Legislature(2001 - 2002)
04/19/2001 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 212-WORKERS' COMP:CONTRACTORS & SUBCONTRACTOR CHAIR MURKOWSKI announced that the last order of business would be HOUSE BILL NO. 212, "An Act relating to an employer's liability for providing workers' compensation coverage." Number 2307 AMY ERICKSON, Staff to Representative Lisa Murkowski, Alaska State Legislature, came forth as committee aide to the House Labor and Commerce Standing Committee, sponsor by request of HB 212. She stated: House Bill 212 addresses a decade long issue regarding [compensation] coverage for sole proprietors. Over the past several years, the Division of Workers' Compensation has received numerous complaints from general contractors [who have] paid increased workers' [compensation] premiums for subcontracting a job with a sole proprietor who could be considered a employee of the general contractor rather than independent contractor. Current statute requires that contractors require [compensation] insurance for employees of [subcontractors] unless they provide their own coverage. Sole providers of proprietors have not been required to have workers' [compensation] coverage. The Workers' [Compensation] Board has found in certain cases that sole proprietors are employees of the general contractors; therefore, the general contractor has been responsible for providing the sole provider's coverage. Because of these cases, insurance companies have charged general contractors additional premiums for sole proprietors' subcontractors. These premium charges often occur after the general's policy has been audited, and in some cases the general has been required to pay additional premiums not accounted for or included in his bid costs. House Bill 212 is the best solution to a longstanding problem. It puts sole proprietors under the same requirements as contractors by requiring that they provide their own coverage. It also gives clarity and fairness to all parties. We recognize that enactment of [HB] 212 will result in [increased] cost in premiums and services, but it will also increase the likelihood of adequate insurance coverage to a broader range of individuals and contractors. And contractors can anticipate the costs and include them in their bids. The bill meets the needs of the Division of Workers' [Compensation] and the Alaska [State] Homebuilders Association, who requested the legislations. Number 2384 REPRESENTATIVE ROKEBERG made a motion to adopt the proposed committee substitute (CS) for HB 212, version 22-LS0755\J, Ford, 4/13/01, as a work draft. There being no objection, Version J was before the committee. REPRESENTATIVE ROKEBERG explained that the proposed CS tightens the title and changes the effective date in Section 2 to January 1, 2002. He explained the reason for the change in the effective date and stated that last year, the committee increased the benefits for workers' compensation payments, effective July 1, which had the effect of changing the premium impacts and costs particularly felt by small businesses that had not planned for that increase during the summer season. It particularly affected those businesses that had entered into contracts prior to the enactment of the legislation. TAPE 01-62, SIDE B CHAIR MURKOWSKI remarked that she appreciates both of the changes. Number 2446 ALAN WILSON came forth to testify on behalf of himself. He stated that he is a builder and remodeler, and also serves as a legislative co-chair for the Alaska State Homebuilders Association. He noted that it was that committee that came before the [House Labor and Commerce Standing] Committee last year with this issue. He said he believes HB 212 is the compromise that everyone can live with. He added: Many of us feel that we should be able to not have insurance on ourselves. Then again, we all realize in today's society that is not probably a real attitude to even have. So this requirement, by requiring sole proprietors to cover themselves while operating under a general contractor, is a fix; [it] takes care of the gray area that exists in the current statutes. ... Some of the benefits we see of requiring this is ... a framing subcontractor would pay roughly $2,600 a year himself - that's pretty cheap insurance when you compare it to what health insurance costs. Most health insurance policies don't even cover you on the job. ... One other real important factor I believe with this piece of legislation is that it will help level the playing field. Many sole proprietors will be [bidding] against me and my company, and when I'm trying to play by all the rules and have all the insurances for my employees, it makes it hard to compete sometimes when someone has reduced their base cost by 18 [or] 20 percent. CHAIR MURKOWSKI referred to a handout in the committee's packets and asked Mr. Wilson whether a "policy with no employees" [mentioned in the last paragraph] is something that could work. MR. WILSON responded that within his association there were many [members] that didn't even know that existed, and when they tried to obtain it, they learned it really is not an item that's available for them. Number 2283 REPRESENTATIVE ROKEBERG asked Mr. Wilson whether he thinks this bill will ultimately save his association's members premium money. MR. WILSON answered that his association has had many discussions about what the cost of this is going to do to the final cost of a house. He said in his business he puts a number on the bottom line to compensate for the potential risk of having his insurance carrier audit him and find some sole proprietors that he did not cover. He is not going to do that now because they will all be covered; therefore, there could be some additional cost. He remarked that he believes having more people writing insurance spreads the cost out amongst those potential users of the insurance, rather than spreading it amongst general contractors or society as a whole. REPRESENTATIVE ROKEBERG stated that the point he wanted to make was that he thinks the Alaska State Homebuilders Association has been responsibly trying to deal with these few issues for several years, and he thinks that by passing this bill [the committee] is helping them come to grips with one of their cost elements, and doing so helps make sure that those people who should be covered are covered to avoid litigation. He added that he wanted to compliment the association. REPRESENTATIVE HAYES commented that he doesn't think that this is the best solution, but it is the best solution that [the committee] could come up with. Number 2147 PAUL GROSSI, Director, Division of Worker's Compensation, Department of Labor & Workforce Development, came forth and stated that the department and the division support the bill and think it is a fix of a long-term problem. It solves that gray area in the law as to whether someone is truly a subcontractor or an employee. CHAIR MURKOWSKI asked Mr. Grossi about the "policy with no employees" as a viable option. MR. GROSSI responded that sole proprietors have always been able to cover themselves under the workers' compensation system. These policies are already in existence and are written for those people to choose to purchase them. REPRESENTATIVE ROKEBERG referred to a letter from Combs Insurance Agency, Inc., which indicates that Mr. Combs has some problems with the bill, particularly with the definitions of "employer" and "employee". He asked Mr. Grossi whether or not he agrees with the points Mr. Combs brought up. MR. GROSSI replied that there are a number of issues Mr. Combs brought up. First of all, he said, "employer" and "employee" are defined in statute, but later in the letter, Mr. Combs writes that he feels everybody who works should be covered by the workers' compensation law. Mr. Grossi stated that he thinks the letter basically supports the issue; Mr. Combs just wants it to be more encompassing. As to the executive officer waivers, Mr. Grossi said he believes this statute would cover that. Those types of waivers would be void because the subcontractor is required to be covered. REPRESENTATIVE ROKEBERG asked Mr. Grossi whether a person who is the president of his or her own corporation and acts as a [subcontractor] would have to cover himself or herself [under the bill], but currently wouldn't have to. MR. GROSSI responded that that's correct. He clarified that [the division] is requiring that all subcontractors cover their employees and themselves. Number 1853 ROBIN WARD testified via teleconference on behalf of herself. She stated that she is the other legislative co-chair for the Alaska State Homebuilders Association. She said she and Mr. Wilson made a commitment last year that they would encourage a broad-based task force to be created. She remarked that they had all the players at the table to come up with a solution. This was the best solution that took care of the problem with the most consistency, and that leveled the playing field. CHAIR MURKOWSKI asked Ms. Ward who was represented on the task force. MS. WARD responded that there were members from the WCCA (Workers' Compensation Committee of Alaska), the Alaska National's group, the Alaska State Homebuilders Association, the Division of Insurance, and independent brokers. REPRESENTATIVE ROKEBERG asked Ms. Ward whether they had discussed the issue of if there's no payment, then the fault or liability still rests with the contractor and not the subcontractor. MS. WARD responded that the opportunity has been left open that if a prime contractor chooses to cover a sole proprietor, he or she can. However, it will be up to the prime contractor to enforce this by securing the certificate of insurance prior to having a full proprietor subcontractor work on his or her jobsite. REPRESENTATIVE HALCRO asked Ms. Ward whether that puts in place a procedure for the general contractor to make sure that all the subcontractors have coverage, to avoid the problem of the insurer coming back to the general contactor for back premiums. MS. WARD responded that that's correct. She stated that currently when she looks through her workers' compensation and general liability audit, if she does not have a certificate of insurance and she tells her insurance company that that person is a sole proprietor, it is really up to her insurer whether or not to decided to exact premiums. With this legislation passed, she said she knows that they will if she does not have a certificate of insurance. Number 1616 JUDY PETERSON, Workers' Compensation Committee of Alaska (WCCA), testified via teleconference. She read a letter that was sent to Chair Murkowski: The WCCA board of directors has reviewed House Bill 212, currently pending before the [House] Labor & Commerce Committee, and has voted to endorse the proposed legislation. WCCA directors feel that the proposed change fills an obvious void in the state's workers' compensation law. The language in the legislation provides the necessary protection for both sole proprietors and general contractors in a fair and equitable way. ... [WCCA is] a private, nonprofit organization supported entirely through its membership. WCCA represents the interests of employers statewide with the mission to ensure the quick, efficient, fair and predictable delivery of indemnity and medical benefits to injured workers at a reasonable cost to employers. We encourage the committee to recommend passage of House Bill 212. Number 1554 JACK HEBERT, President, Alaska State Homebuilders Association, testified via teleconference. He stated that he thinks this is a great bill for the insurance companies. He said he has reluctant enthusiasm, as a builder, for the bill, but feels it will define and end the gray issue. It is going to be a difficult adjustment for small subcontractors and small builders who have not carried workers' compensation on themselves in the past. He shared that he has been working in Alaska for 27 years and has never had a workers' compensation policy for himself. He remarked that he thinks there should be no mistake that really what this bill does is make sure that everyone is covered, which isn't a bad idea, but also allows the insurance companies to be sure that they will collect premiums on everyone in the building industry. This leaves wide open owner-builders who can subcontract to refuse to go along with this policy and choose to work for private individuals and homeowners, rather than general contractors. He added that it doesn't solve the whole problem, but for those businesses it defines it clearly. REPRESENTATIVE ROKEBERG asked Mr. Hebert whether his concern that he would have to have coverage for the first time is because he acts as a subcontractor sometimes. MR. HEBERT responded that he has always been a general contractor, but he works on-the-job. He said as he reads the bill, everyone will need to be covered. REPRESENTATIVE ROKEBERG remarked that he doesn't agree with that. He said this really speaks to the subcontractor. MR. HEBERT stated that it is not clear whether he would have to have it on himself or not. He said he is more concerned with the small individuals who have worked for him for the past 20- some years who are sole proprietors. He added that his plumber told him that he is going to work for individuals who aren't in business. REPRESENTATIVE ROKEBERG responded that Mr. Hebert could retain [his plumber's] services by still covering him. Number 1356 MR. GROSSI remarked that for the contractor there wouldn't be any change, it's just for the subcontractor, because it is difficult to distinguish a subcontractor from an employee. REPRESENTATIVE HALCRO asked Mr. Grossi who would be liable for the workers' compensation, if a homeowner hires a sole proprietor to paint his or her house, and the painter falls and does not have workers' compensation. MR. GROSSI responded that the homeowner is a consumer, not an employer. CHAIR MURKOWSKI asked whether that [sole proprietor] would then be out of luck. MR. GROSSI stated that she was correct. MR. HEBERT stated that he thinks many of the [members of the committee] must be aware that there is a false industry in Alaska of owner-builders who build one house per year, and it is essentially a business. Many of the small subcontractors who do not want to work for general contractors can find work in that little niche. CHAIR MURKOWSKI asked whether or not the "policy with no employees" would be available for some of the individuals who need an option. Number 1168 SARA McNAIR-GROVE, Property and Casualty Actuary, Division of Insurance, Department of Community & Economic Development, came forth and stated that the "policy with no employees" has been around for a couple of years and really doesn't address the issue because it doesn't cover the sole proprietor. Its purpose is simply to provide the sole proprietor a means of having some coverage for any employees on an emergency basis. For example, the sole proprietor might not have planned on having any employees this year, but might get sick or have extra work that he or she can't do alone. Therefore, he or she would need an employee on a temporary basis. CHAIR MURKOWSKI asked, if a sole proprietor knew that in March he or she would have to have someone fill in, whether Ms. McNair-Grove is suggesting that the sole proprietor get a policy at the beginning of the year. MS. McNAIR-GROVE responded that if the person knew ahead of time that in March he or she was going somewhere, he or she would get a policy in February. She added that this really is to be used on an emergency basis. Number 0975 CHARLES MILLER, Alaska National Insurance Company, came forth and stated that the exit audits create quite a bit of strain between his company and the policyholders, because this is a very unpredictable area. If there were a retroactive determination by the board that a sole proprietor is in fact an employee, and there's a claim involved, the only rational premium would be the cost of the claim. However, no one wants to pay the cost of a claim for premium. Insurance companies, he said, are not going to make a windfall of any nature out of this bill; this is not for the benefit of the insurance companies. The sole proprietors are given two refusals and then are assigned risk. The administrative company then processes [the sole proprietor's] policy and takes care of the future claims. He added that he understands that now the cost of premium in the assigned risk isn't even covering the cost of the program. Every company that writes workers' compensation in Alaska is then assigned a proportional piece of the loss of the business. REPRESENTATIVE HALCRO asked Mr. Miller, if there is a loss in a given year, whether he passes that through to the employer in the form of higher workers' compensation rates. MR. MILLER responded that it wouldn't be the employer who is paying the premium in the assigned risk. Every other policyholder in Alaska will pay. REPRESENTATIVE HALCRO asked: If a person is not in that affected group or has not suffered the loss, would his or her premiums still be negatively impacted if the overall pool suffers a loss in a given year? MR. MILLER answered that [they would be], but he is pretty sure it would be minor. He remarked that another issue about the assigned pool is that the minimum premium policy makes some of these policies less impactful than they could be otherwise. He explained that there is a set limit of $20,100. If a person contracts out for $80,00 in the year, he or she would still only pay for his or her category on $20,100. He remarked that it is still cheaper than what it would cost if the person were an employee to be covered by a general contractor for the sole proprietor, because the minimum premium is all he or she gets charged. Number 0610 REPRESENTATIVE HALCRO made a motion to move CSHB 212, version 22-LS0755\J, Ford, 4/13/01, from committee with individual recommendations and the attached zero fiscal note. There being no objection, CSHB 212(L&C) moved from the House Labor and Commerce Standing Committee.
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