Would Kentucky have to pay the Employers' Mutual Insurance Authority's debts if it became insolvent?

Plain-English summary

In 1995, Kentucky's Attorney General concluded that the Commonwealth was not obligated to cover the Employers' Mutual Insurance Authority's liabilities merely because the authority appeared in a statutory list of Labor Cabinet agencies. KRS 342.803(3) specifically said that neither the authority nor its liabilities constituted a Commonwealth debt or pledge of state credit. The AG read that specific rule as controlling over the general agency listing in KRS 12.020.

The auditor also asked whether removing the authority from the agency list would reduce the state's risk of assuming its liabilities. The AG said removal was immaterial to that question. The opinion expressly did not decide whether the authority belonged in the state's annual financial report as a component unit; it left that accounting determination to personnel applying Governmental Accounting Standards Board criteria.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

State auditors and finance officials

The AG distinguished a statutory organizational listing from a promise to pay an authority's debts. KRS 342.803(3)'s express denial of Commonwealth liability resolved the legal question about EMIA's obligations under the law the opinion examined. Whether EMIA was a component unit for financial reporting was a separate accounting question the AG left to the applicable standards.

Legislators reviewing agency placement

The opinion said removing EMIA from KRS 12.020 would not alter the liability result because the specific debt provision controlled. It also cautioned that listing some other agency in KRS 12.020 alone did not establish state liability; another agency's obligations would require its own facts and law.

Common questions

Did naming EMIA as a Labor Cabinet agency guarantee its debts?

No. The AG found the general listing insufficient to override KRS 342.803(3), which specifically disclaimed Commonwealth debt and credit backing for the authority.

Would deleting EMIA from the agency list change the state's liability?

The AG said no for the insolvency question presented. Removal from KRS 12.020 was immaterial in light of the specific statute.

Did the opinion decide whether EMIA belonged in Kentucky's annual financial report?

No. It described that as a component unit question for accounting personnel using Governmental Accounting Standards Board criteria.

Did the AG say the state is never liable for a listed agency's obligations?

No. The opinion limited its answer to EMIA's specific statute and said liability for another agency would require a case by case assessment of the relevant facts.

Background and statutory framework

The Auditor of Public Accounts asked how EMIA's placement in KRS 12.020 affected possible state responsibility if EMIA became insolvent. KRS 342.803(3) expressly denied that EMIA or its liabilities were state debt or a pledge of state credit. The AG gave the specific provision effect, then noted that the related annual financial reporting issue under KRS 48.800(3) belonged to accounting officials.

Citations and references

• KRS 12.020: general listing of state departments and agencies.
• KRS 342.803(3): specific provision denying Commonwealth debt or credit backing for EMIA.
• KRS 48.800(3): annual financial reporting provision mentioned in the opinion's background.

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG95-037.htm

Original opinion text

OAG 95-37

November 16, 1995

Subject: Whether Inclusion of Employers' Mutual Insurance Authority (KRS 342.801 to 342.843), in a statutory listing of Departments, Program Cabinets, and Administrative Bodies of State Government (KRS 12.020), Obligates the Commonwealth to Stand Behind Liabilities of the Authority in the Event of the Authority's Insolvency.

Written by: Gerard Gerhard

Requested by: Hon. A. B. Chandler, III , Auditor of Public Accounts

Syllabus: Statute listing the Employers' Mutual Insurance Authority (EMIA), as an agency of the Kentucky Labor Cabinet, does not obligate the Commonwealth to stand behind liabilities of the Authority, should the Authority become insolvent, as such listing does not supersede a specific statute declaring that neither the authority, nor its liabilities, shall be deemed to constitute a debt or liability of the Commonwealth, or a pledge of the faith and credit of the Commonwealth.

OAGs cited: None.

Statutes construed: KRS 12.020(II)(9), 48.800(3), 342.803(3).

Constitutional provisions cited: 231.

OPINION OF THE ATTORNEY GENERAL

The following questions, in substance, have been presented:

1. Does the reference to the Employers' Mutual Insurance Authority (EMIA) in KRS 12.020 obligate the Commonwealth in any way to stand behind any liabilities should EMIA become insolvent?

2. Conversely, if the Legislature were to remove EMIA from KRS 12.020, would that decrease the likelihood that the state would have to assume EMIA's liabilities in the case of insolvency?

Answer in Brief

In our view, the statutory listing of the Employers' Mutual Insurance Authority (EMIA) as an agency of the Kentucky Labor Cabinet does not obligate the Commonwealth for liabilities of the Authority should the Authority become insolvent. This is especially so given a specific statute declaring that neither the Authority, nor its liabilities, shall be deemed to constitute a debt or liability of the Commonwealth, or a pledge of the faith and credit of the Commonwealth. Discussion follows.

Listing of EMIA in KRS 12.020 Does Not Obligate Commonwealth

Kentucky Revised Statute (KRS) 12.020 is a general listing of departments, program cabinets and their departments, and major administrative bodies of Kentucky state government. KRS 12.020 (II)(9) lists administrative units associated with the Kentucky Labor Cabinet. The Employers' Mutual Insurance Authority (EMIA) (KRS 342.801 to 342.843), appears among the listing of agencies related to the Labor Cabinet as subsection (o). KRS 342.803(3) is a statutory provision specific to the liability of the Commonwealth in relation to the EMIA. It provides:

The authority or its liabilities shall not be deemed to constitute a debt or liability of the Commonwealth or a pledge of the faith and credit of the Commonwealth.

Whether the Commonwealth will be liable for certain obligations (as, for example, obligations of the EMIA) is a matter resting with the discretion of the General Assembly. This is so because of the pronouncement of Section 231 of the Constitution of Kentucky, which provides:

The General Assembly may, by law, direct in what manner and in what courts suits may be brought against the Commonwealth.

Since the General Assembly has the ultimate authority to determine whether it may be sued (which, of course, runs to the question of liability), it obviously has the authority to declare that the Commonwealth will not be obligated in relation to a given matter. In KRS 342.803(3), the General Assembly has specifically declared that neither the EMIA nor its liabilities shall constitute a debt or liability of the Commonwealth, or a pledge of the faith and credit of the Commonwealth. Under such circumstances we find no basis at law for suggesting that the general listing of the EMIA in KRS 12.020 somehow supersedes the specific terms of KRS 342.803(3). In our view, based upon the reasoning expressed above, the listing of the EMIA within KRS 12.020 cannot operate to render the Commonwealth obligated for liabilities associated with the EMIA, should the EMIA become insolvent.

Removal of EMIA from KRS 12.020 is Immaterial

We believe the answer above, to the first question, effectively answers the second question. In direct answer to the second question, however, given the discussion above, in our view, removal of the EMIA from KRS 12.020 is immaterial to whether the state would have to assume the EMIA's liabilities in the event of the EMIA's insolvency.

KRS 12.020 Listing of Agency Does not Establish Liability of Commonwealth

The views expressed in this opinion should not be taken as indicating indirectly that the mere listing of an agency in KRS 12.020 renders the Commonwealth liable in relation to an agency so listed unless there is a statutory provision to the contrary. Whether the Commonwealth might be liable for the obligations of an agency is a matter to be determined on a case by case basis, upon evaluation of specific facts.

Comprehensive Annual Financial Report, GASB

By way of background, should future research related to the questions addressed here be required, we understand that the questions presented arise in relation to whether financial matters concerning the EMIA should be reflected in Kentucky's Comprehensive Annual Financial Report (KRS 48.800(3)). It is our understanding that this is a question to be determined by accounting personnel based upon criteria established by the Governmental Accounting Standards Board (GASB). In particular, the concern is whether the EMIA is a “component unit” of “primary government” for financial reporting purposes. This is a determination to be made in accordance with the GASB's Codification of Governmental Accounting and Financial Reporting Standards, Section 2100. See also, Statement No. 14, The Financial Reporting Entity, GASB, Norwalk, Conn., June, 1991. The answers given above in this opinion bear upon the determination to be made under GASB standards by accounting officials.

CHRIS GORMAN

ATTORNEY GENERAL

Gerard R. Gerhard

Assistant Attorney General