After 10 Years, Troubled Kentucky School Boards Insurance Trust Has Been Liquidated

It has taken 10 years but the financially troubled Kentucky School Boards Insurance Trust has been fully liquidated. About $1 million will soon be returned to school districts across the state.

“It took a long time to get all the claims closed,” said Joseph Pope Jr., the rehabilitator appointed a decade ago to oversee the wind down of the trust, known as KSBIT, and its property and liability fund.

A circuit judge in Franklin County in November signed off on an order of liquidation for the trust, the final chapter in a saga that forced school districts to turn to the primary market for insurance coverage. After years of alleged mismanagement by KSBIT officials, actuarily unsound premiums, and more than $37 million in deficits at the trust, local school districts were forced to pay large assessments to make up shortfalls. They then faced higher premiums with private carriers.

Now that outstanding claims have been settled, a number of districts will get a small refund on assessments paid into the fund.

“I don’t believe there will be any outstanding impact on districts as it represents distribution of a small remainder of assessed excess funds,” said Joshua Shoulta, director of communications for the Kentucky School Boards Association.

KSBIT was established by the School Boards Association in the 1970s to handle property, liability and workers’ compensation coverage for public schools as well as a few colleges, universities and cooperatives. By 2006, the trust’s liability fund reported a deficit and was merged with the property insurance fund, the recent liquidation order explains. Steps were taken to manage the shortfall, but the trust’s property-liability and its workers’ compensation fund’s financial conditions continued to deteriorate.

In 2013, the funds were placed into rehabilitation proceedings. The property-liability fund had a deficit of more than $37 million and the workers’ comp fund faced a shortfall of almost $9 million, an appeals court opinion noted. Other reports have put the amount of claims owed by the funds as high as $60 million.

The Kentucky Employers Mutual Insurance Co., the largest comp insurer in the state, was tasked with assuming KSBIT’s workers’ comp liabilities. And by 2019, all comp claims had been settled and $5 million was returned to 194 members of the trust.

KSBIT’s property and liability fund took a little longer to run off its claims.

“It’s finally done,” Pope said this month.

The KSBIT journey resulted in extensive litigation and multiple court orders over the past decade, including ones in a dispute with Lloyd’s of London over the trust’s directors and officers’ coverage. After Pope took charge of the rehab process, he sought payment on D&O claims, contending that the School Boards Association officials were negligent in their management of KSBIT and that trust leaders had breached their fiduciary duties.

Certain Underwriters of Lloyd’s argued that coverage was barred by a number of exclusions in the policy. In 2018, the Kentucky Court of Appeals found that the coverage, for the most part, was not excluded. It remanded the case to the lower court for further proceedings.

Court orders and KSBIT financial statements can be seen at the trust’s website, ksbit-pl.com.

Topics Liability K-12 Kentucky