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Class Action Suit Filed by Franklin County Against Insurance Companies Dismissed for Lack of Subject Matter Jurisdiction

04.08.2009

In Franklin County v. Hartford Casualty Insurance Co., et al., Case No. 3:08 CV-44-DCR (E.D.Ky. Dec. 15, 2008), the U.S. District Court for the Eastern District Court of Kentucky (“Court”) dismissed a class action complaint for lack of subject matter jurisdiction.

On July 12, 2008, Franklin County filed a Class Action Complaint with jury demanded (“Complaint”), in the Eastern District of Kentucky for itself and a class of similarly situated Kentucky local taxing jurisdictions, including counties and cities, (“Plaintiff Class”) against the Hartford Casualty Insurance Company and several of its affiliates (“Hartford Companies”). The Complaint alleged (i) violations of KRS § 91A.080, imposing local government insurance premium license tax, (“LGPT”), (ii) conversion, and (iii) negligence. Franklin County also claims a right to an accounting of all non-exempt insured risks within the various geographical boundaries of each of the members of the Plaintiff Class to be provided by the Hartford Companies.

The Hartford Companies then filed a Motion to Dismiss with the Court claiming the Court lacked subject matter jurisdiction because exclusive jurisdiction over the claims is vested with the Kentucky Office of Insurance (“KOI”) or, alternatively, the claims are not ripe due to a failure to exhaust administrative remedies.

In response, the Plaintiff class claimed there was a private right of action through KRS 446.070, as established by Kendrick v. Standard Fire Insurance Company, 2007 U.S. Dist. LEXIS 28461 (E.D. Ky. Mar. 31, 2007). In Kendrick, the Court held that KRS 446.070 provided a policy holder with a private right action against an insurance company for a violation of KRS 304.21-190.

Here, the Court held that the statute at issue in Kendrick declared an unlawful act, but did not specify a remedy available to the aggrieved party, while, in this instance, KRS 91A.080 declares both the unlawful act (i.e., failure to have properly remitted tax revenue) and the specific remedy available to the aggrieved party. Specifically, KRS 91A.080 provides that: (1) a local government may request that KOI audit insurance companies to determine whether tax was properly collected and remitted; and (2) the KOI may assess a penalty to be remitted to the local government for failure to properly collect and remit the tax.

The Court stated that while authority to demand repayment of unremitted taxes is not expressly stated in KRS 91A.080, it can be inferred that the statute provides for recovery of actual damages in the form of unremitted taxes. Accordingly, the Court held that KRS 91A.080 provides for the recovery of actual damages and that the rationale of the Kendrick holding does not apply in this instance. Further, the Court determined that KRS 68.197, which provides that no tax may be imposed or collected from an insurance company except as provided in KRS 91A.080, indicated that the Kentucky legislature intended for this to be the exclusive remedy for the Plaintiff’s class to collect unremitted tax revenue from an insurance company.

Accordingly, the Court held that the exclusive jurisdiction for this matter is with the KOI and dismissed the Complaint for lack of subject matter jurisdiction.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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