KENTUCKY ASSOCIATED GENERAL CONTRACTORS SELF-INSURANCE 2007-CA-000736 FUND VS. MUSIC CONSTRUCTION, INC.Annotate this Case
RENDERED: SEPTEMBER 26, 2008; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
KENTUCKY ASSOCIATED GENERAL
FUND (KAGC), AS ADMINISTERED
BY LADEGAST AND HEFFNER
CLAIMS SERVICE, INC.
APPEAL AND CROSS-APPEAL
FROM MONTGOMERY CIRCUIT COURT
HONORABLE BETH LEWIS MAZE, JUDGE
ACTION NO. 07-CI-90021
MUSIC CONSTRUCTION, INC.
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BEFORE: ACREE AND STUMBO, JUDGES; GRAVES,1 SENIOR JUDGE.
Senior Judge John W. Graves, sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
STUMBO, JUDGE: This appeal and cross-appeal come from an order dismissing
a complaint for failure to state a claim for which relief could be granted. Kentucky
Associated General Contractors Self-Insurance Fund, hereinafter Kentucky
Associated, appeals the dismissal of their complaint. Music Construction, Inc.,
cross-appeals to supply an additional basis to affirm the dismissal of the complaint.
We hold that the action of the circuit court was proper. The issue in this case has
already been addressed by the Kentucky Supreme Court case AIG/AIU Insurance
Co. v. South Acres Mining Co., LLC, 192 S.W.3d 687 (Ky. 2006).
Music Construction was insured by Kentucky Associated for workers’
compensation purposes when one of its employees, Donnie Thacker, was injured
while on the job. Mr. Thacker filed a claim for workers’ compensation benefits.
As part of that claim, he argued he was entitled to a 30% increase in his benefits
because Music Construction intentionally failed to comply with appropriate safety
laws and regulations. This 30% increase is authorized by KRS 342.165.
Mr. Thacker was awarded the 30% increase in benefits at the
conclusion of his workers’ compensation case. An issue arose during that
proceeding regarding payment of the 30% increase. The contract between Music
Construction and Kentucky Associated contained a clause that stated Music
Construction was responsible for any workers’ compensation payments that were
awarded as a result of a failure to comply with health or safety laws. Additionally,
the contract provided that if Kentucky Associated was directed to make these
payments, Music Construction was required to reimburse the insurance company.
While Mr. Thacker’s case was being litigated, this same issue came
before the Kentucky Supreme Court in AIG/AIU Insurance Co. v. South Acres
Mining Co., LLC, supra. The Supreme Court held that, under the provisions of the
Workers’ Compensation Act, a workers’ compensation insurance policy must
cover the employer’s entire liability for workers’ compensation benefits. The
Court specifically held that the employer’s liability included the KRS 342.165
increase in benefits.
Based on AIG/AIU, Kentucky Associated paid the increased benefits.
It then demanded reimbursement from Music Construction pursuant to the
contract. Music Construction refused and Kentucky Associated brought the instant
We agree with the circuit court’s holding that the AIG/AIU case is
dispositive of this issue and prevents Kentucky Associated from bringing a breach
of contract claim against Music Construction. The contractual provision at issue in
the AIG/AIU case is identical to the one at issue in this case. Both contracts
provided that “If we make any payments in excess of the benefits regularly
provided by the workers’ compensation law on your behalf, you will reimburse us
promptly.” To require Music Construction to repay the increase in benefits
awarded here would be antithetical to the AIG/AIU holding. The Kentucky
Supreme Court held that “the employer’s insurance carrier is liable for any
increase in benefits under KRS 342.165(1) despite a contractual term to the
contrary.” AIG/AIU at 689.
The Supreme Court reasoned that:
[c]onsistent with the principle that workers’
compensation benefits are a cost of production, the
carrier is free to consider the amount of compensation it
has paid on an employer’s behalf when assessing the risk
and deciding whether to continue to offer coverage after
the policy expires and, if so, at what rate.
Id. While Kentucky Associated cannot recover on a contractual basis, it can
consider the award in determining Music Construction’s future premiums or cut its
losses by no longer providing it with coverage.
“The court should not grant [a motion to dismiss for failure to state a
claim] unless it appears the pleading party would not be entitled to relief under any
set of facts which could be proved in support of his claim.” Pari-Mutuel Clerks’
Union of Kentucky, Local 541, SEIU, AFL-CIO v. Kentucky Jockey Club, 551
S.W.2d 801, 803 (Ky. 1977). We find that based on the holding in AIG/AIU, it
would be impossible for Kentucky Associated to prevail on its complaint. For the
above stated reasons, we affirm the trial court’s dismissal of Kentucky
BRIEFS AND ORAL ARGUMENT
Douglas A. U’Sellis
BRIEFS FOR APPELLEE/
Elaina L. Holmes
NO ORAL ARGUMENT FOR