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State v. Kentucky Insurance Guaranty Association5/30/1997
AFFIRMING
ABRAMSON, JUDGE: This appeal raises several novel issues regarding the application of the seven-year limitations provision contained in KRS 413.220(3) to claims against the Kentucky Insurance Guaranty Association ("KIGA") arising from the insolvencies of sureties which had issued surface mining performance bonds. In a declaratory judgment proceeding, the Franklin Circuit Court determined that the statute barred several claims which the Natural Resources and Environmental Protection Cabinet ("Cabinet") had against KIGA because the Cabinet failed to initiate administrative proceedings within the seven-year period following issuance of notices of noncompliance to the permittees. In this appeal, the Cabinet asserts that the judgment is erroneous in the following respects: 1) KRS 413.220(3) does not apply to administrative actions; 2) a cause of action for forfeiture on the bonds in question has not yet accrued; 3) the limitations period has not commenced to run because the violations giving rise to forfeiture are unabated and continuing; and 4) the Cabinet's rights against KIGA have been fully preserved by the filing of proofs of claim with the liquidators for the insolvent sureties. Finding no reversible error with respect to any of these issues, we affirm the judgment of the Franklin Circuit Court.
The facts are not in dispute. The Commonwealth of Kentucky, through KRS Chapter 350, requires surface mining permittees to acquire and maintain reclamation performance bonds to insure compliance with statutes and regulations regarding restoration of surface mining sites. A performance bond may be a surety bond, a collateral bond, a combination of surety and collateral bonds or a bond filed pursuant to the Kentucky Bond Pool Program. 405 KAR 10:030, Section 1. Where a surety bond is involved, insolvency of the surety which issued the bond places the permittee in violation of the reclamation bond statute,
KRS 305.064(1), as well as various regulations. The Cabinet, upon notice of a surety's insolvency, issues notices of non-compliance to all permittees holding performance bonds issued by the insolvent entity. 405 KAR 10:030. KRS 350.130 requires permittees to abate any violation within ninety days of receipt of the notice of noncompliance or face revocation of the mining permit and forfeiture of the performance bond.
The legislature created KIGA, a non-profit legal entity set up under KRS 304.36-010 et seq., as a mechanism to cover claims arising prior to and within thirty days after a determination of insolvency of an insurer. KIGA is composed of all insurers transacting business in Kentucky who write certain types of direct insurance, including sureties who issue performance bonds. KRS 304.36-060. Pursuant to
KRS 304.36-080(1)(b), KIGA is liable only to the extent that the insolvent insurer would have been liable.
A dispute arose concerning KIGA's liability on numerous performance bonds issued to the Cabinet. With respect to the first group of bonds, the Cabinet failed to issue orders of noncompliance within thirty days of the determination of the respective sureties' insolvencies. A hearing officer for the Cabinet concluded that these claims were not "covered claims" within the meaning of KRS 304.36-050(3) and KRS 304.36-080(1) because they were not made within the thirty-day window provided by statute. As to the second group of bonds, the Cabinet issued notices of noncompliance within the required thirty-day period but failed to initiate administrative proceedings for bond forfeiture within seven years of the issuance of the notice of noncompliance. The hearing officer concluded that
KRS 413.220(3), a seven-year limitat
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