Court Opinion

ID: 5135486
Source: CourtListenerOpinion
Date Created: 2021-12-16 16:08:04.279682+00
Date Added: 2024-06-11T08:23:49.508070
License: Public Domain

RENDERED: DECEMBER 16, 2021
                                                        TO BE PUBLISHED

               Supreme Court of Kentucky
                               2019-SC-0192-DG

INDEPENDENCE BANK, C/O PAUL                                         APPELLANT
BRADFORD AND MICHAEL BURNS,
TRUST OFFICERS, AS THE LIMITED
GUARDIAN AND LIMITED
CONSERVATOR OF ANTHONY W.
NOEL

                  ON REVIEW FROM COURT OF APPEALS
V.                         NO. 2018-CA-0187
                 FAYETTE CIRCUIT COURT NO. 17-CI-02505

TREVOR WELCH IN HIS OFFICIAL                                        APPELLEES
CAPACITY AS AN EMPLOYEE,
SERVANT, AND/OR AGENT OF
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT AND/OR
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT DIVISION OF
POLICE; LEXINGTON-FAYETTE
URBAN COUNTY GOVERNMENT
DIVISION OF FLEET SERVICE;
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT DIVISION OF
POLICE; AND LEXINGTON-FAYETTE
URBAN COUNTY GOVERNMENT

              OPINION OF THE COURT BY JUSTICE HUGHES

                                  AFFIRMING

      Anthony W. Noel was seriously injured in a collision between his bicycle

and a police cruiser driven by Trevor Welch, a Lexington police officer and

employee of the Lexington-Fayette Urban County Government (LFUCG). He
filed suit against Welch in his individual and official capacities and against

LFUCG and two of its divisions. The LFUCG defendants moved for dismissal,

asserting, among other things, sovereign immunity as protection from civil

judgments and the costs and burdens of defending such actions. Noel

countered that LFUCG’s purchase of a retained-limit insurance policy,

purchased for coverage beyond the limits of its self-insurance policy, waived

sovereign immunity up to policy limits. The trial court disagreed, concluding

that the LFUCG defendants are entitled to sovereign immunity and dismissing

all claims against them. The Court of Appeals affirmed. On discretionary

review, we consider these insurance policies in light of Kentucky Revised

Statute (KRS) 67.180, which authorizes counties to purchase liability

insurance, to determine whether a waiver of sovereign immunity exists and, if

so, to what extent. Finding the statute and legislative intent clear, we affirm

the Court of Appeals, although with a different legal analysis.

                     FACTS AND PROCEDURAL HISTORY

      On November 23, 2016 Noel was riding a bicycle against traffic in

Lexington, Kentucky. Officer Welch, employed as a police officer by LFUCG,

turned his LFUCG-owned police car in front of Noel. As a result, Noel collided

with the driver’s side door of Officer Welch’s cruiser, fell, and sustained serious

physical injuries. On July 11, 2017 Noel filed a negligence action against

Welch in both his individual and official capacities, LFUCG, LFUCG Division of

Police and LFUCG Division of Fleet Service (collectively “LFUCG defendants”).

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Noel demanded no-fault personal injury protection benefits and compensatory

and punitive damages.

      In discovery LFUCG produced insurance policy documents that outlined

its self-insurance policy and its retained-limit policy. The self-insurance policy

provides coverage to LFUCG and its employees, officers and agents for

comprehensive general and automobile liability. The policy specifically covers

personal injury claims “arising out of the ownership, maintenance or use of any

[LFUCG] automobile.” LFUCG maintains a self-insurance fund for the costs of

defense and for any legal obligation to pay on various claims. LFUCG also has

a retained-limit policy issued by American Alternative Insurance Corporation

(AAIC), which provides excess insurance. This coverage only comes into effect

after the retained limit is exhausted in full by the self-insurance policy.

      The LFUCG defendants moved for dismissal, arguing Noel had failed to

state a claim and asserting sovereign immunity as protection from civil

judgments and the costs and burdens of defending such actions. Specifically,

the LFUCG defendants maintained that LFUCG’s self-insurance and Noel’s

claim were outside the scope of KRS 67.180(2), which at most allows suit to be

filed against a county to “measure the liability of the insurance carrier to the

injured party.” The LFUCG defendants also filed an answer to the complaint,

seeking dismissal with prejudice. Noel opposed dismissal, claiming that

LFUCG’s purchase of its retained-limit policy as permitted by KRS 67.180

waived sovereign immunity up to the policy limits.

                                         3
      As noted, the trial court granted the motion to dismiss. The trial court

determined that the LFUCG defendants are entitled to sovereign immunity and

that the existence of the retained-limit policy in addition to the self-insurance

policy does not constitute an express waiver of the sovereign immunity defense

under KRS 67.180. Noel filed a Kentucky Rule of Civil Procedure (CR) 59.05

motion to vacate the dismissal, which the trial court denied.

      The Court of Appeals affirmed the trial court. Citing the trial court’s

order, the Court of Appeals concluded that the existence of a retained-limit

policy to supplement LFUCG’s self-insurance policy does not constitute a

waiver of the LFUCG defendants’ sovereign immunity defense. The Court of

Appeals emphasized that Noel can seek redress for his complaints in a suit

against Officer Welch in his individual capacity, pursuing the benefit of

measuring liability against the insurance Officer Welch depends on, which is

the LFUCG self-insurance policy (and if that is exhausted, the AAIC policy),

without violating the longstanding concepts of sovereign immunity.1 Having

granted discretionary review, heard oral arguments and carefully considered

the record, we affirm.

                                      ANALYSIS

      The primary issue before us is whether LFUCG’s self-insurance policy

coupled with a retained-limit policy results in a waiver of the immunity

      1 We note that at the time briefs in this case were filed, Noel’s claims against
Officer Welch in his individual capacity were proceeding in the Fayette Circuit Court.
Noel and Welch have propounded and responded to discovery, engaged in extensive
depositions, presented substantive motions and scheduled pretrial conferences.

                                           4
inherent to LFUCG as a governmental entity, an issue which requires

interpretation of KRS 67.180. Statutory interpretation is a question of law,

which we review de novo. St. Joseph Hosp. v. Frye, 415 S.W.3d 631, 632 (Ky.

2013).

   I.      LFUCG’s Self-Insurance Policy Does Not Constitute a Waiver of Its
           Sovereign Immunity.

        Sovereign immunity “is an inherent attribute of a sovereign state that

precludes the maintaining of any suit against the state unless the state has

given its consent or otherwise waived its immunity.” Yanero v. Davis, 65

S.W.3d 510, 517-18 (Ky. 2001). As a basic subdivision of the Commonwealth,

a Kentucky county is cloaked with sovereign immunity. Lexington-Fayette Urb.

Cnty. Gov’t v. Smolcic, 142 S.W.3d 128, 132 (Ky. 2004) (citing Monroe Cnty. v.

Rouse, 274 S.W.2d 477, 478 (Ky. 1955)). In Smolcic, the Court held that

LFUCG is generally entitled to sovereign immunity. 142 S.W.3d at 132.

Therefore, LFUCG is entitled to sovereign immunity from Noel’s tort claims

unless that immunity is waived.

        The waiver of sovereign immunity is exclusively a legislative matter.

Withers v. Univ. of Ky., 939 S.W.2d 340, 344 (Ky. 1997). This Court has stated

that “[w]e will find waiver only where stated ‘by the most express language or

by such overwhelming implications from the text as [will] leave no room for any

other reasonable construction.’” Id. at 346 (quoting Murray v. Wilson Distilling

Co., 213 U.S. 151, 171 (1909)). With those guiding principles, we turn to the

pertinent statute.

                                         5
      Noel argues that LFUCG’s purchase of the retained-limit policy through

AAIC constitutes a waiver of its sovereign immunity, an argument he premises

on KRS 67.180. That statute, which gives Kentucky counties the discretion to

purchase insurance policies covering vehicles operated by the county,2 states:

      (1) The fiscal court of each county, except a county containing a
      city of the first class may, in its discretion, for the protection of
      the public and its employees, appropriate county funds to
      purchase policies of insurance of all kinds deemed advisable,
      covering vehicles operated by the county, and compensation
      insurance covering employees of the county receiving injuries
      arising out of and in the course of employment.

      (2) Suits instituted on such policies may be maintained against
      the county only for the purpose of obtaining a judgment which
      when final shall measure the liability of the insurance carrier
      to the injured party for whose benefit the insurance policy was
      issued, but not to be enforced or collectible against the county or
      fiscal court or the members thereof.

(Emphasis added). Purchasing such insurance is purely discretionary.

      While KRS 67.180 does not use the word “waiver,” subsection (2)

provides an express, but limited, waiver of sovereign immunity because it

permits suits against the county but only to obtain a judgment to measure the

liability of the insurance carrier to the injured party. It explicitly states that

such a judgment cannot be enforced or collected against the county, fiscal

court or members thereof. Our caselaw has consistently treated subsection (2)

as a limited waiver of sovereign immunity. See Rouse, 274 S.W.2d at 479

(holding that subsection (2) represented a modification of the common law rule

      2 This statute gives 119 Kentucky counties (all except Jefferson County which

contains a city of the first-class) discretion to purchase insurance policies.

                                          6
of immunity by authorizing a suit against a county for damages arising out of

an automobile accident for the sole purpose of measuring the liability of the

county’s automobile liability insurer; Ginter v. Montgomery Cnty., 327 S.W.2d

98, 100 (Ky. 1959) (holding that “[S]ubsection (2) of KRS 67.180 clearly

recognizes the immunity doctrine in providing that a suit on such a policy is

maintainable against the county only for the purpose of obtaining a judgment

which shall measure the liability of the insurance carrier, and shall not be

enforced or collectible against the county or the fiscal court.”). The legislative

intent is clear that the waiver should apply narrowly in limited circumstances

and should not result in liability on the part of the county but rather only the

insurance carrier from which coverage was purchased.

      KRS 65.2005(1) requires local government3 to “provide for the defense of

any employee by an attorney chosen by the local government in any action in

tort arising out of an act or omission occurring within the scope of his

employment . . . .” Pursuant to this statutory obligation, LFUCG maintains a

self-insurance policy to provide coverage to itself for property and workers’

compensation claims, and to itself and its employees, officers and agents for

comprehensive general and automobile liability. LFUCG maintains a self-

insurance fund to cover the costs of defense and any legal obligation to pay on

various claims. The self-insurance policy provides comprehensive indemnity

      3 Local government is defined to include among others, “a city, county . . . or

urban-county government.” KRS 65.025(1)(b).

                                           7
coverage for personal injury claims “arising out of the ownership, maintenance

or use of any [LFUCG] automobile.”

      Additionally, through its comprehensive automobile liability coverage

LFUCG will defend any bodily injury claims that arise due to the use of an

owned motor vehicle by an employee like Welch. LFUCG will pay the amount

for which its covered employees are found to be liable (up to policy limits) and

all costs for defense with funds from the self-insured fund. The self-insurance

fund provides “for cost of defense only [on behalf of LFUCG] unless defense of

Sovereign Immunity is not applicable,” in which case costs of defense and

indemnity will be provided.

      In addition to its self-insurance policy, LFUCG also has a retained-limit

policy issued by AAIC. This policy is for excess insurance and its coverage

comes into effect only after the retained limit, $2 million, is exhausted in full by

the self-insurance policy. The AAIC policy simply indemnifies for damages that

LFUCG becomes legally obligated to pay beyond the retained limit. The AAIC

policy specifies that an obligation to pay “must be evidenced by either a

judgment against you after the actual trial,” an arbitration award, or “a written

settlement executed with the claimant.” Thus the policy does not apply in the

first instance but only post-judgment or post-settlement. Furthermore, the

AAIC policy is explicit that AAIC has no duty to defend.

      When interpreting statutes “we must first look to the plain language of a

statute and, if the language is clear, our inquiry ends.” Univ. of Louisville v.

Rothstein, 532 S.W.3d 644, 648 (Ky. 2017). “[I]f a statute is clear and

                                         8
unambiguous and expresses the legislature’s intent, the statute must be

applied as written.” Hall v. Hosp. Res., Inc., 276 S.W.3d 775, 784 (Ky. 2008).

Noel argues that the legislature has statutorily waived sovereign immunity in

motor vehicle collision cases by enacting KRS 67.180, but we must disagree.

The legislative intent is clear from the language of KRS 67.180 and that intent

is that a waiver of sovereign immunity is limited to the narrow circumstances

where the county has purchased an insurance policy, in which case suit can be

instituted on that policy. Any recovery cannot be enforced or collected against

the county.

      “Purchase policies of insurance” is an operative phrase in KRS 67.180(1).

“Insurance” is defined by Black’s Law Dictionary (11th ed. 2019) as “[a]

contract by which one party (the insurer) undertakes to indemnify another

party (the insured) against risk of loss, damage, or liability arising from the

occurrence of some specified contingency.” “Self-insurance” is a form of

insurance defined by Black’s Law Dictionary as “[a] plan under which a

business maintains its own special fund to cover any loss. Unlike other forms

of insurance, there is no contract with an insurance company.” Id.

      Recently, in Merritt v. Catholic Health Initiatives, Inc., 612 S.W.3d 822

(Ky. 2020), we discussed the differences between self-insurance and insurance

in the course of holding that the Unfair Claims Settlement Practices

Act (UCSPA) does not apply to captive insurers, which engage in a form of self-

insurance. KRS 304.49-150(1). First Initiatives, a wholly owned subsidiary of

Catholic Health Initiatives, provided insurance only to Catholic Health

                                         9
Initiatives, making it a captive insurer exempt from the provisions of the

UCSPA. Id. at 828. In reaching that conclusion, we distinguished self-

insurance from insurance by noting that “the shifting of risk from one party to

another [is] a necessary component of an insurance contract,” describing

insurance as “an arrangement for transferring and distributing risk.” Id. at

831 (quotations and citations omitted).

             Self-insurance does not have the necessary characteristics of
      risk shifting and risk distribution. A self-insurer and an insurer
      are not the same because a self-insurer does not engage in risk
      shifting. The parent of a captive insurer, like Catholic Health in
      this case, retains an economic stake in whether a covered loss
      occurs. Therefore, an agreement between a parent and a captive
      insurer does not shift the risk of loss.

Id. (internal quotations and citations omitted). See also Commonwealth v.

Reinhold, 325 S.W.3d 272, 276 (Ky. 2010) (“[T]he shifting of risk from one party

to another [is] a necessary component of an insurance contract.”).

      Although this case does not involve parent corporations or wholly owned

subsidiaries, the distinctions between insurance and self-insurance are

nevertheless applicable. KRS 67.180(1) authorizes the fiscal court to

“purchase policies of insurance of all kinds” and LFUCG’s self-insurance policy

was not purchased. (Emphasis added). Rather, the self-insurance policy and

fund were created by LFUCG. Additionally, risk is not shifted from one party to

another because the risk under the self-insurance always remains with

LFUCG. A self-insurance policy cannot be squared with KRS 67.180(2)

because (1) a suit instituted on a county insurance policy must be “only for the

purpose of obtaining a judgment which when final shall measure the liability of

                                       10
the insurance carrier” and (2) any judgment under the subsection shall “not be

enforced or collectible against the county . . . .” Self-insurance does not involve

an “insurance carrier.” Thus, the necessary criteria for the limited waiver

cannot be met in a suit “instituted on” a county’s individual self-insurance

policy, a policy that was never purchased and that leaves all risk on the

county, or in this case LFUCG.

      Faced with this hurdle, Noel focuses on the AAIC retained-limit policy

and urges this Court to hold that KRS 67.180 must be interpreted to waive

sovereign immunity up to the limits of the AAIC policy. But that interpretation

of KRS 67.180 is not supported by the plain language of the statute. The

statute does not reference a maximum amount or include “up to.” If Noel’s

interpretation were adopted, it would suggest that a county’s sovereign

immunity would still be there for amounts beyond the purchased excess policy

limit. Subsection (2) makes it clear that any suit maintained against a county

is in name only and for the exclusive purpose of determining an insurance

carrier’s liability; any judgment cannot be enforced or collected against the

county. The freedom from suit that is the defining characteristic of sovereign

immunity cannot somehow exist in an “on again, off again” fashion.

      If Noel’s analysis applied, LFUCG would be immune from liability up to

$2 million, not immune from $2 million up to $5 million, and immune again for

anything in excess of $5 million. But when a suit is initiated, there is only a

claim and it is not known until some future point whether liability will be found

and, if so, whether the amount will include anything in the “not immune” range

                                        11
Noel advocates. This intermittency of exposure is entirely unworkable and

cannot be what the legislature intended. “When a court construes statutory

provisions, it must presume ‘that the legislature did not intend

an absurd result.’” Workforce Dev. Cabinet v. Gaines, 276 S.W.3d 789, 793 (Ky.

2008) (quoting Commonwealth, Cent. State Hosp. v. Gray, 880 S.W.2d. 557, 559

(Ky. 1994)). The establishment of a self-insurance policy paired with a

retained-limit policy does not constitute a waiver of sovereign immunity up to

the retained-limit policy limits under KRS 67.180 because that result is

absurd.

      More pertinently, the retained-limit policy issued by AAIC is essentially

excess insurance and depends on LFUCG having a primary form of insurance—

the self-insurance policy. When a suit is instituted against LFUCG or its

employees the only policy involved is LFUCG’s individual self-insurance policy,

and that is not “insurance” or a purchased policy that would trigger subsection

(2). Such a suit cannot possibly be characterized as instituted on the retained-

limit policy because, as this Court has recognized, retained-limits insurance is

not implicated until the limits of the primary policy are exhausted. Ohio Cas.

Ins. Co. v. State Farm Mut. Ins. Co., 511 S.W.2d 671, 674 (Ky. 1974).4 The self-

insurance policy draws upon the self-insurance fund to defend claims,

      4  See also Motorist Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 453 (Ky. 1997) (“As
the ‘excess’ insurer, it did not owe any coverage until [the] primary coverage was
exhausted.”); Steven Plitt, et al., 3 Couch on Insurance, §§ 200.38, 200.41, 200.43
(June 2020 Update) (Noting that an excess carrier generally has no obligation to
defend unless the primary limit has been reached; its defense obligations are
contingent upon the excess policy’s terms and conditions even if the primary insurer
denies coverage or refuses to defend.).

                                          12
including those against LFUCG employees, and to pay claims up to an

aggregate limit. The AAIC policy is not even triggered until the retained limit of

$2 million is exhausted. Additionally, as noted above, the AAIC policy

indemnifies LFUCG for damages only when LFUCG becomes “legally obligated”

to pay by judgment, arbitration award or an executed settlement agreement.

         Finally, we presume that the legislature is aware of the state of the law

when it enacts a statute, including the judicial construction of prior

enactments. St. Clair v. Commonwealth, 140 S.W.3d 510, 570 (Ky. 2004)

(citing Button v. Hikes, 176 S.W.2d 112, 117 (Ky. 1943)). Here this includes

awareness of this Court’s longstanding interpretation that KRS 67.180 provides

only a very limited waiver of sovereign immunity. If the legislature intended a

broader waiver as advocated by Noel, it could have so stated.

   II.      The Terms of the AAIC Retained-Limit Policy Are Immaterial to
            Any Limited Waiver of Sovereign Immunity.

         Next, Noel challenges the Court of Appeals’ opinion as carving out an

exception to KRS 67.180 based on the terms of the AAIC retained-limit policy.

Specifically, the Court of Appeals determined that the AAIC policy is not the

type of coverage contemplated by KRS 67.180:

            It is instead a liability policy in name only which merely
            indemnifies LFUCG for “damages [LFUCG] becomes legally
            obligated to pay . . . .” Although titled “AUTOMOBILE
            LIABILITY COVERAGE PART,” the “DEFENSE AND
            INDEMNIFICATION” portion of the policy absolves AAIC of any
            and all responsibility for defending claims against LFUCG.
            Covering legal costs and payouts for which the insured is
            ultimately found to be legally liable is part and parcel of a
            traditional “automobile liability policy.” LFUCG’s policy does
            not do so.

                                          13
Noel v. Welch, 2018-CA-000187-MR, 2019 WL 1213253, at *4 (Ky. App. Mar.

15, 2019). The Court of Appeals is correct that the AAIC policy is limited to

indemnification, specifically excluding any duty to defend LFUCG. Noel argues

that the appellate court undercut the waiver of sovereign immunity based on

the absence of a specific “duty to defend” provision in the policy.

      Given that KRS 67.180 contains only a limited waiver of sovereign

immunity for the sole purpose of measuring the liability of the insurance

carrier from whom a county purchased coverage, we need not address this

argument or the specific terms of the AAIC policy. Noel’s claim against LFUCG

does not fit within the plain language of KRS 67.180 regardless of the “no duty

to defend” term of the AAIC excess coverage policy.

   III.   The Reenactment Doctrine Does Not Support a Complete Waiver
          of Sovereign Immunity.

      Finally, Noel argues that the reenactment doctrine supports the waiver of

sovereign immunity. Generally, this rule of statutory construction states:

      When a statute has been construed by a court of last resort and
      the statute is substantially reenacted, the Legislature may be
      regarded as adopting such construction. The failure of the
      legislature to change a known judicial interpretation of a statute
      [is] extremely persuasive evidence of the true legislative intent.
      There is a strong implication that the legislature agrees with a
      prior court interpretation when it does not amend the statute
      interpreted.

Rothstein, 532 S.W.3d at 651 (internal citations omitted). KRS 67.180 was

enacted in 1944 and the substance of that version of the statute is virtually

                                        14
identical to the current version.5 Noel again asserts that the proper

interpretation of KRS 67.180 is that immunity is waived in motor vehicle

collision cases up to the extent of insurance purchased by counties (without

regard to whether the insurance is primary or excess) and the absence of

substantive changes to the statute since the 1940s becomes a “reenactment”

by which the General Assembly has endorsed his asserted interpretation.

      The Court of Appeals, then Kentucky’s highest Court, addressed the

application of KRS 67.180 in Rouse, 274 S.W.2d 477. The Rouse Court held

that the enactment of KRS 67.180(2) represented a modification of the common

law rule of immunity by authorizing a suit against a county for damages

arising out of an automobile accident for the sole purpose of measuring the

liability of the county’s automobile liability insurer. Id. at 479. The Court

allowed a nominal suit against Monroe County solely to measure the liability of

the county’s insurer—thereby keeping the insurer from escaping its contractual

obligation to the county to provide compensatory coverage in such a situation.

Id. Rouse established that subsection (2) constitutes an express, but limited,

waiver of a county’s sovereign immunity. The Court next addressed the

application of KRS 67.180 in Ginter, 327 S.W.2d 98, 100, and held that

subsection (2) “clearly recognizes the immunity doctrine” in providing that a

      5 In 2014, the General Assembly amended the language in subsection (1) to
substitute “except a county containing a city of the first class” as the equivalent of
“containing a city of the second, fourth, fifth or sixth class.” No substantive changes
were made.

                                           15
suit on a county insurance policy is maintainable only to measure the liability

of the insurance carrier.

      These cases decided in the decade following the 1944 enactment of KRS

67.180 and the statute’s 2015 reenactment with no substantive changes

validate this Court’s continued interpretation that the statute contains a very

limited waiver of sovereign immunity. The reenactment doctrine supports

LFUCG’s position that its sovereign immunity is not waived under the facts of

this case and the plain language of KRS 67.180.

                                    CONCLUSION

      LFUCG’s self-insurance policy coupled with the AAIC excess coverage

policy does not constitute an express waiver of sovereign immunity under KRS

67.180. Accordingly, the trial court correctly held that the LFUCG defendants

are immune from suit. For the foregoing reasons, we affirm.

      Minton, C.J.; Conley, Keller, Lambert, and VanMeter, JJ., sitting. All

concur. Nickell, J., not sitting.

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COUNSEL FOR APPELLANT:

David Todd Varellas
Sandra Motte Varellas
Varellas & Varellas

COUNSEL FOR APPELLEES:

Jason Scott Morgan
Alexander William Wilcox
Ward, Hocker & Thornton, PLLC

COUNSEL FOR AMICUS CURIAE,
KENTUCKY JUSTICE ASSOCIATION:

Kevin Crosby Burke
Burke Neal PLLC

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