Kentucky school systems to receive additional $1.8 million in reimbursements

by Mandy Hicks

Soon $1.8 million will be disbursed to Kentucky school systems and colleges that were assessed in 2014 to rehabilitate the Kentucky School Boards Insurance Trust (KSBIT).  This is the result, in part, of a lawsuit and settlement handled by ELPO attorneys, Michael Owsley and Sarah Jarboe, both of whom are partners in the firm. They worked with attorneys from the Kentucky Department of Insurance (DOI) and Public Protection Cabinet to achieve this outcome.

The lawsuit and settlement already brought about a $1 million payout to these school entities in 2016 and avoided an additional $8 million assessment of former KSBIT members.

“This is a significant boost for Kentucky schools,” says attorney Sarah Jarboe. “We expect the funds to be disbursed to the school systems within a few weeks. And it is possible that even more money will be dispensed to the former KSBIT members in coming years as the KSBIT Funds continue the rehabilitation process.”

Lawsuit stems from self-insurance funds

Green River Regional Educational Cooperative
Green River Regional Educational Cooperative

The lawsuit stems from $8 million Surplus Notes provided eight years ago to two self-insurance funds within KSBIT.  At the time, KSBIT 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 DOI took over management of the Funds as rehabilitator. Former KSBIT members, including the majority of Kentucky’s school districts and colleges, were assessed approximately $49 million in 2014 to pay for all legal liabilities and obligations of the funds.

The now-settled litigation involved the question of whether a second assessment of $8 million is necessary to repay the Surplus Notes and whether KSBIT 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 KSBIT 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 (GRREC), an intervening party in the lawsuit, took the opposing view.

In 2015, the Franklin Circuit Court entered summary judgment in favor of GRREC, represented by Michael Owsley and Sarah Jarboe, and the DOI. 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 KSBIT members and that the $1.2 million of interest was improperly collected and should be repaid to KSBIT.

The Kentucky League of Cities and other parties in the lawsuit appealed the decision to the Kentucky Court of Appeals. A settlement was reached in 2016, at which time $1 million was disbursed to the former KSBIT members who were assessed in the 2014 rehabilitation of the KSBIT Funds.  The current $1.8 million payout is the second disbursement of funds to assessed schools and school-related entities.  Additional payments to the assessed schools are possible as funds become available to KSBIT.

The Kentucky League of Cities Insurance Trust has also received disbursements from KSBIT totaling $4 million.  Pursuant to the settlement agreement, the $8 million Surplus Notes are now deemed fully satisfied.

ELPO, based in Bowling Green, Kentucky, works extensively with school districts on matters of education law. Contact Michael A.Owsley or Sarah P. Jarboe at (270) 781-6500 for more information about our work.