Legislature(2011 - 2012)BELTZ 105 (TSBldg)

01/26/2012 01:30 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved SB 156 Out of Committee
Moved CSHB 146(RES) Out of Committee
        SB 157-CANCEL INSUR. ON CERTAIN VACANT PROPERTY                                                                     
1:44:54 PM                                                                                                                    
CHAIR EGAN announced SB 157 to be up for consideration.                                                                         
SENATOR  PASKVAN  moved to  bring  SB  157, version  27-LS0928\B,                                                               
before the committee for discussion.                                                                                            
CHAIR EGAN objected for discussion purposes.                                                                                    
DANA  OWEN, staff  to the  Senate Labor  and Commerce  Committee,                                                               
sponsor  of SB  157, explained  that  they were  approached by  a                                                               
local insurance agent with what he  presented as a problem in the                                                               
statutes and  SB 157 attempts  to correct that problem.  It would                                                               
allow  insurance companies  licensed in  the State  of Alaska  to                                                               
cancel  insurance on  a property  which has  been abandoned;  the                                                               
technical  term   is  "unoccupied   or  vacant."   House  vacancy                                                               
increases the risk that was originally insured.                                                                                 
1:47:14 PM                                                                                                                    
SENATOR  GIESSEL asked  what the  definition of  "unoccupied" is.                                                               
Her house  could be  construed as being  unoccupied at  times for                                                               
weeks when she is in Juneau.                                                                                                    
MR. OWEN replied  he understood that it has to  be more than just                                                               
someone  is  not there.  It  has  to  mean there  is  substantial                                                               
evidence  that people  are not  going  to return;  the place  has                                                               
either  begun to  be  run down  in some  significant  way or  the                                                               
furniture has been  moved out, something hasn't  been attended to                                                               
that should have been if someone had been there.                                                                                
SENATOR  GIESSEL said  that sounds  subjective and  asked if  the                                                               
definition was written somewhere.                                                                                               
MR. OWEN replied he didn't know.                                                                                                
SENATOR MENARD echoed Senator Giessel's  question. She is a widow                                                               
working in  Juneau for 90 days  and has people looking  after her                                                               
house, but what if they are  called away for an emergency and she                                                               
wasn't  notified.   She  wanted   a  clear  definition   of  what                                                               
"unoccupied"  means  and  asked  what  the  amount  of  loss  the                                                               
insurance  company feels  has taken  place  as the  result of  an                                                               
MR. OWEN replied that the industry  is looking at if the risk has                                                               
increased from what was originally  insured; it's not a matter of                                                               
a loss they  have incurred. If the company perceives  the risk is                                                               
larger than what the policy originally covered.                                                                                 
SENATOR  MENARD wanted  to  really  know why  this  is needed  in                                                               
Alaska and  that it could be  happening because of what  is going                                                               
on with foreclosures.                                                                                                           
MR. OWEN  said he  received a  phone call in  last 18  hours from                                                               
someone who is also concerned about that same thing.                                                                            
SENATOR  MENARD  asked  if  they  are  talking  about  a  primary                                                               
MR. OWEN answered that he thought it applied to all property.                                                                   
SENATOR PASKVAN said it could also apply to commercial property.                                                                
MR. OWEN agreed.                                                                                                                
1:52:43 PM                                                                                                                    
SHERIE  PARKER,  State  Farm  Insurance,  Bloomington,  Illinois,                                                               
clarified  that  SB 157  applies  only  to policies  of  personal                                                               
insurance; it  doesn't apply to  commercial properties.  She said                                                               
it's important  to remember that  no one  at State Farm  wants to                                                               
cancel a  policy unless  they have a  legitimate reason.  In this                                                               
situation  they are  talking about  an increased  hazard or  risk                                                               
that  wasn't  part  of  the   original  risk  that  was  insured.                                                               
Originally   these   homes   were  occupied   by   owners   whose                                                               
circumstances have changed for  some reason, therefore increasing                                                               
the insurers'  risk. In Alaska  there is a one-year  policy term,                                                               
which is typically  renewed unless there has been  some change in                                                               
the  property characteristics.  This recommended  change is  only                                                               
related to mid-term cancellation.                                                                                               
She explained that  sometimes State Farm feels they  need to take                                                               
action  mid-term because  something  about the  risk has  changed                                                               
drastically. As the statute is  currently written they can't take                                                               
action. Claims from these risks  impact Alaskan customers because                                                               
homes that are  vacant, unoccupied and uncared for  have a higher                                                               
propensity for loss.                                                                                                            
1:55:14 PM                                                                                                                    
The  goal  is  to  clarify  language for  carriers  and  for  the                                                               
Division of  Insurance. The  specific language  for this  bill is                                                               
found in 12  other states. Most states are silent  on this issue,                                                               
and  they  can  mid-term  cancel   without  it.  But  12  states,                                                               
including Alaska, need further clarification.  If they were to do                                                               
a Notice  of Cancelation to  the insured, that would  provide the                                                               
owner opportunity  to clarify  the situation  that has  led State                                                               
Farm to believe  the home is abandoned or is  not being cared for                                                               
properly and to correct it.                                                                                                     
1:57:01 PM                                                                                                                    
MS.  PARKER  said  most  carriers   work  with  their  agents  to                                                               
determine  what is  occurring at  the property  in question  even                                                               
before they  would ever send  out a cancelation letter.  They are                                                               
in the business  of insuring property, but they don't  want to be                                                               
required to maintain  insurance on a property  that has increased                                                               
risk  of hazard  which  they didn't  anticipate  when they  first                                                               
insured it.                                                                                                                     
There  is no  legal  definition for  "vacant"  but an  understood                                                               
definition in  the industry  is that vacant  would be  a property                                                               
that is  substantially void of  personal property; maybe  a broom                                                               
or an  end table is  left behind.  An "unoccupied" home  is where                                                               
people are not  occupying the dwelling, but  personal property is                                                               
still in it; for instance,  senators traveling to the capital for                                                               
session. It  could also mean  a seasonal secondary  vacation type                                                               
of  a risk,  because  those homes  during part  of  the year  are                                                               
unoccupied.  However, the  concern in  the industry  really isn't                                                               
with those  homes as  much as  it is with  the homes  that aren't                                                               
being  cared for.  It's not  a  rash decision.  They contact  the                                                               
agent and find out what is going on first.                                                                                      
1:59:43 PM                                                                                                                    
SENATOR  DAVIS asked  if  they  want to  be  able  to cancel  the                                                               
insurance  policy  why  this  language  is  needed.  Isn't  there                                                               
another way to handle it?                                                                                                       
MS.  PARKER   replied  that  they  have   a  vacancy  endorsement                                                               
providing limited  coverage for  vandalism and breakage  of glass                                                               
that  is otherwise  excluded, but  it needs  to be  added by  the                                                               
customer. The cases  she is addressing are homes  that are vacant                                                               
because  an owner  is no  longer living  on site.  So they  don't                                                               
easily have  a customer  to go  to ask  if they  want to  add the                                                               
vacancy  endorsement; nor  would they  want to,  because that  is                                                               
meant for a short term period  while a customer is trying to sell                                                               
that home. She  said banks notify them when a  home is unoccupied                                                               
and they check on their properties.                                                                                             
SENATOR DAVIS  asked if  Legislative Legal  had a  definition for                                                               
CHAIR  EGAN said  Ms. Hall  from  the Division  of Insurance  was                                                               
available to answer that shortly.                                                                                               
SENATOR  PASKVAN  said  the  sponsor  statement  uses  "abandoned                                                               
property"  and bill  talks about  "un-occupancy  or vacancy"  and                                                               
asked  if  she  would  have  a  problem  with  changing  them  to                                                               
MS. PARKER  replied that  they would consider  it, but  there are                                                               
cases when  the home is  unoccupied and  the owner is  not taking                                                               
the proper  steps to make sure  the house maintains heat  if they                                                               
are in a winter climate or that it is checked on periodically.                                                                  
SENATOR PASKVAN said he assumed  they are dealing with properties                                                               
where the owner has paid the  premium, and he was struggling with                                                               
the concept of  a fully paid premium; that was  the deal that was                                                               
struck. Why should  they allow insurance companies  to change the                                                               
bargain mid-term?                                                                                                               
MS.  PARKER replied  because  when the  policy  was written  they                                                               
expected the customer would not walk  away from the home and that                                                               
it wouldn't be vacant. An endorsement  could be added if the home                                                               
was going to be vacant for a  period of time. They did enter into                                                               
a  contract when  they  wrote the  policy, but  the  owner has  a                                                               
responsibility, too,  to maintain  their property  in a  way that                                                               
doesn't add  more risk.  Sometimes they ask  a person  to replace                                                               
their roof  because it has reached  the age of not  being able to                                                               
fully protect  that house  from water damage.  This is  a similar                                                               
type of  increased risk exposure,  but they can't ask  the person                                                               
to move back in if that's not what they are going to do.                                                                        
SENATOR  PASKVAN asked  if  after  the deal  was  struck if  they                                                               
suspected fraudulent  intent they could retroactively  cancel the                                                               
MS. PARKER answered yes.                                                                                                        
SENATOR  PASKVAN said  he  was  thinking in  the  context of  how                                                               
Alaska  law   looks  at  insurance  contracts   as  contracts  of                                                               
adhesion: in other  words, a take it or leave  it basis, and they                                                               
have total control at time  of contracting for whatever term that                                                               
might  be. So,  he was  struggling with  carriers wanting  to get                                                               
greater mid-term cancellation  rights if the owner  wants to keep                                                               
a  property  insured  and  they   aren't  fraudulent  or  haven't                                                               
misrepresented anything.                                                                                                        
MS.  PARKER replied  in many  cases the  owner has  left or  they                                                               
aren't  taking  care  of the  property.  Cancelation  is  already                                                               
allowable  for  physical changes  in  the  insured property  that                                                               
result in it becoming uninsurable.                                                                                              
2:08:21 PM                                                                                                                    
SENATOR PASKVAN  said it sounds like  this is arising out  of the                                                               
collapse  of the  economic system  in 2008  and that  the banking                                                               
industry  has insurance  requirements and  asked what  their view                                                               
MS. PARKER replied that hasn't been  an issue in the other states                                                               
she  works  with  in  the  Pacific  Northwest  and  according  to                                                               
colleagues  working  in  other  parts of  the  nation.  When  the                                                               
mortgagee receives  a separate notice  as required by  the policy                                                               
contract  with them,  it  doesn't  have to  state  a reason.  She                                                               
suspected they  would place coverage  of their own on  that piece                                                               
of property.                                                                                                                    
SENATOR PASKVAN  asked if State Farm  provides insurance coverage                                                               
to banks for foreclosed property.                                                                                               
MS.  PARKER replied  no.  If  a customer  shared  that they  were                                                               
leaving  their home,  the agent  would have  a conversation  with                                                               
that customer about  their new insurance needs,  and their policy                                                               
would be  canceled in the  normal course of business.  They might                                                               
not  need a  homeowner's policy,  but  they might  need a  rental                                                               
policy.  But here  they are  talking  about the  cases where  the                                                               
customer has walked away and is not caring for the property.                                                                    
2:11:58 PM                                                                                                                    
SENATOR PASKVAN  asked how  financial institutions  protect their                                                               
interest without getting notice of cancellation.                                                                                
MS. PARKER replied that notice happens automatically.                                                                           
SENATOR PASKVAN  asked who  would come in  during the  process of                                                               
foreclosure, if there was no fraud  and they just lost their job.                                                               
Who  makes  up the  difference  in  the  mortgage that  would  be                                                               
covered by the insurance?                                                                                                       
MS.  PARKER replied  the customer  could tell  them when  they no                                                               
longer have ownership.                                                                                                          
2:14:15 PM                                                                                                                    
SENATOR MENARD  said she  has heard tragic  stories in  the Lower                                                               
48,  but that  is not  the case  here in  Alaska, and  she wanted                                                               
respect for  the person who owns  the policy. What kind  of steps                                                               
do they  take in  notifying a  customer? Do they  have to  send a                                                               
certified letter? Are there three  or four different methods they                                                               
are going to try to get a hold of them?                                                                                         
MS. PARKER answered  in any situation where  they mid-term cancel                                                               
a policy, they  provide 30 days' notice plus mailing  time to the                                                               
last known  address and it's  certified. Additionally,  they send                                                               
10 days advance notice to the  agent before sending the notice to                                                               
the customer to give them an  opportunity to track down and reach                                                               
out to  that customer.  In addition to  that, before  any notices                                                               
are sent  they have contacted  the agent  to try to  discern what                                                               
has  occurred  at  that  property  and what  the  needs  of  that                                                               
customer now are.                                                                                                               
SENATOR MENARD asked  how much the vacancy  endorsement costs for                                                               
a typical 2500 sq. ft. home.                                                                                                    
MS. PARKER replied  State Farm charges $30/year  for vandalism or                                                               
malicious mischief  and breakage of  glass like a  broken window.                                                               
It's not meant to be for  a long time, although some vacant homes                                                               
are taking longer to sell.                                                                                                      
SENATOR MENARD  said $30/year doesn't  seem like a lot  of money.                                                               
Instead of  changing the  law, could they  be encouraged  to take                                                               
out a vacancy endorsement?                                                                                                      
MS.  PARKER  replied that  their  risk  exposure isn't  from  the                                                               
customer who asked  for the endorsement, but from  a customer who                                                               
is no  longer there. If the  home burns down it's  covered. Their                                                               
increased exposure is loss from  water damage because often water                                                               
is not noticed until it is running out the door.                                                                                
2:20:42 PM                                                                                                                    
SHELDON  WINTERS, lobbyist,  State  Farm Insurance,  said he  has                                                               
discussed this issue [SB 157]  with the division since 2010. Home                                                               
owner insurance  policies in Alaska  have a one-year  term; after                                                               
that  term, insurance  companies  can renew  the  policy or  not.                                                               
Virtually every state in the  country including Alaska allows for                                                               
cancellation of  an insurance policy before  that one-year period                                                               
if there are  legitimate reasons for doing so, and  it's called a                                                               
mid-term cancellation.  Alaska statute  has five reasons;  one of                                                               
them is  if there is  a physical  change in the  insured property                                                               
mid-term that results in the property becoming uninsurable.                                                                     
He explained  when someone purchases a  homeowners product, there                                                               
is  a risk  that is  underwritten. It's  assumed in  that premium                                                               
that  the property  will  not be  vacant and  for  the most  part                                                               
occupied and taken  care of. It doesn't mean that  when the owner                                                               
goes  on a  three-week vacation  it's viewed  as unoccupied.  The                                                               
thrust  of the  bill is  if  after he  has paid  his premium  and                                                               
decides he  doesn't like his  job or  the weather and  decides to                                                               
leave,  there's  no  heat  and   the  pipes  freeze;  that's  the                                                               
increased  risk.  Vacancy  is  not defined  in  statute,  but  in                                                               
Webster's it means "you're gone."                                                                                               
MR. WINTERS said all insureds pay  into a risk pool and it always                                                               
depends on  the accuracy  of the  underwriting. All  home owners'                                                               
insurance  premiums are  based on  that home  being occupied  and                                                               
being taken  care of.  Including these  losses will  increase the                                                               
cost  of  insurance  to  everyone.  He  said,  "It's  universally                                                               
accepted that insurers need to be  able to cancel mid-term if the                                                               
risk  changes  significantly...and  in  the  case  when  somebody                                                               
leaves it  vacant, as I've  talked about, there's no  doubt about                                                               
it." Vandals are attracted to those places.                                                                                     
2:25:18 PM                                                                                                                    
He said  the definition of  vacancy is pretty clear  cut; they're                                                               
gone and not  coming back. Unoccupied is a  little bit different,                                                               
because someone might  leave a few things but  they are basically                                                               
gone as  well. He didn't want  to get into the  definition of un-                                                               
occupancy  because it  depends  on the  homeowner.  It's not  the                                                               
intent to  cancel a  legislator's policy, but  if they  leave and                                                               
turn  the heat  off and  go  to Costa  Rica, that's  the kind  of                                                               
situation  they are  talking about.  He emphasized  that carriers                                                               
want to  write that  policy for  people and  the agents  want the                                                               
business. He  would call  the owner  of a  property and  find out                                                               
what's going on, and that would probably pass with underwriting.                                                                
SENATOR  PASKVAN  said if  property  is  truly abandoned  he  can                                                               
appreciate their  concern. Some standard of  outright abandonment                                                               
or  permanent un-occupancy  or vacancy  would help.  Certainly if                                                               
you're contacting a  financial institution and you  find out that                                                               
an owner is not current with  their mortgage, that tells him that                                                               
they are  treating their property in  a certain way, but  if they                                                               
paid  their  mortgage  and  their insurance  and  they  just  are                                                               
temporarily leaving it vacant, he didn't  want to leave it to the                                                               
discretion of  their underwriting  to rewrite  the deal  that was                                                               
initially set.                                                                                                                  
MR. WINTERS  said he thought they  were on the same  wave length;                                                               
the  real concern  is vacant  abandoned property,  and they  used                                                               
"vacant" because that is what other states have used.                                                                           
SENATOR GIESSEL  asked how they  decide and who decides.  Do they                                                               
drive around and  look at the properties they insure  and peer in                                                               
the window?                                                                                                                     
MR. WINTERS  replied that the agent  drives by a house  in a town                                                               
like  Juneau and  sees that  the  driveway isn't  plowed and  the                                                               
lights haven't  been on, for  instance. Maybe he hasn't  paid his                                                               
auto insurance - some sort of red flag.                                                                                         
2:31:01 PM                                                                                                                    
SENATOR GIESSEL said she was still not reassured.                                                                               
CHAIR EGAN  said he has  owned real  property since 1969  and not                                                               
once has his  agent tried to sell him a  vacancy endorsement. How                                                               
do homeowners know  they have to spend an  additional fee because                                                               
they are tired of shoveling snow and want to go to Palm Springs?                                                                
MR. WINTERS answered  that endorsement is for when  you are truly                                                               
not occupying the home; when you  go on vacation your home is not                                                               
CHAIR EGAN asked what the $30 covers.                                                                                           
MR.  WINTERS replied  when the  home is  unoccupied for  three or                                                               
four months.                                                                                                                    
MS.   PARKER   said   the  endorsement   is   good   in   limited                                                               
circumstances:  first  the  home  needs to  be  vacant,  have  no                                                               
personal property  and no one  is living there. It  just provides                                                               
that  limited coverage  for vandalism  or malicious  mischief and                                                               
broken  glass. If  the  home is  vacant  without the  endorsement                                                               
those three  things are  not covered  under the  policy contract.                                                               
It's not necessary when legislators are at the capital working.                                                                 
SENATOR  GIESSEL said  the definition  still feels  like it  only                                                               
refers to vacancy  and leaves the un-occupancy way  out there. In                                                               
her  district she  has  multiple "snowbirds"  who  leave for  six                                                               
months and  their driveways could  look unplowed in one  day with                                                               
all the snow they get.                                                                                                          
MR. WINTERS responded that it's  one thing if the snowbird leaves                                                               
for  six months  and  shuts  everything like  the  heat down.  He                                                               
agreed that  some subjectivity is  involved, but he  believed the                                                               
consumer   wants  the   flexibility  of   not  having   a  30-day                                                               
2:36:40 PM                                                                                                                    
CHAIR  EGAN said  abandoned, vacation  and  unoccupied are  terms                                                               
that have to be defined, because it's too subjective.                                                                           
SENATOR MENARD asked  who would make the claim if  someone on the                                                               
Hillside was gone for six months  and paid the premium six months                                                               
ahead, or if they were out of the country for six months.                                                                       
MR. WINTERS replied  maybe they paid a year in  advance, but that                                                               
premium is  based on the  home being occupied.  If you go  to the                                                               
insurance agent  and say by  the way I'm going  to be gone  for a                                                               
SENATOR MENARD asked if it's her burden to let the insurer know.                                                                
MR.  WINTERS  said  on  the  application  it's  going  to  be  an                                                               
"occupied home."  If you decide  to leave  for a year,  he didn't                                                               
know if anyone would notice, but  the agent could contact you and                                                               
ask if the  heat is on and  that should suffice. But  if he can't                                                               
get ahold  of you and no  one is there, a  notice of cancellation                                                               
would be issued.                                                                                                                
SENATOR  MENARD  said she  would  like  "abandonment" instead  of                                                               
CHAIR EGAN  said he would hold  SB 157 and would  continue public                                                               
testimony at another time.                                                                                                      

Document Name Date/Time Subjects
SB 157 Sponsor Statement.pdf SL&C 1/26/2012 1:30:00 PM
SB 157
SB157-DCCED-INS-01-19-12.pdf SL&C 1/26/2012 1:30:00 PM
SB 157
SB 157 lttr supporting, Winters.pdf SL&C 1/26/2012 1:30:00 PM
SB 157
SB 157 lttr supporting, PCI.pdf SL&C 1/26/2012 1:30:00 PM
SB 157
SB 158 Sponsor Statement.pdf SL&C 1/26/2012 1:30:00 PM
SB 158
SB158-DCCED-CBPL-01-21-12.pdf SL&C 1/26/2012 1:30:00 PM
SB 158
SB158 lttr supporting, AK Assoc. of Realtors.pdf SL&C 1/26/2012 1:30:00 PM
SB 158
SB 158 Lttr supporting, Somers.pdf SL&C 1/26/2012 1:30:00 PM
SB 158
SB 158 lttr supporting, Bates 012412.pdf SL&C 1/26/2012 1:30:00 PM
SB 158
SB 157 comments opposing - Aksamit, Loken.pdf SL&C 1/26/2012 1:30:00 PM
SB 157