Legislature(1999 - 2000)
04/21/2000 09:20 AM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 177(L&C)
"An Act relating to insurance trade practices; and
providing for an effective date."
Co-Chair Mulder provided members with a proposed committee
substitute work draft 1-LS0902\V (copy on file).
SENATOR DAVE DONLEY, SPONSOR testified in support of the
legislation. He observed that he worked with the Division of
Insurance on the legislation. He maintained that Alaska is
the only state that doesn't allow its Division of Insurance
to take corrective action on individual acts of unfair or
deceptive insurance trade practices. He stressed that the
director should be empowered to take corrective action when
there is a violation of the Unfair Claims Practices Act. He
noted that the insurance industry is exempt from the
McCarran-Ferguson Act and other antitrust laws and that the
industry has unique powers.
Senator Donley observed that the legislation was amended to
address concerns of industry. Section 9 states that the
director may not impose a penalty that includes a fine or
require other remedial action, unless the violation results
in loss or harm and is intentional. The Division of
Insurance is not just a consumer protection agency. The
Division is also charged with assuring that insurance is
available to Alaskans. Actions by the director would be
subject to the Administrative Procedures Act and would have
to go through a hearing process and contain due process.
Senator Donley referred to the redefinition of "proximate
cause". He maintained that in situations were there are
multiple causes and one of the causes is covered that the
damage should be covered if the cause that is not covered is
not the dominant cause. He noted that consumers do not have
the opportunity to negotiate insurance contracts. When there
is a public policy issue, regulatory action should balance
the playing field. The question is should policies in Alaska
be able to exclude causes that were not the dominant cause.
He noted that the Supreme Court pointed to a lack of
guidance from the legislature. Current homeowner policies
are based on the understanding that coverage would occur if
one of the co-equal causes of the loss were covered. The
legislative change would not impact rates, since it
maintains the status quo before the court ruling. He did not
think that rates would be reduced if coverage were reduced,
but emphasized that the potential loss would be significant
to Alaskan families.
BOB LOHR, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF
COMMUNITY AND ECONOMIC DEVELOPMENT testified via
teleconference in support of the legislation. He noted that
single act authority has been extensively debated. He
maintained that single act authority is appropriate and
noted that the director has the authority in other areas of
statute. It does not take a pattern of practice violations
for claimant fraud to be referred to the District Attorney's
Office. He stressed that single act authority would not be
used very often. A policy owner can be seriously harmed by
the unfair action of an insurance company. He gave the
example of an individual who was precertified for hospital
coverage, yet was delayed payment of their $186 thousand
dollar insurance bill for six months. The delay threatened
the policy owner's credit rating. Under the legislation, the
Division would have been able to force the company to come
up with a plan to demonstrate that the violation would not
reoccur. He added that the Division has limitations on the
use of their authority under section 9. The Division has
limited resources and would only pursue single acts if they
were severe.
Co-Chair Therriault referred to section 9. The proposed
committee substitute would change "or is intentional" on
line 14 to "and is intentional". Mr. Lohr maintained that
the proposed committee substitute would gut the Division's
single act authority. He observed that criminal intent would
be required. He stressed that the standard is too high and
recommended the use of "the violation results in serious
loss or was intentional". Regulations adopted by the
Division under current statute define "general business
practice" as greater than 1 percent of claims that are
handled within a year. He noted that the total number of
complaints handled by the Division for any large company
would not arise to one percent of the claims they handle.
The addition of "and" on line 14 would be an inapplicable
standard.
Senator Donley noted that the section has been amended to
place limitations on the authority in order to appease
insurance companies. He acknowledged that State Farm
Insurance Company has a good record, but emphasize other
companies do not.
Representative J. Davies pointed out that even if an action
was unintentional that there could be serious harm.
Representative Grussendorf expressed concern with the use of
"and". He pointed out that the state of mind of the company
or agent would be difficult to prove. Senator Donley
suggested that the Committee could modify the level of loss
or harm to "significant loss or harm". He spoke in support
of the HJUD version. The goal is prevention.
Vice Chair Bunde questioned how cause is decided in order to
establish equal cause.
VIRGINIA RUSH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
responded to questions. She explained that the predominate
cause would be found in court. If a jury or court found that
the excluded cause was the predominate cause it would not be
covered. The legislation would eliminate exclusions, which
occur if there is an excluded cause anywhere in the chain of
causation. Litigation would still occur to determine the
dominant cause.
Vice Chair Bunde expressed concern that there is little that
can be done to protect small consumers against big companies
in court. Co-Chair Therriault pointed out that there is no
coverage if it is excluded.
CSSB 177(L&C) was heard and HELD in Committee for further
consideration.
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