B-124349, AUGUST 24, 1955, 35 COMP. GEN. 100

B-124349, AUGUST 24, 1955, 35 COMP. GEN. 100

BIDDERS - QUALIFICATIONS - INSURANCE COMPANIES - LICENSE REQUIREMENTS AS BASIS FOR ACCEPTANCE OR REJECTION OF BID THE FAILURE OF AN INSURANCE COMPANY WHICH HAD WRITTEN A LARGE PART OF THE INSURANCE FOR THE FARMERS HOME ADMINISTRATION TO BECOME LICENSED FOR BUSINESS IN ALL THE 48 STATES AND TERRITORIES BY SEPTEMBER 1, 1955, AS REQUIRED UNDER A REVISED INSURANCE PROGRAM ANNOUNCED SIX MONTHS EARLIER, IS SUFFICIENT BASIS FOR REJECTION OF THE INSURANCE COMPANY'S BID IN WHICH THE FULL LICENSE REQUIREMENT WAS DELETED AND A REASONABLE TIME FOR COMPLIANCE WAS INSERTED IN LIEU THEREOF.

TO THE HOUSTON FIRE AND CASUALTY INSURANCE COMPANY, AUGUST 24, 1955:

REFERENCE IS MADE TO YOUR LETTERS OF JUNE 18 AND JULY 26, 1955, PROTESTING THE REJECTION OF YOUR BID FOR FURNISHING INSURANCE FOR THE FARMERS HOME ADMINISTRATION.

AS A RESULT OF RECOMMENDATIONS MADE BY US IN AN AUDIT REPORT TRANSMITTED TO THE CONGRESS EARLY THIS YEAR, THE FARMERS HOME ADMINISTRATION DETERMINED TO REVISE ITS EXISTING INSURANCE PROGRAM. UNDER THAT PROGRAM, A LARGE PART OF THE INSURANCE ON PROPERTY IN WHICH FHA HAD A MORTGAGE INTEREST WAS WRITTEN BY YOUR COMPANY IN ACCORDANCE WITH A CONTRACT EXECUTED IN 1939. A CONSIDERABLE AMOUNT OF WORK WAS PERFORMED BY FHA IN CONNECTION WITH SUCH INSURANCE, INCLUDING THE PROCESSING OF CLAIMS FOR LOSSES. IT WAS DECIDED THAT SERVICES OF THIS NATURE SHOULD BE PERFORMED BY THE INSURANCE CARRIER RATHER THAN BY FHA. PERFORMANCE OF SUCH SERVICES BY THE INSURANCE CARRIER APPARENTLY WOULD REQUIRE THE CARRIER TO BE LICENSED IN ALL JURISDICTIONS WHERE INSURED PROPERTY WAS LOCATED. UNDER THE OLD CONTRACT THIS WAS UNNECESSARY, AT LEAST PRIOR TO CERTAIN DECISIONS OF THE SUPREME COURT, SUCH AS UNITED STATES V. SOUTH-EASTERN UNDERWRITERS ASSOCIATION (1944), 322 U.S. 533; AND PRUDENTIAL INS. CO. V. BENJAMIN (1946), 328 U.S. 408.

IN ACCORDANCE WITH THIS ADMINISTRATIVE DETERMINATION, NOTICE OF CANCELLATION OF YOUR CONTRACT EFFECTIVE SEPTEMBER 1, 1955, WAS SENT TO YOU ON MARCH 1, 1955. ON MARCH 8, 1955, YOU WERE SENT A COPY OF A BULLETIN OUTLINING THE PROPOSED TERMS OF A NEW CONTRACT TO BE AWARDED EFFECTIVE SEPTEMBER 1, 1955. ONE OF THE CONDITIONS OF THE NEW PROPOSAL WAS THAT THE INSURER BE LICENSED TO DO BUSINESS IN ALL 48 STATES, IN HAWAII, ALASKA, PUERTO RICO, AND THE VIRGIN ISLANDS. AFTER SOME CORRESPONDENCE WITH FHA, YOU SUBMITTED A PROPOSAL BY LETTER DATED MAY 20, 1955. HOWEVER, YOU WERE NOT THEN LICENSED TO DO BUSINESS IN ALL STATES, AND IN YOUR PROPOSAL YOU STATED THAT YOU WOULD REQUIRE A "REASONABLE EXTENSION OF TIME" TO SECURE SUCH LICENSES. YOU WERE ADVISED THAT YOUR PROPOSAL COULD NOT BE CONSIDERED. THEREAFTER, ON JUNE 14, 1955, YOU EXECUTED THE FORMAL AGREEMENT PRESCRIBED BY FHA, BUT YOU DELETED THE REQUIREMENT OF SECTION 2 (D) THEREOF THAT EVERY POLICY BE WRITTEN BY AN AGENT LICENSED TO DO BUSINESS IN THE PARTICULAR STATE OR TERRITORY INVOLVED. IN LIEU OF THIS PROVISION YOU INSERTED ONE UNDER WHICH THE FHA WOULD AGREE TO PERMIT YOU A REASONABLE TIME TO BECOME LICENSED IN ALL STATES AND TERRITORIES. PROPOSALS RECEIVED FROM TWO OTHER COMPANIES MADE NO EXCEPTIONS TO THE TERMS OF THE AGREEMENT PROPOSED BY FHA.

WE SEE NO VALID OBJECTION TO THE ADMINISTRATIVE DETERMINATION TO REQUIRE THE DESIRED INSURANCE TO BE WRITTEN BY A COMPANY LICENSED TO DO BUSINESS IN THE STATE OR TERRITORY WHERE THE INSURED PROPERTY IS LOCATED. INDEED, IT SEEMS LIKELY THAT THE DISCONTINUANCE OF SERVICES HERETOFORE PERFORMED BY FHA IN PROCESSING CLAIMS FOR LOSSES WOULD REQUIRE THE INSURER TO BE SO LICENSED. YOU WERE GIVEN NEARLY SIX MONTHS' NOTICE OF THE REQUIREMENT. CONTINUITY OF INSURANCE AFTER SEPTEMBER 1, 1955, IS, OF COURSE, NECESSARY TO FHA. UNDER THESE CIRCUMSTANCES, YOUR FAILURE TO BECOME LICENSED TO DO BUSINESS IN ALL STATES AND TERRITORIES BY SEPTEMBER 1, 1955, IS IN OUR OPINION A SUFFICIENT BASIS TO CONSIDER YOUR PROPOSAL NON-RESPONSIVE TO THE FHA SOLICITATION, PARTICULARLY IN VIEW OF THE FACT THAT OTHER COMPANIES ARE ABLE TO MEET THIS REQUIREMENT.