Kentucky has long permitted local governments to impose premium taxes on a range of insurance risks located within the local government’s geographical boundaries. Hundreds of Kentucky local governments have enacted premium taxes with varying rates that insurers must collect from insureds and remit to the appropriate local government. The practical difficulties encountered by insurers in complying with what is by any measure a very complicated set of overlapping requirements have resulted in regulatory examinations that are now being used by the plaintiffs’ bar to bring class actions on behalf of both local government entities and individual policyholders.
A new Kentucky statute granting underwriters immunity if they follow certain procedures became effective in July 2008, prompting the filing of numerous class actions against life and property casualty underwriters in Kentucky federal district court. The actions brought by local governments allege that insurers improperly allocated the premium taxes between various local governments or that they underpaid the taxes. The actions on behalf of insureds allege they were charged a premium tax when none was owed (because their property or other risk was not located within the territory of a local government that had levied a premium tax), or that they were charged a tax at a higher rate than that levied by the local jurisdiction within whose geographical boundaries the insurance risk was located.
In sum, the governmental class actions claim that the insurers failed to pay the premium taxes that were owed to the local governments. The insureds’ class actions claim that the insurers overcharged the insureds by collecting taxes when none was owed because the insureds reside or own real or personal property in areas that have not enacted a local government premium tax, or by collecting taxes at a tax rate higher than that enacted by the relevant local government.