Kansas Insurance Commissioner Vicki Schmidt announced Tuesday morning that a settlement has been reached in a legal dispute with the executive branch over money diverted from the agency to cover other parts of the budget.
The budget signed by Gov. Laura Kelly calls for repaying money that had been moved from an agency account used for regulating the insurance industry. The money in the account came from fees levied against the industry for regulation.
“This case was a classic example of government overreach,” Schmidt said in a statement.
“Insurance agents and companies should not be on the hook for general state expenses,” she said.
Last year, then-Insurance Commissioner Ken Selzer filed a lawsuit against the executive branch to stop it from moving $8.1 million in fees from the department to the general fund. A year earlier, $8 million was diverted from the department to the state general fund to cover other expenses.
The lawsuit — brought against the governor, the budget office and the secretary of administration — essentially contended the state was illegally using fees levied to regulate business to help run state government.
The lawsuit argued that any transfer of fees beyond a “reasonable” reimbursement of administrative costs is an unconstitutional tax.
The litigation centered on former Gov. Jeff Colyer’s veto of a budget item that blocked the transfer of $8 million out of the agency’s fee fund.
The department said the veto violated a 2017 law prohibiting the transfer of the fees —intended to finance Insurance Department operations — to the state general fund.
It did not appear that the state was going to win the case.
Last fall, Shawnee County District Judge Richard Anderson agreed to let the Insurance Department’s lawsuit against Colyer move ahead, indicating that the agency would likely prevail.
The agency “has demonstrated that the proposed sweeps likely violate the taxing provisions” of the state constitution as well as the Commerce Clause and the 14th Amendment of the U.S. Constitution, Anderson ruled last September.
As part of the settlement, about $16.1 million in fee sweeps will be restored in three payments of about $5.4 million, one in this fiscal year and then in each of the next two fiscal years. Under the terms of the settlement, the lawsuit will be dismissed within 14 days of a payment this July 1.
“I am pleased this matter has been settled, without going to court,” Schmidt said. “Taxpayers should not have to see their hard earned dollars wasted on yet another costly lawsuit.”
