Ky. GOP Chairman: Cut Candidate’s Former Law Firm

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Kentucky’s GOP chairman wants the Office of Insurance to terminate the contract of a Lexington law firm that has represented the state agency for more than a decade in the bankruptcy of Kentucky Central Life Insurance Co.

Steve Robertson said he believes the action is warranted in light of a report publicly released on Saturday alleging that the firm, Stites & Haribson, had a conflict of interest that was “patently detrimental” to reviving the struggling company when it went into bankruptcy.

Kentucky Central’s bankruptcy has become a political issue in the governor’s race. The Democratic nominee, Steve Beshear, worked for Stites & Harbison on the case. Republican Gov. Ernie Fletcher claims that Beshear and the firm caused Kentucky Central to collapse.

“I think they should be let go,” Robertson told reporters at a news conference Tuesday.

Julie McPeak, executive director of the Office of Insurance, didn’t rule out that possibility Tuesday evening.

“At this point, I’m leaving all of my options open,” McPeak said. “You know, I didn’t have any knowledge of the report until just recently. So I’m intentionally taking my time, to proceed with caution, to ensure that all possible claims against all parties in this are preserved.”

Stites & Harbison Chairman Kennedy Helm III said his firm has served honorably on the Kentucky Central case for 15 years.

“We are going to continue doing our job as long as we are engaged,” he said.

Independent attorneys who prepared the confidential report on the Kentucky Central case said Stites & Harbison should have withdrawn more than a decade ago as legal counsel on the mammoth corporate bankruptcy case because of the conflict of interest.

At issue was an allegation that Stites & Harbison was representing both the Office of Insurance and the Bank of Louisville in the case.

The report said Beshear had no “actual knowledge” but that he did have “general knowledge” about advice Stites & Harbison was giving to the Bank of Louisville and that he should have turned it over to former Insurance Commissioner Donald Stephens. Stephens was heading up the Kentucky Central case.

The report prepared by the Cincinnati law firm of Porter, Wright, Morris & Arthur was kept confidential until the Herald-Leader and The Courier-Journal went to court to seek its release.

According to the report, an attorney in Stites & Harbison’s Louisville office advised the Bank of Louisville to sell $15 million worth of Kentucky Central securities. That prevented the securities from being turned over to the Office of Insurance to be used to help revitalize the firm.

Fletcher has been using the confidential report as campaign fodder, claiming Beshear and his firm prospered from the bankruptcy while thousands lost their savings.

Stites & Harbison has been paid $21 million over 15 years for assisting in the liquidation of Kentucky Central, which owned billions of dollars worth of life insurance policies before it went bankrupt in the mid-1990s.