Legislature(2011 - 2012)BELTZ 105 (TSBldg)

03/27/2012 03:30 PM COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 223 TAX CRED: CONTR. TO HOMELESS SHELT/DETOX
Heard & Held
= HB 131 COMMUNITY AND TRANSPORTATION ADV. BOARD
Moved CSHB 131(TRA) am Out of Committee
= SB 157 CANCEL INSUR. ON CERTAIN VACANT PROPERTY
Heard & Held
        SB 157-CANCEL INSUR. ON CERTAIN VACANT PROPERTY                                                                     
                                                                                                                                
4:14:23 PM                                                                                                                    
CHAIR  OLSON  announced the  consideration  of  SB 157,  "An  Act                                                               
allowing an  insurer to  cancel an  insurance policy  if property                                                               
becomes unoccupied  and the vacancy increases  the hazard insured                                                               
against." He noted the bill was heard previously.                                                                               
                                                                                                                                
4:14:48 PM                                                                                                                    
DANA OWEN, Staff to Senator Dennis  Egan and the Senate Labor and                                                               
Commerce  Committee,  Alaska   State  Legislature,  reminded  the                                                               
committee  that  the current  version  of  SB 157  represented  a                                                               
compromise.  The  original  proposal  was  to  provide  insurance                                                               
companies the ability to cancel  insurance policies on homes that                                                               
were  unoccupied  or  vacant.  The   Senate  Labor  and  Commerce                                                               
Standing Committee members  were opposed to the  idea of policies                                                               
being canceled on unoccupied  dwellings because Alaskans commonly                                                               
leave their homes for long  periods. The current version kept the                                                               
provision of "vacancy" and defined the term.                                                                                    
                                                                                                                                
SENATOR  MENARD  said she  struggled  with  the bill  because  it                                                               
addressed real  estate problems  in the Lower  48 and  Alaska had                                                               
not had problems of that magnitude.  She said she continued to be                                                               
uncomfortable and realtors were, too.                                                                                           
                                                                                                                                
MR.  OWENS responded  that Senator  Egan's office  was discussing                                                               
with realtors possible amendments to the bill.                                                                                  
                                                                                                                                
4:17:35 PM                                                                                                                    
GLENDA FEEKEN, Realtor, Alaska Association  of Realtors, said the                                                               
association understood  and supported  business, but not  SB 157.                                                               
In  its current  form, it  was not  in the  best interest  of the                                                               
public. On  the Kenai  Peninsula she  had seen  policies canceled                                                               
because  the   home  was   vacant,  but   not  abandoned   or  in                                                               
foreclosure.  This was  an emotional  and financial  hardship for                                                               
the public, she said.                                                                                                           
                                                                                                                                
SENATOR  MENARD asked  if  it was  a matter  of  the house  being                                                               
vacant because the  previous owners were waiting for  the sale to                                                               
close.                                                                                                                          
                                                                                                                                
MS. FEEKEN  answered that  people sometimes  have to  move before                                                               
their  house   sells.  These  homeowners  did   not  abandon  the                                                               
property, but insurance companies  have sometimes interpreted the                                                               
situation  differently and  cancelled the  policy. The  homeowner                                                               
doesn't necessarily have  the resources to fight it  and the bank                                                               
imposes its more expensive insurance.  She reiterated that unlike                                                               
the  Lower  48,  Alaska  had  not  had  too  many  problems  with                                                               
foreclosures                                                                                                                    
                                                                                                                                
SENATOR MENARD  commented that while  she had sympathy  for those                                                               
situations, homes  that were  vacant in the  winter could  end up                                                               
with  frozen  and  broken  pipes and  that  costs  the  insurance                                                               
company money.                                                                                                                  
                                                                                                                                
MS.  FEEKEN responded  that  when a  property  has actually  been                                                               
abandon the  bank is aware  that payments aren't being  made. The                                                               
bank steps in and puts the utilities in its name.                                                                               
                                                                                                                                
4:20:25 PM                                                                                                                    
SENATOR WAGONER asked how she would fix the problem.                                                                            
                                                                                                                                
MS.  FEEKEN   suggested  holding  discussions  with   the  Alaska                                                               
Association of  Realtors and others  in the know to  clarify what                                                               
constitutes a  vacant property and what  constitutes an abandoned                                                               
property.                                                                                                                       
                                                                                                                                
CHAIR OLSON  asked Ms.  Hall if  the state  had a  definition for                                                               
"vacant" versus "abandoned."                                                                                                    
                                                                                                                                
4:21:51 PM                                                                                                                    
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce, Community  and Economic  Development (DCCED),  said no.                                                               
Most states do not define "vacant,"  but there was some case law.                                                               
She opined that if SB 157 were  to pass, it would probably be one                                                               
of the  more rigid  definitions, because  it had  requirements of                                                               
what constitutes vacant.                                                                                                        
                                                                                                                                
CHAIR   OLSON  asked   if  the   state  had   a  definition   for                                                               
"abandonment."                                                                                                                  
                                                                                                                                
MS. HALL answered no.                                                                                                           
                                                                                                                                
SENATOR WAGONER  questioned why the  bill was put  forward, since                                                               
Alaska did  not have problems  with foreclosures or  high vacancy                                                               
rates.                                                                                                                          
                                                                                                                                
MS. HALL answered that she did not propose the bill.                                                                            
                                                                                                                                
SENATOR WAGONER asked if she felt that the bill was necessary.                                                                  
                                                                                                                                
MS. HALL responded that she  had indicated that she could support                                                               
the bill. She  said the role of the Division  of Insurance was to                                                               
balance  the   protection  of   consumers  against   the  healthy                                                               
competitive  marketplace  and  needs of  insurers.  The  division                                                               
involves itself in the correct  interpretation and application of                                                               
the statutes and regulations.                                                                                                   
                                                                                                                                
SENATOR  MENARD  asked about  the  possibility  of the  insurance                                                               
company  documenting vacancies  and then  communicating with  the                                                               
mortgage company to determine whether  the homeowner was "in exit                                                               
mode."                                                                                                                          
                                                                                                                                
MS.  HALL said  she  imagined that  privacy  laws would  prohibit                                                               
banks from releasing that kind of information.                                                                                  
                                                                                                                                
SENATOR MENARD commented that she was not happy with the bill.                                                                  
                                                                                                                                
4:27:34 PM                                                                                                                    
ERROL  CHAMPION, President,  Southeast Alaska  Board of  Realtors                                                               
and  member, Alaska  Association of  Realtors, said  he did  some                                                               
research  after he  testified last  on  SB 157  and learned  that                                                               
insurance companies in the state  of Washington attach a rider on                                                               
policies that say that if the  home becomes vacant - according to                                                               
a precise definition, the insurance  company can cancel coverage.                                                               
It is done with a rider,  not a law. A Snohomish County insurance                                                               
broker looked at the bill  and felt the definitions for "vacant,"                                                               
"abandoned," and "unoccupied" needed work.                                                                                      
                                                                                                                                
MR. CHAMPION questioned  why the holder of  the mortgage wouldn't                                                               
be  singled  out  for  notification.  In  an  actual  foreclosure                                                               
situation, the person  who defaulted probably doesn't  care if he                                                               
gets  notice of  cancelation,  he  said. The  real  loser is  the                                                               
investor that owns  the mortgage. Freddie Mac and  Fannie Mae own                                                               
most  mortgages, so  the public  loses if  there is  no insurance                                                               
coverage. He  related a personal  situation regarding  an estate.                                                               
The  home  was  unoccupied  and  winterized and  had  not  had  a                                                               
mortgage on it in 40 years, but  if the bill were to pass someone                                                               
could decide  there was  no insurance and  the estate  could lose                                                               
everything, probably without notice.                                                                                            
                                                                                                                                
MR.  CHAMPION urged  the committee  to take  the time  to develop                                                               
better  definitions  and  pass  a law  that  protected  both  the                                                               
residents of the state and the investment in real property.                                                                     
                                                                                                                                
4:31:08 PM                                                                                                                    
DAVID  SOMERS,  Industry  Issues  Chair,  Alaska  Association  of                                                               
Realtors, said the testimony of  both Ms. Feeken and Mr. Champion                                                               
were spot  on. He  said the association  appreciated the  work in                                                               
the previous  committee, but more  was needed. He  cited examples                                                               
of the people  the bill would place at risk  and observed that in                                                               
each  instance it  would  be  easy for  an  insurance carrier  to                                                               
determine that the home was vacant.                                                                                             
                                                                                                                                
He urged  the committee to do  more work and emphasized  that the                                                               
Alaska Association of Realtors wanted  to work with the insurance                                                               
industry  to find  a  way  to protect  both  the  public and  the                                                               
insurance business.                                                                                                             
                                                                                                                                
CHAIR OLSON asked if any  entities other than insurance companies                                                               
supported the bill.                                                                                                             
                                                                                                                                
MR. SOMERS said  he had not heard of anybody  else that supported                                                               
the bill.                                                                                                                       
                                                                                                                                
CHAIR OLSON asked where title companies stood.                                                                                  
                                                                                                                                
MR. SOMERS responded they did not take a position.                                                                              
                                                                                                                                
4:33:28 PM                                                                                                                    
SHELDON  WINTERS, Lobbyist,  State  Farm,  Lessmeier and  Winters                                                               
LLC, said State Farm had worked hard  on the bill and had come up                                                               
with the narrowest definition in the  country. He said it was not                                                               
that  Alaska  had high  foreclosure  rates.  The issue  was  that                                                               
everybody pays when uninsurable property  stays in the risk pool.                                                               
Insurance  becomes   more  expensive   and  less   available  for                                                               
everyone.  He disagreed  with previous  testimony  that adding  a                                                               
rider to  the policy could  solve the problem. Under  current law                                                               
and according  the interpretation  by the Division  of Insurance,                                                               
insurance companies cannot cancel  the insurance in the situation                                                               
of a  home where the door  was open, the utilities  were off, and                                                               
the  pipes were  freezing.  That  was the  reason  for the  bill.                                                               
Insurance  companies  want to  be  able  to  cancel in  the  most                                                               
extreme  situations. He  noted that  the  previous committee  had                                                               
concerns with  the original, broader  bill and State  Farm worked                                                               
very hard to address those concerns.                                                                                            
                                                                                                                                
SENATOR WAGONER  asked if in the  case of an abandoned  home, the                                                               
insurance company was required to  notify the mortgage company of                                                               
the decision to cancel the insurance.                                                                                           
                                                                                                                                
MR. WINTERS  said current statute required  the insurance company                                                               
to give  30-days written  advance notice  of cancellation  to the                                                               
insured,  not the  lender. State  Farm  does give  notice to  the                                                               
lender, but because  of privacy laws it does not  give the reason                                                               
for the  cancellation. He suggested addressing  notification in a                                                               
separate bill.  The policy  call in SB  157 was  whether insurers                                                               
should be allowed to cancel abandoned property.                                                                                 
                                                                                                                                
MR. WINTERS  disagreed with  a letter that  realtors sent  to the                                                               
committee. He  said it was  State Farm's understanding  that with                                                               
the  very  narrow definition,  none  of  the situations  in  that                                                               
letter  would   constitute  vacancy  or  abandonment.   The  only                                                               
situation the bill was trying to address was true abandonment.                                                                  
                                                                                                                                
4:39:55 PM                                                                                                                    
SENATOR WAGONER  asked how many  times in the last  several years                                                               
had State Farm had to cancel an insurance policy.                                                                               
                                                                                                                                
MR. WINTERS  said the  technical answer was  zero because  it was                                                               
against the  law. However, between  2007 and 2011 State  Farm did                                                               
not  renew  369  policies  because the  property  was  abandoned,                                                               
vacant, or unoccupied.                                                                                                          
                                                                                                                                
4:41:26 PM                                                                                                                    
CHAIR  OLSON commented  that trailer  houses  were probably  more                                                               
likely to be abandoned than a mansion.                                                                                          
                                                                                                                                
SENATOR WAGONER disagreed with the statement.                                                                                   
                                                                                                                                
MR.  WINTERS  continued to  say  that  State Farm  believed  this                                                               
definition of "abandonment"  was the most specific  and narrow in                                                               
the country.  If it were any  more specific, it would  render the                                                               
statute meaningless.                                                                                                            
                                                                                                                                
MR. WINTERS  said contrary  to what the  realtors have  said, the                                                               
proposed amendment  provides six  protections. Upon  discovery of                                                               
potential abandonment, the agent will  try to contact the insured                                                               
to  determine  the status  of  the  property  and work  with  the                                                               
insured to maintain coverage. The  home would have to be entirely                                                               
abandoned. The vacancy must increase  the hazard insured against.                                                               
The insurer  had to  give the insured  30-days written  notice of                                                               
cancellation.  Finally,  the  Division of  Insurance  watches  to                                                               
ensure that  the statute and  regulations are  not misinterpreted                                                               
or misapplied.                                                                                                                  
                                                                                                                                
MR. WINTERS emphasized  that State Farm had heard  no evidence of                                                               
abuse of  these laws in the  Lower 48. He urged  the committee to                                                               
move the bill forward.                                                                                                          
                                                                                                                                
4:46:32 PM                                                                                                                    
CHAIR  OLSON  offered  his understanding  that  the  Division  of                                                               
Insurance was not totally in favor of the bill.                                                                                 
                                                                                                                                
MR. WINTERS  responded that he  heard the  testimony differently.                                                               
He  understood  that  the  division  didn't  believe  it  was  an                                                               
overwhelming  issue,  but  that  amending the  statute  could  be                                                               
useful.                                                                                                                         
                                                                                                                                
CHAIR OLSON acknowledged that.                                                                                                  
                                                                                                                                
SENATOR MENARD commented that risk  pools were the price of doing                                                               
business.  She discussed  medical risk  pools and  then expressed                                                               
concern  about military  personnel  who have  sales fall  through                                                               
after they deployment.                                                                                                          
                                                                                                                                
MR. WINTERS responded that under  the definition in the bill that                                                               
was  not entire  abandonment. If  that were  actually a  problem,                                                               
there  would  be  some  evidence  of that  in  this  hearing.  He                                                               
reiterated that  State Farm was  only getting pushback  in Alaska                                                               
about cancelling  entirely abandoned property. He  then explained                                                               
the  difference  between  a  medical risk  pool  and  a  property                                                               
insurance risk  pool. Health insurance  assumes people  are going                                                               
to get  sick; the  homeowner risk pool  does not  assume property                                                               
abandonment.                                                                                                                    
                                                                                                                                
4:51:36 PM                                                                                                                    
CHAIR OLSON asked  why he would suppose that so  many people have                                                               
appeared to oppose the bill.                                                                                                    
                                                                                                                                
MR. WINTERS answered that State  Farm reached out after receiving                                                               
the  realtor  letter and  tried  to  explain that  the  insurance                                                               
company did  not intend  to cancel  property in  any circumstance                                                               
other than actual abandonment. He  reiterated that he worked hard                                                               
on the definitions  and didn't believe it could  be more definite                                                               
without  rendering the  statute  meaningless.  The realtors  were                                                               
well intention, but the evidence did not support their concerns.                                                                
                                                                                                                                
CHAIR  OLSON mentioned  Mr. Champion's  example  and asked  about                                                               
protecting a vacant home while the estate was being settled.                                                                    
                                                                                                                                
MR.  WINTERS   highlighted  the  six  protections   he  mentioned                                                               
earlier.                                                                                                                        
                                                                                                                                
CHAIR OLSON asked Ms. Hall if she had closing comments.                                                                         
                                                                                                                                
4:54:33 PM                                                                                                                    
MS.  HALL  said  Mr.  Winters   was  probably  correct  that  the                                                               
definition was the most stringent  in the country. "I'm all right                                                               
with it," she  said. The division had the ability  to enforce the                                                               
definition  knowing  the  intent.  With  regard  to  notice,  she                                                               
explained  that frequently  an insurance  policy was  endorsed to                                                               
have a  loss payee  and that  endorsement, by  contract, required                                                               
notice to  the lender  that the policy  was being  canceled. With                                                               
regard to an  estate, it can well protect itself  by changing the                                                               
name of  the insured on a  policy to the estate  of the deceased.                                                               
That was common practice.                                                                                                       
                                                                                                                                
CHAIR OLSON announced he would hold SB 157 in committee.                                                                        

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