Legislature(2009 - 2010)BUTROVICH 205
04/05/2010 11:00 AM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB292 | |
| SB249 | |
| SB303 | |
| SB222 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 222 | TELECONFERENCED | |
| + | SB 303 | TELECONFERENCED | |
| + | HB 386 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 249 | ||
| = | SB 292 | ||
SB 303-WORKERS' COMPENSATION AND CONTRACTORS
CHAIR FRENCH announced the consideration of SB 303.
11:14:42 AM
SENATOR JOE PASKVAN, sponsor of SB 303, said this bill is
designed to establish responsibility and accountability. It
advances conservative principles and fundamental capitalism by
requiring owners, general contractors and others on a
construction project to comply with the basic principle that is,
"If you break it you pay for it." He added that it's important
to understand that in Alaska under the concept of general law
known as apportionment, an owner or general contractor who is 25
percent at fault is only liable for 25 percent of the injury.
It's not the case that someone who is 1 percent at fault would
be 100 percent responsible.
SENATOR PASKVAN reminded the committee that this nation was
formed on the concept that the government and its citizens
should be responsible and accountable for their wrongful
conduct. This was a basic and fundamental principle to the
founding of this country and likewise, the core concept in
Alaska was that the government may be responsible for wrongdoing
to individual citizens. However, that changed in 2004 with the
creation of a privileged class that was immune from their
wrongful conduct. SB 303 seeks to remove immunity.
11:17:37 AM
SENATOR PASKVAN noted that an argument that has been advanced
says that SB 303 will promote double dipping, but that is
patently not true. AS 23.30.015(g), which deals with the
workers' compensation system when third parties are at fault,
has since statehood said that if the employee recovers damages
from the third party, that employee shall reimburse the employer
for what they paid to the workers' compensation insurance
carrier. Thus, there is no potential whatsoever for double
dipping, he said.
SENATOR PASKVAN said there has been a question about whether the
worker's compensation remedy is adequate, but he would point out
that the workers' compensation system was never designed to be a
full remedy system. Within the true definition of
employer/employee, it has always been designed to be a partial
remedy that would be applied irrespective of fault. The idea was
to protect workers who were doing the work every day for their
employers. For example, if an unmarried 25-year-old worker with
no children were to be killed on a construction site through the
fault of someone else and not necessarily the employer, the
exclusive remedy now is reasonable funeral benefits. It's bad
social policy, he said, if there is immunity from killing
someone because of fault and the only responsibility is to the
workers' compensation policy, which is paid by the employer and
not necessarily the person at fault. The workers' compensation
system provides for no future lost wages and no general damages
to the children or spouse of a worker who had a crippling injury
or was killed. The workers' compensation system simply doesn't
compensate for that loss.
11:21:00 AM
SENATOR PASKVAN recapped that SB 303 addresses the notion that
responsibility and accountability attach when wrongful conduct
exists and that the exclusive remedy provision falls within the
true definition of the employer/employee relationship. SB 303
removes the immunity that currently protects a privileged class
from the consequences of their wrongful conduct. This will
promote the betterment of Alaska as a matter of social policy,
he concluded.
SENATOR WIELECHOWSKI asked, "If an employer under current law is
criminally negligent and…a subcontractor's employee is killed or
injured, would they be covered under existing law?"
SENATOR PASKVAN replied the general contractor is immune even
under the high moral standard of criminal negligence.
11:23:08 AM
SENATOR WIELECHOWSKI asked if there would be any recourse for
that injured, maimed or killed employee.
SENATOR PASKVAN replied their sole remedy would be workers'
compensation coverage. He continued to say:
Under the current law the definition of employer and
the exclusive remedy provisions of the law are very
expansive, so they include the entire vertical chain
within the definition of employer in order to be part
of the exclusivity protections that are given to what
one considers the direct employer. So the general
contractor in your example would be immune because
they come within the exclusive remedy provisions of
the workers' comp statutes.
SENATOR WIELECHOWSKI asked if SB 303 would fix that.
SENATOR PASKVAN answered yes.
SENATOR WIELECHOWSKI asked if under this bill a worker who was
injured or killed because of the criminal negligence of the
general contractor could get their worker's compensation award
and then sue the general contractor.
SENATOR PASKVAN replied that's correct.
SENATOR WIELECHOWSKI asked if there is an apportionment because
that's where the double-dipping argument would come up.
SENATOR PASKVAN replied if you were to assume that the general
contractor was 100 percent at fault, then the general contractor
would pay the injured worker 100 percent of the damages.
Workers' compensation would then be reimbursed so that there
would be no double recovery. It is expressly set forth in the
statute that irrespective of fault, medical expenses, potential
retraining, and a partial compensation of past wages will be
reimbursed to the workers' compensation insurer out of the
recovery from the 100 percent fault of the general contractor.
Irrespective of fault the employee recovers under workers'
compensation, but the question that remains is whether those
that are at fault would have a responsibility and accountability
to the injured worker. SB 303 says that those at fault should
have a responsibility to the injured worker.
11:26:15 AM
SENATOR COGHILL asked if there is still a tort liability to an
employer contractor who is under the exclusive liability.
SENATOR PASKVAN replied not if it's within the definition of a
true employee/employer relationship.
SENATOR COGHILL asked if the criminal liability would fall under
the exclusive exemption.
SENATOR PASKVAN said that's correct.
SENATOR COGHILL observed that the concept "if you break it you
fix it" doesn't apply. He asked what the recovery would be if
the employer contractor is under the exclusive liability and
somebody is damaged with a lifelong injury because workers'
compensation would become the sole remedy.
SENATOR PASKVAN explained that before the workers' compensation
system was developed about 100 years ago the injured employee
could sue the employer if the employer's fault caused the
injury. It wasn't until the Industrial Revolution that a concept
started to develop in America that the employer's business
product should bear the cost of the workers who were injured in
the course and scope of their employment and that the employee
should be compensated irrespective of fault. To balance the raw
capitalism with responsibility and accountability and the idea
that workers should be protected irrespective of fault, a
workers' compensation system was developed. That very good
system has been maintained in the U.S. for about 100 years and
in Alaska until 2004.
11:29:11 AM
SENATOR COGHILL said he's having a hard time understanding that
workers' compensation becomes the universal remedy if the
contractor has a subcontractor or an employee and there's a
problem. He's wondering if this creates the
employer/employee/subcontractor relationship that would be in
this exclusive liability class under workers' compensation while
the project owner is singled out as the "deep pockets" and has
to bear a tort liability for the actions of those within the
exclusive liability class regardless of the case. He asked for
help understanding that relationship.
SENATOR PASKVAN explained that outside of the direct
employee/employer relationship, everybody that is above the
subcontractor would be responsible for only their percentage of
the fault.
SENATOR COGHILL asked if that's within the workers' compensation
apportionment or a tort apportionment.
SENATOR PASKVAN replied a liability/tort apportionment of fault
above the employer/employee remains the exclusive remedy of
workers' compensation. For example, if anyone had an employee
within that direct employer/employee relationship, workers'
compensation is the only remedy that the injured employee can
have against the employer. Regardless of whether it's a general
contractor, a project owner, or a project manager, all of those
within the vertical chain above would be responsible and
accountable only for their apportioned fault.
SENATOR COGHILL asked if under that scenario there is still a
tort liability issue. He noted that the sponsor has appealed to
his sense of fairness, but it seems as though the employer and
the subcontractor live in the exclusive liability area and only
have a responsibility to the workers' compensation system.
Anybody outside of that including the manager, project manager,
or the project owner can be apportioned a cost if there is a
responsibility. He asked if that apportioned cost would be
assigned as a result of a lawsuit. If that's the case, he said
his understanding is that it would go into the workers'
compensation payment - hence the double dipping discussion.
11:32:58 AM
SENATOR PASKVAN said SB 303 would impose responsibility on a
project owner or general contractor under a tort system only if
fault were proven. The project owner, for example, would have no
responsibility for payment of the workers' compensation premium
that is the responsibility of the subcontractor. The only risk
that a project owner has is if they were at fault. Then if there
was an allocation or percentage of fault, the project owner
would only have risk for their allocated portion of 100 percent.
SENATOR COGHILL summarized that the exclusive liability of the
workers' compensation system is not adequate for certain
failures, but because of the employer/employee relationship,
even if it's a subcontractor, they live under those rules. He
added that it sounds like there's a desire to take the project
owners outside of that because they may have a negligence that
may be greater than what could be claimed under the exclusive
liability.
CHAIR FRENCH asked Senator Paskvan if he had practiced in this
area of law and if so, did he represent both sides.
SENATOR PASKVAN answered yes he's practiced for 30 years and for
the first 10 years he did both plaintiff work and defense work.
He said he has represented many general contractors doing
corporate work and has represented contractors that have been
involved in construction projects. It was those business owners
that would ask him to recover for the family of an injured or
deceased employee. In so doing the workers' compensation policy
would get paid back so it wouldn't be a black mark on the
subcontractor's workers' compensation policy and it wouldn't be
the subcontractor that bore the price of injury or death that
was caused by somebody else.
11:36:40 AM
CHAIR FRENCH commented that he was on the losing end of what was
a vigorously fought battle when the 100 years of settled law was
changed in 2004. He asked if SB 303 restores Alaska state law to
the pre 2004 state of fairness.
SENATOR PASKVAN said yes; the intent of SB 303 is to return
Alaska to the system that was created in statute in 1959.
CHAIR FRENCH asked the members to hold further questions for the
sponsor until they'd heard from witnesses who may provide a
contrasting point of view.
11:37:50 AM
KIP KNUDSON, External Affairs Manager, Tesoro Alaska, asked the
committee to set SB 303 aside because they were having the wrong
debate about the wrong issue. He said he specifically heard the
sponsor claim that workers' compensation is not sufficient and
that the majority of workers injured or killed are under the
exclusive remedy provision of the workers' compensation
arrangement. He continued to say that the discussion about
making a project owner pay their fair share is "noise on the
side." He said he believes that the 2004 reform created an
appreciable safety benefit for the Alaska workplace and
certainly for Tesoro Alaska.
MR. KNUDSON reminded the members that the last time the Senate
Judiciary Committee discussed a bill similar to SB 303 there was
a case before the Supreme Court that discussed whether the 2004
change violated equal protection. The decision in that case was
that no violation occurs. Now the discussion centers on who pays
when somebody is injured or hurt, he said.
MR. KNUDSON said his perspective of the 2004 change is that it
created a safety benefit, specifically by tearing down high
legal barriers that were erected pre 2004 between project owners
and contractors. These barriers were anything but conducive to a
safe workplace.
11:39:44 AM
MR. KNUDSON offered his belief that there is confusion about the
allocation of fault and control of the workplace that existed
prior to 2004 and he would like Mr. Clarkson to clarify those
key concepts.
KEVIN CLARKSON, private attorney, Anchorage, said he has
practiced in this area for quite some time and Tesoro asked him
to testify on this bill. Mr. Knudson specifically asked him to
address the underlying purpose of the workers' compensation law
in the pre 2004 context, that being that the employee was to be
relieved of the need to prove the employer's liability. He
explained that employees were to be given a certain remedy if
they were hurt while on the worksite. In exchange the employer
was supposed to get exclusive liability in the workers'
compensation system, but that's not what occurred.
MR. CLARKSON said he respectfully disagrees with the sponsor's
assertion that the old system was a "you break it you pay for
it" system. In reality what would happen is the project owner
would contract with a contractor or subcontractor and require
indemnification for anything that might happen that resulted in
injury to their employees while on the worksite. The result was
that the contractor or subcontractor - who were supposed to have
exclusive liability - would double pay. They would pay for the
workers' compensation and they would also pay for the third-
party tort liability because of the indemnity agreement they
made with the project owner.
11:42:42 AM
MR. CLARKSON said that from his perspective the benefit of the
2004 change is that it created an ability for the project owner
and the contractors to cooperate more fully to promote safety on
the worksite. Before 2004 if an owner like BP contracted with a
drilling contractor like Rowan Drilling to bring their rig and
employees onto the BP worksite to drill for oil and one of those
employees got hurt, Rowan would pay the workers' compensation
for its employee and the employee would sue PB for the third
party liability claiming that BP controlled the worksite and
thus had responsibility for making sure that the worksite was
safe. This is in spite of the fact the worksite for the employee
was Rowan Drilling's rig. But if BP had put even one employee on
the drilling rig or if it had contractually maintained any
safety oversight, BP would suddenly have a third-party liability
for everything that took place on Rowan's drilling rig that
resulted in the injury of the employee. The only way that BP
could remove itself from that risk was to remove itself from any
involvement in the safety aspects of the operation of the
drilling rig.
MR. CLARKSON said that giving the project owner exclusive
liability protection and the responsibility to see that workers'
compensation is provided creates an environment in which the
project owner and the contractor can cooperate and collaborate
to increase safety on the worksite. Under the old system
litigation became more complicated because of fault allocation.
For example, a project owner like Tesoro who owns a refinery in
Kenai could have somebody who is simply driving an asphalt truck
for a company that is contracted to deliver asphalt to a Tesoro
customer come on the worksite, climb onto their employer's
asphalt truck, fall off and get injured, and Tesoro would be
sued because the event occurred on their site. Tesoro would then
have to look for anybody or everybody to allocate fault to and
join those entities to the case. He related that he had been
involved in a case where that scenario occurred. The worker died
as a result of falling off his employer's tanker when it was on
the Tesoro refinery. To avoid liability Tesoro had to join a
series of other companies and entities to allocate fault. This
made the case more complicated and costly.
MR. CLARKSON recapped that the pre 2004 system was not one of
"if you break it you pay for it." Employers actually paid for
the workers' compensation and for the third-party liability,
whereas the current law creates an environment where safety can
be enhanced through cooperation.
11:45:23 AM
KEVIN DOUGHERTY, Attorney, Alaska Laborers, said he supports SB
303 as a means to get the workers' compensation law back on
track. He said he has represented Alaska Laborers since 1981 and
he served on Governor Hickel's workers' compensation committee
in 1990. He said he would make three points. First, the workers'
compensation law that was enacted in Alaska in 1915 was built on
traditional values and it was fair to widows and injured
workers. That changed in 2004 when the loophole was created.
Fortunately, SB 303 would close that loophole and restore that
long-standing law. Second, the bill would promote safety. He
related that in the '80s and '90s major strides were made in the
oil and construction industries with respect to safety, and
injuries decreased. There really didn't need to be a loophole in
the law to somehow promote safety, he said. Third, it's always
good public policy to ensure that statutes are honest and
straight forward. To that end, the definition of employer should
only include employers and not some other legal fiction.
MR. DOUGHERTY recapped that he supports SB 303 because it would
create an even playing field for everyone in the construction
industry and it would make the statutes straight forward and
honest. Alaskans would be well served by this, he concluded.
11:48:11 AM
JERRY LEE, representing himself, related that he was hurt in
November 2005 while working for a subcontractor who was working
for a general contractor. The job entailed building a
scaffolding for the general contractor who was supposed to
secure, tarp, and heat it before he and others used that
scaffolding. Following a terrible accident, he found out that
the general contractor hadn't properly secured the scaffolding.
Mr. Lee explained that he was on the third level when the wind
came up and blew the scaffolding over. Then the wall he and
others were working on collapsed and he was crushed. He lost the
use of a lower leg, has ongoing problems with his back, and is
30 percent disabled. He received worker's compensation and his
medical expenses are being paid currently. At the time of the
accident he was paid $42/hour and now he works for $10/hour.
"This needs to be changed," he said.
CHAIR FRENCH thanked him for taking the time to testify and said
it's always good to hear from people who have had real
experience under legal concepts that can sometimes seem
abstract.
MR. LEE added that this was his first accident in a 25-year
construction career and he'll never be able to work in field
again.
11:51:08 AM
BRAD THOMPSON, Director, Risk Management, Department of
Administration, said the 2004 amendment to the workers'
compensation statutes extended the statutory definition of
employer to both the contractor and the project owner. He noted
he is speaking from the perspective that the project owner is
generally the state. Pre 2004 the employee could have remedy
from workers' compensation through the subcontractor. If the
subcontractor was uninsured, the contractor had to pay but
weren't shielded from tort liability even though they paid the
worker's compensation benefit. Post 2004 both the general
contractor and impliedly the subcontractor are responsible for
workers' compensation. In fact, AS 23.30.045(d) obligates the
state before it awards a contract to see a certificate of
insurance from the general contractor showing that they have
workers' compensation. It also obligates the state to pay in the
event that the contractor or subcontractor is uninsured.
CHAIR FRENCH asked if there's anything in the law that requires
that to happen on jobs where BP, Exxon, or anybody other than
the state is the project owner.
MR. THOMPSON replied he doesn't believe that there is a
requirement for private enterprise to protect itself that way,
but it is common business practice to make sure that an
independent contractor is insured. That's a qualifier of their
capability of performance, he said.
11:54:46 AM
MR. THOMPSON continued to explain that when the state sees the
certificate of insurance, the state is noticed as a certificate
holder should that coverage lapse or not be paid. If the premium
isn't paid the coverage lapses, but the employees don't
necessarily know that. When the state is the project owner it
would receive a notice of cancellation and would have the
ability to take project funds to continue coverage. Clearly the
state is a good project owner with respect to maintaining
certainty that there is workers' compensation for the general
contractor and their employees, he said. Should there somehow be
a lapse, the state is the statutory employer and would retain
the obligation to pay the benefit should there be an unpaid
remedy under the Workers' Compensation Act to the contractor's
employee or impliedly the subcontractor's employee. That
wouldn't change under SB 303.
MR. THOMPSON continued:
When '04 was enacted, we didn't put a fiscal note in.
It did provide…a second way of us to be obligated to
pay the remedy of workers' comp. The first time was if
they were uninsured. And this is now undoing that
protection so we're back to where we were before. Our
practice will be the same - we make certain there is
coverage for the general. There's often concern about
a sub. Is he a sub? Is he an employee? … That's a
separate matter to address…. But the State of Alaska
and other municipalities are…careful before awarding a
contract and in maintaining the contract coverage to
make certain that the people working on those jobs are
receiving the benefit of workers' comp. We would lose
the protection of exclusive remedy if [SB] 303 is
enacted.
SENATOR WIELECHOWSKI asked, "If the state were criminally
negligent, under current law then the state's not liable,
correct?"
MR. THOMPSON replied AS 45.45.900 precludes you from having an
indemnity that protects you from your own sole negligence.
Depending on the facts, criminal negligence likely is sole
negligence. He explained that when the state lets contracts, the
terms and conditions include hold harmless and indemnity
provisions and the additional requirement of additional insured
status. The state pays for that extra protection on all its
projects and that extra cost is added to the project budget to
protect that comparative allocation, he said.
11:57:09 AM
CHAIR FRENCH closed public testimony and announced he would hold
SB 303 until the next hearing.
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