B-237654, Feb 21, 1991, 90-2 CPD ***

B-237654, Feb 21, 1991, 90-2 CPD ***

APPROPRIATIONS/FINANCIAL MANAGEMENT - Appropriation Availability - Purpose availability - Liability insurance PROCUREMENT - Payment/Discharge - Unauthorized contracts - Quantum meriut/valebant doctrine DIGEST: Insurance should not have been purchased by the Federal Highway Administration for a traveling highway technology exhibit because of the government's long-standing policy of self-insurance. However, the shipping company that obtained the insurance for the agency may be paid for the premiums because the insurance was obtained in good faith, the agency is taking steps to prevent future violations of the self insurance rule, and payment has been allowed previously in similar circumstances. 55 Comp.Gen. 1196 (1976).

Federal Highway Administration purchase of commercial insurance:

The Associate Administrator for Administration at the Federal Highway Administration, U.S. Department of Transportation, has requested an advance decision as to whether premiums can be paid on commercial insurance acquired to insure a traveling highway technology exhibit. For the reasons indicated below, we hold that the insurance premiums may be paid even though the purchase of insurance was a violation of the government's self-insurance policy.

BACKGROUND

In March 1989 the Administration contracted with a freight shipper to transport a highway technology exhibit overseas. The shipper asked whether the Administration wanted insurance to protect the exhibit. After consulting with Administration officials, an employee, who was not a contracting officer, advised the shipper to purchase the insurance. The Administration, which was designated the insured party, was subsequently billed by the shipper for the insurance premiums. /1/

Payment has not been made because the Administration now views the insurance contract as an unauthorized contract which cannot be ratified by a contracting officer because of the government's self-insurance policy. However, the Administration states that the insurance was taken out in "good faith" and that unjust enrichment would result if the premiums are not paid.

DISCUSSION

The Federal Acquisition Regulations (FAR) allow contracting officers to ratify unauthorized commitments that are otherwise proper contracts after the officer determines that such a contract or commitment could have been authorized at the time of the award. 48 C.F.R. Sec. 1.602-3 (1988). /2/ Ratification does not require GAO approval or certification but is an administrative determination made at the agency level. However, because the regulation does not clearly define the term "otherwise proper", the Administrator asks in effect whether the purchase of commercial insurance would have been an "otherwise proper" contract had it been correctly authorized. See B-208038-O.M., Feb. 23, 1983.

The United States Government has long maintained a policy of self insuring 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. Comp.Gen. 928, 929 (1942). The Administration argues that the insurance was acquired "to protect unique government property" and noted in the procurement request that the one-of-a-kind exhibit material "requires special insurance needs above normal government self protection."

Notwithstanding the Administration's emphasis on the need to protect the exhibit, the procurement of insurance for this purpose does not fall within any of the exceptions we have recognized from the self insurance rule. /3/ Thus, the Administration's purchase of commercial insurance for the exhibit was improper. /4/

Although the Administration's purchase of commercial insurance was a violation of the self-insurance rule, we will allow payment of the premiums. Our Office has held that what was previously the Federal Procurement Regulation allowing ratification of unauthorized contracts, "clearly means that a contracting officer may ratify a contractual commitment only if the contract as ratified would not be contrary to statute or regulation." B-204388, Jan. 5, 1982.

In 55 Comp.Gen. 1196 (1976), we allowed an agency to pay premiums for commercial insurance to cover display items on loan from another agency which the loaning agency required to be insured. We stated that the policy of self-insurance was applicable and that commercial insurance should not have been obtained. Nevertheless, we held:

this policy of self-insurance is not based on positive law, and no law or regulation affirmatively prohibits the purchase of insurance in such circumstances. Therefore, and since the insurance was apparently procured and issued in good faith, no objection will be made to payment. ...

Id. at 1197.

Likewise, in the case at hand, although the procurement of insurance was improper, no statute or regulation prohibits the purchase of insurance, and consequently, the insurance contracts may be ratified pursuant to 48 C.F.R. Sec. 1.602-3. However, in the future, commercial insurance should not be purchased under such circumstances.

We understand that the Administration has indicated it is notifying employees of the self-insurance rule.

/1/ The premiums were $880.00 and $750.00 on commercial insurance policies of $88,000.00 and $75,000.00, respectively. The former Federal Procurement Regulation, 41 C.F.R. Secs. 1-1.405, now superceded by FAR, 48 C.F.R. Sec. 1.602-3, contained a similar ratification regulation cited in several of our past decisions. See B-210808, May 24, 1984; B-208038-O.M., Feb. 23, 1983; B-204388, Jan. 5, 1982.

/2/ We have recognized that certain situations arise in which exceptions to the self-insurance rule should be made. The standards for exception are:

(1) the economy sought by self-insurance is defeated,

(2) sound business practice indicates that a savings can be effected, or

(3) services or benefits not otherwise available can be obtained by purchasing insurance.

/3/ B-151876, Apr. 24, 1964. Also, the self-insurance policy need not be applied where the reasons for the policy would not be carried out. Comp.Gen. 1321, 1323 (1976).

/4/ We also note that any payment made under a claim would have to be deposited as miscellaneous receipts in the Treasury pursuant to 31 U.S.C. Sec. 3302(b) (1988) and could not be used directly to repair or replace the exhibit had a loss in fact occurred.