Opinion
NO. 2017-CA-000499-MR
08-24-2018
JAMES R. MARTIN APPELLANT v. KENTUCKY INDIVIDUAL SELF-INSURANCE GUARANTY FUND; DWIGHT T. LOVAN, INDIVIDUALLY, AND IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF THE KENTUCKY DEPARTMENT OF WORKERS' CLAIMS; AND KENTUCKY DEPARTMENT OF WORKERS' CLAIMS APPELLEES
BRIEFS FOR APPELLANT: Jonathan D. Goldberg Jan M. West Christopher C. Bailey Prospect, Kentucky BRIEF FOR APPELLEE: Kentucky Individual Self-Insurance Guaranty Fund: David A. Owen Emma R. Wolfe Lexington, Kentucky BRIEF FOR APPELLEES: Dwight T. Lovan and Kentucky Department of Workers' Claims: B. Dale Hamblin, Jr. Department of Workers' Claims Frankfort, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 13-CI-00498 OPINION
AFFIRMING
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BEFORE: DIXON, D. LAMBERT, AND SMALLWOOD, JUDGES. DIXON, JUDGE: James R. Martin appeals from an order of the Franklin Circuit Court granting summary judgment in favor of Appellees, Kentucky Individual Self-Insurance Guaranty Fund, Dwight T. Lovan (in his individual and official capacity as Commissioner of the Department of Workers' Claims), and the Kentucky Department of Workers' Claims. We affirm.
Martin was the president of a now-insolvent company, ImagePoint, Inc. Prior to its insolvency, ImagePoint was a self-insured employer and member of the Kentucky Individual Self-Insurance Guaranty Fund (KISIGF) for the purposes of workers' compensation. The KISIGF was created to ensure employees would continue to receive payment of workers' compensation benefits if a self-insured employer became insolvent. KRS 342.900(2). To satisfy its self-insurance obligation, ImagePoint deposited security with the Commissioner in the form of a $425,000 letter of credit from Wachovia Bank. KRS 342.340(1)(b). In June 2009, after filing for bankruptcy, ImagePoint defaulted on its workers' compensation obligations, and the Commissioner issued a certificate of default to the company. KRS 342.345(2) provides,
KRS 342.340(1)(b) requires the employer to "[f]urnish to the commissioner satisfactory proof of its financial ability to pay directly the compensation in the amount and manner and when due as provided in this chapter. In this case, the commissioner shall require the deposit of an acceptable security, indemnity, or bond to secure, to the extent the commissioner directs, the payment of compensation liabilities as they are incurred."
A self-insurer whose certificate to self-insure has been revoked is not relieved of its obligations for compensation to its employees for work-related injuries or occupational diseases that occur during the period of self-insurance. The required security shall be maintained with the commissioner or under the commissioner's control until each claim for workers' compensation benefits has been paid, been settled, or lapsed under this chapter.At the time of the default, it was undisputed ImagePoint was still paying outstanding workers' compensation claims to former employees; consequently, the Commissioner cashed the letter of credit and transferred $425,000 to KISIGF, ordering it to assume the workers' compensation obligations of ImagePoint. See KRS 342.908(2).
KRS 342.908(2) provides: "In the event of issuance of a certificate of default, the commissioner shall call all security and transfer it to the appropriate guaranty fund created pursuant to this section. The commissioner shall also immediately notify, by certified mail, the guaranty fund and order the guaranty fund to assume the workers' compensation obligations of the member required in this chapter."
During the bankruptcy proceedings, Martin paid Wachovia $1,000,000 to acquire the debt owed by ImagePoint. Thereafter, in November 2012, Martin requested the KISIGF disburse to him any money remaining from the $425,000 surety in ImagePoint's account to satisfy the debt he had purchased from Wachovia. In response, the KISIGF advised Martin any request relating to disbursement of funds held in self-insurance accounts must be directed to the Commissioner. It is undisputed Martin did not to make a formal request to the Commissioner to disburse the security held in ImagePoint's account. Instead, Martin filed a declaratory judgment action in Franklin Circuit Court alleging statutory and regulatory violations by the KISIFG and the Commissioner, as well as claims of unjust enrichment and conversion. After a period of discovery, the parties filed cross-motions for summary judgment. The circuit court granted summary judgment in favor of Appellees, concluding Martin failed to exhaust his administrative remedies and lacked standing to pursue his claims. This appeal followed.
On appellate review, we must determine "whether the trial court correctly found there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law." Norton Hospitals, Inc. v. Peyton, 381 S.W.3d 286, 290 (Ky. 2012). "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). "The party opposing a properly presented summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing the existence of a genuine issue of material fact for trial." City of Florence, Kentucky v. Chipman, 38 S.W.3d 387, 390 (Ky. 2001).
Martin contends he was not required to exhaust his administrative remedies. To support his argument, he primarily relies on 803 KAR 25:220 § 3(1)(d), which requires the KISIGF to "[e]stablish a mechanism for return to the insolvent self-insured or the individual or entity posting the surety the remaining surety if there is a surplus." He theorizes the KISIGF, not the Commissioner, controlled the disbursement of the funds he requested.
The circuit court addressed Martin's argument as follows:
. . . [it] is Martin's contention that, by virtue of his purchase of all of ImagePoint's debts from Wachovia, he is entitled to immediate possession of the "surplus" of funds that have been paid into the Account.
The record reflects that, in response to Martin's request for a recalculation of the outstanding workers' compensation liability with respect to the amount contained within the Account, the [KISIGF] notified Martin that such a demand should be made upon the Commissioner, as the Commissioner has control of the surety in the Account. Martin contends, however, that his demand on the [KISIGF] for the surplus was appropriate, as the Commissioner does not have control of the security called in and deposited in the Account. In support of this, Martin cites to KRS 342.906(8), which states that "[s]ecurity called by the commissioner and disbursed to the guaranty funds, and assessments made upon members, shall vest in the guaranty funds, shall not thereafter be deemed state property, and shall not be subject to appropriation by the General Assembly or any other state agency." The [KISIGF] argues that such an interpretation would be in direct conflict with KRS 342.345(2), as stated above, since "[t]he required security shall be maintained with the commissioner or under the commissioner's control...." Instead, the [KISIGF] argues, KRS 342.906(8) must be read in conjunction with KRS 342.906(9) as creating a barrier to prevent other governmental bodies from using the money in the Fund for any purpose other than to compensate individuals
entitled to workers' compensation benefits." This Court agrees.
"Where there is an apparent conflict between statutes or sections thereof, it is the duty of the court to try to harmonize the interpretation of the law so as to give effect to both sections or statutes if possible." Ledford v. Faulkner, 661 S.W.2d 475, 476 (Ky. 1983). Even if a statute is susceptible to two interpretations, the Kentucky Supreme Court has held that "controlling weight will be given to a long-standing interpretation given to the statute by the agency charged with its administration." [Davidson v. American Freightways, Inc., 25 S.W.3d 94, 98 (Ky. 2000)(citing Hagan v. Farris, 807 S.W.2d 488 (Ky. 1991); Barnes v. Department of Revenue, 575 S.W.2d 169, 171 (Ky. App. 1978)).] In light of these tenants of statutory interpretation, this Court finds that the logical interpretation of the statutes in question vests possession of the security in the Account held by the [KISIGF] to pay out on the applicable workers' compensation claims, while the Commissioner retains control over the security until all the applicable claims for benefits have been paid, been settled, or lapsed, pursuant to KRS 342.345(2). Therefore, the Defendants' contention that the Commissioner is the only person or entity with legal authority to determine matters related to the amount of, call for, reduction of, or return of the security is correct.
"All moneys in the individual guaranty funds, exclusive of costs reasonably necessary to conduct business, shall be used solely to compensate persons entitled to receive workers' compensation benefits from a Kentucky member who has defaulted in performance of its workers' compensation benefit payment obligations under this chapter." Footnote in original.
"It is well-established that the exhaustion of administrative remedies is a jurisdictional prerequisite before a trial court can adjudicate claims asserted against the agency." South Central Kentucky Properties, Inc. v. Commonwealth, 510 S.W.3d 850, 853 (Ky. App. 2017). "By honoring the exhaustion doctrine, courts avoid interfering with the administrative process, and the initial reviewing court benefits from the specialized knowledge of the agency." Jefferson County Bd. of Educ. v. Edwards, 434 S.W.3d 472, 477 (Ky. 2014). We have carefully reviewed Martin's argument, and we find no error in the circuit court's statutory interpretation. The plain language of KRS 342.345(2) states, the "security shall be maintained with the commissioner or under the commissioner's control until each claim for workers' compensation benefits has been paid, been settled, or lapsed under this chapter." Where, as here, the insolvent employer has continuing workers' compensation obligations, KRS 342.345(2) clearly indicates the Commissioner controls the employer's security until all claims are resolved. As a result, the KISIGF correctly informed Martin in November 2012 that his request for a refund of ImagePoint's security must be directed to the Commissioner. Martin did not submit his request to the Commissioner; consequently, he failed to exhaust his administrative remedies pursuant to 803 KAR 25:021 § 11(1)-(3). Furthermore, each of the claims raised in Martin's complaint were premised on his erroneous belief the KISIGF failed to disburse funds owed to him. Having concluded Martin was required to submit his request for a refund of ImagePoint's security to the Commissioner, not the KISIGF, Martin could likewise not prevail on his additional claims arising from the alleged conduct of the KISIGF. We conclude the circuit court correctly determined Martin's claims failed as a matter of law.
The regulation provides that a person aggrieved by an action of the Commissioner may request a hearing. Following the hearing, the Commissioner must issue written findings of fact and conclusions of law addressing the issues raised at the hearing. The Commissioner's order may be appealed to the Franklin Circuit Court. --------
For the reasons stated herein, we affirm the decision of the Franklin Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANT: Jonathan D. Goldberg
Jan M. West
Christopher C. Bailey
Prospect, Kentucky BRIEF FOR APPELLEE:
Kentucky Individual Self-Insurance
Guaranty Fund: David A. Owen
Emma R. Wolfe
Lexington, Kentucky BRIEF FOR APPELLEES:
Dwight T. Lovan and
Kentucky Department of Workers'
Claims: B. Dale Hamblin, Jr.
Department of Workers' Claims
Frankfort, Kentucky