Board of Trustees of the Kentucky School Boards Insurance Trust v. Joseph N. Pope Jr Deputy Rehabilitator of the Kentucky School Boards Insurance Trust Workers' Compensation Self-Insurance Fund
2015 SC 000664
| Ky. | Oct 24, 2017Background
- KSBIT (Kentucky School Boards Insurance Trust) managed self-insurance funds providing workers' compensation and property/liability coverage to participating local school districts; KSBA served as administrator until 2010.
- The Workers' Compensation and Property & Liability funds ran deficits; KSBIT borrowed from KLC/KLCIS and eventually stopped issuing new policies. The Department of Insurance placed the funds into rehabilitation.
- The Deputy Rehabilitator sued the KSBIT Board for negligence and breach of fiduciary duties, seeking recovery for alleged mismanagement of trust funds.
- KSBIT moved for summary judgment asserting governmental immunity; the Franklin Circuit Court denied the motion under the two-prong Comair test.
- On appeal, KSBIT argued (1) its true parent was the member school districts (which have immunity) rather than KSBA, and (2) providing insurance to school boards furthers the integral governmental function of education.
- The Kentucky Supreme Court affirmed: KSBIT was created by KSBA (a private 501(c)(4)), not individual school districts, and KSBIT’s insurance-management activities are not an integral state governmental function.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether KSBIT was created by a governmental entity entitled to immunity | Rehabilitator: KSBIT was not created by school districts; KSBA is the creator and lacks immunity | KSBIT: Parent is participating local school districts (which have immunity), not KSBA | Held: KSBIT was created by KSBA (private 501(c)(4)); founder/member school boards are not parties to the Trust Agreement, so KSBIT fails prong one |
| Whether KSBIT performs a function integral to state government | Rehabilitator: Managing insurance funds is not integral to state government | KSBIT: Providing statutorily-mandated workers' comp and property insurance furthers education and is integral | Held: Providing/managing insurance is proprietary and commercially replaceable; not an integral state function (fails prong two) |
| Whether contributions of public funds by member boards confer immunity on KSBIT | KSBIT: Member boards funded the trust with public money, so KSBIT should share their immunity | Rehabilitator: Public contributions do not transform a private trust administrator into an immune governmental actor | Held: Malone does not support transplanting contributors’ immunity to the fund administrator; participation/funding does not create immunity |
| Whether KSBIT’s activities are like protected educational functions (Prater analog) | KSBIT: Analogous to Prater where activities furthered education and were immune | Rehabilitator: Prater involved uniquely governmental on-campus functions, not commercial insurance activity | Held: Distinction upheld—Prater involved an activity only the school could perform; KSBIT’s insurance role is commercially replicable and thus proprietary |
Key Cases Cited
- Comair, Inc. v. Lexington-Fayette Urban County Airport Corp., 295 S.W.3d 91 (Ky. 2009) (adopts two-prong test for governmental immunity: creation by an immune governmental entity and performance of an integral state function)
- Kentucky River Foothills Dev. Council, Inc. v. Phirman, 504 S.W.3d 11 (Ky. 2016) (applies Comair framework to quasi-public entities)
- Coppage Constr. Co. v. Sanitation Dist. No. 1, 459 S.W.3d 855 (Ky. 2015) (discusses governmental vs. proprietary functions and statewide concern analysis)
- Yanero v. Davis, 65 S.W.3d 510 (Ky. 2001) (local school boards perform an integral state function by providing public education)
- Kentucky Ctr. for the Arts v. Berns, 801 S.W.2d 327 (Ky. 1990) (immunity extends only to entities within regular patterns of state administrative organization)
- Franklin County v. Malone, 957 S.W.2d 195 (Ky. 1997) (participation in a self-insurance fund does not imply waiver of immunity; does not entitle fund administrators to contributors’ immunity)
- Breathitt County Bd. of Educ. v. Prater, 292 S.W.3d 883 (Ky. 2009) (activities directly furthering educational mission may be governmental rather than proprietary)