Request By:
Mr. James R. Ramsey, Director
Division of Investment and Debt Management
Office for Policy and Management
Finance and Administration Cabinet
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Gerald Henry, Assistant Attorney General
Our response to your several questions about the Kentucky Reinsurance Association follows. You state and ask, initially:
A question has come up with respect to the handling of the insurance premiums for the reinsurance of the Special Fund as described in KRS 342.122(5)(a): Liabilities for Injuries Incurred after July 1, 1983. If those premiums are assessed and collected by the Kentucky Reinsurance Association, should those receipts be deposited into the State Treasury to the credit of the Kentucky Reinsurance Association? Is the Kentucky Reinsurance Association a state agency and are these assessments state funds as defined in KRS 446.010?
KRS 342.122(5)(a) deals with liabilities for injuries and occupational diseases incurred on or after July 1, 1983.
At § (5)(a)(1), the statute provides in part:
If on an annual review of the special fund the secretary of finance finds that the special fund tax to be levied pursuant to this section may be insufficient to pay prospective amounts which may be awarded under the special fund provisions, he shall advise the Kentucky reinsurance association in writing of such fact and shall further request and give specifications for the association to make a proposal for reinsuring the liabilities of the special fund and for distributing the cost of such reinsurance to the subscribers of the association.
It appears from KRS 342.123 that the purpose for which the Kentucky reinsurance association was created by the General Assembly is to provide reinsurance for the special fund.
KRS 342.123(9) provides that the reinsurance association is a political subdivision of the Commonwealth, attached to the finance and administration cabinet for administrative purposes.
KRS 446.010(31) provides:
'State funds' or 'public funds' means sums actually received in cash or negotiable instruments from all sources unless otherwise described * * * if the money is controlled by any form of state organization * * *.
KRS 41.070(1) provides:
Unless otherwise expressly provided by law, no receipts from any source of state money or money for which the state is responsible shall be held, used or deposited in any personal or special bank account, temporarily or otherwise, by any agent or employe of any budget unit, to meet expenditures or for any other purpose. All receipts of any character of any budget unit, all revenue collected for the state, and all public money and dues to the state shall be deposited in state depositories in the most prompt and cost-efficient manner available * * *.
It is our opinion, based upon the foregoing, that receipts collected by the Kentucky Reinsurance Association as provided by KRS 342.122(5)(a) must be deposited as provided in KRS 41.070.
As noted in KRS 342.122(5) and KRS 342.123, the money collected by the Kentucky Reinsurance Association is to be used by the special fund, in furtherance of the workers' compensation program. This money thus appears to fall within the definition of public funds of KRS 446.010(31). We also believe the Kentucky Reinsurance Association -- a political subdivision of the Commonwealth which is attached to the finance and administration cabinet for administrative purposes, KRS 342.123(9) -- is a state organization within the meaning of KRS 446.010(31). It also appears to be a budget unit within the meaning of KRS 41.070, and its moneys appear to be collected for a state purpose under that statute.
You express concern that "It may be advantageous for this reinsurance fund to be held outside the Treasury, in order to limit the liability of the General Fund should this fund be inadequate at some point in the future. * * * [I]t may be erroneously perceived by some that the General Fund should meet any shortfalls in the reinsurance fund. "
In our opinion, the statutes place the responsibility for any shortfalls with the Kentucky Reinsurance Association, as follows:
KRS 342.123(7)(a)
Subscribers shall pay annually in cash the premiums required by the directors for the compensation for which the reinsurance association is liable.
KRS 342.123(7)(b)
If the reinsurance association has no cash funds above its unearned premiums sufficient for the payment of incurred losses and expenses, it shall make an assessment for the amount needed to pay such losses and expenses upon the subscribers liable for assessment therefor in proportion to their several liability.
KRS 342.123(7)(c)
Every subscriber shall pay his proportional part of any assessments which may be laid by the reinsurance association, in accordance with law and his contract, on account of injuries sustained and expenses incurred while he is a subscriber.
See, as well, KRS 342.122(5)(a)(1).
Finally, you inquire whether the logic of OAG 83-241 would extend to this situation. You advise that such opinion "stated that certain funds of state agencies which are not associated with any intended liability of the state may be received and held in a state depository other than the State Treasury, specifically."
OAG 83-241, among other things and in the context of construing KRS 41.070, as amended, did conclude that certain moneys could be deposited in a state depository "as a part of the treasury system" and "to provide a flow of such state moneys through the State Treasury * * *." This office remains of the opinion that use of depositories within the Treasury system is allowed by KRS 41.070. However, we are unable to read in that opinion any connection in the present context between use of a state depository and funds not associated with any intended liability of the state.
Accordingly, it is our opinion that receipts of the Kentucky Reinsurance Association cannot be deposited outside the Treasury system of Kentucky. See KRS 41.070. Based upon the statutes, we believe it would be appropriate to credit the funds to the Kentucky Reinsurance Association for the Special Fund.