Interim Joint Committee on Labor and Industry


Minutes of the<MeetNo1> 3rd Meeting

of the 2004 Interim


<MeetMDY1> September 14, 2004


The<MeetNo2> 3rd meeting of the Interim Joint Committee on Labor and Industry was held on<Day> Tuesday,<MeetMDY2> September 14, 2004, at<MeetTime> 2:00 PM (CST), in <Room> the Convention Center at Kentucky Dam Village State Resort Park in Gilbertsville, Ky.  Representative J. R. Gray, Co-Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:  <Members>  Representative J. R. Gray, Co-Chair; Senators David Boswell, Daniel Mongiardo, and Jerry Rhoads; Representatives John Arnold Jr, C.B. Embry Jr, Charlie Hoffman, Dennis Horlander, Joni Jenkins, Jim Stewart, and Brent Yonts.


Guests:  Jody Richards, Speaker of the House of Representatives; Representatives Perry Clark and Mike Cherry; Commissioner Philip Anderson, Department of Labor; Charles Snyder, Kentucky Education Association; and other attendees of the Annual Kentucky Labor-Management Conference.


LRC Staff:  Linda Bussell, Betty Davis, Adanna Hydes, and Melvin LeCompte.


Co-Chair Gray welcomed members and guests to the meeting, recognized various state officials in the audience, and announced that Co-Chair , Senator Katie Stine, was unable to attend the meeting because of an illness in her family, and Representative Butler was unable to attend because of a death in his family.


Co-Chair Gray introduced the first speaker on the agenda, William P. Emrick, Executive Director of the Office of Workers' Claims.  Mr. Emrick's presentation covered Kentucky's workers' compensation provision, KRS 342.165, that relates to violation of safety standards within the workplace.  He stated that employers, under the federal Occupational Safety and Health Act have an obligation to provide a workplace environment that is free from recognized hazards and workers have an obligation to comply with health and safety standards. Mr. Emrick stated that KRS 342.165 provides workers' compensation benefits if an accident arises due to intentional failure of an employer to comply with state statute or lawful administrative regulation.  He indicated that if the employer is entirely liable for an accident, the compensation for which the employer would otherwise have been liable shall be increased 30% above the regular compensation.  If the employee is found at fault for not complying with safety appliance furnished by the employer, the employees compensation shall be decreased by 15%.  Mr. Emrick discussed several court cases where safety regulations were in question and provided examples of the many outcomes that can result depending on the facts presented in each individual case.


Co-Chair Gray thanked Mr. Emrick for his presentation.  He then recognized members who has questions for Mr. Emrick.


Senator Rhoads asked how often has the general workplace statute been invoked in claims for safety violations.  Mr. Emrick reminded the committee that the statute has undergone some changes and developments since its creation.  He said that when there is an issuance of a citation, a prima facie showing has been made of the existence of a violation of a regulation or statute which is one of the two elements that has to be proven in order to apply to KRS 342.165.  He stated that the second element is to prove intent or failure to follow the statute or regulation which can be difficult.


Co-Chair then introduced the next speaker, Martin Koetters, Director of the Kentucky Office of Insurance (KOI). 


Mr. Koetters provided an update on the National Council on Compensation Insurance (NCCI) loss cost filing and the Associated Industries of Kentucky (AIK) Comp situation. He said that NCCI workers' comp loss cost filing for Kentucky recommended a 6.3% rate increase for non-coal and a 9.1% rate increase for coal classifications.  He indicated that the increases resulted primarily due to ongoing increases in medical costs in the workers' compensation market place today.


Mr. Koetters provided an update on the current status of the AIK Comp situation.  He said that AIK Comp, which is a workers' compensation self insurance group, is experiencing a financial deficit of at least $49 million.  He explained that the Office of Insurance became responsible for the financial administration of AIK Comp as of August 5th and that two deputy rehabilitators have been assigned to the program.  Mr. Koetters said that the goal of the Office of Insurance is to create a rehabilitation plan which will include an assessment program to keep AIK Comp in business and protect the interests of its members and injured workers.  Mr. Koetters said that a five-year payment plan will be offered to avoid putting financial pressure on AIK's small business members.  Mr. Koetters said that on December 31, 2003, AIK Comp had 2,970 members.  To date there have been 533 non-renewed policies, and 378 cancelled policies.  Mr. Koetters informed the committee that there have been 115 new policies written, of which 3 were in August.  Mr. Koetters said that AIK Comp now has about 2,100 members.  He also informed the committee that AIK Comp has about a $1 million monthly negative cash flow, but if everything remains constant the fund should operate sufficiently for approximately 24 months.


Representative Yonts asked how the AIK Comp financial problem developed.  Mr. Koetters said that the oversimplified answer would be mismanagement.


Representative Yonts asked Mr. Koetters if he knew the extent of the mismanagement and if there were contractual clauses permitting directors to drop out of the program should financial difficulties arise.  Mr. Koetters said that he has not determined the extent of the mismanagement at this time but that such clauses did exist, however none of the AIK directors have tried to collect from the fund.


Representative Yonts asked if there were plans to sue employers who refuse to pay the assessment.  Mr. Koetters said that the Office of Insurance does plan to seek legal recourse should a employer fail to pay the assessment.


Senator Boswell commended Mr. Koetters and the Office of Insurance for taking on such a difficult challenge involving the AIK Comp situation.  Senator Boswell asked if employers who had previously contributed to the program but were no longer in business be assessed.  Mr. Koetters said that after much research, he has not found a good answer to that question.


Senator Boswell asked Mr. Koetters if his office would seek government funding if rehabilitation efforts fail.  Mr. Koetters said that he has not yet evaluated that particular scenario as of yet.


Representative Yonts asked if a corporation dissolves it's current business name and starts doing business under a different name, would it be possible to make the new corporation pay the assessment.  Mr. Koetters said that he would have to consult a legal advisor on that question.


Representative Yonts asked if an employer was a sole proprietorship and the sole proprietor dies and goes out of business, can the Office of Insurance sue the estate for the amount of the assessment owed.  Mr. Koetters said that he was not aware of the legal options available for that particular scenario.


Co-Chair Gray noted that the next item on the agenda was a review of Executive Order 2004-835, relating to workers' compensation self-insurance groups.  He reminded the members that the order involves the transfer of regulatory authority of worker's compensation self-insurance groups from the Office of Workers' Claims to the Kentucky Office of Insurance.  A quorum was not present, therefore no action was taken on the executive order.


Co-Chair Gray thanked the speakers for their presentations there being no further business, the meeting adjourned at approximately 3:30 PM.