B-126202, JANUARY 12, 1956, 35 COMP. GEN. 393

B-126202, JANUARY 12, 1956, 35 COMP. GEN. 393

POST OFFICE DEPARTMENT PROPERTY ACT OF 1954 - INSURANCE - LEASE-PURCHASE CONTRACTS UNDER A LEASE PURCHASE CONTRACT EXECUTED PURSUANT TO THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954 WHEREBY THE GOVERNMENT RATHER THAN THE CONTRACTOR ASSUMES ALL RISK FOR LOSSES RESULTING FROM THE CONDITION, MAINTENANCE OR MANAGEMENT OF THE PREMISES, THE INCLUSION OF A PROVISION WHICH REQUIRES THE CONTRACTOR TO CARRY INSURANCE FOR THE BENEFIT OF THE GOVERNMENT WOULD BE IMPROPER.

TO THE POSTMASTER GENERAL, JANUARY 12, 1956:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 25, 1955, REQUESTING OUR DECISION CONCERNING THE DISPOSITION OF THE PROCEEDS OF HAZARD INSURANCE MAINTAINED BY THE LESSOR FOR HIS AND THE GOVERNMENT'S BENEFIT INCIDENT TO LEASE-PURCHASE AGREEMENTS EXECUTED UNDER THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954, 68 STAT. 521, 39 U.S.C. 902. SPECIFICALLY, YOU REQUEST TO BE ADVISED WHETHER INSURANCE PROCEEDS MADE AVAILABLE FOLLOWING DAMAGE OR DESTRUCTION OF THE PROPERTY MAY BE USED BY THE DEPARTMENT TO RESTORE THE PREMISES OR WHETHER THEY ARE REQUIRED TO BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS.

YOUR LETTER INDICATES THAT THE DEPARTMENT REGARDS SUCH INSURANCE PROCEEDS AS AVAILABLE FOR RESTORATION OF THE PREMISES WITHOUT THE NECESSITY OF COVERING THEM INTO THE TREASURY AS MISCELLANEOUS RECEIPTS PURSUANT TO THE REQUIREMENTS OF SECTION 3617, REVISED STATUTES, 31 U.S.C. 484. IN SUPPORT OF YOUR VIEWS REFERENCE IS MADE TO THE LEASE PURCHASE INSTRUMENTS PREVIOUSLY TRANSMITTED FOR CONSIDERATION INCIDENT TO OUR DECISION TO YOU OF JUNE 27, 1955, B-122382, 34 COMP. GEN. 697. PARAGRAPH 3 OF THE LEASE- PURCHASE AGREEMENT PROVIDES THAT, IN ADDITION TO THE BASIC ANNUAL RENTAL PROVIDED FOR IN PARAGRAPH 3 (A), THE GOVERNMENT SHALL PAY AN ADDITIONAL ANNUAL RENTAL TO REIMBURSE THE LESSOR FOR HAZARD INSURANCE PREMIUMS PAID BY HIM. PARAGRAPH 8 REQUIRES THE LESSOR TO MAINTAIN FIRE AND EXTENDED COVERAGE INSURANCE ON THE LEASED PREMISES INSURED FOR BENEFIT OF THE PARTIES TO THE LEASE. THE LESSOR IS ALSO REQUIRED TO MAINTAIN FOR THE MUTUAL BENEFIT OF BOTH OF THE PARTIES GENERAL PUBLIC LIABILITY INSURANCE FOR INJURY TO PERSONS OR PROPERTY OCCURRING ON OR ABOUT THE LEASED PREMISES. PARAGRAPH 12 PROVIDES THAT IF ALL OR ANY PART OF THE LEASED PREMISES SHALL BE DAMAGED OR DESTROYED DURING THE LEASE TERM FROM ANY CAUSE, THE AGREEMENT SHALL CONTINUE IN EFFECT AND THE GOVERNMENT SHALL USE THE INSURANCE PROCEEDS TO RESTORE THE PREMISES. THE LESSOR IS REQUIRED TO MAKE ALL SUCH INSURANCE PROCEEDS AVAILABLE TO THE GOVERNMENT AND TO ARRANGE WITH HIS MORTGAGEE FOR RELEASE OF SAME.

YOU STATE THAT UNDER SECTION 202 (E) THE POSTMASTER GENERAL IS AUTHORIZED TO INCLUDE SUCH PROVISIONS AS HE, IN HIS DISCRETION, SHALL DEEM TO BE IN THE BEST INTERESTS OF THE UNITED STATES AND APPROPRIATE TO SECURE THE PERFORMANCE OF THE OBLIGATIONS IMPOSED UPON THE PARTY CONTRACTING WITH THE UNITED STATES. ALSO, YOU POINT OUT THAT UNDER SECTION 202 (E) (3) THE POSTMASTER GENERAL IS GRANTED EXPRESS AUTHORITY TO INCLUDE IN SUCH AGREEMENTS THE AMOUNT NECESSARY AS DETERMINED BY HIM, TO REIMBURSE THE CONTRACTOR FOR THE COST OF ANY OTHER OBLIGATION ASSUMED BY HIM UNDER THE CONTRACT,"INCLUDING (BUT NOT LIMITED TO) PAYMENT OF TAXES, COSTS OF CARRYING APPROPRIATE INSURANCE AND COSTS OF REPAIR AND MAINTENANCE IF SO ASSUMED BY THE CONTRACTOR.' YOU URGE THAT UNDER SECTION 202 (E) THE AMOUNTS AND TYPES OF SUCH INSURANCE AND THE QUESTION OF WHO WILL ASSUME THE COST OF REPAIRS AND MAINTENANCE ARE LEFT TO THE DISCRETION OF THE POSTMASTER GENERAL. IN ADDITION, REFERENCE IS MADE TO SECTION 205 (A) PROVIDING THAT AMOUNTS RECEIVED FROM SALES (IF NOT IN EXCESS OF THE ACQUISITION COST), LEASES, OR OTHER DISPOSALS OF PROPERTY ACQUIRED UNDER AUTHORITY OF TITLE II SHALL BE CREDITED TO THE DEPARTMENT'S CURRENT APPLICABLE APPROPRIATION FOR EXPENDITURE FOR THE PURPOSES OF TITLE II.

IT APPEARS TO BE YOUR VIEW THAT THE ABOVE STATUTORY PROVISIONS RENDER INAPPLICABLE THE PROVISIONS OF SECTION 3617, REVISED STATUTES, 31 U.S.C. 484, WHICH REQUIRE THAT THE GROSS AMOUNT OF ALL MONIES RECEIVED FROM WHATEVER SOURCE FOR USE OF THE UNITED STATES SHALL BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS AND THAT, THEREFORE, HAZARD INSURANCE PROCEEDS MADE AVAILABLE TO THE GOVERNMENT AS THE RESULT OF DAMAGE TO OR DESTRUCTION OF THE PREMISES MAY BE USED BY THE DEPARTMENT FOR RESTORATION PURPOSES. SEVERAL OF OUR DECISIONS ARE CITED IN SUPPORT OF YOUR VIEWS THAT THE DEPOSITING REQUIREMENTS OF SECTION 3617, REVISED STATUTES, ARE NOT APPLICABLE TO INSURANCE PROCEEDS MADE AVAILABLE TO THE GOVERNMENT. YOU EMPHASIZE THAT UNDER THE LEASE-PURCHASE PROGRAM THE DEPARTMENT IS NOT THE OWNER BUT INSTEAD IS IN THE POSITION OF A LESSEE-BUYER WHILE THE SUCCESSFUL BIDDER WHO CONSTRUCTS THE FACILITY IS IN THE POSITION OF A LESSOR-OWNER-SELLER.

IN THE CIRCUMSTANCES, YOU REQUEST TO BE ADVISED WHETHER THE DEPARTMENT PROPERLY MAY EMPLOY ANY OF THE FOLLOWING METHODS IN THE USE OF INSURANCE PROCEEDS FOR RESTORATION OF THE PREMISES WITHOUT BEING REQUIRED TO COVER SUCH INSURANCE PROCEEDS, OR AN AMOUNT EQUAL TO RESTORATION COSTS, INTO THE TREASURY AS MISCELLANEOUS RECEIPTS:

(1) RESTORATION BY THE GOVERNMENT, THE GOVERNMENT LETTING ALL CONTRACTS AND MAKING ALL PAYMENTS FROM INSURANCE PROCEEDS RECEIVED FROM THE INSURER.

(2) RESTORATION BY THE GOVERNMENT, THE GOVERNMENT LETTING ALL CONTRACTS, EITHER IN ITS OWN NAME OR JOINTLY WITH THE INSURER, BUT PROVIDING FOR ALL PAYMENTS TO BE MADE BY THE INSURER.

(3) RESTORATION BY THE INSURER, THE INSURER LETTING ALL CONTRACTS AND MAKING ALL PAYMENTS.

(4) RESTORATION BY THE LESSOR-OWNER, THE LESSOR-OWNER LETTING ALL CONTRACTS, EITHER IN HIS OWN NAME OR JOINTLY WITH THE INSURER.

UNDER SECTION 202 (A) OF THE ACT THE POSTMASTER GENERAL IS AUTHORIZED SUBJECT TO STIPULATED CONDITIONS, TO ENTER INTO "LEASE PURCHASE AGREEMENTS, THE TERMS OF WHICH SHALL NOT BE LESS THAN 10 NOR MORE THAN 25 YEARS AND WHICH SHALL PROVIDE IN EACH CASE THAT TITLE TO THE PROPERTY SHALL VEST IN THE UNITED STATES AT OR BEFORE THE EXPIRATION OF THE LEASE- HOLD TERM AND UPON FULFILLMENT OF THE TERMS AND CONDITIONS STIPULATED IN EACH SUCH LEASE-PURCHASE AGREEMENTS.' SECTION 202 (E) PROVIDES, IN PERTINENT PART, THAT---

(E) EACH SUCH LEASE-PURCHASE AGREEMENT SHALL INCLUDE SUCH PROVISIONS AS THE POSTMASTER GENERAL, IN HIS DISCRETION, SHALL DEEM TO BE IN THE BEST INTEREST OF THE UNITED STATES AND APPROPRIATE TO SECURE THE PERFORMANCE OF THE OBLIGATIONS IMPOSED UPON THE PARTY OR PARTIES THAT SHALL ENTER INTO SUCH AGREEMENT WITH THE UNITED STATES. NO SUCH AGREEMENT SHALL PROVIDE FOR ANY PAYMENT TO BE MADE BY THE UNITED STATES IN EXCESS OF THE AMOUNT NECESSARY, AS DETERMINED BY THE POSTMASTER GENERAL, TO---

(3) REIMBURSE THE CONTRACTOR FOR THE COST OF ANY OTHER OBLIGATIONS ASSUMED BY HIM UNDER THE CONTRACT, INCLUDING (BUT NOT LIMITED TO) PAYMENT OF TAXES, COSTS OF CARRYING APPROPRIATE INSURANCE, AND COSTS OF REPAIR AND MAINTENANCE IF SO ASSUMED BY THE CONTRACTOR.

YOUR QUESTIONS PRESUPPOSE THE AVAILABILITY OF APPROPRIATED MONIES FOR THE PAYMENT OF PREMIUMS FOR INSURANCE TO COVER THE OBLIGATIONS ASSUMED BY THE UNITED STATES UNDER THE LEASE-PURCHASE AGREEMENTS. HOWEVER, IT ALWAYS HAS BEEN THE SETTLED POLICY OF THE UNITED STATES TO ASSUME ITS OWN RISKS. HENCE, APPROPRIATED MONIES OF THE UNITED STATES ARE NOT REGARDED AS AVAILABLE IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY FOR THE PAYMENT OF INSURANCE PREMIUMS. SEE 13 COMP. DEC. 779; 4 COMP. GEN. 690; 19 ID. 211; 21 ID. 928. THIS RULE HAS BEEN HELD TO BE APPLICABLE TO INSURANCE AGAINST TORT LIABILITY AS WELL AS INSURANCE AGAINST FIRE, TORNADO, AND SIMILAR INSURANCE. 19 COMP. GEN. 798. THE CONGRESS HAS MADE EXCEPTION TO THIS RULE IN CERTAIN INSTANCES. SEE ACTS OF JULY 7, 1955, AND JULY 13, 1955, 69 STAT. 264 AND ID. 301, 314, RESPECTIVELY, PROVIDING FOR THE INSURANCE OF DEPARTMENT OF STATE AND DEPARTMENT OF DEFENSE OFFICIAL MOTOR VEHICLES IN FOREIGN COUNTRIES WHEN REQUIRED BY LAW OF SUCH COUNTRIES.

THE LEGAL EFFECT OF SECTION 202 (E), QUOTED ABOVE, IS TO AUTHORIZE YOU TO INCLUDE, IN THE PURCHASE CONTRACT, A PROVISION UNDER WHICH THE OWNER WOULD BE REIMBURSED IN SUCH AMOUNT AS YOU MAY FIND NECESSARY TO COVER THE COSTS OF CARRYING APPROPRIATE INSURANCE AGAINST OBLIGATIONS ASSUMED BY HIM UNDER SUCH CONTRACTS. THAT SECTION DOES NOT, EITHER IN EXPRESS TERMS, OR BY IMPLICATION, AUTHORIZE OR REQUIRE THE GOVERNMENT TO INSURE THE PROPERTY IN ITS OWN RIGHT DURING THE TERM OF THE CONTRACT. FURTHERMORE, THERE IS NOTHING IN THE ACT OR THE LEGISLATIVE HISTORY INDICATING THAT THE CONGRESS INTENDED TO AUTHORIZE REIMBURSEMENT TO THE CONTRACTOR FOR ANY INSURANCE MAINTAINED BY HIM FOR THE GOVERNMENT'S BENEFIT. IT WOULD SEEM THAT, IF IT WERE THE INTENT OF CONGRESS TO DEPART FROM THE LONG ESTABLISHED POLICY OF THE GOVERNMENT BEING ITS OWN INSURER, IT WOULD HAVE SPELLED IT OUT MORE CLEARLY IN THE LEGISLATION OR SUCH INTENT WOULD HAVE BEEN REFLECTED IN THE LEGISLATIVE HISTORY. UNDER PARAGRAPH II OF THE FORM OF LEASE-PURCHASE AGREEMENT YOU PROPOSE TO USE, THE GOVERNMENT WILL ASSUME SOLE RESPONSIBILITY FOR THE CONDITION, MAINTENANCE, AND MANAGEMENT OF THE PREMISES AND THE LESSOR WILL NOT BE REQUIRED TO BEAR ANY COST OR EXPENSE FOR REPAIRS EXCEPT FOR REPAIRS RESULTING FROM DEFECTS OR CONSTRUCTION OR INSTALLATION OF SAME OCCURRING DURING THE FIRST YEAR OF THE TERM. AS USED IN THE ABOVE PARAGRAPH THE TERM "REPAIRS" IS DEFINED AS MEANING REPAIRS OF EVERY CHARACTER, INTERIOR AND EXTERIOR, STRUCTURAL AND NONSTRUCTURAL, ORDINARY AS WELL AS EXTRAORDINARY, FORESEEN AS WELL AS UNFORESEEN, ALTERATIONS, CHANGES, REPLACEMENTS, AND RENEWALS. THUS, THE AGREEMENT IN EFFECT RESULTS IN A SITUATION WHERE ESSENTIALLY ALL RISK OF LOSS RESULTING FROM THE CONDITION, MAINTENANCE, OR MANAGEMENT OF THE PREMISES RESTS ON THE GOVERNMENT AND NOT ON THE CONTRACTOR. IN THE CIRCUMSTANCES, IT WOULD NOT APPEAR PROPER TO INCLUDE IN THE CONTRACT ANY PROVISION REQUIRING THE CONTRACTOR TO CARRY INSURANCE FOR THE BENEFIT OF THE GOVERNMENT.

HOWEVER, EVEN IF SECTION 202 (E) (3) COULD BE REGARDED AS AUTHORIZING INSURANCE FOR THE GOVERNMENT'S PROTECTION, SINCE THERE IS NOTHING IN THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954 EXEMPTING INSURANCE PROCEEDS FROM THE DEPOSITING REQUIREMENTS, SUCH PROCEEDS WOULD NOT BE AVAILABLE FOR REPAIRS OR RESTORATION BUT, ON THE CONTRARY, SUCH PROCEEDS OR AN AMOUNT EQUAL TO THE RESTORATION COSTS WOULD BE REQUIRED TO BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. ACCORDINGLY, CONSIDERATION OF THE FOUR METHODS SUGGESTED IN YOUR LETTER FOR THE USE OF INSURANCE PROCEEDS FOR RESTORATION OF THE PROPERTY IS NOT NECESSARY. THERE IS ENCLOSED FOR YOUR INFORMATION A COPY OF OUR DECISION OF TODAY, B-126023, 35 COMP. GEN. 391, TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, CONCERNING INSURANCE COVERAGE UNDER THE LEASE-PURCHASE PROGRAM AS AUTHORIZED UNDER THE PUBLIC BUILDING CONTRACT ACT OF 1954, 68 STAT. 518, 40 U.S.C. 352.