A preschool’s insurance carrier is partly obligated to defend a child abuse negligence suit, despite alleged criminal acts. And an employer’s share of attorney fees must be deducted from the amount available from subrogation—not from the full settlement amount in a worker injury suit, the Kentucky Supreme Court decided in separate cases last week.
First, the subrogation case: A grocery store worker, Chantella Blackburn, was injured in 2022 when she stepped off a ladder onto a poorly placed vendor’s cart and fell. Through workers’ compensation insurance, she received temporary total disability and medical benefits totaling about $25,250.
Blackburn also sued the vendor for negligence and gained $295,000 in a settlement.
Her employer, Virginia-based K-VA-T Food Stores Inc., moved for subrogation, seeking to recover comp benefit costs from the vendor’s settlement payment. Kentucky law bars injured workers from collecting duplicate benefits from the employer and a third party, and allows employers to seek recovery of benefits through subrogation.
An administrative law judge subtracted the amount of the settlement that had gone toward pain and suffering, since that is not covered by workers’ compensation. The ALJ then subtracted the employer’s share of attorney fees in the suit against the vendor, leaving some $117,000 available for recovery in subrogation.
The injured employee’s legal team appealed, arguing that the employer should not be allowed recovery until the amount of benefits paid had exceeded the employer’s share of legal fees. The Court of Appeals in 2025 agreed.
The state Supreme Court, however, last week overruled the appellate court. The justices noted that in 2018, Kentucky lawmakers had changed the law, requiring employers to pay only a pro-rata share of the worker’s legal fees, not the full amount in the third-party tort suit, and did not predicate recovery on the payment of fees.
“Notably, there is no ‘fee-first’ threshold included in the statute – it does not state that subrogation is barred unless benefits paid exceed fees incurred,” the justices explained.
They also found that the employer’s share of attorney fees (two-thirds of the total fee amount) should be based on the subrogation amount available, not on the total settlement—a threshold that can result in lower fees paid by the employer-carrier.
“Had the legislature wanted the statute to operate in the way that Blackburn proposes, (the law) could have read indemnity and medical expenses paid, rather than also including ‘payable’ expenses,'” Justice Angela McCormick Bisig wrote in the Aug. 20 opinion.
Blackburn’s attorneys’ interpretation of the law “would also allow Blackburn to retain the entire duplicative portion of her $295,000 civil settlement while continuing to receive workers’ compensation benefits without any corresponding reduction – a result explicitly contemplated and prohibited by the statute,” the opinion reads.
The employer is entitled to immediate reimbursement for benefits already paid, plus a credit for future benefit payments, the court explained. The high court also affirmed that an ALJ has jurisdiction over subrogation recovery amounts.
“Because the statutory right to subrogation falls within the workers’ compensation chapter, then by definition, the administrative law judge has jurisdiction to resolve any subrogation issues,” the justices wrote, quoting from a 2000 court decision.
The Supreme Court reinstated the Workers’ Compensation Board’s decision, which had upheld the administrative law judge except for a small recalculation of legal expenses. The Kentucky Workers’ Association filed an amicus curiae brief in the appeal. The workers’ compensation insurer was not named in the appeal.
In a separate insurance law decision, the high court partly overturned a Kentucky Court of Appeals ruling in a case that started with a two-year-old’s apparent injury at a preschool 26 years ago.
Brianna Robinson was shown to have injuries consistent with child molestation in 2000. But no one was convicted of a crime in connection with the incident. Years later, as an adult, Robinson sued the day care center. The center’s liability insurer, Monroe Guaranty Insurance, asked a court to declare that an exclusion in the commercial general liability insurance policy meant that it did not cover criminal acts.
A lower court agreed. On appeal for the second time, the state Supreme Court also agreed and found that the CGL policy did not obligate Monroe Guaranty to defend or indemnify the day care center.
But the court further determined that the lower court erroneously found that the center was not covered by a professional liability endorsement in the policy.
“The trial court’s failure to examine coverage under the day care (professional liability) endorsement renders its analysis incomplete, as the day care endorsement is not only a part of the policy, but also ensures risks not covered in the CGL base policy,” the justices wrote.
The Supreme Court remanded the case to the Calloway Circuit Court for further proceedings, to determine the professional liability coverage.
“To bring finality to this matter, we make it clear that coverage is triggered under the day care endorsement if Brianna’s damages arose out of the rendering of or failure to render professional services in connection with the operation,” Justice Pamela Goodwine wrote in the opinion.
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