BOARD OF TRUSTEES OF THE KENTUCKY SCHOOL BOARDS INSURANCE TRUST APPELLANT
JOSEPH N. POPE, JR. DEPUTY REHABILITATOR OF THE KENTUCKY SCHOOL BOARDS INSURANCE TRUST WORKERS' COMPENSATION SELF-INSURANCE FUND; JOSEPH N. POPE, JR., DEPUTY REHABILITATOR OF THE KENTUCKY SCHOOL BOARDS INSURANCE TRUST PROPERTY AND LIABILITY SELF-INSURANCE FUND; AND KENTUCKY ASSOCIATION OF COUNTIES, INC. APPELLEES
REVIEW FROM COURT OF APPEALS CASE NO. 2015-CA-001682-TG
FRANKLIN CIRCUIT COURT NO. 14-CI-01080
COUNSEL FOR APPELLEE JOSEPH N. POPE JR, DEPUTY REHABILITATOR
OF THE KENTUCKY SCHOOL BOARDS INSURANCE TRUST PROPERTY AND
LIABILITY SELF-INSURANCE FUND, AND JOSEPH N. POPE, JR.
DEPUTY. REHABILITATOR OF THE KENTUCKY SCHOOL BOARDS INSURANCE
TRUST WORKERS' COMPENSATION SELF-INSURANCE FUND: Perry
Mack Bentley Todd Smith Page Sfoll, Keenan & Ogden, PLLC
Justin Drew Clark Stoll, Keenan & Ogden, PLLC Paul C.
Harnice, Sarah Jackson Bishop Stoll, Keenon & Ogden,
PLLC, Bany Lee Dunn Public Protectfon Cabinet.
COUNSEL FOR AMICUS CURIAE, KENTUCKY ASSOCIATION OF COUNTIES,
INC.: Timothy A. Sturgill K~ntucky Association of Counties,
Board of Trustees of the Kentucky School Boards Insurance
Trust (KSBIT), appeals from a decision of the Franklin
Circuit Court rejecting its claim of governmental immunity
and thus denying its motion for summary judgment. Appellee,
Joseph N. Pope, Jr., is the Deputy Rehabilitator of the
Kentucky School Boards Insurance Trust Workers'
Compensation Self-Insurance Fund and the Deputy Rehabilitator
of Kentucky School Boards Insurance Trust Property and
Liability Self Insurance Fund.
circuit court concluded that the KSBIT Board is not entitled
to governmental immunity because its "parent"
entity is not an agency of state government that enjoys
governmental immunity and it does not perform a function that
is integral to state government. The KSBIT Board appealed the
circuit court's decision to the Court of Appeals. We
granted Appellee's uncontested CR 74.02(2) motion to
transfer this case directly to this Court. V. Upon review, we
agree that the KSBIT Board does not qualify for governmental
immunity and so we affirm the Franklin Circuit Court's
order denying summary judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Board of Trustees of the Kentucky School Boards Insurance
Trust manages the self-insurance funds established to provide
workers' compensation insurance and property and
liability insurance to local public school districts that are
members of the Kentucky School Board Association (KSBA);
Prior to the involvement of the Deputy Rehabilitator,
KSBIT's responsibilities included the collection and
management of the Trust's funds, which are comprised of
member contributions, policy dividends, and rate refunds;
investments and income thereon; and other money and property
in the hands of the Trust in connection with its
administration. KSBIT also performed other duties required in
the administration of the Trust. KSBA served as the
administrator of KSBIT providing the day-to-day management of
the. KSBIT funds Until 2010.
KSBIT's self-insurance funds, the Workers'
Compensation Fund and the Property and Liability Fund,
operated at a deficit for many years. Eventually, the
Kentucky Department of Insurance stepped in and directed
KSBIT to cure the deficits or assess its member school boards
additional fees to balance its accounts. In response, KSBIT
entered into agreements with the Kentucky League of Cities
(KLC) and the Kentucky League of Cities Insurance Services
Association (KLCIS) to borrow money and to transfer the
administration of the KSBIT funds to those entities. Despite
these efforts, the financial condition of KSBIT's
insurance funds continued to deteriorate. KSBIT wrote its
last insurance policy during the 2012-2013 fiscal year. In
the latter part of 2013, KLC/KLCIS and. KSBIT filed a
declaratory judgment action asking the Franklin Circuit Court
to force the Department of Insurance to assess KSBIT's
members for the additional money needed to overcome the
deficits and repay the KLC/KLCIS loan. Ultimately, the
Franklin Circuit Court placed the KSBIT Funds into
Deputy Rehabilitator filed suit against the KSBIT Board for
negligence, negligence per se, breach of fiduciary duty of
diligence and due care, and breach of fiduciary duty of
loyalty. The KSBIT Board asserted a defense of
governmental immunity and moved for summary judgment. After
applying the two-prong test expounded upon in Comair,
Inc. v. Lexington-Fayette Urban County Airport Corp.,
295 S.W.3d 91 (Ky. 2009), the circuit court concluded that
KSBIT did not qualify for governmental immunity.
Specifically, the circuit court determined that KSBIT was
created by KSBA, a nongovernmental entity. Since KSBA had no
governmental immunity, its progeny KSBIT could not have
immunity under the Comair test. The circuit court
held under the second prong of the Comair analysis
that KSBIT's purpose of maintaining a self-insurance
trust fund to provide its member organizations (local school
boards) with workers' compensation and other insurance
was not a function integral to state government. This appeal
appeal, KSBIT asserts that the circuit court's
Comair analysis was flawed for these reasons: 1)
because the language of the Agreement and Declaration of
Trust that established KSBIT reveals that its true
"parent" organization is not KSBA, as the circuit
court found, but is instead the several, local school
districts that comprise KSBA and opted to participate in
KSBIT's insurance programs, and those member school
districts do have governmental immunity; and 2) because
KSBIT's function of providing local public school
districts with statutorily-mandated workers' compensation
insurance and property, insurance advances the governmental
function of public education and is, therefore, a function
integral to state government.
reasons set forth below, we affirm the decision of the
Franklin Circuit Court.
Comair, this Court sifted through and digested
decades of decisions illustrating Kentucky courts'
struggle to apply the concept of governmental immunity to
public and quasi-public agencies outside the fundamental
departments of state government. We concluded that two
elements are decisive. The first element is whether the
entity in question was created by a governmental agency that
enjoyed the cloak of governmental immunity. "This
inquiry can be as simple as looking at the 'parent'
of the entity in question, i.e., was it created by the state
or a county, or a city?" 295 S.W.3d at 99. The second
element is whether the entity in question exercises a
function that is "integral to state government."
Id. (citing Gross v. Kentucky Board of Managers
of World's Columbian Exposition, 49 S.W. 458, 459
(Ky. 1899); Kentucky Center for the Arts v. Berns,
801 S.W.2d 327, 332 (Ky. 1990)).
adaptation of a two-pronged test is consistent with our
historical application of governmental immunity and it has
proven to be a workable solution to a complex and often
confusing issue as seen, for example, in Kentucky River
Foothills Development Council, Inc. v. Phirman, 504
S.W.3d 11 (Ky. 2016), and in Coppage Construction. Co. v.
Sanitation District No. 1, 459 S.W.3d 855 (Ky. 2015).
Our review accordingly proceeds with an examination of the
two elements as they relate to KSBIT.
The KSBIT Board was not created by local public school
KSBIT Board argues on appeal that it is immune from the
claims of the Deputy Rehabilitator because it was created by
local public school boards which have traditionally and
undisputedly enjoyed governmental immunity. The KSBIT Board
claims to have inherited the governmental immunity of its
"parent" agencies. The irony is inescapable: KSBIT
claims to have inherited the governmental immunity of the
local public school boards whose insurance trust funds the
rehabilitator claims KSBIT negligently mismanaged. KSBIT
posits no ...