Request By:
Mr. Charles L. Hamilton
Commissioner, Department of Agriculture
7th Floor, 500 Mero Street
Frankfort, Kentucky 40601
Opinion
Opinion By: Frederic J. Cowan, Attorney General; Grant Winston, Assistant Attorney General
This letter is in response to your letter to Attorney General Cowan, dated 13 November 1991, in which you, as chairman of the Board of Directors of the Kentucky Grain Insurance Corporation seek guidance in your charge of administering the Kentucky Grain Insurance Fund. As you well know, the corporation, its board and the fund are created by and are to be administered according to the provisions of KRS 251.600 et seq . The purpose of the fund is to "protect grain producers in the event of the financial failure of a grain dealer or grain warehouseman" by compensating the producers for their losses "occasioned by the failure of a grain dealer or grain warehouseman. " KRS 251.600.
Your questions have to do with producers' claims which are evidenced by the presentment to the board of checks which had been issued by the warehouse to a producer for an amount due the producer for the sale of grain, but were not presented to the board for compensatory payment "until after the bankruptcy of the licensed grain dealer. " Your two questions about this situation are: (1) "[W]hether such checks represent a financial loss as provided at KRS 251.670," and (2) "[W]hether the Board should or may consider delay or fault in presentation of a check for payment when validating a claim as defined by KRS 251.610." Our answer to your first question is yes. Our answer to your second question is a qualified yes.
KRS 251.670(2) begins: "Any claimant who has incurred a financial loss due to a failure of a licensed grain dealer shall be entitled to be compensated . . . ." KRS 251.670(3) commences in identical fashion, only substitutes "warehouseman" in place of "grain dealer. "
The words "claimant" and "failure" as used in KRS 251.670(2) and (3) are defined at KRS 251.610(2) and (8). A claimant includes:
[a]ny producer who is a participant in the grain insurance program, and . . . [p]ossesses written evidence of the sale of grain produced in Kentucky to a failed licensed grain dealer or failed licensed warehouseman, not limited to scale tickets, settlement sheets, price later contracts, basis contracts, or similar grain delivery contracts, but did not get fully paid therefor and who is unable to secure satisfaction of financial obligations due . . . .
KRS 251.610(2)(e).
A "failure" includes a "declaration of insolvency. " KRS 251.610(8)(b). A bankruptcy action duly filed in federal court certainly is a declaration of insolvency within the strictest imaginable usage of that term. While the term "financial loss" is not defined at KRS 251.610 where the other definitions appear, we believe it is otherwise obvious that a producer who holds uncashed checks drawn on the account of a bankrupt grain dealer or warehouseman has by any definition incurred "financial loss. " We therefore are led to conclude that the producers you described in your letter are, according to KRS 251.670(2) or (3): a) claimants, b) who have incurred a financial loss, c) due to a failure of a licensed grain dealer or warehouseman.
Hence, according to KRS 251.670(2) or (3), these producers "shall be entitled to be compensated" provided they meet an additional qualification. This additional qualification is that "the claim is brought within one (1) year from the time the claimant receives actual notice of the grain dealer's failure." KRS 251.670(2). Again, we note that subsection (3) is identical to (2) in its usage of this phrase but for the former's substitution of "warehouseman" for "grain dealer. " This brings us to the answer to your second question.
If the producer holding these checks receives actual notice of the grain dealer's or warehouseman's failure and then does not present the claim within one year thereafter, the board not merely "should or may consider" that "delay or fault" but is under an express statutory obligation to do just that by denying the claim for its untimeliness. While actual notice of failure may be in the form of receipt of the notice to creditors routinely sent by the bankruptcy court upon the filing of a petition for bankruptcy, it need not always be. The same grain dealer or warehouseman may fail in more than one of the statutory ways listed at KRS 251.610(8)(a) - (g), and the one-year period of limitation for bringing a claim to your board would begin to run at the earliest day the producer would receive actual notice of the existence of any of the conditions of failure listed at KRS 251.610(8)(a) - (g). It is not how long the producer holds the check that is in every case the material time frame, but how long the producer holds the check after receiving actual notice that the grain dealer or warehouseman has failed, that is to be considered dispositive of the issue of delay in presentment of a claim.