Court Opinion

ID: 4644034
Source: CourtListenerOpinion
Date Created: 2020-12-17 16:07:02.474033+00
Date Added: 2024-06-11T08:42:10.130548
License: Public Domain

RENDERED: DECEMBER 17, 2020
                                                           TO BE PUBLISHED

               Supreme Court of Kentucky
                                2018-SC-0155-DG

HAROLD MERRITT, INDIVIDUALLY, AND                                      APPELLANTS
AS COURT-APPOINTED ADMINISTRATOR
OF THE ESTATE OF KIMBERLY MERRITT,
AND AS COURT-APPOINTED
ADMINISTRATOR AND NEXT FRIEND OF
THE ESTATE OF HAROLD MERRITT, III

                   ON REVIEW FROM COURT OF APPEALS
V.                          NO. 2016-CA-1470
                  FAYETTE CIRCUIT COURT NO. 15-CI-03690

CATHOLIC HEALTH INITIATIVES, INC.,                                      APPELLEES
AND FIRST INITIATIVES INSURANCE,
LTD.

               OPINION OF THE COURT BY JUSTICE HUGHES

                                    AFFIRMING

      Appellant Harold Merritt, individually and as administrator of the Estates

of Kimberly Merritt and Harold Merritt, III (Merritt) brought a medical

negligence action against various healthcare defendants following the deaths of

his wife and newborn son. The medical negligence claims were settled, and the

Fayette Circuit Court subsequently denied Merritt’s motion for declaratory

relief as to his bad faith insurance claim against First Initiatives Insurance,

Ltd. (First Initiatives), a foreign captive insurance entity that provides self-

insurance for Catholic Health Initiatives, Inc. (Catholic Health). The Court of

Appeals affirmed both that ruling and the trial court’s grant of summary
                                          1
judgment to First Initiatives and Catholic Health. On discretionary review, the

sole issue before this Court is whether First Initiatives, as a captive insurer, is

subject to the Kentucky Unfair Claims Settlement Practices Act (UCSPA).

Kentucky Revised Statutes (KRS) 304.12-230. Finding that the Legislature has

clearly and unequivocally excluded captive insurers from the requirements of

the UCSPA, we affirm the Court of Appeals.

                   FACTS AND PROCEDURAL BACKGROUND

      On October 7, 2015, Harold Merritt, Jr., filed a complaint alleging that

Dr. Anthony Smith, an employee of KentuckyOne Health, breached the medical

standard of care and was ultimately responsible for the deaths of his wife,

Kimberly, and infant son, Harold Merritt, III. In 2014 Kimberly, an expectant

mother, developed placenta previa, a condition which can cause severe

bleeding during pregnancy.1 She was referred to a high-risk obstetrician who

recommended that the baby be delivered by caesarian section no later than

thirty-seven weeks gestation. Merritt alleges that despite having this

information from the high-risk obstetrician, Dr. Smith examined Kimberly

Merritt when she was at thirty-seven weeks and six days gestation and did not

perform nor schedule a caesarian section. Instead, he scheduled an

appointment to see Kimberly in one week.

      In the early morning of April 10, 2015, Kimberly called Merritt and said

she was bleeding and that something was wrong. After the line suddenly went

dead, Merritt called 911. Upon arrival, Emergency Medical Services (EMS)

      1 Placenta previa occurs when a baby’s placenta partially or totally covers the
mother’s cervix, which can cause severe bleeding during pregnancy and delivery.
Mayo Clinic, Placenta Previa (May 30, 2020), https://www.mayoclinic.org/diseases-
conditions/placenta-previa/symptoms-causes/syc-20352768.
                                           2
found Kimberly unresponsive. She died shortly after being transported to the

hospital by EMS. Harold Merritt, III, was delivered by post-mortem caesarian

section but only survived a few hours after suffering from seizures due to

complications from lack of oxygen.

      In his complaint, Merritt alleged that Dr. Smith breached the standard of

care by not acting in accordance with the high-risk obstetrician’s

recommendation. Merritt named as additional defendants St. Joseph Hospital,

KentuckyOne Health, KentuckyOne Health Obstetrics and Gynecology

Associates and St. Joseph Obstetrics and Gynecology (hereinafter collectively

referred to as “the medical defendants”). Merritt also named as defendants

Catholic Health, an entity that sponsors KentuckyOne Health and its affiliates,

and First Initiatives, which provides self-insurance coverage to Catholic Health,

its affiliates and employees, including KentuckyOne Health and Dr. Smith.

First Initiatives is a wholly owned subsidiary of Catholic Health. Pursuant to

one self-insurance agreement, First Initiatives covers all of Catholic Health’s

subsidiaries and their employees for employment-related conduct. Only

Catholic Health pays assessments to First Initiatives for the provision of its

self-insurance program—Catholic Health’s affiliates do not pay for the coverage.

      Merritt brought negligence, fraud, and Kentucky Consumer Protection

Act claims against First Initiatives. Merritt also maintained that First

Initiatives violated the UCSPA, KRS 304.12-230, by engaging in bad faith

settlement negotiations.

      On November 16, 2015, Merritt filed a motion for declaratory judgment

seeking a declaration that First Initiatives is subject to the UCSPA and civil

liability for any violations of the statute. Merritt claimed that First Initiatives
                                           3
refused to negotiate the claims for the deaths of Kimberly and Harold Merritt,

III, separately, instead offering a consolidated settlement for both. Additionally,

Merritt alleged that First Initiatives attempted to leverage the undisputed

claims of Harold Merritt, III, in order to settle the disputed claims of Kimberly.

He also stated that First Initiatives failed to timely respond to settlement

demands and provided no basis for denying various settlement demands.

      Despite First Initiatives’ claims that it is not subject to the UCSPA,

Merritt maintained that First Initiatives does not self-insure Catholic Health

and is actually in the business of insurance because it issued a policy to

KentuckyOne Health and Catholic Health. Merritt also argued that First

Initiatives has an independent corporate identity distinct from that of Catholic

Health that renders self-insurance between the two entities impossible. With

this approach, Merritt insisted First Initiatives is not a captive insurer under

Kentucky law. Merritt filed an amended complaint on November 23, 2015 to

include this particular declaratory judgment argument.

      First Initiatives responded to the declaratory judgment motion, arguing

that as a captive insurance company, it is exempt from the UCSPA.

Specifically, First Initiatives contended the captive insurance agreement

between Catholic Health and First Initiatives does not involve risk shifting or

risk distribution like ordinary insurance, and First Initiatives is not in the

business of insurance. First Initiatives also claimed that the motion was not

ripe for review because the underlying claim of medical negligence had not

been adjudicated or resolved.

      On December 1, 2015 the trial court granted Catholic Health and First

Initiatives’ motion to bifurcate the bad faith claims from the underlying
                                          4
negligence claims. The trial court also stayed all discovery concerning Merritt’s

bad faith claims pending a January 22, 2016 hearing on Merritt’s motion for

declaratory judgment and other issues.

      At that time, Merritt insisted that the declaratory judgment issue was

ripe for a prompt ruling and posited that if the trial court ruled that First

Initiatives was subject to the UCSPA, then all pending claims would be

resolved. The trial court conducted hearings on January 22, March 10, and

May 6, 2016 on various issues, including declaratory judgment. On May 2,

2016, Merritt filed a supplement to his motion for declaratory judgment to

provide an affidavit from the Kentucky Department of Insurance and to

emphasize the importance of a ruling on the applicability of the UCSPA.

      Ultimately, the trial court denied Merritt’s motion for declaratory

judgment on June 14, 2016. The trial court determined that the UCSPA does

not apply to a self-insured person or entity. The trial court further determined

that First Initiatives is a captive insurance company pursuant to KRS 304.49-

010(12) because it only exists to insure Catholic Health and its affiliates, and

also a foreign captive insurer under KRS 304.49-010(14) because it is located

in the Cayman Islands and subject to the captive insurance laws of the

Cayman Islands government. Additionally, the trial court concluded First

Initiatives is not in the business of insurance under Kentucky law because its

activities lack the defining aspects of insurance, namely risk shifting and risk

distribution. The trial court referenced an affidavit of Phillip L. Foster, the Vice

President and Chief Risk Officer of Catholic Health, which states that First

Initiatives’ financial statements are consolidated with Catholic Health’s

financial statements, as are the financial statements of all wholly-owned
                                        5
affiliates of Catholic Health. Unlike an entity that is in the business of

insurance and able to spread loss throughout the market by way of premiums,

First Initiatives is unable to shift risk due to the economic link between it and

its parent corporation, Catholic Health.

      Because the trial court held that the entities were exempt from the

UCSPA, Catholic Health and First Initiatives moved for summary judgment. In

their motion, Catholic Health and First Initiatives argued that Merritt’s claims

against Catholic Health and First Initiatives were dependent on finding bad

faith under the UCSPA and with that statute inapplicable the claims were

legally insufficient. They further contended that no issues of material fact

remained as to Catholic Health and First Initiatives.

      Merritt filed a motion to reconsider the denial of the declaratory

judgment motion but conceded that the trial court correctly ruled that First

Initiatives is a foreign captive insurer. Merritt requested, however, that the

trial court consider the exception in KRS 304.49-230, which states that the

subtitle is not applicable to any foreign captive insurer transacting the

business of insurance in Kentucky prior to July 14, 2000 unless the insurer

petitions the insurance commissioner for the subtitle to apply. Merritt asked

the court to address whether First Initiatives is in the business of insurance.

Finally, Merritt stated that, rather than dismiss his claims, the trial court

should allow additional discovery so that he could gather more information

regarding First Initiatives’ status as an insurer, including risk shifting and

distribution, contracts, and its business generally. On July 20, 2016, the trial

court denied Merritt’s motion to reconsider the denial of the motion for

declaratory judgment, and granted Catholic Health and First Initiatives’ motion
                                     6
for summary judgment, dismissing all claims against Catholic Health and First

Initiatives.

       Merritt negotiated with Catholic Health and settled his negligence claims

with the medical defendants, resulting in the dismissal of those claims on

September 27, 2016. That same day the trial court entered an agreed order

making the dismissal of the claims against Catholic Health and First Initiatives

final and appealable. Merritt then appealed the denial of his declaratory

judgment and the grant of summary judgment to Catholic Health and First

Initiatives dismissing the claims against them.

       In a unanimous decision, the Court of Appeals affirmed the trial court,

finding that First Initiatives is a foreign captive insurance entity that provides

self-insurance to Catholic Health. In considering the organization of Catholic

Health and First Initiatives, the Court of Appeals recognized that Catholic

Health is the parent company and First Initiatives is its subsidiary, created

solely to provide insurance for its parent. Further, First Initiatives is not in the

business of insurance because it is not involved in risk shifting or risk

distribution. The Court of Appeals concluded that First Initiatives is not

subject to the UCSPA, and that KRS 304.49-230 does not apply to First

Initiatives since it is not in the business of insurance. Merritt’s petition for

rehearing was denied and we subsequently granted his motion for discretionary

review.

                                    ANALYSIS

       Merritt asked the trial court for a declaratory judgment that Catholic

Health and First Initiatives are subject to the UCSPA. KRS 418.040 provides

                                         7
      [i]n any action in a court of record of this Commonwealth
      having general jurisdiction wherein it is made to appear that an
      actual controversy exists, the plaintiff may ask for a declaration
      of rights, either alone or with other relief; and the court may
      make a binding declaration of rights, whether or not
      consequential relief is or could be asked.

Merritt sought a declaration that First Initiatives must comply with the duties

and obligations of an insurer under the UCSPA and is thus subject to civil

liability for any violations. Determining whether First Initiatives fits in the

statutory definition of a captive insurer, and accordingly is exempt from the

UCSPA, entails interpreting the statute adopted by the legislature. 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). Here, after Merritt’s unsuccessful

declaratory judgment motion, the trial court granted First Initiatives and

Catholic Health’s summary judgment motion. Because appellate review of a

summary judgment “involves only legal questions and a determination of

whether a disputed material issue of fact exists,” we also engage in a de novo

review in those circumstances as well. Shelton v. Kentucky Easter Seals Soc’y,

Inc., 413 S.W.3d 901, 905 (Ky. 2013).

      I.     First Initiatives is a foreign captive insurer.

      Subtitle 49 of the Kentucky Insurance Code, codified in KRS Chapter

304, specifically governs captive insurers and defines various types of

insurance entities, including the following:

      (3) “Captive insurer” means any pure captive insurer,
      consortium captive insurer, sponsored captive insurer, special
      purpose captive insurer, agency captive insurer, or industrial
      insured captive insurer formed or issued a certificate of
      authority under the provisions of KRS 304.49-010 to 304.49-
      230. For purposes of KRS 304.49-010 to 304.49-230, a branch
      captive insurer shall be a pure captive insurer with respect to

                                         8
      operations in Kentucky, unless otherwise permitted by the
      commissioner; . . .

      (12) “Pure captive insurer” means any company that insures
      risks of its parent and affiliated companies or controlled
      unaffiliated business; . . .

      (14) “Foreign captive insurer” means any insurer formed to
      write insurance business for its parents and affiliates and
      licensed pursuant to the laws of any state other than Kentucky
      which imposes statutory or regulatory standards in a form
      acceptable to the commissioner on companies transacting the
      business of insurance in that jurisdiction. Under KRS 304.49-
      010 to 304.49-230, captive insurers formed under the laws of
      any jurisdiction other than a state of the United States shall be
      treated as a foreign captive insurer unless the context requires
      otherwise; . . . .

KRS 304.49-010 (3); (12); and (14).

      Generally, a captive insurance company is “[a] company that insures the

liabilities of its owner. The insured is usually the sole shareholder and the only

customer of the captive insurer.” Black’s Law Dictionary, (11th ed. 2019). A

subsidiary provides captive insurance to its parent company, typically “so that

the parent company can deduct the premiums set aside as loss reserves.” Id.

“The creation of a captive insurance company can bring tax, economic, and

commercial benefits . . . [and] can serve as a way to insure risks that are

otherwise difficult to insure on the traditional insurance market.” Steven Plitt,

et al., 3 Couch on Insurance, § 39:2 (June 2020 Update).

      Catholic Health is a non-profit healthcare entity and First Initiatives is its

wholly owned, pure captive subsidiary. Under the Kentucky Insurance Code,

First Initiatives is a pure and foreign captive insurer because it “insures risks

of its parent and affiliated companies . . .” KRS 304.49-010(12), and is “formed

under the laws of any jurisdiction other than a state of the United States . . . .”

                                         9
KRS 304.49-010(14). Notably, the Kentucky Department of Insurance defines

a pure captive insurer as “an insurer that only insures the risk of its parent

and affiliated companies or controlled unaffiliated businesses and can include

a branch captive insurer.”2 That is precisely the relationship between First

Initiatives and Catholic Health.

         According to Catholic Health, First Initiatives was organized to create the

most efficient risk-financing program available in order to maximize Catholic

Health’s nonprofit resources in the furtherance of its mission to provide

healthcare services to the public, with emphasis on poor and underserved

communities. First Initiatives is not registered in Kentucky, nor does it

conduct business anywhere in the United States. First Initiatives does not pay

premium taxes in Kentucky. Its principal place of business is in the Cayman

Islands, where it is subject to that country’s captive insurance laws. With none

of these facts in dispute, First Initiatives is a foreign captive insurer pursuant

to KRS 304.49-010(14).3

   II.       The UCSPA does not apply to captive insurers.

         Kentucky’s UCSPA outlines various conduct which constitutes unfair

claims settlement practice, including misrepresenting pertinent facts, failing to

act reasonably promptly upon communications with respect to insurance

claims, and not attempting, in good faith, to effectuate prompt and equitable

settlements. KRS 304.12-230. “The gravamen of the UCSPA is that an

       Kentucky Public Protection Cabinet, Types of Captives http://captive.
         2

insurance.ky.gov/newstatic_info.aspx?static_id=387&menuid=89 (last visited Nov. 2,
2020).
        3 As noted above, Merritt conceded this point in his motion to reconsider the

trial court’s denial of his motion for declaratory judgment.
                                           10
insurance company is required to deal in good faith with a claimant, whether

an insured or a third-party, with respect to a claim which the insurance

company is contractually obligated to pay.” Davidson v. Am. Freightways, Inc.,

25 S.W.3d 94, 100 (Ky. 2000). The statute is “intended to protect the public

from unfair trade practices and fraud. It should be liberally construed so as to

effectuate its purpose.” State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d

116, 118 (Ky. 1988).

      KRS 304.49-150(1) specifically exempts captive insurers from the

UCSPA: “No provisions of this chapter, other than those contained in KRS

304.49-010 to 304.49-230 or contained in specific references contained in KRS

304.49-010 to 304.49-230, shall apply to captive insurance companies.”

Because courts “are not at liberty to add or subtract from the legislative

enactment nor discover meaning not reasonably ascertainable from the

language used,” we are bound by the clear language in the statute. Dept. of

Revenue, Fin. and Admin. Cabinet v. Wyrick, 323 S.W.3d 710, 713 (Ky. 2010).

      When interpreting a statute, a court should “give effect to the intent of

the General Assembly.” Beckham v. Bd. of Educ., 873 S.W.2d 575, 577 (Ky.

1994).

      [W]e must look first to the plain language of a statute and, if
      the language is clear, our inquiry ends. We hold fast to the
      rule of construction that the plain meaning of the statutory
      language is presumed to be what the legislature intended, and
      if the meaning is plain, then the court cannot base its
      interpretation on any other method or source. In other words,
      we assume that the Legislature meant exactly what it said, and
      said exactly what it meant.

                                       11
University of Louisville v. Rothstein, 532 S.W.3d 644, 648 (Ky. 2017) (citations

and quotations omitted). Turning to the plain language of KRS 304.49-150,

our inquiry is brief.

      The language in KRS 304.49-150(1) is unequivocal. No provisions of the

insurance code apply to captive insurers except for the statutes contained in

the captive insurer subchapter, KRS 304 subchapter 49. This clearly means

the UCSPA, which is codified in subchapter 12 at KRS 304.12-230, does not

apply to a captive insurer. Because First Initiatives is a captive insurer, it is

not bound by the UCSPA and not subject to liability for any violations thereof.

The Legislature specifically chose to exempt captive insurers from the UCSPA

and this Court cannot override that legislative intent. “There is no reason for

us . . . to impose a constraint unintended or unexpressed by the General

Assembly.” Rothstein, 532 S.W.3d at 651. Given that the language and intent

of the Legislature are clear, the trial court properly concluded that First

Initiatives is a captive insurer exempt from the provisions of the UCSPA.

Therefore, the trial court did not err in denying Merritt’s motion for declaratory

judgment.

   III.   First Initiatives is not engaged in the “business of insurance” so
          Merritt’s KRS 304.49-230 argument fails.

      In his motion to reconsider the denial of the requested declaratory

judgment, Merritt raised an argument based on KRS 304.49-230. As noted

above, KRS 304.49-150(1) limits the applicability of the Kentucky Insurance

Code where a captive insurer is involved: “No provisions of this chapter, other

than those contained in KRS 304.49-010 to 304.49-230 or contained in specific

references contained in KRS 304.49-010 to 304.49-230, shall apply to captive

                                        12
insurance companies.” In essence, captive insurers are only subject to subtitle

49 or to particular provisions referenced in subtitle 49. But Merritt insists that

First Initiatives does not qualify for the exclusion outlined in KRS 304.49-

150(1), i.e., does not get to claim exclusion from all other parts of the insurance

code, because KRS 304.49-230 applies. That statute states: “This subtitle

shall not apply to any foreign captive insurer lawfully transacting the business

of insurance in Kentucky prior to July 14, 2000, unless the foreign captive

insurer petitions the commissioner requesting that this subtitle be applicable

to the foreign captive insurer.” (Emphasis added.)

      Merritt reasons that First Initiatives, a foreign captive insurer, was

transacting the business of insurance in Kentucky when it began insuring

Catholic Health entities in 1998, well prior to July 14, 2000; First Initiatives

never petitioned the commissioner with a request that subtitle 49 apply to it;

consequently, subtitle 49 does not apply, leaving First Initiatives without the

benefit of the language in KRS 304.49-150(1) that would have otherwise

exempted it from all other parts of the insurance code including the UCSPA.

This argument is flawed because, as both the trial court and the Court of

Appeals correctly determined, First Initiatives was never “transacting the

business of insurance in Kentucky.” KRS 309.49-230.

      KRS 304.1-030 defines insurance as “a contract whereby one undertakes

to pay or indemnify another as to loss from certain specified contingencies or

perils called ‘risks,’ or to pay or grant a specified amount or determinable

benefit or annuity in connection with ascertainable risk contingencies, or to act

as surety.” An insurance contract “is a contract of indemnity whereby the

insurer agrees to indemnify the insured for any loss resulting from a specific
                                      13
event. The insurer undertakes the obligation based on an evaluation of the

market’s wide risks and losses.” Buck Run Baptist Church, Inc. v. Cumberland

Sur. Ins. Co., 983 S.W.2d 501, 504 (Ky. 1998). An insurer expects losses, and

they are spread through the market by means of a premium. Id. at 504-05. An

entity is transacting the business of insurance when it enters into insurance

contracts. In Davidson, 25 S.W.3d at 102, this Court held that the Legislature

did not intend to subject self-insured entities to the requirements of the

Kentucky Insurance Code and stated specifically that “the UCSPA . . . appl[ies]

only to those persons or entities (and their agents) who are ‘engaged . . . in the

business of entering into contracts of insurance.’” (quoting KRS 304.1-040).

Self-insurers are not in the business of entering into contracts of insurance but

rather have a self-insurance agreement with covered entities, in this case

Catholic Health and its affiliates.

      As often noted, insurance “involves (1) risk shifting and (2) risk

distribution.” Humana, Inc. v. Comm’r, 881 F.2d 247, 251 (6th Cir. 1989). In

Commonwealth v. Reinhold, 325 S.W.3d 272 (Ky. 2010), this Court held that

“the shifting of risk from one party to another [is] a necessary component of an

insurance contract. The United States Supreme Court agrees with this

principle, describing insurance as ‘an arrangement for transferring and

distributing risk.’” (quoting Grp. Life & Health Ins. Co. v. Royal Drug Co., 440

U.S. 205, 211 (1979)).

      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.” Haney v. Yates, 40

S.W.3d 352, 355 (Ky. 2000). The parent of a captive insurer, like Catholic
                                    14
Health in this case, “retains an economic stake in whether a covered loss

occurs.” Clougherty Packing Co. v. Comm’r, 811 F.2d 1297, 1307 (9th Cir.

1987). Therefore, an agreement between a parent and a captive insurer does

not shift the risk of loss. Id.4

      In short, First Initiatives is not in the business of insurance, but rather

provides captive self-insurance for Catholic Health. There is no risk shifting

and risk distribution. Catholic Health retains the entire financial stake in the

self-insured, professional liability claims paid to claimants. Thus, in this case,

any liability for the deaths of Kimberly and Harold Merritt, III, remained with

Catholic Health. A self-insurance arrangement such as the one involved here

is not a contract of insurance. Neither KentuckyOne nor Dr. Smith paid

premiums to Catholic Health or First Initiatives, nor did they purchase

insurance policies from same. One self-insurance agreement covers all of

Catholic Health’s subsidiaries and their employees for employment-related

conduct. With these facts, under Kentucky law and general principles of

insurance law, First Initiatives indisputably is not in the business of insurance.

Because First Initiatives was never “transacting the business of insurance in

      4  Many federal courts have similarly held that captive insurance agreements do
not shift or distribute the risk of loss. See Gulf Oil Co. v. Comm’r, 914 F.2d 396, 412
(3d Cir. 1990) (holding that a parent’s captive insurance arrangement was not an
insurance agreement when “the captive was wholly owned by its parent, and the
captive insured risks only within the affiliated group, the risk is not truly
distributed.”); Humana, 881 F.2d at 251 (holding that Humana did not shift the risk to
Health Care Indemnity, its wholly owned subsidiary, in its captive insurance
arrangement.); Beech Aircraft Corp. v. U.S., 797 F.2d 920, 922 (10th Cir. 1986) (“Self-
insurance is not the equivalent of insurance. If one having an insurable risk retains
the risk of his own loss, there is no risk transfer, and the arrangement is self-
insurance.”); Stearns-Roger Corp. v. U.S., 774 F.2d 414, 415 (10th Cir. 1985)
(explaining that where the ultimate burden for losses was always on the parent, there
is no risk shifting).
                                          15
Kentucky”, KRS 304.49-230 does not apply and First Initiatives had no

obligation to petition the insurance commissioner in order to qualify for

exemption from the UCSPA.

   IV.      Any additional discovery should have been requested prior to the
            motion for declaratory judgment.

         Finally, Merritt argues that the trial court should have allowed additional

discovery relevant to First Initiatives’ status as an insurer. In his view, if the

trial court disagreed that Merritt had presented sufficient evidence to establish

that First Initiatives is in the business of insurance, the court should have

allowed Merritt time for additional discovery before granting summary

judgment to First Initiatives and Catholic Health. Merritt notes that he relied

on publicly-sourced information, the statements of opposing counsel, and the

affidavit of Phillip L. Foster in presenting an argument that he believes

adequately demonstrates that First Initiatives was and is engaged in the

business of insurance. Obviously, the trial court disagreed. Only after that

court denied the requested declaratory judgment did Merritt claim the need for

additional discovery.

         An appellate court reviews a trial court’s determination regarding

discovery issues under an abuse of discretion standard. S. Fin. Life Ins. Co. v.

Combs, 413 S.W.3d 921, 932 (Ky. 2013). “The test for abuse of discretion is

whether the trial judge's decision was arbitrary, unreasonable, unfair, or

unsupported by sound legal principles.” Commonwealth v. English, 993 S.W.2d

941, 945 (Ky. 1999).

         Approximately five weeks after filing the complaint, Merritt sought a

judicial declaration of the applicability of the UCSPA to First Initiatives. That

                                          16
was a procedural decision he made in the conduct of the litigation. If Merritt

believed the information he possessed up to that point was insufficient to

determine First Initiatives’ status or relationship with Catholic Health then he

could have proceeded with discovery and delayed his request for declaratory

judgment. By moving for declaratory judgment early in the litigation, Merritt

represented that a justiciable issue, “an actual controversy,” existed and that it

was time for the trial court to “make a binding declaration of rights . . . .” KRS

418.040. He repeatedly insisted that this particular issue was ripe for

decision, expressing no need for additional time to conduct discovery. Allowing

discovery after the trial court’s denial of declaratory judgment would be

contrary to these numerous representations that the UCSPA issue was ripe for

a ruling. More pointedly, no amount of additional discovery will change the

fact that the UCSPA does not apply to captive insurers like First Initiatives.

Accordingly, the trial court did not err in denying Merritt’s post-ruling request

to conduct additional discovery.

                                   CONCLUSION

      To summarize, the language in KRS 304.49-150(1) specifically exempts

captive insurers such as First Initiatives from the UCSPA. Merritt’s argument

that KRS 304.49-230 deprives First Initiatives of the benefit of the KRS 304.49-

150(1) exemption fails because First Initiatives was never transacting the

business of insurance in Kentucky. For the foregoing reasons, we affirm the

Court of Appeals.

      All sitting. All concur.

                                        17
COUNSEL FOR APPELLANTS:

J. Dale Golden
Kellie Marie Collins
Mary Lauren Melton
GOLDEN LAW OFFICE, PLLC

COUNSEL FOR APPELLEES:

Bryan Todd Thompson
Chad Owens Propst
THOMPSON MILLER & SIMPSON PLC

COUNSEL FOR AMICUS CURIAE,
KENTUCKY DEFENSE COUNSEL,
INC.:

William Baxter Orberson, Jr.
John Clifford Phillips
PHILLIPS PARKER ORBERSON & ARNETT PLC

                                18