Legislature(2005 - 2006)CAPITOL 17

04/19/2006 03:15 PM LABOR & COMMERCE


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04:12:13 PM Start
04:12:41 PM HB350
04:49:12 PM SB177
05:03:17 PM 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
05:05:27 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
Board of Chiropractic Examiners; Board of
Pharmacy; Board of Psychologists 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
+ SB 177 PRACTICE OF PSYCHOLOGY TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 350 UNFAIR CLAIM SETTLEMENT PRACTICES TELECONFERENCED
Moved Out of Committee
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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