In a case that highlights the growing complexity of defense obligations for self-insured public entities, the Kentucky Supreme Court ruled on June 20 that Lexington-Fayette Urban County Government must arbitrate a dispute with its police union over legal costs stemming from a civil lawsuit against an officer. The decision reinforces the binding nature of grievance and arbitration procedures negotiated in collective bargaining agreements, even when employers believe they have a strong case to deny coverage.
The case arose after Sergeant Christopher Morrow, a Lexington police officer, was sued by an acquaintance in 2018 for alleged sexual assault. The city agreed to provide a legal defense under its self-insurance plan but did so with a reservation of rights, signaling it might later seek to withdraw coverage and recover its costs. The union representing Morrow, the Fraternal Order of Police, Lodge #4, filed a grievance in 2020 after learning the city might take legal steps to formalize that withdrawal.
Central to the dispute were two documents: Article 19 of the collective bargaining agreement and the city’s self-insurance policy. Both outlined conditions under which the city must provide legal representation to officers facing civil claims. Specifically, the CBA stated the city would defend officers only when the alleged actions occurred “within the scope of employment.” It also allowed the city to seek reimbursement if it determined otherwise. The self-insurance policy mirrored this language and excluded coverage for certain acts, such as assault and battery, unless committed during official duties.
Lower courts sided with the city, ruling that no actual controversy existed at the time of the grievance since the city hadn’t yet ended Morrow’s defense. They also pointed to evidence that Morrow was off duty when the alleged assault occurred, supporting the city’s position that the claim wasn’t covered.
However, the Supreme Court took a different view. It found that the city’s later decision to file a counterclaim in court—seeking a formal declaration that it had no duty to defend or indemnify Morrow—created an actual dispute under the CBA’s arbitration clause. That move, the court ruled, triggered the obligation to arbitrate before seeking a judicial resolution.
The decision nullifies a lower court ruling that awarded the city more than $22,000 in legal fees and sends the matter back for arbitration. While the arbitration will be advisory and not binding, the court emphasized that the process must be completed before the courts can rule on the city’s attempt to recover costs.
For public entities, insurers, and municipal risk pools, the ruling serves as a reminder that contract language - particularly around arbitration - can dictate how defense decisions unfold, regardless of how strong the underlying coverage argument may appear.
