Legislature(1997 - 1998)
04/30/1997 03:38 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 218 - OMNIBUS INSURANCE REFORM Number 056 CHAIRMAN ROKEBERG announced the committee would address HB 218, "An Act relating to regulation and examination of insurers and insurance agents; relating to kinds of insurance; relating to payment of insurance taxes and to required insurance reserves; relating to insurance policies; relating to regulation of capital, surplus, and investments by insurers; relating to hospital and medical service corporations; and providing for an effective date." He indicated it is his intention to move the bill to the House Finance Committee. He noted the Senate version of the bill will be referred to the Finance Committee the following day. Number 109 CHAIRMAN ROKEBERG indicated there were three amendments to the Senate version of the bill. One was adopted in the Senate Finance Committee and two were adopted on the Senate floor. He said the committee has an amendment labeled B.1, Ford, 04/30/97. It should be referred to, generically, as the Duncan amendment. Chairman Rokeberg explained there are some changes in the amendment as it relates to the version adopted on the floor. CHAIRMAN ROKEBERG referred to the second amendment, B.2, and said it should be referred to as the Donley amendment. CHAIRMAN ROKEBERG referred to the third amendment, B.3, and said it is the Senate Finance Committee amendment. Number 247 MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, came before the committee. She urged the committee to move the bill. CHAIRMAN ROKEBERG said the Amendment B.3, for the record, will be called Amendment 1. He said the amendment relates to rental car insurance. Number 299 MS. BURKE indicated the amendment relates to rental car insurance. She stated the Division of Insurance doesn't have an objection to the amendment as it clarifies the order of which policy goes first in the settlement of claims. CHAIRMAN ROKEBERG said Amendment 1 would be put on the table for further consideration. He referred to Amendment B.2, the Donley amendment, and said it should be marked as committee Amendment 2. He asked Ms. Burke to give the department's opinion on the amendment. Number 368 MS. BURKE said the department does not wish to take a position one way or another. She said the amendment addresses a highly controversial area. As she has previously testified, it is a subject that is before the Alaska Supreme Court as a result of two contradictory decisions rendered on this issue. Ms. Burke said, "The state has filed an amicus brief on this issue and because this amendment is so controversial, I am very very reluctant to take a position in favor of it or against it which might jeopardize our bill in total." CHAIRMAN ROKEBERG asked Senator Donley come forward to explain the amendment. Number 472 SENATOR DAVE DONLEY said the reason for the department's neutrality on the amendment is not the policy call involved, but it's the importance of the rest of the bill. He said from a policy point of view, the Department of Law has intervened in that case in support of the position that is represented by the amendment. The state's official policy is to advocate for the amendment and the effects of the amendment to be the actual status of existing law. He explained the amendment is about underinsured motor vehicle coverage. Senator Donley said in 1983, when the legislature was working on mandatory auto insurance, the legislature added for the first time in Alaska, coverage for underinsured vehicle coverage. Up until that time, we had uninsured vehicle coverage, but not underinsured vehicle coverage. Senator Donley said, "What that meant was that if you were hit by somebody who didn't have insurance, you had coverage. But if you were hit by somebody who had let's say they had $100 insurance policy, you didn't have any protection against the difference between what their policy covered and what you're policy covered, because they weren't uninsured. They were simply underinsured. So we added underinsured to the list of type of products you could buy in Alaska - were mandated for offer in Alaska." He said one of the results of that was since we had mandatory insurance, people typically bought underinsured coverage for up to $100,000. Since everybody was required to have mandatory auto insurance, which tended to be for $5,100, you would be covered up to that amount of money. But since people had mandatory auto insurance and it had a minimum legal amount, frequently people bought up to that amount, so they actually didn't get any additional coverage as long as the people who hit them actually had insurance. Although they were paying for this, all they were really insuring themselves against was the possibility that they had a sub legal limit amount or no insurance. SENATOR DONLEY said about eight years ago, he sponsored legislation that provided that when you bought underinsured motorist coverage, it stacked. So what you were buying was coverage in addition to what whoever hit you had. That was first party insurance which meant you would buy this insurance to protect yourself against somebody else not being able to pay you the damage they did to you. Senator Donley said if you had $125,000 worth of damages under the old system and you had $100,000 worth of underinsured motorist coverage and they $100,000 worth of coverage, you were out $25,000 of legitimate damages. Under the new system that was adopted about eight years ago, your coverage would extend up to $200,000 and you would get compensated for your actual total damages. Senator Donley said there is no double recovery. It would be only for what the actual damages were. It extended your coverage above and beyond what the person who hit you had. He noted he was the sponsor and Mr. Ford drafted the legislation. Senator Donley said about four years ago, one insurance company decided they didn't want to pay that. Rates had been established for that coverage based on losses in Alaska and people paid insurance based on that being what they were supposed to get under the law. The insurance company said, "We don't want to pay that and, in fact, since you haven't amended this other section of existing insurance law, 28.22.201, we're not going pay, we're not going to stack." Senator Donley continued, "A district federal court judge agreed with them and actually said that -- told me what I intended, as the sponsor, was not to stack. Well being the person who did the law and Mr. Ford being the person who drafted at my request, we know that was wrong because we knew what we intended. We said it all the way through the process. There was no other reason to adopt the change we made unless that's what we intended to do." SENATOR DONLEY explained in a subsequent federal district court case another federal district judge said just the opposite. He said he couldn't believe that the other judge ruled that way because it was obvious that this was what the legislature wanted. It went to the Ninth Circuit. At that point, the state did an amicus brief arguing the same thing that he is currently arguing to the committee in that these policies should have stacked because that was the intent of the legislature when the law was passed. He noted the federal government hasn't any business dealing with this because it's a state law issue. The Ninth Circuit agreed and certified the issue back to state supreme court where is currently is. He stated he feels confident that the court will agree as it is very clear from the record what was intended. SENATOR DONLEY said currently in Alaska, we've got some insurance companies that are under a court order to pay this and some are refusing to pay because of ruling from the first judge. The amendment would clarify and restore us to what should be the status quo and say that for underinsured and uninsured claims in Alaska, policies stack so that the consumers are getting the protection they paid for and it has supposedly been programmed into the rate base since this law was changed. Number 937 MIKE FORD, Attorney, Legislative Legal and Research Services, Legislative Affairs Agency, came before the committee to discuss the amendment. He explained there is an argument by an insurance company that was accepted by a court. The amendment that is before the committee is intended to clear up any argument that, in fact, the policies are not going to stack as Senator Donley described. He indicated there are some changes to existing law. Mr. Ford said at the time they attempted to stack them, they didn't believe these were issues, but apparently one court believed they were. Number 993 SENATOR DONLEY said this is very important as people have been paying for this coverage and now they're being denied this coverage even though they paid for it. He said this was the intent when the law was written. This problem needs to be fixed and this is the appropriate way to do it. He noted he believes it passed the Senate 18 to 1. Number 1048 CHAIRMAN ROKEBERG asked Mr. Ford if he agrees with Senator Donley's analysis of the circumstances surrounding the need for this amendment. MR. FORD indicated he agrees. CHAIRMAN ROKEBERG asked Mr. Ford if he believes that by passage of the amendment, it would make moot the cause of actions before the supreme court. MR. FORD responded he believes it would resolve the question. CHAIRMAN ROKEBERG asked if the lawsuits would go forward because of the interpretation of the time. MR. FORD indicated it wouldn't have a retroactive effect. It would only apply to policies of insurance that are entered into or are renewed on or after the effective date of the bill, but it would resolve the issue. He said in the cases where companies are continuing to dispute that, he thinks that upon renewal or the issuance of new policies they won't have that argument. He stated this is really the best approach to take to resolve the issue if that is what the legislature wishes to do. Number 1143 MICHAEL LESSMEIER, Attorney, State Farm Insurance Company, came before the committee. He explained that the amendment does something far different than what was just been explained to the committee. He said the amendment hasn't been heard before any other committee. It involves a complex area of the law and will have a negative affect in terms of what Senator Donley intend the amendment to do. He said, "The proposal for mandated offers of uninsured and underinsured motorist coverage was a proposal that we made to the legislature back in 1983, in recognition of the fact that we were going to have mandatory automobile insurance. And even if you have mandatory automobile insurance, there are certain percentages of people that are going to uninsured or underinsured. And as a result of that, the legislature enacted law requiring mandated offers of uninsured and underinsured motorist coverage. Now it's very important that you understand what we mean by underinsured motorist coverage because the way it was defined in statute is that a person would go out choose how much underinsured motorist coverage to purchase. If they chose to purchase $100,000 of underinsured motorist coverage, then by statute, an underinsured motorist was defined as someone who had liability coverage of less than that. In other words, if you bought protection for yourself of $100,000 of underinsured motorist coverage and somebody hits you with $50,000, then you would have -- they would be underinsured based on the coverage that you chose to buy. And that definition is contained in the Alaska statutes, and that was how one determined whether a person was underinsured. The way this coverage started out, it was what is called difference in limits covered. If the person that hit you had $50,000 in coverage and you had $100,000 of underinsured coverage, what you got from your own carrier was the difference in the limits. In other words, an additional $50,000." Mr. Lessmeier explained in 1990, Senator Donley changed that to be excess coverage. He said what wasn't changed was the definition of what is an underinsured motorist. He stated it is not a question of stacking and that wasn't the basis of the decisions made by the federal district court judges. The basis of their decisions was, "How is an underinsured motorist defined?" He said what they held was if somebody hits you and their policy limits are equal or greater than what you chose to purchase as underinsured motorist coverage, then the coverage wasn't triggered. That is based on a specific provision of the law. Mr. Lessmeier said he would encourage the legislature to not go down this road again. He referred to the first line of the amendment and explained that it would require that uninsured and underinsured motorists, motor vehicle insurance, apply to the claims of an insured even if other policy limits are not exhausted. Mr. Lessmeier stated the reason we had underinsured motorist coverage to begin with was to make a person whole. He asked, "If the other person doesn't have adequate insurance, why in the world do you want to make underinsured motorist coverage apply if the other person's limits are not exhausted?" Mr. Lessmeier stated he doesn't know the answer, but would like to know the answer because that is ludicrous in terms of how underinsured motorist coverage is defined. He said it doesn't make sense. Number 1407 CHAIRMAN ROKEBERG asked if it is a question of the priority of where the funds would be coming from. MR. LESSMEIER explained it is a question of not only priority, but in terms of how you define someone that's an underinsured motorist. The whole purpose of the coverage has been if somebody doesn't have adequate insurance, but if they haven't exhausted the other insurance, how do you decide whether they're underinsured. He said, "It takes what this coverage was intended to be and turns it on its head to something that it wasn't intended to be." MR. LESSMEIER explained it changes in one part of the statutes, but not other parts of the statute, as to how the coverage applies. It says it applies to bodily injury, sickness, disease even if the limits of the liability bonds of policies that apply have not been used up. He pointed out that in AS 28.24.045 it says that uninsured and underinsured coverages may not apply to bodily injury, sickness, death, until the limits of the liability of all bodily injury and property liability bonds have been used up. The amendment would build in an irreconcilable conflict in the statutes with this law. MR. LESSMEIER said the third thing that is being done is it says that the insurer shall, in each instance, receive a credit against the insurer's total damages for amounts actually received by the insurer. He stated he doesn't understand what is being talked about. He questioned a credit from what. Mr. Lessmeier explained the way the coverage typically works is an insured makes a claim against the uninsured motorist, receives coverage from the uninsured or underinsured motorist which isn't adequate and then files a claim against their own insurer for what is left. He asked how that would be done under this law is not clear. Mr. Lessmeier said it will be litigated to death because it's not clear. He stated an amendment is being created that is fundamentally inconsistent with the mandatory insurance law that was passed in 1983. MR. LESSMEIER referred to the repealers on page 2 of the amendment and said there are things that are repealed that have been on the books for 14 years and there is no good reason to repeal them. For example, 23.24.045(c) was repealed. The only thing that subsection does is it determines priority of payments. It doesn't have any affect on how much is paid, it just determines priorities. Mr. Lessmeier stated the definition of an underinsured motorist was repealed. He asked, "Without a definition, how do we decide if somebody is un insured? How do we write that coverage as to whether they're underinsured or not?" Number 1574 MR. LESSMEIER referred to AS 28.24.445(e) and said it talks about what uninsured and underinsured motorist coverage may apply to. It is directly in conflict with the provision that is currently in the bill. He said the amendment hasn't been thought out very well, it creates huge problems and will ultimately turn out to be a problem for every motorist that chooses to buy the coverage. He urged the issue shouldn't be part of an omnibus bill that is essentially noncontroversial. It should be legislation that proceeds on its own merits. He said, "If you were to do it right and change the trigger, according to our figures it's going to increase the cost of uninsured underinsured motorist coverage to everyone in Alaska in excess of $20 per year. I mean if you were to do it right -- and I think that this is an important enough concept to -- if you're going to do it, you ought to do it right." Number 1695 CHAIRMAN ROKEBERG referred to the 1990 amendments to the insurance code and asked if State Farm has undertaken to do their rating and underwriting to accommodate the stack effect as far as their payouts. MR. LESSMEIER stated that he believes there was an initial rating change to deal with the stacking, but not to deal with the trigger change. He said there wasn't a change in the trigger. Mr. Lessmeier said he believes they did not rate for the change in trigger. This coverage has been a very big loss for State Farm. CHAIRMAN ROKEBERG asked if that is why the premiums may go up as much as $20. MR. LESSMEIER responded in the affirmative CHAIRMAN ROKEBERG asked if that would be $20 per policy. MR. LESSMEIER responded State Farm believes the change would be an average annual rate increase of $22 per car. MR. LESSMEIER said if is the policy call for the legislature to change the trigger, then that can be done, but it ought to be done properly and carefully. The amendment goes much further than changing the trigger and it fundamentally changes underinsured motorist coverage in Alaska. It does it in a way that is not clear as there are conflicting provisions. CHAIRMAN ROKEBERG asked what "changing the trigger" means. MR. LESSMEIER responded that it defines who is an underinsured motorist. The way the law is currently written, an underinsured motor vehicle is one in which the liability limits on that vehicle are less than the amount that the person chose to purchase for uninsured or underinsured coverage. In other words, if you purchased $500,000 of uninsured or underinsured coverage and the person that hits you has $100,000 of liability coverage, then you have been hit by a motorist that, by definition, is underinsured. Number 1994 CHAIRMAN ROKEBERG said he is really disturbed to hear the testimony about the $22 increase, when in fact the policy call was made by the legislature in 1990. MR. LESSMEIER responded, "That's not how we underwrote this. And the $22 increase is based on our experience under this coverage. I mean I can tell you that our experience has not been very good with the underinsured and uninsured motorist coverage and let me give you an example. I have no accidents and I just got my premium notice a few days ago. And I have $500,000 of liability coverage and $500,000 UMUIM (?) and my UMUIM coverage now is almost as expensive of as my liability coverage." CHAIRMAN ROKEBERG said some day there will probably be no-fault insurance because of this. MR. LESSMEIER said that is a different issue. He stated the point he wants to make is that if it is the legislature's policy call is to make it pure access and change the trigger so that the trigger comes into effect, regardless of your policy limit, it comes into effect when the person that hits you doesn't have enough insurance. He stated there is a way to do that and to do it right. Number 2089 CHAIRMAN ROKEBERG asked Mr. Ford to come before the committee. He stated he is concerned about the repealers and the effective date where some numbering was done. He asked Mr. Ford if he is confident that those are in order. MR. FORD explained they are simply renumbering section references and they are all correct. He referred to the amendment and said regarding the stacking issue, he would agree with Mr. Lessmeier that this should be reviewed carefully. If in fact there is a narrower way to effect the stacking provision, then that's a good idea. He said he believes that the problems there have been with this area of the law have existed because there hasn't been enough input and time spent in crafting the changes. If the policy of the legislature is to effect the trigger and the trigger only, and there is concern about the additional changes made, that's probably a good criticism. He said this is a complex area of the law and the criticisms by Mr. Lessmeier may be well taken. It may prudent to examine Mr. Lessmeier's comments and determine if there is an additional affect beyond the trigger he is not aware of. Number 2180 CHAIRMAN ROKEBERG said Amendment 2 is on the table. REPRESENTATIVE JOHN COWDERY said he had a hard time understanding the Donley amendment. He said he isn't sure what it does and doesn't do. CHAIRMAN ROKEBERG indicated Amendment 2 is on the table and the committee will move to Amendment 3. He pointed out Amendment 3 is marked B.1. He asked Mr. Ford to address the amendment. Number 2254 MR. FORD said the amendment was adopted on the Senate floor and was offered by Senator Duncan. It's intended to allow someone who wishes to exclude a member of their household or relative from coverage. There are currently provisions in law where a policy does apply to all people who live in the same household. There was some belief, at least on Senator Duncan's part, that you are unable to remove someone that you wish to have excluded. This provision would allow you to exclude someone if you do not wish to have them on your policy. Number 2285 REPRESENTATIVE COWDERY asked if it was a minor that you chose to exclude, the parent would still be responsible whether the minor was insured or not. MR. FORD said he doesn't believe that is correct. REPRESENTATIVE COWDERY asked Mr. Ford if he doesn't think that a parent of a minor would be liable for something that minor did. MR. FORD explained that the common law is that you have no liability from a parent/child relationship. He said, "You have perhaps negligence on your part. You could be sued for that, but simply from the fact that you are the parent, no. There is no vicarious liability there." Number 2316 CHAIRMAN ROKEBERG said, "Mr. Ford, I think the testimony will bring out that the automobile is insured by the parents, if you will, in that hypothetical, and the insurer will have to pay off even though the excluded member of the family had not been underwritten, nor the premium adjusted for that coverage. Is that right?" MR. FORD indicated that may be the case because you also provide coverage for someone who uses the vehicle with your permission. He noted it may be a provision that has some unintended consequences. You may find that the underwriting for that, as a result of this, the premiums may go up. CHAIRMAN ROKEBERG stated his fear is that this may not be a positive thing, not only for the insurance industry in the state, but also for the parents. He said, "Although I think that there is an ability, through artful drafting, to reach the goal of this particular amendment, that this isn't it. And no disrespect meant because I understand." MR. FORD said he believes the amendment does accomplish the intent of Senator Duncan. He pointed out the amendment is slightly different than the Senate's version as it amends our mandatory insurance law. The provision in SB 104 actually amends a chapter that basically kicks in after you have an accident. He said that Alaska has dual insurance provisions and he would recommend that if the committee adopts the amendment that a similar provision be added to AS 28.20 as well, so that there are mirror provisions. CHAIRMAN ROKEBERG asked if there were any further questions on Amendment 3. There were no further questions. He said Amendment 3 is currently tabled. Number 2443 REPRESENTATIVE JOE RYAN said it seems in criminal law, nobody is responsible for anything and in civil law, everybody is responsible for everybody. He said, "I think this would be a good place to put that - right where you did - on the table." CHAIRMAN ROKEBERG said there are two other amendments the committee will take up when a quorum is present. He indicated he has concerns about the amendments. He said the bill would be brought up as soon as a quorum is present. Chairman Rokeberg then called for a brief at-ease at 4:30 p.m. He called the meeting back to order at 4:50 p.m. TAPE 97-53, SIDE B Number 021 CHAIRMAN ROKEBERG announced no other action would be taken on HB 218, HB 266 or HB 209 because of a lack of a quorum.
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