Legislature(2003 - 2004)
03/04/2004 01:32 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 323-WORKERS COMPENSATION AND CONTRACTORS
CHAIR CON BUNDE announced SB 323 to be up for consideration.
SENATOR RALPH SEEKINS, sponsor, explained that it revises the
workers' compensation acts as it applies to contractors and
subcontractors.
The two principal modifications are really as follows:
First, the responsibility for payment of workers'
compensation is extended up the chain of contracts to
include project owners. Secondly, injured parties in
receipt of benefits under the Workers' Compensation
Act would be barred from double dipping via a tort
liability claim. Under AS 23.30.045(a), an injured
employee only has recourse to workers' compensation
benefits against his immediate employer and, if the
employer is a subcontractor, against the contractor
who retained the subcontractor.
The proposed legislation allows recourse for payment
of compensation benefits against project owners as
well as contractors and subcontractors. This extension
of the rights of injured employees is sensible
inasmuch as the project owner is the beneficial user
of the work performed by the injured employee. It
should be noted that a project owner does not include
individuals who have engaged the services of
contractors to build or renovate a residential home.
Finally, the proposed legislation extends the
exclusivity provision set forth in AS 23.30.055 to all
parties in the contracting claim chain related to a
project. This includes the employer of the injured
employee and those parties that are upstream in the
chain of contracts from the employer of the injured
employee. In other words, if an injured employee works
for a subcontractor, then the subcontractor, the
contractor and project owner would be free of tort
liability so long as the injured employee receives the
benefits set forth in the Alaska Workers' Compensation
Act.
SB 323 will encourage all parties participating in a
project to identify and enforce strict safety
standards for the benefit of all workers rather than
deflecting responsibility through the use of indemnity
agreements as is the common practice currently. At the
same time, it insures that the injured workers will
receive all benefits available under the Alaska
Workers Compensation Act. It is intended, Mr.
Chairman, to eliminate double dipping, but to make
sure that every employee on a project is covered under
the act.
CHAIR BUNDE explained that this would expand the requirement to
carry workers' compensation insurance from the subcontractor and
the contractor to the project manager.
SENATOR SEEKINS replied that everyone in the up chain must make
sure that every worker on the job is covered no matter who they
work for.
CHAIR BUNDE asked if currently you're a contractor, you need
workers' compensation.
SENATOR SEEKINS replied yes, for employees.
CHAIR BUNDE said that subcontractors might not have the
insurance because they might not be covered by the owner's
insurance.
SENATOR SEEKINS responded that a subcontractor might be a sole
proprietorship and might say he doesn't need to buy workers
compensation.
CHAIR BUNDE wanted to go the other way and asked if the
contractor has a policy, does the project manager have to have a
policy as well.
SENATOR SEEKINS replied that the project manager has the
responsibility to make sure that they are covered.
If that means they have to carry the policy, I guess
they would have to. It's a downstream responsibility
to make sure that every worker that's on that project
is covered.... We're trying to avoid the situation
that does exist where someone is injured and a
subcontractor, for example, is saying that he is a
sole proprietorship and doesn't need it. Then they're
injured and they go and say we were really an employee
and goes to the board saying we want coverage. In many
cases that happens. [END OF TAPE]
TAPE 04-19, SIDE B
[SIDE B IS BLANK. GO ON TO TAPE 04-20, SIDE A]
TAPE 04-20, SIDE A
2:25 p.m.
SENATOR SEEKINS continued:
That means that the project owner, before he can hire
that subcontractor or contractor has to make sure that
those people are covered or carry that coverage,
themselves.
CHAIR BUNDE said in all likelihood, the project manager wouldn't
hire contractors who don't carry insurance or would require some
kind of proof of coverage rather than purchase the insurance,
themselves.
SENATOR SEEKINS said project managers generally sign an
indemnification agreement. They don't care because their
negligence can go right back to the contractor. Because of the
way courts have ruled in some cases, project owners don't even
want to get into whether the contractor is having safety
meetings, etc., because then, they are knowingly involved.
SENATOR GARY STEVENS asked what kind of proof would be required
so a project owner would not have to purchase it.
SENATOR SEEKINS replied, "Through certificates of insurance."
SENATOR FRENCH asked why people who build a residential home are
excluded from the bill.
SENATOR SEEKINS answered:
I am excluding homeowners who may hire someone to come
in to fix their driveway or fix their roof or fix
their bathroom leak from being included in the
definition of project owner.
SENATOR FRENCH asked if they would still have tort liability.
SENATOR SEEKINS said they are looking primarily at commercial
applications.
MS. PAM LABOLLE, President, Alaska State Chamber of Commerce,
said this issue was brought forward by her membership. Her
personal experience in this area is limited, but she promised to
take any questions she couldn't answer to the group.
We are in support, obviously, of this legislation....
This has been done in several other states. The risk
of injury to employees engaged in work on a project is
the same regardless of whether the employer works for
a subcontractor, the contractor or the project owner.
The immediate employer and other project participants
are obligated to an injured employee's workers'
compensation benefits regardless of fault in causing
the injury. So, all project participants should be
free of tort liability. The project participants take
an integrated approach to completion of the project;
they are a part of it. Therefore, the price of the
insurance is worked into the contract when someone
contracts to build something for someone.... So the
project owner is, in essence, paying part of the
workers' compensation insurance. In the event a worker
is injured, he or she is entitled to receive the
compensation benefits regardless of fault. This
includes situations where no one is at fault and where
the injured employee, himself, is exclusively at
fault. In exchange for accepting liability payments of
workers' compensation benefits regardless of fault,
the injured employees need an employer and all other
parties who are potentially liable for the payments of
workers' compensation benefits should enjoy the
immunity from tort claims.
Evidently, in Alaska law, project owners were not
historically liable for injuries caused by action or
inaction of independent contractors they retained. For
example, when the State of Alaska retains a qualified
contractor as an independent contractor to construct a
roadway, the state should not be liable for injuries
suffered by the employees of the contractor. In that
situation, by contract, the contractor represents that
he has the necessary expertise to build the road, that
he has the necessary tools and equipment and the
experienced workmen to complete the work. Because the
contractor, not the state, prosecutes the work, the
state should be free of court liability in the event
that an employee of the contractor is injured in his
course of work.
In Alaska, the courts have substantially diminished
the independent contractor rule by adoption of what is
referred to as the retained control doctrine. Under
the doctrine, parties other than an employee's
immediate employer can be liable in tort for any
injury to an employee of an independent contractor if
the party retains any amount of control over the work,
including the right to review the contractor's safety
practices. That's one of the benefits that this bill
would bring about. Right now, the project owner is
better to have hands-off control over the contractors,
including their safety practices, in order to protect
themselves. With the passage of this legislation, the
benefit would be that they would have more of a reason
and it would be to their benefit to make sure that all
safety practices are followed.
Secondly, the Alaska Workers' Compensation Act is
intended to provide injured workers with reasonable
compensation for their work-related injuries without
regard or fault. If the levels of compensation
benefits are not adequate to fully compensate injured
workers, then the amount and type of recoverable
benefits should be reviewed. However, an injured
worker should not be allowed to recover workers'
compensation benefits and then be allowed to assert
tort claims for that same work-related injury. Injured
employees should be compensated only once for their
work-related injuries and the Workers' Compensation
system has been set up specifically to do just that.
Third, the tort claims based on the retained control
doctrine burden the court system by allowing claims
under the workers' compensation system and separate
claims in state Superior Court based on tort law. The
proposed amendment would encourage all parties
participating in a project to identify and enforce
strict safety standards for the benefit of all workers
while at the same time insuring that injured workers
will receive all benefits available under the Alaska
Workers' Compensation Act. Job safety should be
everyone's main concern and the proposed amendment is
the best way to meet the goal while at the same time
protecting the injured workers.
CHAIR BUNDE asked her if she was contending that if this passed,
a project owner would demand proof under potential legal
liability for loss that their contractor has workers'
compensation and then the contractor would have the same demand
on subcontractors. He wondered about the double coverage.
MS. LABOLLE replied that is her understanding, but she would
check.
CHAIR BUNDE said if that were true, he thought that project
owners should want to have some kind of workers' compensation
coverage as well, in the event someone was fraudulent in their
representation.
SENATOR FRENCH indicated to Ms. LaBolle that he was addressing
his remarks to the people who do have expertise. He had some
issues with her statement from the State Chamber, especially the
part about Alaska law and wanted their response.
I'll begin by saying that I read both the cases that
the Alaska law section of your report refers to, both
the Martinson vs Arco case and the Miloso vs State
case. The real issue I have with some of the remarks
in here specifically with respect to safety practices
is this. The assertion is - in this section - that a
project owner can be liable in tort for any injury to
an employee of an independent contractor if the party
retains any amount of control over the work including
the right to review the contractor's safety practices.
After I read Martinson and after I read Miloso, I was
left with the belief that that's just not true, at
least under those two cases. That's absolutely not
true. Indeed, the Martinson case says that everybody
does have a common law duty to provide a safe worksite
to independent contractor employees, if the employer
supplies or controls the worksite. That's the retained
control. So, if you supply the warehouse and you know
there's a vat of poisonous waste inside the worksite,
you should probably put a sign on there that says
don't weld here, don't drill here, don't get in behind
this poisonous vat. The Martinson case goes on to say
that there are bright lines of what constitutes
retained control. It further says that an employer
does not retain control if the employer only reserves
the right to inspect the work to see that the contract
specifications are met - while the independent
contractor controls how and when the work is done.
Then it says an employer does retain control if the
employer retains the right to direct the manner of the
independent contractor's performance or assumes
affirmative duties with respect to safety.
So, when I read in this synopsis of Alaska law that
you can be sued in court for simply reviewing the
contractor's safety practices, I find the statement
almost directly in opposition to that in Martinson.
So, I would appreciate it if you can go on to whoever
wrote that and come back and say no, no, no, here's a
better read on that. So, I guess my question is are
there other cases that I'm unaware of besides these
two that you've cited that I've gone ahead and read or
is it simply the position of the author of this paper
that these cases really do stand for what's here in
this write up. Thank you.
MS. LABOLLE said she would take that back to the author.
SENATOR SEEKINS said this bill makes project owners responsible
to make sure that any of the workers that are hired either by a
contractor or by a subcontractor are covered with workers'
compensation insurance regardless of the area of responsibility,
because that's a point that can be argued on both sides.
I've talked to some of the attorneys on both sides of
the issue as well. But in this case, as I read this
bill and the way we've put this bill together, it
would now require that every employee on that site be
covered with workers' compensation [insurance]. Am I
correct?
MS. LABOLLE replied that is her understanding.
SENATOR SEEKINS asked if that is good public policy or bad.
MS. LABOLLE replied that she thought that is good public policy.
SENATOR SEEKINS continued his thought saying that it protects
the employee at whatever level. He has had experience with
people who have said they don't want any employees; all their
employees were going to be subcontractors with subcontractor
agreements - the idea being that they don't want to have to pay
workers' compensation insurance. He asked if she had seen that
happen.
MS. LABOLLE replied yes.
SENATOR SEEKINS said this bill absolutely makes that impossible
to happen.
MS. LABOLLE replied that is her understanding.
SENATOR SEEKINS said:
That's what we're after. Whether we argue where the
line of responsibility is, what we're trying to
protect here, Mr. Chairman, is the employer who may be
forced into a subcontractor situation because that's
the kind of scumbag he might be working for as a
contractor. We've all seen it done.... The intent here
is to say everyone is covered and you have an
exclusive remedy.
CHAIR BUNDE said he had personal knowledge of people who have
been creative in defining subcontractors to avoid insurance
payments. He said there was a question earlier about the
relationship of the homeowner contracting to have some repairs
or to have a house built; he saw headshaking from the insurance
section of the audience.
SENATOR SEEKINS responded:
Mr. Chairman, I wouldn't have any problem with that as
long as the homeowner is willing to make sure that
they provide workers' compensation for somebody on the
same basis that a project owner would.
MR. MIKE LESSMEIER, State Farm Insurance, said he practiced law
in this state for almost 25 years and could answer Senator
French's question.
Right now under the law, if you hire a plumber to come
into your house or an electrician or even a general
contractor to build your house for you, it's hard for
me to see how you would have any liability to someone
that was injured on the job. The analysis that you
talked about when you reviewed those two cases would
probably be the analysis to go through. In other
words, you would look to see if the homeowner retains
sufficient control over the details of the work that
is performed. I've rarely seen that kind of liability;
I've rarely even seen the attempt to make homeowners
liable under those sorts of circumstances. One of our
concerns in looking at this bill was whether it was
intended to cover homeowners and people, but it does
not.
CHAIR BUNDE thanked him and asked if anyone else wanted to
testify on SB 323.
MR. DAVE DILLARD, 321 Construction, asked, "Why can't we make a
homeowner liable for whoever has worked on his house to build
that house?"
CHAIR BUNDE replied, "I'm not sure why we can't. I'm sure we
could. The question might be why would you want to, but."
MR. DILLARD replied:
Because technically, a homeowner can call up job
service and have the people come out and start
building the house and if he pays over $600, he's got
to hold back federal income tax and stuff, but
technically, he doesn't have to cover them under
liability workers' compensation. Why wouldn't we want
him to cover that person?
CHAIR BUNDE answered that he would have to ask the insurance
industry again, but he suspected there would be personal
liability.
SENATOR SEEKINS inserted:
I wouldn't have a problem holding homeowners
responsible provided - but here again we're getting
into a situation where when I hire someone to work on
my house, they're a sole proprietorship and under
current law, as I understand it, as long as I haven't
set a booby trap for them some way or another, they
are the expert in what a safe workplace would be and
I'm just a homeowner who may not be capable, or should
not even be capable of, being able to assess that
responsibility. But the professional holding himself
out as professional has that additional
responsibility....
MR. DILLARD said he could build one house a year as a homeowner
and not have to pay any of that. His son and wife could build a
house a year, too. He thought everyone should be able to build
his own house, but he didn't see why they shouldn't have to
take liability for people who were hired to work on it the same
way a professional builder has to.
CHAIR BUNDE said, "I think if you're going to have a potential
homeowner have workers' compensation, well, why would they ever
have a general contractor then, because that's just doubling
their expense?"
CHAIR BUNDE said this bill would be set aside for a future date.
There being no further business to come before the committee, he
adjourned the meeting at 2:50 p.m.
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