AG opinion clears path for Oklahoma public entity captives

The State of Oklahoma and its political subdivisions are not constitutionally prohibited from creating and owning captive insurance companies, according to a formal opinion issued by Oklahoma attorney general Gentner Drummond.

In attorney general opinion 2025-18, issued on 16 December, Drummond concluded that Articles X, Sections 15 and 17 of the Oklahoma constitution do not bar the state or its political subdivisions from forming captive insurers, provided those captives are structured solely to insure the risks of the public entities that own them.

The opinion was issued in response to a request for clarification on the articles from Oklahoma insurance commissioner Glen Mulready and state representative Jason Blair, which had also highlighted that “public bodies – both state entities and political subdivisions – have increasingly considered forming their own captive.”

Drummond concluded that the constitutional provisions in question are aimed at preventing public funds from being invested in or used to support private enterprises, rather than preventing the state from using corporate structures to manage its own risk.

“A captive insurance company wholly owned by the state or a political subdivision, and existing only to insure against that body’s risk exposure, does not implicate these concerns,” the opinion states.

While Article X, Section 15 prohibits the state from becoming an owner or stockholder in a “company, association, or corporation,” and Section 17 applies similar restrictions to political subdivisions, the opinion explained that Oklahoma courts have consistently interpreted these provisions as targeting gifts, loans, or investments of public funds for the benefit of private entities.

According to the opinion, a captive insurer formed solely to insure the risks of its public owner does not involve such a transfer of public benefit.

“If the only parent is the state or a political subdivision, no public funds would be used for the benefit of a private entity,” Drummond stated.

“Rather, the public funds invested in or otherwise directed to the captive insurance company would be used in furtherance of insuring risk faced by the state or the political subdivision that owns it.”

The opinion referenced Oklahoma Supreme Court decisions, including Lawrence v. Schellstede, which held that a public entity’s participation in a mutual insurance company did not violate constitutional limits unless it created ownership or liabilities equivalent to a stockholding in a private enterprise.

Drummond said the same reasoning applies to captive insurance companies, noting that constitutional provisions should be interpreted “in harmony with common sense and reason” and not in a way that would unnecessarily restrict ordinary risk management activities of public bodies.

The opinion notes that attorneys general in other states have found constitutional violations where public entities participated in captive arrangements involving private interests, and cautions that similar structures in Oklahoma could raise concerns.

It further warns that public entities must carefully structure the captive “in a way that avoids participation by or entanglement with private interests.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.