Legislature(2003 - 2004)

04/14/2004 05:45 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          SB 323-WORKERS COMPENSATION AND CONTRACTORS                                                                       
                                                                                                                                
CHAIR  SEEKINS   informed  members  that  a   proposed  committee                                                               
substitute  to  SB  323,  labeled   version  I,  was  before  the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR  THERRIAULT  moved to  adopt  version  I as  the  working                                                               
document before the committee.                                                                                                  
                                                                                                                                
CHAIR SEEKINS  noted the only  change made  in version I  was the                                                               
definition of a  project owner on page 2, which  was suggested by                                                               
Jack Miller.                                                                                                                    
                                                                                                                                
SENATOR   OGAN  expressed   concern,  on   behalf  of   a  former                                                               
constituent, that  it may  be impossible  to pursue  the original                                                               
employer of a  subcontractor and that the State  of Alaska, being                                                               
the  largest project  owner in  the  state, could  be liable  for                                                               
workers' compensation if someone doesn't do their homework.                                                                     
                                                                                                                                
CHAIR SEEKINS asked what statute the constituent cited.                                                                         
                                                                                                                                
SENATOR OGAN replied AS 23.30.045.                                                                                              
                                                                                                                                
CHAIR  SEEKINS  noted  the  only  liability  is  for  compensable                                                               
damage. He then asked Mr. Miller to comment.                                                                                    
                                                                                                                                
MR. JACK MILLER, counsel to  the Alaska State Chamber of Commerce                                                               
[the Chamber], said he spoke with  the risk manager for the State                                                               
of Alaska  who had input  on this bill.  He said the  current law                                                               
requires  that if  contractors  and  subcontractors don't  secure                                                               
workers' compensation  coverage for their employees,  the payment                                                               
obligation is pushed  "upstream" to the project  owner to enhance                                                               
protection for  injured workers.  At the  same time,  the statute                                                               
requires all  employers to  have workers'  compensation coverage,                                                               
which  includes contractors  and subcontractors  who contract  on                                                               
state  projects. If  that  coverage has  not  been obtained,  the                                                               
state  is   authorized  to  withhold   payment  to   secure  that                                                               
insurance.  Therefore,  the  state,  municipalities  and  private                                                               
companies  are fully  protected  through  the standard  indemnity                                                               
provisions in private contracts.                                                                                                
                                                                                                                                
SENATOR OGAN said,  from personal experience as  a contractor and                                                               
subcontractor,  there are  ways to  get around  that requirement.                                                               
This will require  due diligence on the part of  a project owner.                                                               
He expressed  concern that a  lot of folks work  without workers'                                                               
compensation   coverage  because   it  is   expensive  and   this                                                               
legislation  will  now transfer  that  liability  to the  project                                                               
owner. He questioned whether this  bill will motivate contractors                                                               
and  subcontractors to  "skate"  more because  they  will not  be                                                               
liable in the end.                                                                                                              
                                                                                                                                
MR. MILLER told members:                                                                                                        
                                                                                                                                
     ...In  fact there  is  no relief  of  liability of  the                                                                    
     subcontractor for the payment if  for a short period of                                                                    
     time  or   if  for  a   longer  period  of   time,  the                                                                    
     subcontractor  can't actually  secure  the payments  or                                                                    
     illegally   did   not  obtain   workers'   compensation                                                                    
     insurance.  The current  law now  imposes that  payment                                                                    
     liability  on contractors  and  this  bill simply  runs                                                                    
     that up the line to project  owners. I can say that the                                                                    
     State  of Alaska,  all  the  municipalities, the  State                                                                    
     Chamber  of Commerce  members and  the  members of  the                                                                    
     Associated  Builders  and  Contractors  of  Alaska  all                                                                    
     fully  support this  law because  it provides  enhanced                                                                    
     protection  for injured  workers and  at the  same time                                                                    
     recognizes  that   receipt  of   workers'  compensation                                                                    
     benefits is  the exclusive  remedy for  injured workers                                                                    
     and they  cannot pursue court remedies  against parties                                                                    
     involved in their project.                                                                                                 
                                                                                                                                
8:00 p.m.                                                                                                                       
                                                                                                                                
SENATOR OGAN  said that  the trial attorneys  go after  the "deep                                                               
pockets"  so although  a subcontractor  might be  legally liable,                                                               
the subcontractor may have no assets.                                                                                           
                                                                                                                                
MR.  MILLER responded  that in  reality, the  trial attorneys  in                                                               
fact  assert   tort  claims  against   project  owners   after  a                                                               
contractor  has  paid  workers'   compensation  benefits  for  an                                                               
injured worker. He explained:                                                                                                   
                                                                                                                                
     This   bill  recognizes   that  workers'   compensation                                                                    
     benefits are  reasonable compensation for  work related                                                                    
     injuries,  and  forecloses   the  possibility  of  tort                                                                    
     claims  against  the  deep   pocket  companies  that  -                                                                    
     essentially project  owners or  the State of  Alaska or                                                                    
     municipalities  in the  State  of Alaska.  I think  you                                                                    
     also  have to  recognize that  under current  practice,                                                                    
     the state,  municipalities, and private  companies all,                                                                    
     through  indemnity provisions  - insurance  provisions,                                                                    
     impose  the  liability  for   both  the  workers'  comp                                                                    
     payments   and  the   tort  remedies   back  onto   the                                                                    
     contractor  that  has  essentially  paid  the  workers'                                                                    
     compensation benefits  to the contractor's  employee so                                                                    
     they have  a double liability under  current law. We're                                                                    
     trying to  work through  this bill  to prevent  that. I                                                                    
     think  that  this  is  a  very  good  balance  for  the                                                                    
     business  community  and  it  enhances  protection  for                                                                    
     injured  workers  and  it's   fully  supported  by  the                                                                    
     business   community,   the   State   of   Alaska   and                                                                    
     municipalities in Alaska                                                                                                   
                                                                                                                                
CHAIR SEEKINS announced that a  proposed amendment [Amendment 1],                                                               
prepared by  Representative Holm,  had been  distributed (labeled                                                               
D.4) that  addresses a  concern expressed  at an  earlier hearing                                                               
about sole proprietors.                                                                                                         
                                                                                                                                
SENATOR OGAN  declared a conflict  of interest,  as he is  a sole                                                               
proprietor.                                                                                                                     
                                                                                                                                
CHAIR  SEEKINS  offered to  sponsor  Amendment  1 and  moved  its                                                               
adoption.  He  clarified  that  Amendment  1  says  that  a  sole                                                               
proprietor or  a member  of a partnership  who agrees  in writing                                                               
with  a  project  owner  or   contractor  that  neither  have  an                                                               
obligation  to  secure  workers'  compensation, can  opt  out  of                                                               
having to purchase workers' compensation.                                                                                       
                                                                                                                                
SENATOR OGAN asked if a sole  proprietor or partner will not need                                                               
workers' compensation  coverage as long  as the project  owner is                                                               
indemnified and agrees.                                                                                                         
                                                                                                                                
CHAIR SEEKINS said that is correct.                                                                                             
                                                                                                                                
SENATOR FRENCH objected to Amendment 1.                                                                                         
                                                                                                                                
SENATOR  THERRIAULT   asked  if   he  subcontracted  as   a  sole                                                               
proprietor  with  a  housing  developer,  he  could,  by  written                                                               
agreement,  release the  housing developer  from having  to carry                                                               
workers' compensation on him.                                                                                                   
                                                                                                                                
CHAIR SEEKINS  said that the  sole proprietor would  be releasing                                                               
the  housing developer  of any  upstream claim  so that  the sole                                                               
remedy  for the  sole proprietor,  if  he was  injured, would  be                                                               
against himself.                                                                                                                
                                                                                                                                
SENATOR THERRIAULT  asked if  the sole  proprietor would  have to                                                               
obtain coverage for any employees he had.                                                                                       
                                                                                                                                
CHAIR  SEEKINS said  that is  correct. It  only exempts  the sole                                                               
proprietor himself, or the member of the partnership.                                                                           
                                                                                                                                
SENATOR OGAN said during the many  years he did not have workers'                                                               
compensation, he would not have  dreamed of suing someone else if                                                               
he got  injured. He believes  if people  are willing to  take the                                                               
risk and take responsibility, they should be able to opt out.                                                                   
                                                                                                                                
CHAIR SEEKINS said that is what Amendment 1 accomplishes.                                                                       
                                                                                                                                
SENATOR FRENCH clarified that the  sole proprietor or partner has                                                               
not  given up  his  right to  sue the  project  owner if  injured                                                               
through negligence of the project owner.                                                                                        
                                                                                                                                
CHAIR  SEEKINS said  he asked  that the  amendment be  drafted so                                                               
that the  sole proprietor or  partner would have no  claim except                                                               
against him or herself but he would make sure that is the case.                                                                 
                                                                                                                                
SENATOR  THERRIAULT asked  if he  was a  sole proprietor  and was                                                               
injured because  another employee dropped something  on his head,                                                               
he would have no right to get compensation.                                                                                     
                                                                                                                                
MR.  TODD  LARKIN, representing  himself  as  a sole  proprietor,                                                               
said, in  response to Senator French's  statement, that regarding                                                               
a tort  against a project  owner, the sole proprietor  would fall                                                               
under standard  civil actions.  The burden of  proof would  be on                                                               
the sole  proprietor. [Ms.  Craver] said  the standard  is fairly                                                               
high to bring a tort claim.                                                                                                     
                                                                                                                                
CHAIR SEEKINS responded:                                                                                                        
                                                                                                                                
     Well,  we're  going  to  have  to  amend  that  because                                                                    
     basically the instructions that  we were trying to give                                                                    
     to them  was that the -  if you're injured on  that job                                                                    
     and  you were  covered  under  workers' comp,  workers'                                                                    
     comp would cover you and  that protects everyone up the                                                                    
     line  because your  sole remedy  is  workers' comp.  In                                                                    
     this  case  we would  want  your  sole remedy,  if  you                                                                    
     choose  not  to  carry  workers' comp,  to  be  against                                                                    
     yourself and not  to the project owner  of the company.                                                                    
     I'm going to clarify that with the drafter.                                                                                
                                                                                                                                
MR. LARKIN said that was the original intent of the language.                                                                   
                                                                                                                                
CHAIR SEEKINS offered to speak  with Ms. Craver. He clarified the                                                               
intent  was that  if a  sole proprietor  who chose  not to  carry                                                               
workers' compensation, no one else  would be required to carry it                                                               
for that person  and his or her sole remedy  would be against him                                                               
or herself.                                                                                                                     
                                                                                                                                
SENATOR THERRIAULT said employers  carry workers' compensation to                                                               
spare  themselves tort  claims. Therefore,  if two  parties agree                                                               
there will be no workers'  compensation coverage but the right to                                                               
bring tort  claims is held  against the employer, there  would be                                                               
no reason  for the employer to  not just add the  sole proprietor                                                               
to his workers' compensation policy.                                                                                            
                                                                                                                                
CHAIR SEEKINS repeated that he would check with the drafter.                                                                    
                                                                                                                                
MR. MILLER suggested that since HB  311 has already passed out of                                                               
the House Labor and Commerce  Committee, which specifically deals                                                               
with this  issue, the  committee not adopt  Amendment 1  and deal                                                               
with this issue when HB 311 moves to the Senate.                                                                                
                                                                                                                                
TAPE 04-41, SIDE B                                                                                                            
                                                                                                                                
CHAIR SEEKINS withdrew his motion to adopt Amendment 1. He then                                                                 
adjourned the meeting at 8:15 p.m.                                                                                              

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