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Knightstown's secret insurance settlement examined by Indiana appellate court

FOI Alert

INDIANAPOLIS - An Indiana appellate court panel will soon decide the fate of an important case concerning public disclosure of insurance settlements when governmental entities are sued. The legal fuss goes to the core of the public records law.

Brief recap: Knightstown gets sued in a civil rights lawsuit by a police dispatcher who claims she was sexually harassed. The town hires an attorney to negotiate a settlement, which is done through mediation in federal court. The town pays some money. The insurance company pays some money.

The town reports the amount it paid at a public meeting: $5,000. But it claims that it either never received any additional documentation from the attorney who settled the case (on behalf of the town), or even if it did, it wouldn’t be a public record because it is physically not in its possession.

Though the insurance for the town is paid for by taxpayers (essentially coming out of the town’s budget), the other portion of the settlement currently remains a secret. The Knightstown Banner newspaper then sues for disclosure, but loses the case in Henry County.

In arguments before the appellate panel, it turns out this case is a tricky manipulation of the state’s public records law hinging on definitions and the intent of the Legislature.

The attorney representing the town argued that insurance companies will never be able to settle claims if settlement terms become public. A private contract attorney for a private insurer also has no obligation to maintain a record, as would a public agency. But the local newspaper that brought the case to the trial court argues that public money used to settle public lawsuits involving public employees is matter of public record.

In a narrowly drawn opinion of the Public Access Counselor’s office in 2004, former PAC Michael Hurst wrote that the insurance company wasn’t acting as an agent of the town but rather as an independent contractor. He states that the insurance company did not exercise the “power of government in theory or in practice.”

Though the case tickles on the edges of attorney-client privilege and subscriber agreements with insurance firms, the three-judge panel cut to the quick on what is public. Without knowing where the money went or how it was spent, Judge John Baker pointed out the settlement could have been spent on “faucets.”

“You approved $5,000 of the town’s money for what?” Baker asked attorneys representing the town and insurance company. “What was the money for, sir? Did the town buy faucets? How do I know?” Without disclosure, as Judge Patricia Riley pointed out, “the public has no knowledge” how its money was spent.

Without divulging all terms of the settlement, the questions from the judges quickly honed in on government accountability. A larger settlement that remains secret could potentially indicate some culpability on the part of public employees and raises a question whether those employees were properly disciplined or should have been discharged, for example.

To the core of disclosure, lawyers can subvert the public records law by stamping documents “work product” and there have been some well-published instances brought to light by media over the years, particularly with municipal and state agencies.

The popular wave of privatized government services will likely result in similar legal challenges in Indiana as long as accountability remains the bottom line for citizens paying for those services.

In arguing potential subversion of the records law, the question always boils down to: What did the legislature intend when drafting its definitions for disclosure? Is the intent to keep government open, honest and accountable, or to do public business in the dark?

The Knightstown case will be decided within 30-60 days.

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