Taylor Bus Service, Inc. v. San Diego Bd. of Education

• Citation: 241 Cal.Rptr. 379,195 Cal.App.3d 1331
• Decision Date: 03 November 1987
• Docket Number: No. D005215,D005215
• Court: California Court of Appeals
• Parties: , 42 Ed. Law Rep. 628 TAYLOR BUS SERVICE, INC., et al., Plaintiffs and Appellants, v. SAN DIEGO BOARD OF EDUCATION et al., Defendants and Respondents.

Page 379

241 Cal.Rptr. 379

195 Cal.App.3d 1331, 42 Ed. Law Rep. 628

TAYLOR BUS SERVICE, INC., et al., Plaintiffs and Appellants, v. SAN DIEGO BOARD OF EDUCATION et al., Defendants and Respondents.

No. D005215.

Court of Appeal, Fourth District, Division 1, California.

Nov. 3, 1987.

Review Denied Jan. 20, 1988.

Frederick E. Turner and Turner, Cooper and Reynolds, Irvine, for plaintiffs and appellants.

Christina L. Dyer and Jose A. Gonzales, San Diego, for defendants and respondents.

BENKE, Associate Justice.

Plaintiffs Taylor Bus Service, Inc., and Josephina Haime (Taylor) appeal the denial of their petition for a writ of mandamus. The action arises from a dispute between the San Diego Unified School District (District) and Taylor concerning the award of a contract for school bus transportation services for the 1986-1987 school year. Specifically, the dispute involves whether Taylor's offer of self-insurance was responsive to a bid requirement that liability insurance be secured by the party awarded the contract. Taylor contends in rejecting its low bid as nonresponsive, the District failed to exercise its discretion to determine whether Taylor's bid substantially complied with bid specifications. Taylor alternatively argues if the District exercised its discretion and determined the offer of self-insurance not in substantial compliance, it did so without requisite due process. Taylor further argues the District's conditional award of the contract to it could not be rescinded. Finally, Taylor argues if the contract award could be rescinded, it was improper for the District to award the contracts to others without further competitive bidding. We hold the District did, with requisite due process, properly exercise its discretion in determining Taylor's bid to be nonresponsive, properly rescinded the conditional award to Taylor and properly awarded the contract without further competitive bidding.

I

Education Code section 39802 provides for the contracting of public transportation services by school districts. The section requires, when an expenditure of more than $10,000 is involved, bids be secured pursuant to Education Code sections 39640 and 39641. ¹ (Ed.Code, § 39802, does not require the contract be let to the lowest bidder.)

The present dispute concerns a transportation contract for the 1986-1987 school year. However, the controversy began in October 1985 when the District learned Taylor was not in compliance with the liability insurance requirements of the transportation contracts let for the 1985-1986 school year. Those contracts required $10 million of comprehensive general liability insurance. Taylor had a $1 million primary policy, $4 million covered by a self-insurance trust and $5 million covered by an excess insurance carrier.

The District requested Taylor submit information concerning its insurance trust and informed Taylor its contract might be terminated for failure to comply with the contract insurance requirements. Taylor provided the information. ²

In December 1985, District staff recommended, because of the impossibility of securing replacement buses, the San Diego Board of Education (School Board) partially waive the insurance requirement of Taylor's contract and accept the $4 million self-insurance plan. The staff indicated the insurance trust had been reviewed by District counsel who had concluded it was not a policy of insurance meeting contractual requirements, that the $4 million in the trust was available for all claims against Taylor, not just those involving the District, and could be depleted by a single incident. The District's insurance broker also reviewed the trust and determined it did not violate California law. The broker noted that given difficulties in the insurance industry, it was a reasonable business risk for the District to accept the trust at that time.

District staff recommended acceptance of the trust but only for the balance of the then existing contracts. District staff further recommended that all carriers be required to provide evidence of the required insurance for contracts let for the 1986-1987 school year. The School Board approved the partial waiver of Taylor's insurance requirements.

The District informed Taylor by letter on December 12, 1985, that those contracts held by Taylor and subject to renewal would not be renewed because of Taylor's failure to provide evidence of insurance. The letter made clear the District's waiver of insurance requirements was only for the remaining term of existing contracts.

On March 3, 1986, the District notified Taylor by letter that it was reducing its insurance requirements for the 1986-1987 school year. The District would require $5 million in general liability and comprehensive automobile liability insurance and $100,000 uninsured motorist coverage. The letter noted Taylor had indicated a willingness to meet these requirements and a desire to renegotiate for renewal of existing contracts. The District indicated it would enter negotiations for renewal if by March 14, 1986, Taylor supplied a certificate of insurance or a certificate of insurability covering the contract year.

On March 6, 1986, the District notified Taylor it had received a certificate of insurance from the Mesa Verde Insurance Trust. The District reiterated the insurance coverage required was with an insurance company licensed to do business in California. The letter also noted the self-insurance trust would not be accepted for 1986-1987 contracts.

On March 18, 1986, Taylor advised the District it intended to continue to provide $10 million of coverage either through an insurance trust or insurance company. The District responded on March 21, 1986, informing Taylor that if it wished to provide services for the 1986-1987 school year, it would have to comply with all insurance requirements of the contract and would be required to provide $5 million in coverage with an insurance carrier licensed to do business in California.

On April 15 and 22, 1986, the District advertised for bids on transportation contract No. 67-05-12. Among the myriad conditions and requirements contained in the specifications for bid was one requiring the contractor to insure jointly the liability of the contractor and the District. The specifications required the insurance be written on a per occurrence basis, provide $5 million in comprehensive general liability, $5 million combined single limit coverage and comprehensive automobile liability and $5 million combined single limit coverage. The specifications also required $100,000 in uninsured motorist coverage.

The bid specifications also required as part of the bid response a certificate of insurance or a certificate of insurability. If a certificate of insurability was used, the contractor was required to provide the District a certificate of actual coverage within 10 days of the award of the contract.

On May 21, 1986, the District received from Nationwide Insurance Company a certificate of insurability for Taylor in the amounts and types of insurance required by bid specifications.

On June 16, 1986, District staff reported to the District on the bidding results. Taylor was the low bidder on four bus types in contract No. 67-05-12 and District staff recommended Taylor be awarded contracts for those buses. District staff further recommended the assistant superintendent for business services be given authority to reassign any of the contracts to the second lowest bidder if the low bidder failed to provide the documentation required for safety, service performance or insurance. The School Board accepted these recommendations.

On June 19, 1986, Taylor was notified it was a successful bidder. The letter noted the requirement that all contractors for bus services furnish the required certificate of insurance by July 1, 1986. Taylor did not file the required certificate. Taylor did, however, forward to the District additional materials concerning its insurance trust. On July 9, 1986, the District replied that the contract specifications required a certificate of insurance and that no exception could be made for Taylor. The letter informed Taylor that since no certificate of insurance had been received the District would be asked to rescind its award to Taylor.

On July 15, 1986, District staff recommended the award to Taylor be rescinded because of the failure to provide the requisite certificate of insurance. District staff requested approval of award to the second lowest bidder. However, since the next lowest bidder could supply only part of the required buses and since insufficient time existed to rebid the contract, it was recommended the contracts be let, without competitive bidding, to other companies.

At a public meeting on July 15, 1986, the School Board considered rescission of the Taylor contract. At that time both the president of Taylor and its counsel were allowed to address the School Board. Taylor requested a continuance to allow its insurance and actuarial consultants to attend the hearing. The request for continuance was denied. Counsel discussed the insurance industry and the efforts of Taylor to secure insurance. Counsel noted Taylor had supplied the District with a substantial amount of material concerning the insurance situation. Counsel explained the nature of the insurance trust and Taylor's belief that the trust provided better coverage than would a contract of insurance.

District counsel noted the District had worked closely with the business office concerning Taylor's insurance trust since the time of conditional waiver of the insurance requirement for Taylor's 1985-1986 contract. Counsel stated she did not believe the contract could be awarded to Taylor without violating competitive bidding laws. Counsel noted the District was aware of business realities and had made a business judgment to require insurance, a requirement the other bidders had met.

Taylor suggested the contracts...