE FROM DOUBT, THE VIEW WOULD APPEAR WARRANTED THAT THE PROPOSED STIPULATIONS REQUIRING CONTRACTORS TO FURNISH PUBLIC LIABILITY INSURANCE AGAINST INJURIES TO MEMBERS OF THE PUBLIC FROM ACCIDENTS WHICH MAY ARISE FROM OPERATIONS PERFORMED UNDER THE CONTRACT * * * WOULD COME FAIRLY WITHIN ADMINISTRATIVE DISCRETION. THESE MATTERS ARE NOT COVERED BY LEGISLATION, BUT RELATE DIRECTLY TO THE CONDITIONS FOR PERFORMANCE OF THE WORK RESPONSIBLE CONTRACTORS OBSERVE AND CHARGE TO OVERHEAD EXPENSES AS A MATTER OF COURSE. AN EXPRESS CONTRACTUAL STIPULATION REQUIRING THEIR OBSERVANCE DOES NO MORE THAN TO REQUIRE OTHER CONTRACTORS TO MEET USUAL STANDARDS OF RESPONSIBILITY. WHILE CONCEIVABLY SUCH STIPULATIONS MIGHT IN SOME INSTANCES INCREASE THE CONTRACT PRICE OVER WHAT OTHERWISE MIGHT BE BID BY AN IRRESPONSIBLE CONTRACTOR, ANY SUCH INCREASE MAY BE VIEWED AS REASONABLY NECESSARY TO THE PERFORMANCE IN A RESPONSIBLE MANNER OF CONTRACT WORK TO ACCOMPLISH THE PURPOSES OF THE APPROPRIATION. THIS FOLLOWS THE PRINCIPLE OF DECISION OF FEBRUARY 9, 1937, 16 COMP. GEN. 748, RELATING TO EMPLOYEE'S COMPENSATION INSURANCE AND EMPLOYER'S GENERAL LIABILITY INSURANCE, AND YOU ARE INFORMED ACCORDINGLY THAT THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE INCLUSION OF THE PROPOSED STIPULATIONS IN THIS RESPECT IF ADMINISTRATIVELY DETERMINED TO BE REASONABLY NECESSARY TO THE OBJECTS OF THE APPROPRIATION.

WHAT WAS STATED IN THAT DECISION WITH REGARD TO A REQUIREMENT OF PUBLIC LIABILITY INSURANCE IN CONSTRUCTION CONTRACTS APPEARS EQUALLY APPLICABLE TO A LIKE REQUIREMENT IN STAR ROUTE CONTRACTS; AND IN CONSONANCE WITH THAT DECISION YOU ARE ADVISED WE CONSIDER THE INCLUSION OF A PUBLIC LIABILITY INSURANCE REQUIREMENT IN STAR ROUTE CONTRACTS TO BE A MATTER WITHIN THE DISCRETIONARY AUTHORITY OF THE POST OFFICE DEPARTMENT.

WITH THE ADOPTION OF A PUBLIC LIABILITY INSURANCE REQUIREMENT THE POST OFFICE DEPARTMENT IS CONSIDERING SOME FORM OF SELF-INSURANCE IN LIEU OF COMMERCIAL INSURANCE. YOUR LETTER POINTS OUT THAT INTERSTATE COMMERCE ^COMMISSION REGULATIONS (49 CFR, PART 174) REQUIRE MOTOR CARRIERS SUBJECT TO ITS JURISDICTION TO CARRY PUBLIC LIABILITY INSURANCE IN STATED AMOUNTS, BUT PERMIT SELF-INSURANCE PLANS IN LIEU THEREOF (49 CFR 174.5 (A) ).

YOU ARE ADVISED WE WOULD HAVE NO OBJECTION TO PROVIDING FOR SELF INSURANCE IN LIEU OF COMMERCIAL INSURANCE, THE MATTER BEING WITHIN THE PURVIEW OF ADMINISTRATIVE DISCRETION.

THE FINAL PROBLEM DISCUSSED IN YOUR LETTER IS THAT OF THE TIMING OF ANY IMPOSITION OF AN INSURANCE REQUIREMENT. YOUR LETTER STATES:

* * * IN THE CASE OF NEW CONTRACTS, THE ADVERTISEMENT WOULD, OF COURSE, PROVIDE FOR IT. HOWEVER, CONTRACTS WHICH ARE RENEWED PRESENT A PROBLEM. WE ASSUME THAT WE COULD MAKE THE APPROPRIATE INSURANCE COVERAGE A CONDITION PRECEDENT TO RENEWAL AT THE END OF THE TERM. FURTHER, WE ASSUME THAT IF THE CONTRACTOR OBTAINED ADDITIONAL INSURANCE BEFORE RENEWAL TO MEET THE DEPARTMENT'S REQUIREMENTS THAT AN ADJUSTMENT OF COMPENSATION WOULD BE PERMISSIBLE UNDER PUBLIC LAW 669, 80TH CONGRESS (AMENDING 39 U.S.C. 434). * * *

VIEWING PUBLIC LAW 669 IN THE LIGHT OF ITS OBJECTIVES, TO AFFORD STAR/ROUTE CONTRACTORS THE BENEFITS OF CONTRACT RENEWAL AND COMPENSATION ADJUSTMENT, WE CONCUR IN THE TWO ASSUMPTIONS YOU HAVE MADE. HOWEVER, WE SUGGEST FOR YOUR CONSIDERATION THAT THE AMOUNT OF INSURANCE, EXCEPT PERHAPS AS TO MINIMUM AMOUNTS, NOT BE ADMINISTRATIVELY PRESCRIBED. ALSO, WE SUGGEST FOR YOUR CONSIDERATION THE DESIRABILITY OF INCLUDING IN THE CONTRACT INSURANCE PROVISION A DISCLAIMER OF LIABILITY ON THE PART OF THE GOVERNMENT FOR INJURY OR DAMAGE TO ANY PERSON OR PROPERTY OCCASIONED BY ACTION OF THE CONTRACTOR IN THE PERFORMANCE OF THE CONTRACT. CONNECTION THEREWITH YOUR ATTENTION IS INVITED TO ITEM 17 OF GENERAL SERVICES ADMINISTRATION SPECIFICATIONS, DATED DECEMBER 30, 1959, FOR THE MOVEMENT OF SILVER AND MINOR COIN, WHICH IS AS FOLLOWS:

DAMAGE AND INJURY: THE CONTRACTOR ASSUMES RESPONSIBILITY FOR ALL DAMAGE OR INJURY TO PERSONS OR PROPERTY OCCASIONED THROUGH THE USE AND OPERATION OF ITS VEHICLES, BY, OR THE ACTION OF, THE CONTRACTOR, ITS EMPLOYEES AND AGENTS, AND THE CONTRACTOR, AT ITS OWN EXPENSE, SHALL MAINTAIN ADEQUATE PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE DURING THE CONTINUANCE OF THIS CONTRACT, INSURING ITSELF AGAINST ALL CLAIMS FOR INJURY OR DAMAGE; ALSO WORKMEN'S COMPENSATION, AND OTHER LEGALLY REQUIRED INSURANCE WITH RESPECT TO ITS OWN EMPLOYEES AND AGENTS. THE GOVERNMENT SHALL IN NO EVENT BE LIABLE OR RESPONSIBLE FOR DAMAGE OR INJURY TO ANY PERSON OR PROPERTY OCCASIONED THROUGH THE USE OR OPERATION OF ANY VEHICLE BY, OR THE ACTION OF, THE CONTRACTOR, ITS EMPLOYEES AND AGENTS, IN PERFORMING UNDER THIS CONTRACT.