B-25040, APRIL 15, 1942, 21 COMP. GEN. 928

B-25040: Apr 15, 1942

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ARE SUBJECT. IS NOT APPLICABLE THERETO. THE COMPANY'S OPERATING FUNDS ARE AVAILABLE FOR PAYMENT OF PREMIUMS ON CONTRACTS INSURING ITS PROPERTY AGAINST LOSS FROM FIRE. 1942: I HAVE YOUR LETTER OF APRIL 3. AS FOLLOWS: YOUR DECISION IS REQUESTED AS TO THE PROPRIETY OF PAYMENTS OUT OF THE REVENUES OF THE VIRGIN ISLANDS COMPANY FOR PREMIUMS FOR INSURANCE COVERING RAW SUGAR. THE VIRGIN ISLANDS COMPANY IS A CORPORATION CREATED BY A SPECIAL ORDINANCE OF THE COLONIAL COUNCIL FOR ST. SUGAR MILLS AND A RUM DISTILLERY OWNED BY THE FEDERAL GOVERNMENT ARE OPERATED BY THE COMPANY FOR ITS OWN ACCOUNT AND THE PRODUCTS THEREOF ARE THE PROPERTY OF THE COMPANY AND ARE SOLD BY THE COMPANY PRIMARILY IN THE CONTINENTAL MARKET.

B-25040, APRIL 15, 1942, 21 COMP. GEN. 928

INSURANCE - VIRGIN ISLANDS CO. PROPERTY WHILE FUNDS DERIVED FROM THE OPERATION OF THE VIRGIN ISLANDS CO. ARE SUBJECT, GENERALLY, TO SPECIFIC STATUTORY RESTRICTIONS AND LIMITATIONS APPLICABLE TO THE EXPENDITURE OF APPROPRIATED MONEYS BY THE REGULARLY ESTABLISHED FEDERAL AGENCIES, THE GOVERNMENT'S PRACTICE OF SELF INSURANCE, BEING ONE OF POLICY RATHER THAN OF POSITIVE LAW, IS NOT APPLICABLE THERETO, AND, THEREFORE, THE COMPANY'S OPERATING FUNDS ARE AVAILABLE FOR PAYMENT OF PREMIUMS ON CONTRACTS INSURING ITS PROPERTY AGAINST LOSS FROM FIRE, HURRICANE, MARINE PERILS, ETC.--- THE INSURANCE TO RUN TO THE COMPANY RATHER THAN TO THE UNITED STATES.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN OF THE BOARD OF DIRECTORS, THE VIRGIN ISLANDS CO., APRIL 15, 1942:

I HAVE YOUR LETTER OF APRIL 3, 1942, AS FOLLOWS:

YOUR DECISION IS REQUESTED AS TO THE PROPRIETY OF PAYMENTS OUT OF THE REVENUES OF THE VIRGIN ISLANDS COMPANY FOR PREMIUMS FOR INSURANCE COVERING RAW SUGAR, RUM, AND OTHER COMMODITIES AND PERSONAL PROPERTY OF THE COMPANY AGAINST LOSS FROM FIRE, THEFT, HURRICANE, MARINE, AND OTHER RISKS.

THE VIRGIN ISLANDS COMPANY IS A CORPORATION CREATED BY A SPECIAL ORDINANCE OF THE COLONIAL COUNCIL FOR ST. THOMAS AND ST. JOHN, APPROVED APRIL 16, 1934. UNDER AN OPERATING AGREEMENT, DATED NOVEMBER 26, 1934, AS AMENDED, ENTERED INTO WITH THE DEPARTMENT OF THE INTERIOR, SUGAR LANDS, SUGAR MILLS AND A RUM DISTILLERY OWNED BY THE FEDERAL GOVERNMENT ARE OPERATED BY THE COMPANY FOR ITS OWN ACCOUNT AND THE PRODUCTS THEREOF ARE THE PROPERTY OF THE COMPANY AND ARE SOLD BY THE COMPANY PRIMARILY IN THE CONTINENTAL MARKET. UNDER THE PROVISIONS OF SAID OPERATING AGREEMENT THE REVENUES OF THE VIRGIN ISLANDS COMPANY ARE DEPOSITED CURRENTLY INTO THE TREASURY OF THE UNITED STATES AS A SPECIAL FUND. THESE FUNDS ARE REQUISITIONED AND TRANSFERRED TO THE ACCOUNT OF THE DISBURSING OFFICER OF THE COMPANY AND THEN DISBURSED FOR NECESSARY OPERATING EXPENSES OF THE COMPANY. THE PREMIUMS FOR THE INSURANCE PROPOSED TO BE PROCURED WOULD BE PAID FROM THESE FUNDS IN THE USUAL MANNER AS AN OPERATING EXPENSE.

THE COMPANY HAS IN ITS WAREHOUSES APPROXIMATELY 500,000 GALLONS OF RUM IN THE PROCESS OF MANUFACTURE AND AGING, WHICH WOULD PROBABLY BE COMPLETELY DESTROYED IN CASE OF FIRE. SUGAR IS ALSO STORED IN WAREHOUSES FROM THE TIME OF ITS MANUFACTURE UNTIL THE TIME OF SALE AND MAY BE DAMAGED BY FIRE OR HURRICANE DURING THAT PERIOD. THE SAME APPLIES TO OTHER COMMODITIES PRODUCED BY THE COMPANY.

MOREOVER, PRIOR TO THE OUTBREAK OF WAR PURCHASES MADE BY THE COMPANY OF MATERIALS AND SUPPLIES USED IN THE MANUFACTURING PROCESSES COULD BE PURCHASED ON A C.I.F. CHRISTIANSTED, ST. CROIX, CONTRACT BASIS, WHICH WOULD INCLUDE INSURANCE DURING TRANSIT OF THE MATERIALS TO THE POINT OF USE. HOWEVER, SINCE THE BEGINNING OF THE WAR IT HAS BEEN IMPOSSIBLE TO OBTAIN QUOTATIONS ON VARIOUS MATERIALS AND SUPPLIES ON THAT BASIS. PRACTICALLY ALL OF THE CONTINENTAL MATERIALS PURCHASED ARE NOW QUOTED F.O.B. NEW YORK. SINCE NEITHER THE FEDERAL GOVERNMENT NOR ANY AGENCY THEREOF HAS AN INTEREST IN SUCH MATERIALS AND SUPPLIES, THE GOVERNMENT LOSSES IN SHIPMENT ACT IS NOT APPLICABLE AND THE COMPANY WOULD SUFFER SERIOUS LOSS IN THE EVENT SUCH CARGOES ARE DESTROYED IN SHIPMENT.

IN THE CIRCUMSTANCES, IT IS DEEMED DESIRABLE FROM A PRACTICAL BUSINESS VIEWPOINT THAT THE COMPANY COVER ITS MANUFACTURED PRODUCTS AND OTHER PROPERTY BY INSURANCE IN ORDER TO PROTECT ITSELF AGAINST LOSS. YOUR EARLY CONSIDERATION OF THE MATTER WOULD BE APPRECIATED.

AS YOU APPARENTLY ARE AWARE, IT IS THE GENERAL POLICY OF THE GOVERNMENT TO ASSUME ITS OWN RISKS OF LOSS, UPON THE THEORY THAT THE MAGNITUDE OF THE GOVERNMENT'S RESOURCES MAKES IT MORE ADVANTAGEOUS FOR THE GOVERNMENT TO CARRY ITS OWN RISKS THAN TO HAVE THEM ASSUMED BY PRIVATE INSURERS AT RATES SUFFICIENT TO COVER ALL LOSSES, TO PAY THEIR OPERATING EXPENSES (INCLUDING AGENCY OR BROKERS' COMMISSIONS) AND TO LEAVE SUCH INSURERS A PROFIT. COMP. GEN. 211, 214; 16 ID. 453, 454. THUS, IT HAS BEEN HELD CONSISTENTLY THAT APPROPRIATED MONEYS ARE NOT AVAILABLE FOR THE PAYMENT OF INSURANCE PREMIUMS ON GOVERNMENT-OWNED PROPERTY IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY FOR THE PAYMENT OF SUCH PREMIUMS. 17 COMP. GEN. 419, 421.

WITH RESPECT TO THE PAYMENT OF INSURANCE PREMIUMS BY GOVERNMENT CORPORATIONS, IT WAS SAID BY A FORMER COMPTROLLER OF THE TREASURY (23 COMP. DEC. 297) THAT IT REQUIRED AN ACT OF CONGRESS TO APPLY GOVERNMENT'S POLICY WITH RESPECT TO PROPERTY INSURANCE TO A CORPORATION WHOLLY OWNED BY THE UNITED STATES, CITING INSTANCES WHERE THE CONGRESS SPECIFICALLY HAD DENIED TO GOVERNMENTAL CORPORATIONS THE RIGHT TO USE THEIR FUNDS FOR PAYMENT OF INSURANCE PREMIUMS. CF. 11 COMP. GEN. 59. IN CERTAIN INSTANCES, THE CONGRESS HAS EXPRESSLY GRANTED THE RIGHT TO USE APPROPRIATED MONEYS FOR PREMIUMS ON POLICIES OF INSURANCE AGAINST LOSS TO GOVERNMENT PROPERTY. SEE, FOR EXAMPLE, 19 COMP. GEN. 211, REFERRING TO SECTION 3 OF THE ACT OF JUNE 29, 1936, 49 STAT. 2036, PROVIDING FOR INSURANCE OF CERTAIN PROJECTS OF THE FARM SECURITY ADMINISTRATION. COMPARE MY DECISION OF JANUARY 12, 1942, A-51647, B 15611, TO THE CHAIRMAN, UNITED STATES MARITIME COMMISSION, ALLOWING CREDIT FOR PAYMENTS OF CERTAIN INSURANCE PREMIUMS UNDER THE GENERAL AUTHORITY GRANTED THE COMMISSION BY SECTION 207 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 49 STAT. 1988, 46 U.S.C. 1117, TO MAKE SUCH DISBURSEMENTS AS MAY, IN THE COMMISSION'S DISCRETION, BE NECESSARY TO CARRY ON THE ACTIVITIES AUTHORIZED BY THE ACT, OR TO PROTECT, PRESERVE, OR IMPROVE THE COLLATERAL HELD BY THE COMMISSION TO SECURE INDEBTEDNESS.

ALTHOUGH THE VIRGIN ISLANDS CO. IS, AS YOU STATE, A CORPORATION CREATED BY ORDINANCE OF THE COLONIAL COUNCIL FOR ST. THOMAS AND ST. JOHN, THE PROPERTY AND RESOURCES TO WHICH THE VIRGIN ISLANDS CO. HOLDS TITLE WERE DERIVED PRACTICALLY ENTIRELY FROM MONEYS APPROPRIATED BY THE FEDERAL GOVERNMENT, AND FROM THE OPERATION OF PROPERTY AND FACILITIES PURCHASED BY THE FEDERAL GOVERNMENT FROM APPROPRIATED MONEYS FOR THE PURPOSE OF LEASING SUCH PROPERTY AND FACILITIES TO THE COMPANY. IT HAS BEEN HELD, THEREFORE, THAT THE FUNDS DERIVED FROM THE OPERATION OF THE VIRGIN ISLANDS CO. ARE SUBJECT, GENERALLY, TO THE SAME RESTRICTIONS AND LIMITATIONS APPLICABLE TO THE EXPENDITURES OF APPROPRIATED FUNDS BY THE REGULARLY ESTABLISHED DEPARTMENTS AND AGENCIES OF THE GOVERNMENT. 15 COMP. GEN. 485; 14 ID. 798; IBID. 617. THE CONCLUSIONS REACHED IN THE CITED DECISIONS APPEAR TO HAVE BEEN BASED UPON THE FACT THAT THE VIRGIN ISLANDS CO. WAS CREATED WITHOUT SPECIFIC CONGRESSIONAL AUTHORIZATION AND THAT, THEREFORE, THE CORPORATE CHARACTER OF THE COMPANY DID NOT SERVE TO FREE ITS FUNDS FROM THE PROVISIONS OF LAW TO WHICH THEY WOULD HAVE BEEN SUBJECT IF ADMINISTERED BY AN UNINCORPORATED GOVERNMENT AGENCY.

THE VIRGIN ISLANDS CO. WAS CREATED TO AID IN EFFECTING THE ECONOMIC REHABILITATION OF THE MUNICIPALITY OF ST. THOMAS AND ST. JOHN AND TO PROMOTE THE GENERAL WELFARE OF THE PEOPLE OF ST. THOMAS AND ST. JOHN AND OF THE VIRGIN ISLANDS. BY SECTION 5 OF THE ACT OF MAY 26, 1936, 49 STAT. 1372, WHICH WAS ENACTED SUBSEQUENT TO THE DECISIONS CITED IN THE PRECEDING PARAGRAPH, THE VIRGIN ISLANDS CO. WAS AUTHORIZED TO PAY ANNUALLY INTO THE MUNICIPAL TREASURIES OF THE VIRGIN ISLANDS IN LIEU OF TAXES "AN AMOUNT EQUAL TO THE AMOUNT OF TAXES WHICH WOULD BE PAYABLE ON THE REAL PROPERTY IN THE VIRGIN ISLANDS OWNED BY THE UNITED STATES AND IN THE POSSESSION OF THE VIRGIN ISLANDS CO., IF SUCH REAL PROPERTY WERE IN PRIVATE OWNERSHIP AND TAXABLE,"AND "AMOUNTS EQUAL TO THE AMOUNTS OF ANY TAXES OF GENERAL APPLICATION WHICH A PRIVATE CORPORATION SIMILARLY SITUATED WOULD BE REQUIRED TO PAY INTO THE SAID TREASURIES.' THUS, THE CONGRESS HAS RECOGNIZED NOT ONLY THE CORPORATE EXISTENCE AND STATUS OF THE VIRGIN ISLANDS CO. BUT, ALSO, THE CORPORATE PURPOSES OF THE COMPANY, SINCE THE PAYMENT BY THE COMPANY OF TAXES LEVIED BY THE MUNICIPAL GOVERNMENTS OF THE ISLANDS OBVIOUSLY WOULD BE CALCULATED TO FURTHER SUCH PURPOSES, VIZ, TO AID IN EFFECTING THE ECONOMIC REHABILITATION OF THE MUNICIPALITIES AND TO PROMOTE THE GENERAL WELFARE OF THE PEOPLE OF THE ISLANDS. IN THE LIGHT OF THIS CONGRESSIONAL ACTION, I AM INCLINED TO THE VIEW THAT THE APPLICATION OF THE ABOVE CITED DECISIONS SHOULD BE LIMITED TO CASES INVOLVING SPECIFIC STATUTORY RESTRICTIONS OR LIMITATIONS UPON THE USE OF APPROPRIATED MONEYS; AND THAT THEY SHOULD NOT BE REGARDED AS PROHIBITING THE EXPENDITURE OF THE COMPANY'S FUNDS FOR OBJECTS WHICH ARE WITHIN THE COMPANY'S CORPORATE POWERS AND REASONABLY NECESSARY TO THE CONDUCT OF THE CORPORATE BUSINESS, EVEN THOUGH SUCH OBJECTS MAY GO BEYOND THOSE FOR WHICH, AS A MATTER OF POLICY, APPROPRIATED FUNDS USUALLY ARE EXPENDED BY REGULAR GOVERNMENT DEPARTMENTS OR AGENCIES.

OPERATING UNDER THE PROVISIONS OF ITS CHARTER, THE VIRGIN ISLANDS CO. HAS ACQUIRED LEGAL TITLE TO CERTAIN STORES, STOCKS, SUPPLIES AND OTHER PROPERTY, AND IT IS THE OBVIOUS DUTY OF THE COMPANY'S DIRECTORS TO TAKE SUCH ACTION AS IS DICTATED BY NORMAL BUSINESS PRACTICES FOR THE PROTECTION AND PRESERVATION OF THE COMPANY'S PROPERTY, PROVIDED, OF COURSE, THAT SUCH PRACTICES DO NOT REQUIRE EXPENDITURES FOR OBJECTS FOR WHICH THE COMPANY'S FUNDS ARE NOT LEGALLY AVAILABLE. SINCE THE GOVERNMENT'S PRACTICE OF SELF- INSURANCE IS ONE OF POLICY AND NOT OF POSITIVE LAW, AND SINCE THE PRACTICE HAS NOT BEEN OBSERVED STRICTLY IN CASES INVOLVING INSURANCE OF PROPERTY OF GOVERNMENT CORPORATIONS, 23 COMP. DEC. 297, SUPRA, I FEEL JUSTIFIED IN HOLDING THAT FUNDS WHICH OTHERWISE ARE LEGALLY CHARGEABLE WITH THE NECESSARY OPERATING EXPENSES OF THE VIRGIN ISLANDS CO. ARE AVAILABLE FOR PAYMENT OF PREMIUMS ON CONTRACTS INSURING THE COMPANY'S PROPERTY AGAINST LOSS FROM FIRE, THEFT, HURRICANE, MARINE, AND OTHER PERILS--- THE INSURANCE TO RUN TO THE CORPORATION RATHER THAN TO THE UNITED STATES.

WITH RESPECT TO MATERIALS AND SUPPLIES PURCHASED F.O.B. NEW YORK FOR USE IN THE COMPANY'S MANUFACTURING PROCESSES, IT IS ASSUMED THAT, AS IS CUSTOMARY WITH SALES F.O.B. A NAMED SHIPPING POINT, THE COMPANY WOULD TAKE TITLE TO THE MATERIALS AND SUPPLIES AT NEW YORK AND, IF SUCH BE THE CASE, THERE WOULD APPEAR TO BE NO OBJECTION TO PAYMENTS FROM THE COMPANY'S FUNDS FOR PREMIUMS ON CONTRACTS INSURING SUCH MATERIALS AND SUPPLIES WHILE IN TRANSIT. WITH REFERENCE TO THE STATEMENT IN YOUR LETTER THAT "SINCE NEITHER THE FEDERAL GOVERNMENT NOR ANY AGENCY THEREOF HAS AN INTEREST IN SUCH MATERIALS AND SUPPLIES, THE GOVERNMENT LOSSES IN SHIPMENT ACT IS NOT APPLICABLE * * *," YOUR ATTENTION IS INVITED TO THE FACT THAT IT HAS BEEN HELD THAT THE VIRGIN ISLANDS CO. IS, ITSELF, AN AGENCY OF THE GOVERNMENT (15 COMP. GEN. 485), AND IT IS CLEAR THAT THE UNITED STATES HAS AN INTEREST IN THE PROPERTY OF THE COMPANY, SINCE THE AGREEMENT UNDER WHICH THE COMPANY OPERATES CERTAIN OF THE GOVERNMENT'S PROPERTIES AND FACILITIES IN THE VIRGIN ISLANDS CONTEMPLATES THAT THE COMPANY'S PROFITS, IF ANY, SHALL BE DEPOSITED IN THE GENERAL FUND OF THE TREASURY AS MISCELLANEOUS RECEIPTS. SEE 14 COMP. GEN. 798. HOWEVER, A DETERMINATION AS TO WHETHER THE SHIPMENTS HERE IN QUESTION ARE SUBJECT TO THE PROVISIONS OF THE GOVERNMENT LOSSES IN SHIPMENT ACT, AS AMENDED, DOES NOT REST ENTIRELY ON THAT POINT. SAID ACT RELATES TO THE SHIPMENT OF "VALUABLES" BY THE GOVERNMENT AND, AS AMENDED BY SECTION 3 OF THE ACT OF AUGUST 10, 1939, 53 STAT. 1359, COVERS ONLY "ARTICLES OR THINGS OR REPRESENTATIVES OF VALUE IN WHICH THE UNITED STATES HAS ANY INTEREST," OR IN CONNECTION WITH WHICH IT HAS ANY OBLIGATION OR RESPONSIBILITY, DIRECT OR INDIRECT, AND WHICH ARE DECLARED BY THE SECRETARY OF THE TREASURY TO BE VALUABLES WITHIN THE MEANING OF THE ACT. THE ARTICLES SO DECLARED BY THE SECRETARY OF THE TREASURY TO BE "VALUABLES" INCLUDE FOUR GENERAL CLASSES: A, MONEY OF THE UNITED STATES AND FOREIGN COUNTRIES; B, SECURITIES AND OTHER INSTRUMENTS OR DOCUMENTS, PRIVATE AND PUBLIC; C, PRECIOUS METALS AND STONES, AND D, CERTAIN WORKS AND COLLECTIONS OF ARTISTIC, HISTORICAL, SCIENTIFIC OR EDUCATIONAL VALUE. 4 F.R. 3796; 5 ID. 2653. HENCE, IT DOES NOT APPEAR THAT MATERIALS OR SUPPLIES PURCHASED FOR USE IN THE MANUFACTURING PROCESSES OF THE VIRGIN ISLANDS CO. WOULD FALL WITHIN THE PURVIEW OF THE GOVERNMENT LOSSES IN SHIPMENT ACT.