ELPO wins $9.2 million decision for education client
by Mandy Hicks
Michael A. Owsley and Sarah P. Jarboe of ELPO recently represented Green River Regional Educational Cooperative in a lawsuit and won a victory at the trial court level for the cooperative. The decision could save school districts and colleges across Kentucky nearly $8 million and distribute approximately $1.2 million collectively.
The lawsuit stems from $8 million Surplus Notes provided five years ago to two self-insurance funds within the Kentucky School Boards Insurance Trust (KSBIT). At the time, the Kentucky School Boards Insurance Trust had a deficit in its Workers’ Compensation Fund and Property and Liability Fund.
The Kentucky League of Cities Insurance Services Association provided the funding for the Surplus Notes. Under the terms of the Surplus Notes repayment of the $8 million principal and interest was only allowed if the KSBIT funds had a surplus in excess of $2 million. Despite the fact that the funds never acquired a surplus in excess of $2 million, the Kentucky League of Cities collected more than $1.2 million in quarterly interest payments on the Surplus Notes.
KSBIT’s deficit continued to grow until 2013, at which point the KSBIT funds entered into rehabilitation and the Commissioner of the Department of Insurance took over management of the funds as rehabilitator. Former Kentucky School Board Insurance Trust members, including the majority of the state’s school districts and colleges within the state, were assessed approximately $49 million in 2014 to pay for all legal liabilities and obligations of the funds.
The current litigation involves the question of whether a second assessment of $8 million is necessary to repay the Surplus Notes and whether the Kentucky School Board Insurance Trust should be refunded the $1.2 million of interest payments collected by the Kentucky League of Cities. The Kentucky League of Cities, some of its member cities, and the Kentucky School Boards Insurance Trust argued for assessment of the $8 million and against repayment of the $1.2 million, while the Department of Insurance and Green River Regional Educational Cooperative, an intervening party in the lawsuit, took the opposing view.
The Franklin Circuit Court recently entered summary judgment in favor of Green River Regional Educational Cooperative and the Department. The court held that the plain terms of the note did not allow for repayment of the $8 million Surplus Notes through assessment of the Kentucky School Board Insurance Trust members and that the $1.2 million of interest was improperly collected and should be repaid to the Kentucky School Boards Insurance Trust.
The trial court’s decision means that an additional $8 million will not be taken from school districts, and that the approximately $1.2 million in interest payments must be repaid to the Kentucky School Boards Insurance Trust for distribution to its member school districts and colleges.
ELPO, based in Bowling Green, Kentucky, works extensively with school districts on matters of education law. Contact Michael Owsley or Sarah P. Jarboe at (270) 781-6500 for more information about our work.