The 5th meeting of the Interim Joint Committee on Labor and Industry was held on Thursday, October 13, 2005, at 9:30 AM, at the Kentucky Horse Park . Senator Alice Kerr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Kerr, Co-Chair; Representative J R Gray, Co-Chair; Senators Julian M Carroll, Julie Denton, Brett Guthrie, Denise Harper Angel, and Jack Westwood,; Representatives Joe Bowen, C B Embry Jr, Bill Farmer, Charlie Hoffman, Dennis Horlander, Joni L Jenkins, Thomas Kerr, Charles Miller, Russ Mobley, Jim Stewart III, and Brent Yonts.
Guests: Mr. Bill Emrick, Executive Director, Office of Workers’ Claims; Tom Ludt, Chair, Blue Ribbon Panel on Workers' Compensation for Jockeys; Mr. Glenn Jennings, Executive Director, Office of Insurance
LRC Staff: Linda Bussell, CSA; Adanna Hydes, Melvin LeCompte, and Ashli Schmidt, Committee Assistant.
Co-Chair Kerr called the meeting to order and welcomed everyone to Lexington and the Kentucky Horse Park. She then asked for a motion to approve the minutes from the September meeting. The motion was made by Rep. Embry and seconded by Co-Chair Gray. The September minutes were approved without objection.
Co-Chair Kerr expressed sympathy for Jerry Rhoads in the death of his mother and noted his absence. Sen. Carroll welcomed everyone to the Kentucky Horse Park which was built during his term as Governor in 1979. Rep. Hoffman also welcomed the members and guests to his legislative district.
Co-Chair Kerr then welcomed the Speaker of the House of Representatives, Jody Richards and the House Majority Floor Leader, Rocky Adkins, and Representatives Mike Weaver and Perry Clark. There being no further introductions, Co-Chair Kerr welcomed Mr. Bill Emrick, Executive Director, Office of Workers’ Claims to give a report and update on the Governor’s Blue Ribbon Panel on Workers’ Compensation for Jockeys.
Mr. Emrick introduced Tom Ludt, a member of the Kentucky Racing Authority and the chair of the Blue Ribbon panel. Mr. Emrick said the panel was created by an executive order from the governor in May, 2005 for the purpose of considering methods to provide workers' compensation to jockeys and exercise riders. He said other members of the panel were: Senator Gary Tapp, Representative Jim Bruce, Dave Switzer, Executive Director of the Ky. Thoroughbred Association, Susan Bunning, President of the Ky. Horsemen's Benevolent and Protective Association, Darrell Hare, a member of the Jockey's Guild, Harvey Wilkinson, Vice-President of the Keeneland Association, Steve Sexton, President of Churchill Downs, Jim Gallagher, Executive Director of the Ky. Horse Racing Authority, and LaJuana Wilcher, Secretary of the Environmental and Public Protection Cabinet.
Mr. Emrick said the panel heard testimony at meetings in June, July and August from the major horse racing interests in Kentucky as well as those outside Kentucky, various insurance carriers, and members of the general public. At its September 1 meeting, the panel voted unanimously to recommend a multi-step solution to providing workers' compensation coverage for jockeys and exercise riders.
Mr. Emrick said the panel's recommendation to the governor included amending the workers' compensation statute to include jockeys as covered employees for purposes of workers' compensation. Currently, jockeys are exempt from workers' compensation because they are considered independent contractors. In addition, a fund would be created which would function as the employer of jockeys and apprenticeship jockeys for workers' compensation only. Providing coverage for exercise riders would be the responsibility of the trainers. The major stakeholders in the industry(racetracks, owners, and jockeys) would each contribute one-third to the funding mechanism.
Mr. Ludt commented that jockeys and exercise riders are jointly covered by the programs existing in California and New York. He said this is a problem for insurance carriers because the exposure attributed to the exercise riders is difficult to determine. In the panel's recommendation, exercise riders are treated separately from the jockeys because this would make it easier for an insurance carrier to more accurately determine exposure and calculate the cost of providing coverage. Mr. Ludt said KEMI provided an estimate to the panel that the annual costs of providing coverage would be approximately $1.2 million.
Mr. Emrick said the panel's recommendations were presented to the governor on September 2 and those recommendations were being studied by the governor's office and legislation for the 2006 legislation session would probably be forthcoming.
In response to questions from Sen. Carroll, Rep. Farmer, and Rep. Kerr, Mr. Emrick and Mr. Ludt clarified that: exercise riders would be treated separately from jockeys and apprentice jockeys; jockeys and apprenticeship jockeys would be employees of the fund for workers' compensation only; each of the three major stakeholders would proportionately contribute one-third of the premium to provide coverage; and, that subsequent to the panel's unanimous vote and recommendation to the governor, the Jockey's Guild stated that it did not want to share in the cost of coverage.
The next item on the agenda was an update on AIK COMP. Sen. Kerr introduced Mr. Glenn Jennings, Executive Director, Ky. Office of Insurance, and Julie McPeak, General Counsel for the Office of Insurance. Mr. Jennings said he had a much more positive update than he delivered to the committee in August. In August, Mr. Jennings said he discussed the upcoming September 14 court hearing on the issue of joint and several liability and issues relating to the assessment and reorganization plan developed by the Office of Insurance. Mr. Jennings said prior to the September court hearing, the judge ordered a three-day mediation between his office and the intervenors before the court hearing. He said five of the intervenors participated in the mediation process. The intervenors represented about 450 AIK COMP members and about thirty-seven percent of the entire AIK COMP deficit. As a result of the mediation, a settlement agreement was reached that has allowed his office to move forward with the proceedings. He said progress was made on issues including the additional premium discount AIK COMP members received, issues relating to claims monitoring and processing, and on the concept of retro premiums. In response to group members' concerns about how claims were managed and paid, Mr. Jennings said his office has developed a method to permit AIK COMP members computer access to view the claims of their employees.
Mr. Jennings said a hardship program was developed which would permit a member to extend the payment period. If the judge approves the settlement plan, reorganization plan and modified assessment plan, his office could receive approximately eighty percent of the entire deficit within sixty days which would greatly assist the rehabilitation effort. The large cash inflow would reduce the overall amount all group members would subsequently have to pay.
On the issue of joint and several liability, the Office of Insurance received a favorable ruling from the court. This was a major concern of AIK COMP group members. Mr. Jennings said the favorable ruling from the court allowed him to trade joint and several liability for an alternative financing mechanism. Mr. Jennings said he has built into the settlement agreement a trigger amount above which the group members who participated in the settlement agreement would be relieved of their joint and several liability. Those members would continue to pay their pro rata share of the deficit but an excess policy of $10 million would be purchased to pay liability that might accrue in addition to the deficit amount that is currently known. Also, this flow of money means that AIK COMP will have assets which will make it more attractive to sell in the commercial marketplace.
Mr. Jennings said a fairness hearing was held on October 11 to allow other group members to participate in the settlement agreement. At the hearing, several other intervenors attended and indicated to the court that they were supportive of the agreement. One intervenor, however, objected to the agreement. Mr. Jennngs said he feels the judge will rule favorably on the agreement.
Mr. Jennings said he is pleased to state that the settlement agreement does not include the use of any public funds or reaching into the guaranty fund to resolve the deficit. There was no change in special fund assessment. Any third party money that might come in as a result of the lawsuit against the actuaries, accountants, and officers and trustees of AIK COMP was not included in the settlement agreement. If third-party money is received it will reduce the overall pro rata assessment amount the members will have to pay.
Regarding the lawsuit against the group members who refused to pay the initial assessment, Mr. Jennings said the lawsuit was against about 1200 group members. About 400 of those members have paid and they were released from the lawsuit. For the remaining 800 members, Mr. Jennings said his office will issue a show-cause opportunity for those members to pay their share of the assessment. He said the members who refuse to pay will be subject to penalty and interest charges.
Co-Chair Gray commended Mr. Jennings on his hard work with AIK Comp and asked him if there was a long term payment plan for marginal businesses who could be in danger of bankruptcy. Mr. Jennings stated that there is a hardship payment plan, but it’s not long term and the conditions are quite strict.
Rep. Yonts noted that many public utilities were covered by AIK Comp and asked if this would have an effect on utility rates? Mr. Jennings said he was not aware of this occurring.
Rep. Bowen asked if it was safe to assume another AIK COMP situation will never happen again. Mr. Jennings stated he could not assume it will never happen again, but it would not get to this magnitude without a flag being raised.
Co-Chair Kerr stated she appreciated everyone’s attendance and noted there may be a potential committee meeting in November. There being no further business, the meeting was adjourned.