Legislature(1995 - 1996)
05/03/1995 01:43 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 120 INDEMNIFICATION OF PUBLIC EMPLOYEES DANIELLA LOPER, staff to Representative Porter, sponsor of the measure, gave the following testimony. HB 120 requires the state or a municipality to provide legal defense for their employees in actions that occur during the scope of their employment. Employers would not be responsible for indemnifying acts of gross negligence or intentional or willful misconduct. Additionally, the employer would also be excused from indemnification when the case involves disciplinary, administrative or criminal matters brought against the employee. The implementation of HB 120 is already common practice, and most municipalities now indemnify their employees. Teachers are indemnified under AS 14.12.090. HB 120 is supported by the Department of Law, and many other organizations. A similar house bill died in the Senate Rules Committee last year. TAPE 95-30, SIDE A GAIL VOIGTLANDER, assistant attorney general, testified from Anchorage. She stated HB 120 is clear, and details scenarios when employees would be covered. SENATOR TAYLOR asked if HB 120 sets up a new civil cause of action on behalf of employees against employers. MS. LOPER noted that section was removed last year. She explained page 3, line 3 outlines how the employee would seek legal defense, and page 4, line 8, describes how an employee would handle denial of indemnification. SENATOR TAYLOR asked for clarification. MS. LOPER replied the employee would file for declaratory relief. There are no guidelines at this time, which is costing the state money. Number 065 SENATOR TAYLOR asked how HB 120 will save the state money since there is a letter agreement in place now. MS. LOPER stated that is common practice in most cases, but several witnesses testifying before the House Judiciary Committee commented the state is spending a lot of money because nothing is outlined. SENATOR TAYLOR asked whether the state is being charged money to defend employees it should not defend, or if the state is being charged for litigation when employees sue for failure to defend. MS. LOPER was unsure, but repeated if nothing is outlined, there could be claims made against the employer by the employee. MS. VOIGTLANDER commented the bill does not create a new cause of action, it merely sets forth, in statute, the public employers'/public employees' responsibilities. SENATOR TAYLOR questioned the need to put in statute, what has been common practice for years. He stated various labor unions have negotiated various deals with the state, and there is now a hold harmless provision in the bill that says if the labor negotiators negotiated a better deal, that would supersede the requirements in the bill. Number 203 STEPHANIE GALBRAITH, assistant attorney general, testified in support of HB 120. It clarifies the obligations between public employers and public employees. As litigation increases, more employees are being individually named in lawsuits. SENATOR TAYLOR asked Ms. Galbraith if she has an indemnification letter from her employer. MS. GALBRAITH answered no. [The remainder of Ms. Galbraith's testimony was indiscernible.] BRAD THOMPSON, director of the Division of Risk Management, explained the Division funds a self-insurance program for defending and indemnifying state employees, both those in the collective bargaining unit, and others without such contractual protections. Among those in the collective bargaining unit, there are several contracts with differing provisions. HB 120 codifies existing policies and procedures that the state does, and has provided, and is more explicit in employee participation. He described the state's policy regarding the scope of responsibility toward employees. Number 272 SENATOR TAYLOR asked how HB 120 will save the state money if it only codifies current practice. MR. THOMPSON did not believe there would be a significant savings, however it might help avoid the expense of a second counsel to resolve legal conflicts between the defense and counsel. SENATOR GREEN asked if this would be similar to errors and omissions coverage in other settings. MR. THOMPSON stated a professional practitioner may purchase a commercial E&O policy that contains similar terms and conditions. SENATOR GREEN asked if private employees would be likely to have such coverage. MR. THOMPSON replied the private employer, to protect his/her interests, most likely has procured a form of liability insurance. SENATOR GREEN asked about self-insurance. MR. THOMPSON noted the state self insures for the first $5 million. In prior years the state self-insured for differing amounts. SENATOR TAYLOR asked Mr. Thompson how long he has been with the Division of Risk Management. Mr. Thompson replied since January of 1981. SENATOR TAYLOR asked why the state is self-insured. Mr. Thompson stated it is more cost effective to do so. SENATOR TAYLOR commented that anyone who has the money runs away from that industry as quickly as possible and self insures. MR. THOMPSON added the state procures significant catastrophe insurance. Number 336 SENATOR GREEN asked if this bill was driven by labor negotiations. MR. THOMPSON believed the bill was conceived to address those employees named individually in civil litigation, as public employees, especially those without a labor agreement that addresses the defense practices provided to them. SENATOR GREEN asked if the original practice of an employer covering an employee resulted from a labor agreement. MR. THOMPSON replied it is normal for the employer to be liable for the act of the employee. SENATOR TAYLOR stated that his main concern is categorizing, and attempting to guess, all of the different ramifications that may occur in the employee/employer relationship. He repeated his concern that codifying something that has been in practice, with no benefit to each side, or cost saving, could create unforeseen problems. MR. THOMPSON explained the vast majority of states have specific legislation providing similar protections to their employees. Many states extend those protections down to the municipal government structure. He did not believe HB 120 would increase the exposure for public employers; it provides security for the employee. The state has operated a sophisticated self insurance program for years, however municipalities have not. A civil action against a municipal employee is rare, and is alarming when it occurs. SENATOR TAYLOR discussed three lawsuits against employees of his community in the past year. In each case, the insurance carriers had written letters of reservation against each of those employees and the city, reserving the right to make a claim against them. The insurance company then selected the attorney and decided when and if the cases would be settled. He did not see how HB 120 would be beneficial to his community. KEVIN RITCHIE, representing the Alaska Municipal League, testified in favor of HB 120. The bill reinforces the concept that if an employee was not involved in any wrongdoing, the employer will defend him/her. The way it can save time and money is by reassuring peace officers, and other people who have to make very important decisions, that they will be defended. In the case of insurance in small communities, the employee who does not have the assurance of coverage may hire his/her own attorney. That creates an additional legal expense for the employee, and in some cases pits the employee against the employer. He added the Alaska Municipal League provides an insurance pool for small communities. SENATOR GREEN asked about the University of Alaska. MR. THOMPSON noted it is self insured to a lesser level than the state. Number 430 SENATOR MILLER moved HB 120 out of committee with individual recommendations. SENATOR TAYLOR objected. The motion failed with Senators Adams, Taylor, and Green voting "nay," and Senator Miller voting "yea."