Legislature(2005 - 2006)CAPITOL 17
04/19/2006 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB350 | |
| SB177 | |
| Confirmations || Board of Chiropractic Examiners || Board of Pharmacy || Board of Psychologist and Psychological Associate Examiners || Board of Barbers and Hairdressers || Board of Examiners in Optometry || State Physical Therapy and Occupational Therapy Board || Board of Professional Counselors || Board of Social Work Examiners || Workers’ Compensation Appeals Commission || Alaska Workers’ Compensation Board | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 177 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 350 | TELECONFERENCED | |
HB 350-UNFAIR CLAIM SETTLEMENT PRACTICES [Contains discussion of HB 480] CHAIR ANDERSON announced that the first order of business would be HOUSE BILL NO. 350, "An Act relating to enforcement of insurance unfair claim settlement practices by a person affected by a violation; permitting penalties for a single-act unfair claim settlement practice; and providing for an effective date." 4:12:59 PM LALANYA SNYDER, Staff to Representative Mike Chenault, Alaska State Legislature, co-sponsor, explained that the unfair claim settlement practices act sets standards by which insurance companies must abide. This act, she said, was enacted to protect Alaskans from unfair insurance settlement practices, and defines what is acceptable conduct in the insurance industry. She went on to say that HB 350 strengthens this act by allowing an individual who has been harmed by an unfair claims settlement to seek a remedy in court. In conclusion, she stated that HB 350 raises the current standards and would be a benefit to Alaskans. 4:14:01 PM REPRESENTATIVE MAX GRUENBERG, Alaska State Legislature, co- sponsor, said that HB 350 allows AS 21.36, the trade practices and fraudulent practices of the insurance industry, to be enforced by a private suit. This may be enforced by the director of the [Division of Insurance] or an individual may file a lawsuit against the offending insurance company. He explained that Section 2 is a conforming amendment. Section 3, he said, allows restitution and a penalty of $2,500-$25,000 for each violation. He noted that while Section 3 allows for compensatory or punitive damages, the section in Title 9 which governs the awarding of punitive damages is not amended by HB 350. Section 4 is a conforming amendment, he said, and Section 5 repeals AS 21.36.320(h), which restricts the penalty for single act violations. In regard to Section 6, he stated that the bill does not require an immediate effective date, and asked the committee to entertain an amendment to delete this, along with a conforming title amendment. 4:16:21 PM REPRESENTATIVE KOTT moved conceptual Amendment 1, as follows: Delete: Section 6 Conforming title amendment [There being no objection, conceptual Amendment 1 was adopted.] REPRESENTATIVE GRUENBERG noted that [Jeffrey Troutt, Director, Division of Insurance] expressed many concerns with HB 350. 4:16:56 PM CHAIR ANDERSON noted that the National Association of Mutual Insurance Companies (NAMIC) sent a letter dated April 11, 2006, which expressed opposition of HB 350. In addition, he said, Alaska Independent Insurance Agents & Brokers, Inc., submitted a position paper in opposition to HB 350. 4:17:57 PM JEFFREY TROUTT, Deputy Director, Juneau Office, Division of Insurance, Department of Commerce, Community, & Economic Development (DCCED), related that the division has concerns with HB 350 that fall under three categories: practical issues, structural, and the divisions responsibilities. In regard to "practical issues," he pointed out that Section 1 applies to "a person harmed by a violation of this section," which may include individuals it was not intended to benefit. He said that the potential to collect punitive damages may cause individuals to litigate for small amounts of money, which is a concern of some attorneys. In addition, he opined that the potential for damages will cause every insurance action to have a claim under the Unfair Claims Settlement Practices Act. 4:22:26 PM MR. TROUTT went on to say that [HB 350] "puts punitive damages on the table in situations where it [shouldn't necessarily] be on the table." He noted that there are times when the only way to resolve the situation is to litigate. 4:23:08 PM REPRESENTATIVE LEDOUX asked if, being subject to punitive damages, the insurance company might be encouraged to settle a claim. 4:23:20 PM MR. TROUTT replied that this would be an incentive; however, encouraging an insurance company to settle based on punitive damages is a "wild card." 4:23:49 PM REPRESENTATIVE LEDOUX, in regard to attorneys being "forced" to sue because of possible punitive damages, opined that the attorney would be able to decline the case, and refer the client to another attorney. She said "As an attorney myself, I can't imagine that ... I [would] sue just because of the theoretical possibility of [receiving punitive damages]." MR. TROUTT replied that an attorney would be able to "turn a case down." He opined that this would be something to take under consideration when bringing an action. 4:25:38 PM REPRESENTATIVE LEDOUX agreed with this, but stated that unless the possibility [for punitive damages] is substantial, the attorney is under no obligation to take the case. MR. TROUTT agreed. 4:25:59 PM REPRESENTATIVE GUTTENBERG noted that according to the sponsor statement, HB 350 sets higher standards than are currently in place. He asked where these standards are in the bill, and inquired as to the current standards. MR. TROUTT said that he does not believe that new standards are being adopted, rather HB 350 creates a "class of plaintiffs," and empowers the superior courts to make decisions that have traditionally been made by the Division of Insurance. He opined that this would "certainly get the attention" of the insurance companies. 4:27:28 PM REPRESENTATIVE GUTTENBERG asked what the current standards are for determining an unfair claim. MR. TROUTT replied that there are many types of violations, and stated that he does not know that there are any set standards. He said that these claims are fact-specific, and the division looks for patterns and practices that indicate the act is being violated. 4:28:37 PM REPRESENTATIVE GUTTENBERG, referring to [HB 480], said that in a self-audit, insurance companies evaluate how claims have been paid. He said that HB 350 seems to "dovetail" into the aforementioned legislation. He opined that if there is a claim against an insurance company, [the division] would see how the company had changed its practices from its original claims handling procedures. He asked how far back into the claims process [the division] would be able to go. MR. TROUTT replied that [the division] would go back as far as the statute of limitations. He said that he does not know if there is a limit on how far back [the division] can go. REPRESENTATIVE GUTTENBERG said that according to [HB 480], certain portions of the self-audit information are confidential. He expressed concern that it may not be possible to find out what occurred if the information was made confidential. MR. TROUTT replied that as he understands it, [HB 480], would prevent [the division] from using certain documents created during the audit in administrative proceedings. However, the division would be able to take action based on the substance of the audit. For example, if an audit shows the company is intentionally non-responsive, the division would need to conduct interviews and research the situation. REPRESENTATIVE GUTTENBERG asked how many actions are currently being taken under the Unfair Claims Settlement Act. MR. TROUTT replied that the division has participated in multi- state settlements; however, to his knowledge, there have not been any individual actions taken. He explained that issues of this nature may come up in the context of a market exam, and the division must then decide whether to simply ask for corrections to be made or to prosecute. He stated that these types of issues are examined on a regular basis. 4:33:10 PM CHAIR ANDERSON stated that while he does not intend to hold HB 350, he does not support this legislation. He said, "I think it causes an unnecessary cause of action civilly, it could increase rates, ... it certainly usurps the power of the Division of Insurance and the director from the regulatory prerogative they would have. ... I fear some frivolous lawsuits." MR. TROUTT, continuing his testimony, said that the division would be required to file a cease and desist order if the superior court finds a violation of statute. He stated that this may be a situation in which the division would not find a violation, which would usurp the division's authority. Additionally, there may be cases that are heard in two courts, which may result in the courts finding different violations. Furthermore, if the division is forced to issue a cease and desist order with which it disagrees, would it be applied to just the company [in violation] or does it serve to be a precedent for other companies, he questioned. Mr. Troutt explained that if a particular issue was litigated 100 times with only one superior court finding a violation, the division would be forced to issue a cease and desist order. In such a situation whatever precedential impact that created would be felt by the rest of the industry. He then inquired as to what happens with the cease and desist order when the supreme court reverses a decision. The statute doesn't specify that the cease and desist order doesn't apply in such a case, he pointed out. 4:37:15 PM REPRESENTATIVE GUTTENBERG inquired as to what the division would do with the cease and desist order otherwise. He questioned the need to specify in the legislation. MR. TROUTT opined that it should be addressed because staff will look to these statute and read them fairly literally. REPRESENTATIVE GUTTENBERG asked if it's unique to this situation. MR. TROUTT said he didn't know. He said he couldn't think of any other situation in which a member of the executive branch is required to issue this type of order based on an unpublished lower court decision. 4:38:19 PM MR. TROUTT, continuing his testimony, highlighted that if the division issues a cease and desist order, the person/company that's the target of that order has the right to make an appeal to the director and request a hearing. Therefore, he questioned whether the matter is being re-litigated or is it merely a matter of whether there was a superior court decision. If there is some substantive examination and the party against which the cease and desist order is issued loses, the director's decision goes to the superior court for review. In this case, the superior court reviews the director's review of its order. The aforementioned is a structural difficulty that should be taken into consideration. In conclusion, he reminded the committee that the division takes consumer protection very seriously. 4:40:43 PM CHAIR ANDERSON surmised then that the division believes its procedures are thorough enough that it doesn't see the need for this legislation. MR. TROUTT said, "We do our best." In fact, the division dealt with 459 consumer complaints and obtained $500,000 of restitution for consumers. 4:42:32 PM BOB LOHR, recalling Representative Guttenberg's comments on the substantive standards, noted that those standards were set in 2000. He highlighted that the standards established that a single act could constitute a violation of unfair claims settlement practices as compared to the [continuing] prevalent pattern that multiple acts rising to a general business practice are necessary to constitute a violation. He recalled that [in 2000] the industry feared that there would be a rouge regulator going after the companies. However, that should be laid to rest at this point. The provisions in .125 were established to restrict the ability of the division to abuse this tool. If the committee chooses to amend the legislation to provide a private cause of action to claimants' insurance claims, then the door would be wide open to abusive litigation. Under the current practice, when a claimant files a lawsuit the Unfair Claims Settlement Practices Act compliance are brought into the file. Other than attorney-client privileged information, the entire claim file for the individual is made part of the discovery of the case and is examined closely by all sides, including the courts. The aforementioned is one of the key elements in determining whether bad faith has occurred. The private cause of action would cause the entire ability to enforce single insurance mishandling of claims to be cast into doubt. 4:46:27 PM CHAIR ANDERSON, upon determining there were no further questions from the committee, closed public testimony. 4:46:43 PM REPRESENTATIVE GUTTENBERG moved to report HB 350 [as amended] out of committee with individual recommendations and the accompanying fiscal notes. CHAIR ANDERSON objected and reiterated his belief that there isn't merit to this legislation. 4:47:20 PM CHAIR ANDERSON removed his objection. REPRESENTATIVE ROKEBERG objected. A roll call vote was taken. Representatives Kott, Guttenberg, Crawford, Lynn, LeDoux, and Anderson voted in favor of reporting HB 350 [as amended] out of committee. Representative Rokeberg voted against it. Therefore, CSHB 350(L&C) was reported out of the House Labor and Commerce Standing Committee by a vote of 6- 1. 4:48:21 PM The committee took a brief at-ease. 4:49:05 PM
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