Sunday, July 01, 2001

Ky. Central suit reinstated

Court reverses decision, says claim within statute of limitations

The Associated Press

        FRANKFORT — The state Court of Appeals on Friday reinstated a lawsuit alleging negligence by the former accounting firm of the failed Kentucky Central Life Insurance Co.

        The state insurance commissioner, suing as liquidator of Kentucky Central, accused Deloitte & Touche LLP of negligence that enabled the insurer's directors to engage in “self-dealing and reckless practices” that ran the company into the ground.

        A Franklin Circuit Court judge dismissed the suit upon finding it was not filed within the statute of limitations.

        Reversing the lower court, a three-judge appellate panel said the clock did not start ticking until Kentucky Central was placed in rehabilitation.

        The liquidator's suit was filed in January 1994 — 11 months after Kentucky Central was taken over by the Department of Insurance.

        The liquidator, originally Don W. Stephens and later George Nichols III, alleged that the company's demise “was hastened by self-dealing transactions” by the company's officers and directors.

        The suit cited huge losses on mortgage and real estate loans that allegedly were not accurately reflected on the company's financial statements. The inaccuracies allegedly were confirmed by Deloitte & Touche's audit reports, the court said in an opinion by Judge William L. Knopf of Louisville.

        A footnote to the opinion said deficiencies were spelled out in a draft of a Deloitte & Touche report in 1991. However, most criticism of Kentucky Central's practices was edited out of the final version.

        The suit alleged that “the wrongdoing officers and directors used the audit reports to continue their reckless mortgage loan practices and to conceal the mounting losses on these loans,” Judge Knopf's opinion said.

        Judge Sara Walter Combs and Special Judge Mary Corey joined in the opinion.

        In other cases, the court:

        • Said the census is the best evidence — but not the only evidence — that can be considered in city-county tax disputes that hinge on population.

        The court reinstated a suit against Knox County by the city of Barbourville. The suit came after both enacted a 1 percent occupational tax in 1999.

        At issue was whether Knox County's population topped 30,000 — a magic number for city residents because their city tax can be credited against their county tax if the countywide population is 30,000 or more.

        • Upheld the Transportation Cabinet's decision to build a four-lane highway through the middle of a 276-acre swine farm in Calloway County. The roadway separated the swine barns from two sewage lagoons holding 13 million gallons of swine waste.


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