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Knowing the Waters – Commission Appointments and Defense

By Frank Chmelik of Chmelik Sitkin & Davis P.S. – WPPA Counsel (July 2018)

Several items of interest to port commissioners have arisen over the past few months.  They are not related but taken together provide some (I hope) useful information.

The Port Commission Appoints Three Positions.   The port commission appoints the executive director, the port auditor and the port attorney. These three appointees report directly to the port commission and serve at the pleasure of the port commission.  The port commission must rely on these folks to provide honest and accurate reports and opinions.

  • Executive Director. The port commission appoints the executive director (at some ports a “manager”) who is delegated authority, pursuant to RCW 53.12.270, as the “managing official” to act on behalf of the port commission to undertake “such administerial powers and duties of the commission as it may deem proper for the efficient and proper management of port district operations.”  This delegation must be described in a resolution adopted by the port commission and the resolution must “establish guidelines and procedures for the managing official to follow.”  It is from this language in RCW 53.12.270 that the term “Delegation of Powers Resolution” was coined.
  • Port Auditor. The port auditor is appointed by the port commission.  Pursuant to RCW 53.36.010 the auditor signs warrants (checks) “upon vouchers approved by the commission”.  Moreover, RCW 42.24.080 requires that prior to making a payment to anyone “furnishing materials, rendering services or performing labor, or for any other contractual purpose” to the port, the claim for payment must be “audited, before payment, by an auditing officer elected or appointed.”   Therefore, the port commission must appoint an auditor.   Practically speaking the auditor is also the port’s director of finance or chief financial officer.  It is understood that the auditor/CFO both works for the executive director and reports directly to the commission on audit issues.
  • Port Attorney. The port attorney provides legal advice to the port and represents the port in litigation.  Most of the actual work is done with the executive director and staff, but it is important that the port commission make the actual appointment and that there is a clear understanding that the port attorney represents the port and ultimately reports directly to the port commission.

The Executive Director, Auditor and Attorney Work Together to Protect the Port.  These three direct reports provide a “check & balance system” and a sounding board where proposed actions or initiatives are discussed.    The executive director manages the port and insures the port commission is kept fully appraised of the port’s operations.   The auditor makes sure all the income and expenditures are properly tracked, in compliance with proper GAAP and state auditor accounting rules and that the port commission has a clear picture of the finances.  The port attorney makes sure that proposed actions have a legal basis and that the commission is fully appraised of the legal consequences of proposed actions.  Practically speaking the executive director, the port auditor and the port attorney frequently discuss the appropriate course of action and keep the commission appraised of all significant actions or issues.   All three must recognize that the port commission ultimately runs the port.  After all, RCW 53.12.010 provides that “the powers of the port district shall be exercised through a port commission consisting of three or, when permitted by this title, five members.”

The Port Will Defend Port Commissioners and Pay Judgements in Lawsuits. It is not unheard of for individual commissioners to be named in a lawsuit alleging some action taken by the port or by the port commission.  RCW 53.08.208 provides that a port district may defend and indemnify its port commissioners (and other port employees) in lawsuits “arising out of the performance or failure of performance of duties.”  The port commissioner must request the defense and indemnification.  This done by letter.  After the request is received the port appoints a lawyer to defend the port commissioner (the “defense”).  As discussed below, practically speaking this is likely done by in conjunction with the port’s liability insurance carrier. The port will also pay any settlement or judgement (the “indemnification”) provided that the port commissioner “acted in good faith” and “within the scope or his/her duties as a port commissioner.”

The Port’s Insurance Company Will Likely Provide a Defense and Indemnification.  The defense under RCW 53.08.280 should not be confused with the duty a port insurance carrier likely owes to each commissioner (and port employee) to provide a defense and pay any settlement or judgement because most commercial general liability insurance policies issued to ports define the “insured” to be the port, its commissioners, officers and employees.   Generally, the insurance company duty to defend is broader then the RCW 53.08.280 duty.  Moreover, most ports have also purchased “directors and officers” liability insurance which specifically covers lawsuits against port commissioners for actions in the course of their duties.  The insurance is triggered by a letter enclosing the claim.  Don’t be surprised if the first letter back from the insurance company seeks to defend under a “reservation of rights” or “denies” coverage.  Lawyers are not surprised either and usually follow up with additional information that results in coverage.