Legislature(1999 - 2000)
03/03/2000 01:20 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
March 3, 2000
1:20 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Norman Rokeberg
Representative Lisa Murkowski
Representative Eric Croft
Representative Beth Kerttula
MEMBERS ABSENT
Representative Joe Green
Representative Jeannette James
COMMITTEE CALENDAR
HOUSE BILL NO. 368
"An Act relating to release of persons before trial and before
sentencing or service of sentence; relating to custodians of
persons released, to security posted on behalf of persons
released, and to the offense of violation of conditions of
release; amending Rule 41(f), Alaska Rules of Criminal Procedure;
and providing for an effective date."
- MOVED CSHB 368(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 337
"An Act relating to claims against permanent fund dividends to
pay certain amounts owed to state agencies and to fees for
processing claims against and assignments of permanent fund
dividends; and providing for an effective date."
- MOVED CSHB 337(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 284
"An Act relating to uninsured and underinsured motor vehicle
insurance."
- HEARD AND HELD
HOUSE BILL NO. 310
"An Act relating to the Alaska Insurance Guaranty Association;
and amending Rule 24, Alaska Rules of Civil Procedure."
- MOVED CSHB 310(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 378
"An Act eliminating certain taxes under AS 21.09 on premiums from
the sale of workers' compensation insurance; relating to the
establishment, assessment, collection, and accounting for service
fees for state administration of workers' compensation and worker
safety programs; establishing civil penalties and sanctions for
late payment or nonpayment of the service fee; and providing for
an effective date."
- BILL HEARING POSTPONED TO 3/6/00
PREVIOUS ACTION
BILL: HB 368
SHORT TITLE: RELEASE OF CRIMINAL DEFENDANT
Jrn-Date Jrn-Page Action
2/11/00 2181 (H) READ THE FIRST TIME - REFERRALS
2/11/00 2181 (H) JUD, FIN
2/11/00 2182 (H) FISCAL NOTE (ADM)
2/11/00 2182 (H) INDETERMINATE FISCAL NOTE (COR)
2/11/00 2182 (H) ZERO FISCAL NOTE (LAW)
2/11/00 2182 (H) GOVERNOR'S TRANSMITTAL LETTER
2/25/00 (H) JUD AT 1:00 PM CAPITOL 120
2/25/00 (H) Heard & Held
2/25/00 (H) MINUTE(JUD)
3/03/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 337
SHORT TITLE: CLAIMS AGAINST PERM FUND DIVIDENDS
Jrn-Date Jrn-Page Action
2/04/00 2094 (H) READ THE FIRST TIME - REFERRALS
2/04/00 2094 (H) STA, JUD, FIN
2/04/00 2094 (H) FISCAL NOTE (LABOR)
2/04/00 2094 (H) GOVERNOR'S TRANSMITTAL LETTER
2/22/00 (H) STA AT 8:00 AM CAPITOL 102
2/22/00 (H) Moved CSHB 337(STA) Out of Committee
2/22/00 (H) MINUTE(STA)
2/23/00 2273 (H) STA RPT CS(STA) NT 2DP 2DNP 1NR 1AM
2/23/00 2274 (H) DP: JAMES, HUDSON; DNP: WHITAKER,
2/23/00 2274 (H) OGAN; NR: SMALLEY; AM: GREEN
2/23/00 2274 (H) FISCAL NOTE (LABOR) 2/4/00
2/23/00 2274 (H) ZERO FISCAL NOTE (REV)
3/01/00 (H) JUD AT 1:00 PM CAPITOL 120
3/01/00 (H) Scheduled But Not Heard
3/03/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 284
SHORT TITLE: UNINSURED MOTOR VEHICLE INSURANCE
Jrn-Date Jrn-Page Action
1/12/00 1906 (H) READ THE FIRST TIME - REFERRALS
1/12/00 1907 (H) L&C, JUD
2/18/00 (H) L&C AT 3:15 PM CAPITOL 17
2/18/00 (H) Scheduled But Not Heard
2/21/00 (H) L&C AT 3:15 PM CAPITOL 17
2/21/00 (H) Moved CSHB 284(L&C) Out of Committee
2/21/00 (H) MINUTE(L&C)
2/23/00 2269 (H) L&C RPT CS(L&C) 1DP 5NR
2/23/00 2270 (H) DP: HARRIS; NR: MURKOWSKI, CISSNA,
2/23/00 2270 (H) BRICE, SANDERS, ROKEBERG
2/23/00 2270 (H) ZERO FISCAL NOTE (DCED)
3/03/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 310
SHORT TITLE: ALASKA INSURANCE GUARANTY ASSOCIATION
Jrn-Date Jrn-Page Action
1/21/00 1973 (H) READ THE FIRST TIME - REFERRALS
1/21/00 1973 (H) L&C, JUD
2/21/00 (H) L&C AT 3:15 PM CAPITOL 17
2/21/00 (H) Moved CSHB 310(L&C) Out of Committee
2/21/00 (H) MINUTE(L&C)
2/23/00 2270 (H) L&C RPT CS(L&C) NT 1DP 3NR
2/23/00 2270 (H) DP: ROKEBERG; NR: MURKOWSKI,
2/23/00 2270 (H) HARRIS, CISSNA
2/23/00 2270 (H) ZERO FISCAL NOTE (DCED)
3/03/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
ANNE CARPENETI, Assistant Attorney General
Legal Services Section - Juneau
Criminal Division
Department of Law
PO Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Reviewed the changes encompassed in CSHB
368, Version G.
KEVIN SHORES, Assistant Attorney General
Human Services Division
Department of Law
PO Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Reviewed possible amendments to CSHB
337(STA).
RON HULL, Deputy Director
Employment Security Division
Department of Labor & Workforce Development
PO Box 25509
Juneau, Alaska 99802-5509
POSITION STATEMENT: Answered questions regarding CSHB 337(STA)
and the division's current practices.
DWIGHT PERKINS, Deputy Commissioner
Department of Labor & Workforce Development
PO Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Testified on CSHB 337(STA).
PAT HARMAN, Staff
to Representative Pete Kott
Alaska State Legislature
Capitol Building, Room 120
Juneau, Alaska 99801
POSITION STATEMENT: On behalf of sponsor, explained CSHB
284(L&C) and answered questions.
JOHN GEORGE, Lobbyist for the
National Association of Independent Insurers (NAII)
3328 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: On behalf of NAII, testified that CSHB
284(L&C) is acceptable but urged consideration of adding an
effective date.
MICHAEL LESSMEIER, Attorney at Law
Lessmeier & Winters, and Lobbyist
for State Farm Insurance Company
431 North Franklin Street, Number 400
Juneau, Alaska 99801
POSITION STATEMENT: On behalf of State Farm Insurance Company,
testified on CSHB 284(L&C) and discussed reasons for having an
effective date of 1/1/01 and a broad term like "disinterested";
testified on CSHB 310(L&C) and discussed the Alaska Insurance
Guaranty Association.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified on CSHB 248(L&C) regarding the
suggestion for an effective date.
MICHAEL COHN, Attorney at Law
Phillip Paul Weidner and Associates
330 L Street, Suite 200
Anchorage, Alaska 99501
POSITION STATEMENT: Testified as the person whose letter
inspired the introduction of HB 248; expressed concerns with new
language in CSHB 248(L&C).
DANE HAVARD, President
Northern Adjusters, Inc.; and Fund Manager
for Alaska Insurance Guaranty Association
1401 Rudakof Circle
Anchorage, Alaska 99508
POSITION STATEMENT: On behalf of Northern Adjusters, Inc.,
suggested eliminating or defining the word "disinterested" in
CSHB 248(L&C); as fund manager for the Alaska Insurance Guaranty
Association, testified on HB 310 and answered questions regarding
operations of the Alaska Insurance Guaranty Association.
TOM ANDRITSCH, Chairman
Alaska Insurance Guaranty Association
Umialik Insurance Company
4300 Boniface Parkway, Suite 201
Anchorage, Alaska 99504
POSITION STATEMENT: Testified on HB 310; reviewed the history of
this issue.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified in support of CSHB 310(L&C).
ACTION NARRATIVE
TAPE 00-26, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting to order at 1:20 p.m. Members present at the call to
order were Representatives Kott, Rokeberg, Croft and Kerttula.
Representative Murkowski arrived as the meeting was in progress.
HB 368 - RELEASE OF CRIMINAL DEFENDANT
CHAIRMAN KOTT announced that the first order of business would be
HOUSE BILL NO. 368, "An Act relating to release of persons before
trial and before sentencing or service of sentence; relating to
custodians of persons released, to security posted on behalf of
persons released, and to the offense of violation of conditions
of release; amending Rule 41(f), Alaska Rules of Criminal
Procedure; and providing for an effective date."
CHAIRMAN KOTT noted that a committee substitute (CS) had been
drafted due to some of the comments made by Anne Carpeneti,
Assistant Attorney General, Department of Law.
Number 0097
REPRESENTATIVE ROKEBERG made a motion that the committee adopt
the proposed CSHB 368, Version G [1-GH2027\G, Luckhaupt, 3/2/00].
There being no objection, it was so ordered and Version G was
before the committee.
ANNE CARPENETI, Assistant Attorney General, Legal Services
Section - Juneau, Criminal Division, Department of Law, came
before the committee in order to review the changes that the
proposed CS encompassed. She pointed out that on page 2, line
29, the sentence was basically flip flopped in order to be more
grammatically correct. On page 4, lines 13-15, the performance
bond provision was cleaned up with the elimination of the 10
percent posting requirement. She noted that the 10 percent
posting requirement is rarely done because it is not very
practical. The courts are in a better position to set an amount
and require it to be deposited. If the person does not abide by
the conditions, then the amount is forfeited.
Number 0199
REPRESENTATIVE CROFT related his understanding, then, that under
the previous language the bond would be set at $1 million and the
10 percent requirement would then amount to $100,000. He
understands that now, under the CS, the court would set the bond
amount at $100,000.
MS. CARPENETI said, "I would think so." However, she noted that
the amounts are usually much smaller. She then returned to the
review of the changes in the CS. The court system had suggested
that the immediate effective date be removed, which she believes
makes sense because it is difficult for the courts to amend their
rules under an immediate effective date. Therefore, without an
immediate effective date the general statutory date would be in
place and thus the bill would take effect 90 days after the
governor's signature. On page 1, line 2, the phrase, "relating
to when service of sentence shall begin" was inserted to reflect
that portion of the bill which allows a court to order a
defendant to begin service at a later date.
CHAIRMAN KOTT referred to page 3, line 29, and requested that Ms.
Carpeneti explain how the courts inform the custodian. Is that
done verbally or in writing or a combination of the two?
MS. CARPENETI said that she assumes that [the custodian would be
informed] both verbally and in writing. However, she did not
believe it would hurt to say that specifically.
Number 0394
CHAIRMAN KOTT made a motion that the committee adopt the
following conceptual amendment:
Page 3, line 30, after "custodian"
Insert ", verbally and in writing,"
REPRESENTATIVE KERTTULA said that she did not object. However,
she believes that normally during the bail hearings there is a
transfer sheet which provides the conditions of release. She
believes that it would suffice to provide a copy of that to the
custodian in order to avoid taking time to create a separate
formal letter to the custodian. Requiring something extra could
cause a delay.
REPRESENTATIVE ROKEBERG suggested that a form listing the various
conditions could be created and there could be a spot at the
bottom of the form to allow for other conditions to be listed.
CHAIRMAN KOTT announced that there being no objection, the
conceptual amendment was adopted.
REPRESENTATIVE ROKEBERG commented that he appreciates the
conceptual amendment as it places some "teeth" in the custodian's
duties.
CHAIRMAN KOTT said that he could not recall what the committee
discussed in regard to allowing a third party custodian to be
responsible for more than one person.
MS. CARPENETI said that point was brought forward by Lauree
Hugonin, Director, Alaska Network on Domestic Violence and Sexual
Assault. Although the department does not oppose that
suggestion, it is not preferred in HB 368 due to some problems
with drafting. She recalled that Ms. Hugonin also had suggested
that a person who has been held in contempt for failure to
perform custodial duties should not be appointed again. However,
there were questions regarding how long such a prohibition would
be in effect and thus the department had recommended that that
suggestion not be included.
Number 0650
REPRESENTATIVE ROKEBERG made a motion that CSHB 368 [version 1-
GH2027\G, Luckhaupt, 3/2/00] as amended be reported out of
committee with individual recommendations and the attached zero
fiscal note. There being no objection, it was so ordered and
CSHB 368(JUD) was reported from committee.
HB 337 - CLAIMS AGAINST PERM FUND DIVIDENDS
CHAIRMAN KOTT announced that the next order of business would be
HOUSE BILL NO. 337, "An Act relating to claims against permanent
fund dividends to pay certain amounts owed to state agencies and
to fees for processing claims against and assignments of
permanent fund dividends; and providing for an effective date."
[Before the committee was CSHB 337(STA).]
Number 0736
KEVIN SHORES, Assistant Attorney General, Human Services
Division, Department of Law, informed the committee that the
amendments before the committee are technical amendments. These
amendments are offered to the committee because the first bill
offered to the House State Affairs Committee was intended to
address all state agencies. In the House State Affairs Committee
the bill was changed and limited to the Department of Labor and
Workforce Development (DOLWD) and thus the committee has CSHB
337(STA) before it today. [The amendments are subsequently
treated as one amendment, labeled Amendment 1.] Amendment 1 read
as follows:
Page 2, line 5, following "payment":
Delete "for"
Insert "of"
Page 2, line 14:
Delete "for payment"
Insert "under AS 23.20"
Page 2, line 18:
Delete "for payment"
Insert "under AS 23.20"
Page 2, line 19, following "hearing":
Insert "under AS 23.20"
Page 2, line 20 following "and":
Insert "the Department of Labor and Workforce
Development has"
Page 2, line 20 following "allowed":
Insert "the individual"
Page 2, line 21:
Delete "the Department of Labor and Workforce
Development to"
Page 2, line 22:
Delete "hold"
Page 2, line 23:
Delete "for payment"
Insert "under AS 23.20"
Page 2, line 26:
Delete "for payment"
Insert "under AS 23.20"
Page 2, line 30, following "(b)":
Delete all material and insert "The"
Page 2, line 31 through page 3, line 1:
Delete ", before submitting a claim for
payment under this section,"
Page 3, line 1, following "the individual":
Insert ", if a dividend is claimed under (a)
of this section"
Page 3, line 4:
Delete "for payment"
Insert "under AS 23.20"
Page 3, line 6:
Delete "for payment"
Insert "under AS 23.20"
Page 3, line 16:
Delete "for payment"
Insert "under AS 23.20"
Page 3, line 30, following "may":
Insert "only"
Page 3, line 31 through page 4, line 1:
Delete all material and insert:
"costs and other amounts that
(1) are owed the department under other provisions
of state law under which the claim under AS 23.20 is
being made; and
(2) have been established by court judgment or
administrative order."
[End of Amendment 1]
MR. SHORES pointed out that limiting the bill to the Department
of Labor and Workforce Development results in three main areas of
amendment in the bill. He explained, "The first main areas of
amendments are on the first page of the amendments. They repeat
themselves. Where it says 'for payment' we would be inserting,
'under AS 23.20'." He further explained that the claim for
payment in the old version of the statute was going to be a
generic term for what happened in the agency. However, under the
amendment it refers specifically back to the statute under which
DOLWD is allowed to pursue fraudulently obtained unemployment or
overpayment of unemployment. He noted that Mr. Hull, DOLWD, can
answer questions the committee may have concerning DOLWD's
specific hearing procedures under those statutes. Therefore,
that amendment clarifies in statute that the first hearing is on
the merits of the claim. That [hearing] is before DOLWD or the
court.
MR. SHORES turned to the second main area of amendments, on page
2, line 30; that changes the language to an active voice in order
to mirror existing language in other statutes in this area. He
noted that the meaning is not changed. He continued with the
last area that is amended, which falls near the end of the
statute. He referred to page 3, line 30, where the word "only"
is inserted following the word "may". The word "only" was
inserted in order to clarify that DOLWD will pursue only those
statutory claims specified in AS 23.20. Two sentences are added
by that amendment. He explained, "Specifically, the aim of that
amendment is to make sure that its required that before the claim
is given to PFD [the Permanent Fund Dividend Corporation] for
attachment, that its been reduced to judgment by an
administrative agency in a hearing process or by a court." In
the House State Affairs Committee, some committee members
expressed the need to make sure it was clear that there is a due
process and a full due process for an underlying claim before
moving to the fast-track procedure to collect on a claim.
Number 1103
REPRESENTATIVE KERTTULA inquired as to the reasoning behind
taking the other agencies out of HB 337.
MR. SHORES informed the committee that some concerns had been
raised by Representatives Ogan and James, who were more
comfortable and familiar with the due process hearings and
procedures that DOLWD has.
REPRESENTATIVE KERTTULA asked what would happen if a person who
has consistently made his/her payments misses one or two
payments. She noted that under the request for hearing it seems
that something such as that does not have a right to be taken
into consideration. Therefore, she asked, what actually is taken
into consideration during a hearing? And can a scenario similar
the one described be taken into consideration?
MR. SHORES answered that there is latitude to consider that. He
clarified that HB 337 creates another hearing process on top of
the hearing process that would happen in DOLWD or the court. For
example, if a person's judgment was reduced and the person paid
part of those judgments, DOLWD would have to notify that person
that it was contemplating taking the permanent fund dividend.
Then the person would have the right to have another hearing on
whether the person had part of the judgment and whether the
amount was correct. Therefore, there are two levels of due
process in HB 337. Mr. Shores clarified that the second hearing
would be limited to whether or not there was a mistake. The
second hearing is not intended to allow litigation of what was
already litigated in court or the agency. He pointed out that on
page 3, subsection (c)(1) that is fleshed out more.
REPRESENTATIVE KERTTULA posed a situation in which someone has
not made a payment by the first hearing. She asked if there is
an opportunity for that person to show that he/she has made past
payments and thus request leniency.
MR. SHORES clarified that the first hearing addresses whether the
individual owes money or not. That [hearing] would be held in
DOLWD's administrative process. If the individual went through
the department's layers of administrative appeal and went to
superior court, that would revolve around whether that individual
owes the money or not. With regard to whether an individual
making a payment agreement and whether or not the department
would continue to accept the payments or proceed [with
garnishment of] the PFD, Mr. Shores deferred to Mr. Hull.
Number 1315
REPRESENTATIVE MURKOWSKI turned to the notice process, which
indicates that the individual must have a statement that DOLWD
has notified the individual. Where is it defined what is
adequate notice? Would a certified letter be adequate notice?
Does [the department] have to establish that the individual has
received notice? Is it sufficient that a letter just goes out?
MR. SHORES specified that the first notice [on the hearing] would
be in regard to the underlying claim. He pointed out that
Chapter 23 has specific notice requirements of certified mail and
how notice of a claim is given. The second notice on the hearing
would be in regard to whether the individual's permanent fund may
be forfeited. In this statute there is no specific means of
notice, whether it is certified mail or a personal process
server. Mr. Shores imagined that DOLWD would probably
[promulgate] its own regulations with regard to notice; however,
he deferred to Mr. Hull.
REPRESENTATIVE MURKOWSKI commented that she believes the
notification would probably be something that [the committee]
would want to ensure proof of service versus just sending out a
letter.
Number 1437
RON HULL, Deputy Director, Employment Security Division (ESD),
Department of Labor & Workforce Development, informed the
committee that one of ESD's major responsibilities is to
administer the Unemployment Insurance Program. Administering
the Unemployment Insurance Program involves the collection of
taxes from Alaska's employers and paying out benefits to Alaskans
who are temporarily out of work. Inherent in that responsibility
is the protection of the trust fund, which means the detection,
prevention and/or collection of improperly paid benefits.
MR. HULL informed members that the primary method of collection
of overpaid benefits is withholding payment for subsequent
eligible weeks in order to offset the overpayment. When one
reapplies for benefits, those benefits are taken in order to
offset the claim. If that option is not available, the claimant
is contacted by mail or phone in order to negotiate a payment
schedule. The claimant is allowed to repay the debt without the
department asking for more than the claimant can afford. If the
claimant is making the payment, the division will not exercise
[garnishment] of the PFD. He noted that often, the claimant will
voluntarily assign the PFD in order to eliminate the bill.
Generally, no collections actions are taken if the claimant meets
his/her repayment agreements, which can run for 90 days before a
series of letters are sent out saying that the PFD can be taken
and inquiring as to the problem. If the claimant has reasons
such as the need to pay bills, the division will hold it.
MR. HULL turned to those individuals who refuse to pay anything.
For those individuals, their PFD is attached by obtaining a
judgment through small claims action or through a criminal
prosecution judgment. That is costly in both time and resources.
This legislation would speed the recovery of overpaid
unemployment insurance (UI) benefits that are a debt to the
state. For the most part, overpaid unemployment insurance
benefits are owed by individuals who have exhibited some
reluctance to repay that debt. Mr. Hull pointed out that there
is a statutory penalty, 50 percent of the amount illegally
obtained, on the overpayment of benefits as it pertains to
fraudulent acts. Those monies cannot be obtained through the
offset of unemployment insurance benefits.
MR. HULL explained that furthermore, the collection rate in this
area is dismal. Some states do not make any disbursements such
as state tax refunds or lottery winnings without first deducting
debt to the state. Mr. Hull pointed out that the fraud penalty
money is not returned to the trust fund, but goes directly to the
general fund. As of December 1999 the uncollected penalty
balance was over $3 million. The fraud balance is about $5
million and the non-fraud balance amounts to about $1.5 million.
In addition to restoring improperly paid benefits to the trust
fund, the division anticipates recovery of approximately $750,000
of the balance in the first year after the passage of the bill.
The $750,000 will be deposited in the general fund as will
probably $400,000 each year thereafter.
Number 1630
MR. HULL stated, in response to Representative Murkowski's
question regarding notification, that when the issue is first
detected fact finding is performed. He explained that initially,
an employer will send the division a prima facie document, which
documents the rate of pay of an employee and the number of weeks
an employee has worked. That would evidence whether the division
should continue the investigation. When that is returned and
there seems to be some improperly paid benefits, the division
writes a letter to the claimant asking if there is something the
division does not understand or if the employer has made a
mistake. The division waits 30 days for a response to that
letter and depending upon the response, there are a number of
tracks that occur depending upon whether it was a mistake or
fraud.
MR. HULL noted that if the amount is over a certain amount, then,
based on workload, that is taken to criminal court. When the
division feels there is enough evidence to proceed, a notice or
determination is performed which includes the appeal rights; that
is forwarded to the individual. When the overpay amount is set,
a separate determination of liability is sent and again the
appeal rights are explained on that document. In each case, the
claimant has 30 days to respond. He pointed out that if the case
is non-fraud and the claimant disagrees with the division's
findings, there is an administrative appeal hearing. Mr. Hull
noted that when he was a chief investigator, he lost more cases
at [the division's] appeal tribunal than in court.
REPRESENTATIVE MURKOWSKI asked whether the notification for the
hearing process within the division is by certified mail.
MR. HULL answered that in the past, certified mail has been used,
which he believed amounted to $1.30 per letter. He noted that
currently there are over 8,000 claimants. He informed the
committee that the court has ruled that the division, through its
permanent fund dividend and/or unemployment insurance files, has
such a current mailing address that if there is no response, that
is proof [that the claimant received the notice]. Therefore, the
division has stopped using the return receipt requested. If the
letter is not returned from the post office showing an address
unknown, the courts have ruled that [the claimant] received the
letter and the division has performed due process.
REPRESENTATIVE MURKOWSKI related her understanding, then, that at
the division level nothing confirms receipt of notice of the
claim. If the individual fails to respond and the division
decides to attach the PFD, a second notice could go out to the
individual. Again, there would be no confirmation that the
individual received the letter and the PFD could be seized.
MR. HULL agreed that could happen; generally, however, if an
individual has received his/her PFD, the address is good.
Therefore, the division would only take special efforts if the
envelope comes back from the post office saying it was not
delivered. In which case, the division takes steps to try to
find that individual.
CHAIRMAN KOTT referred to the top of page 3 and related his
understanding that the division is using the address provided in
an individual's PFD application. Furthermore, if there is no
return response, the division considers that the individual has
received the letter and basically agrees with the terms of the
notice. He further understood that there is no follow-up phone
call, although the individual's telephone number is also on the
PFD application.
MR. HULL agreed that the division uses the address provided in an
individual's PFD application and if there is no return response,
the division considers that the individual has received the
letter. He said that the division does call these individuals;
however, each type of case is somewhat different. Mr. Hull
informed the committee, "This really is fairly rare. ... The
world comes to us for addresses because our addresses are so
current."
Number 1885
CHAIRMAN KOTT inquired as to the time an individual has to
request a hearing per the notice received by the individual.
MR. HULL answered that per the statute the individual has 30 days
to respond to each document that lists the appeal rights. In
further response to Chairman Kott, Mr. Hull said that the
individual would have the opportunity to waive that right. He
pointed out that if the individual can show that he/she did not
receive the letter or could not respond because he/she was out of
state, then the appeal can be reopened.
REPRESENTATIVE MURKOWSKI surmised, then, that an individual does
have an opportunity to prove that he/she did not receive the
notice and there was a legitimate absence. However, the PFD
would have been seized in the meantime and the individual would
have to proceed with the process of getting the PFD back.
MR. HULL said, "Given the worst-case scenario, if that occurred
that we had taken it [the PFD] and then they could show that they
had left the state for whatever reason and weren't there to
receive that letter, then yes."
REPRESENTATIVE MURKOWSKI expressed concern because the current
language merely states that the individual has to be notified;
there is no indication as to what constitutes adequate notice.
She understood that under the [current] procedure [the division]
considers it adequate notice if it is sent to the address on file
and if nothing has been returned from the post office.
Representative Murkowski said that she would like to see the
notification requirements tightened up. If "we" are going to
move towards allowing an expedited process for attachment of the
PFD, "we" should ensure that all the due process notifications
were performed.
REPRESENTATIVE MURKOWSKI related her understanding that currently
the division can attach the PFD, but only by going through the
courts. She acknowledged that the current process is more costly
and time-consuming. Furthermore, the current process probably
"puts a lid on the number of garnishments that you [the division]
actually goes forward with." She was glad to hear that the
division encourages repayment agreements and that if someone is
working with the division, the division will not move forward to
attach or garnish [the PFD]. If the process is expedited, is it
possible that there would be less incentive to enter into
repayment agreements.
Number 2060
MR. HULL commented that the division bends over backwards to be
helpful. It wants its money back and is mandated by a federal
statute [to recover the funds]. For individuals who are out of
work, the division would stop collection. Mr. Hull said that the
division does not want a reputation like the Internal Revenue
Service (IRS). Frankly, without this [HB 337] the division
collects 90 percent of its non-fraud overpayments. The
division's biggest collection effort is with the fraudulent
cases.
CHAIRMAN KOTT reviewed the timeline. Individuals have until
March 31 to submit PFD applications. From the applications, the
division determines whether there is an opportunity to garnish
part of the PFD. Chairman Kott said it seems that rather than
wait until August or September to make that determination, which
starts the 30 day process that could interfere with the
individual receiving his/her PFD, the division would more than
likely do that closer to the end of the application period.
Therefore, the process would be taken care of before the
garnishment would occur.
MR. HULL pointed out that according the PFD statute, one cannot
apply for the benefits before a certain date. He pointed out
that a potential overpay is a six-month-old case when the
division receives it. The division waits two quarters before the
employers are even asked for data. He believes that the date
that an agency can apply for benefits is probably after the
closing period. Furthermore, there is a hierarchy in regard to
who can take the benefit first, under which the division ranks
number six [under HB 337].
REPRESENTATIVE KERTTULA commented that she hopes other agencies
are paying attention to ESD's process, which she said seems fair.
Number 2230
REPRESENTATIVE ROKEBERG inquired as to how the UI tax rates for
the employer and employee are currently determined.
MR. HULL responded that those are set by the trust fund balance.
If the division did not collect anything, the tax rate would
increase. He agreed that the rate is reset every year based on
the balance.
REPRESENTATIVE ROKEBERG surmised that if the division were able
to collect more, rates to the employee and employer could be
lowered.
MR. HULL agreed.
REPRESENTATIVE ROKEBERG asked how this would affect the
aforementioned garnishment priority list.
MR. HULL pointed out that the division is not on the garnishment
priority list at all now. If this bill passes, the division
would be sixth on the list. He referred to AS 43.23.065 and
said:
We are number six, "a debt owed by an eligible
individual to an agency of the state." And ahead of us
is child support, court-ordered restitution - and we do
get some of those - defaulted scholarship loans, court-
ordered fines, writs of execution, civil action, parent
[or] legal guardian [of an unemancipated] minor, and
then us - not us, but all state agencies. ... We can
prosecute anything over -- with a judgment there, if
they've got a PFD, then we can go after it; sometimes,
they don't apply for it.
REPRESENTATIVE ROKEBERG acknowledged that and commented that
perhaps [the individual] has a larger amount.
MR. HULL said that is possible. He noted that most often the
larger amounts are the fraudulent claims. In further response,
he informed the committee that there have been claims of $25,000-
$30,000 when an individual has obtained the identification of a
number of real individuals and then has applied for a number of
checks at the same time.
REPRESENTATIVE ROKEBERG noted that HB 337 did not receive a
referral to the House Labor & Commerce Committee [which he
chairs.] He commented that he was astounded by the high level
and asked what the highest benefit is that is being paid out.
MR. HULL specified that it would not be one individual going
after one claim, although there have been cases when an
individual has exhausted his/her claim. He identified part of
the problem as the fact that the audit does not occur until two
quarters have passed. He noted that $5,000 and $6,000 cases are
common. In further response to Representative Rokeberg, Mr. Hull
said the highest benefit is $248 per week and $24 per dependent,
up to three dependents. In further response, he affirmed that
the weekly amount can be for 26 weeks.
Number 2391
REPRESENTATIVE ROKEBERG requested that Mr. Hull review the
amendment and the criticism and lack of comfort held by the House
State Affairs Committee.
MR. HULL clarified that the debate in the House State Affairs
Committee was regarding due process, which he'd mentioned
earlier. In further response, he agreed that [the amendment] is
merely drafting and not an attempt to correct what the House
State Affairs Committee did.
CHAIRMAN KOTT related his understanding that HB 337, as
introduced, was broader. The bill was narrowed in the House
State Affairs Committee and the aforementioned amendment [offers
clarification] to the committee substitute (CS) that was reported
out of that committee.
Number 2436
DWIGHT PERKINS, Deputy Commissioner, Department of Labor &
Workforce Development, informed the committee that originally HB
337 was going to be aimed at DOLWD. However, after further
development it appeared that this may be something for all state
agencies to use. As Representative James stated in the House
State Affairs Committee, the department has a fair and equitable
system with regard to the collection of the money due to the
state. He further pointed out that Representative James said
that at this point, she felt uncomfortable writing the
legislation to apply to all departments. Therefore, the a House
State Affairs Committee [committee substitute resulted]; these
[Amendment 1] are technical amendments to ensure that the bill is
limited to DOLWD only. Mr. Perkins also pointed out that this
[HB 337] would be a revenue generator through the penalties that
will go directly to the general fund; these [penalties] are in
excess of $400,000 per year.
REPRESENTATIVE ROKEBERG expressed hope that the excess money
would not be siphoned off elsewhere.
TAPE 00-26, SIDE B
CHAIRMAN KOTT asked to how many cases would fall within the scope
of this bill if it were to pass.
MR. HULL said, "Certainly, less than the cases we have." He
reiterated that this bill will not be used to "hammer" those
individuals who are paying. This bill will be used to address
those individuals who are not paying and who are not going to
pay.
CHAIRMAN KOTT asked if Mr. Hull could draw any conclusions with
regard to the number of people this would address.
MR. HULL replied that currently there is eight years' worth of
data, which equates to about 8,200 individuals. He estimated
that on a yearly basis there are probably around 2,000 claims,
half of which will be fraud. Half of those fraudulent
[individuals] will flee the state so quickly that the money
cannot be obtained, and thus much of the debt leaves the state.
He estimated that [the department] would consider using this bill
for probably a quarter of the claimants identified as receiving
improperly paid benefits, if those claimants are not making
payments. He further estimated that [of those claimants
receiving improperly paid benefits] 80 percent would be
fraudulent claims. Mr. Hull said, "We collect fraud 40 to 45
percent of all the fraud that's established. And I said earlier,
we're collecting about 90 percent of the non-fraud without this
ability to attach the PFD."
Number 0083
CHAIRMAN KOTT clarified that the point of his question was to
gauge the cost to the department in both personnel time and
actual money, if the department were required to send that
notification via certified mail. He estimated that $1 per
[claim] is added, as a minimum, plus whatever time is spent to
evaluate and track that.
MR. HULL pointed out that with certified mail whoever answers the
door signs for the letter, which may not be the addressee, and
then [the service of notice] would not be legal. There were
problems with certified mail when it was used exclusively.
REPRESENTATIVE MURKOWSKI returned to the issue of the garnishment
priority list, which the division would be number six [under this
bill]. She understood that currently state agencies are listed
on that priority list. Therefore, she asked if unemployment
insurance would have a higher priority over another state
agencies if this legislation were passed.
MR. HULL replied no. This legislation would merely lump the
division in with other state agencies at the number-six position
on the garnishment priority list.
REPRESENTATIVE MURKOWSKI asked if the division is already on the
garnishment priority list as a state agency.
MR. HULL replied no. He explained that AS 43.23.065(6) in part
says "a debt owed by an eligible individual to an agency of the
state". The division cannot collect this debt under paragraph
(6) because this bill has not passed. However, the division can
collect the debt under court-ordered fines, for example.
REPRESENTATIVE MURKOWSKI asked: If the division would receive a
higher priority with a court order than under HB 337, why
wouldn't the division ensure receipt of the debt by obtaining a
court order?
MR. HULL clarified that a court order cannot be obtained unless
there is a criminal case. He agreed with Representative
Murkowski that a small claims judgment could be obtained, which
would create a priority that is higher than the priority created
under HB 337. He further agreed that the people that the
division is attempting to collect from are people that others are
attempting to collect from as well. Mr. Hull noted that such
cases are very time-consuming and thus are only undertaken with
high-dollar value cases.
REPRESENTATIVE MURKOWSKI surmised that the division would review
the individual's circumstances and determine how to proceed.
MR. HULL said the division also reviews the individual's wages in
order to determine if the money is present to go after.
Number 0230
REPRESENTATIVE CROFT surmised that HB 337 would provide the
division with another option. It would provide the division with
a cheaper route, although the division would fall lower on the
priority list versus the more expensive court route under which
the division would have a higher priority.
MR. HULL agreed.
REPRESENTATIVE ROKEBERG recalled Mr. Hull's earlier testimony
that approximately half of the recovered claims are fraudulent.
He inquired as to the percentage of the claims paid out that are
fraudulent.
MR. HULL said, "Let me correct that. I shouldn't have said
claims. Half of the established debt is fraud, not claims."
REPRESENTATIVE ROKEBERG inquired as to the percentage that is
owed annually because of fraudulent claims.
MR. HULL said he was not sure he had that information. However,
he informed the committee that about 7.5 percent of the claims
paid out are improperly paid.
REPRESENTATIVE ROKEBERG surmised that about half of that, 3-4
percent, [is owed annually because of fraudulent claims].
Number 0312
REPRESENTATIVE CROFT made a motion that the committee adopt
Amendment 1 [text provided previously]. There being no
objection, Amendment 1 was adopted.
CHAIRMAN KOTT asked if anyone else wished to testify on HB 337.
There being no one, the public testimony was closed.
REPRESENTATIVE MURKOWSKI commented that she was not entirely
comfortable with the notice requirement. She wondered what type
of notice requirements the Child Support and Enforcement Division
(CSED) has that allows that division to proceed with garnishments
without a judgment.
CHAIRMAN KOTT related his belief that CSED, the Alaska Commission
on Post Secondary Education and the welfare [agencies] send
notification via first-class mail. He believes that is the
approach that all state agencies are now pursuing.
MR. SHORES specified that this statute will fit into Title 43,
which governs PFDs. The statute begins with the priorities
discussed here [in HB 337]. There are three other agencies that
currently use the option discussed for DOLWD under HB 337. The
Department of Health & Human Services [uses this option] for the
reimbursement of court-ordered treatment. The other two agencies
that use this option are the Alaska Commission on Postsecondary
Education and Public Assistance, which uses this for
overpayments. Each statute, as is the case under HB 337, refers
initially back to the statutory section under which they [the
agency] claim the money and then provides for the secondary
portion of the notice. Mr. Shores also pointed out that these
agencies utilizing this option also provide notice at the last
known address of the PFD. Therefore, requiring DOLWD to send
notice via certified mail would be different and not required of
the other agencies [utilizing this option].
REPRESENTATIVE CROFT asked whether those other agencies use
first-class mail, not certified mail [for notification].
MR. SHORES clarified, "It doesn't require certified mail, it
requires notice to the address provided in the individual's
permanent fund dividend application. So, it requires first-class
mail notice." He acknowledged that if the agencies wanted to use
certified mail they could do so, although their statutes do not
require use of certified mail.
CHAIRMAN KOTT informed the committee that as a former member of
the Alaska Commission on Postsecondary Education, he recalled
that it used first-class mail.
Number 0459
REPRESENTATIVE CROFT made a motion to report CSHB 337(STA), as
amended, out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, it was so
ordered and CSHB 337(JUD) was reported from committee.
HB 284 - UNINSURED MOTOR VEHICLE INSURANCE
CHAIRMAN KOTT announced that the next order of business would be
HOUSE BILL NO. 284, "An Act relating to uninsured and
underinsured motor vehicle insurance." Chairman Kott, sponsor of
the bill, asked Pat Harman to present HB 284 to the committee.
[Before the committee was CSHB 284(L&C). The written sponsor
statement in packets referenced a letter from attorney Michael
Cohn, dated September 21, 1999, also in packets, which explained
the loophole addressed in the bill and an actual case that Mr.
Cohn's law firm had handled.]
Number 0535
PAT HARMAN, Staff to Representative Pete Kott, Alaska State
Legislature, came forward on behalf of the sponsor. He explained
that AS 28.20.445(f) currently has a glitch that permits
insurance companies to deny coverage under their uninsured
motorist provisions. Subsection (f) read:
(f) If both the owner and operator of the
uninsured vehicle are unknown, payment under the
uninsured and underinsured motorists coverage shall be
made only where direct physical contact between the
insured and uninsured or underinsured motor vehicles
has occurred. A vehicle that has left the scene of the
accident with an insured vehicle is presumed to be
uninsured if the person insured reports the accident to
the appropriate authorities within 24 hours.
MR. HARMAN illustrated by using three toy vehicles in a row: a
semi truck stopped at an imaginary stoplight, followed by two
race cars. He showed how Vehicle 3 could collide with Vehicle 2,
propelling it into Vehicle 1, the truck. If Vehicle 3 had left
the scene, Mr. Harman explained, the insured in Vehicle 1 may be
denied coverage because Vehicle 3 had no direct contact with
Vehicle 1.
REPRESENTATIVE ROKEBERG pointed out that the fact pattern of the
actual case [explained in Mr. Cohn's letter] was somewhat
different, and the House Labor & Commerce Standing Committee
hadn't seen this particular demonstration.
Number 0634
MR. HARMAN referred to Mr. Cohn's letter and gave another
demonstration using the toy vehicles. He then pointed out that
the House Labor & Commerce Standing Committee version, CSHB
284(L&C), adds language that applies if the accident is witnessed
by a disinterested person not occupying the insured's vehicle who
can attest to the facts and to the involvement of a motor vehicle
that left the scene. He again illustrated using the toy
vehicles, then stated that there is a need for a disinterested
person who is not riding in the vehicle of the insured; he
indicated in that case, the insured could collect under his or
her uninsured motorist insurance.
CHAIRMAN KOTT suggested the illustration requires another car,
then, from which some disinterested person passing the scene
would see the accident.
MR. HARMAN indicated the witness could be any bystander or other
disinterested person.
REPRESENTATIVE CROFT questioned whether a person in Vehicle 2
would truly be disinterested, for example. He agreed that a
person on a street corner would more clearly be disinterested.
Number 0736
MR. HARMAN advised members that a further issue remaining with
the bill is a possible effective date. Currently the bill has no
effective date. Michael Lessmeier has suggested an effective
date of 1/1/01 to allow insurance companies to implement the
changes at the next renewal of their clients' policies. However,
Bob Lohr of the Division of Insurance, who was on teleconference,
had sent an e-mail just before the committee convened [copy
provided], which said there may be no need for an effective date.
Mr. Harman suggested inviting those individual to testify about
the issue.
Number 0789
JOHN GEORGE, Lobbyist for the National Association of Independent
Insurers (NAII), came forward and informed the committee that the
NAII had also participated in working on this legislation.
Although the NAII could certainly accept CSHB 284(L&C) in its
present form, Mr. George urged the committee to consider amending
it to add an effective date. He explained that traditionally,
changes in benefits or coverage have occurred prospectively,
without affecting existing policies. There may be a premium
increase necessary, he noted, pointing out the need to run this
through the actuaries and to possibly print some policy form
amendments; he also noted that any rate or form changes have to
be approved by the Division of Insurance.
MR. GEORGE told members it makes sense to have some lead time so
that insurance companies can react, and can provide and charge
for the appropriate coverage. To his knowledge, there has always
been an effective date such as the one proposed, giving six to
nine months of development time so that can happen. Otherwise,
there will be policies in force where the premium has already
been charged but where the coverage will be broadened. Insurers,
therefore, will pick up additional coverage that they haven't had
an opportunity to price.
Number 0867
CHAIRMAN KOTT, speaking as the sponsor, responded that certainly
it isn't his own intent to increase premiums around the state.
He asked, however, whether it is true that some companies do pay
the claims like those used in the example.
MR. GEORGE said he certainly has heard that that is the case.
Although he cannot speak for all companies, he knows of at least
one that claims it hasn't done so. [Claims adjusters] use
judgment as to whether a claim is fraudulent or legitimate; if
the claim is believed to be clearly legitimate, even though there
was no contact, a company probably would honor that claim. Mr.
George clarified that he doesn't know what the premium results
would be [under this bill]; there may be no additional charge, or
it may be slight. However, it would set a poor precedent to
assume that there is no [premium increase] for this and to have
that assumption continue for a future bill. Mr. George said he
also believes it is appropriate to change policy endorsements or
language to reflect the additional coverage, even though he
agrees that probably if the law is changed, the additional
coverage would apply regardless of whether the policy language is
changed.
Number 0940
CHAIRMAN KOTT asked Mr. George, "Absent the great number of major
insurance companies that insure automobiles in this state, is
that a reflection that most companies are, in fact, covering this
under their policy, and this absolutely does not have any impact
on them?"
MR. GEORGE said he doesn't know and cannot comment on that.
However, he is sure that there are companies which, using their
judgment, are paying specific claims that technically might not
be covered because they consider those legitimate. He restated
that he doesn't have an answer.
Number 1006
MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and
Lobbyist for State Farm Insurance Company, came forward on behalf
of State Farm. He told members that the existing law is not a
glitch. The history of uninsured/underinsured motorist coverage
in Alaska goes back to before 1983, when he became involved with
working on these issues with the legislature. He explained:
The system of insurance with respect to automobile
insurance ... has evolved and changed over that period
of time. It started out in 1983. There was a
mandatory automobile insurance bill before the
legislature, and ultimately that bill was passed, but
it was passed in a form that recognized that not
everybody was [going to] buy insurance, even though
they were legally mandated to buy it. And so what was
passed with it was a mandated offer of uninsured and
underinsured motorist coverage, the idea being that you
could guarantee yourself protection by buying ... a
limited form of protection through uninsured and
underinsured motorist coverage. And this provision
here is a provision that was intended to, again, strike
a balance, as we often do, to protect against
fraudulent claims.
And so this was not a glitch. It was in the law for a
reason, and I think the responsible companies - in
response to your question - would use this provision to
deny coverage only where they had a reasonable belief
that there was a fraudulent claim being made. So what
you're doing with this ... is you now are broadening
coverage, and you may broaden it to cover a situation
where there is a suspicion of a fraudulent claim, but
you're now going to have to pay that claim. And that's
fine. That's a different balance that we are seeking
to adopt, and we understand the reasons that you want
to do that.
All we're saying here today is, "Let's not make a
retroactive change." What happens is every policy
that's purchased ... is generally on a six-month-
renewal basis. So, in order for us to make changes in
a policy or price them if there is going to be an
increase, we need six months from the time that the
legislature ... makes its final decision. And that's
all we ask for, and historically that's never been a
problem with anybody.
Number 1153
REPRESENTATIVE MURKOWSKI asked whether this bill is broadening it
enough so that insurers will decide it is necessary to raise
rates.
MR. LESSMEIER said he doesn't know the answer, and he isn't an
underwriter. However, it definitely is broadening it. He
returned to the issue of the effective date and stated that
without at least six months' time, it would be "retroactive." He
isn't sure [State Farm] could make changes mid-policy for people,
and he doesn't believe that is something the legislature wants to
do or has done before.
Number 1220
REPRESENTATIVE CROFT noted that some policies last a long time.
He asked whether this won't be retroactive, in some senses, even
with [an effective date of] 1/1/01.
MR. LESSMEIER said no. These policies are usually on a six-
month-renewal basis. The legislature theoretically is going to
act, and he can't imagine that the Governor wouldn't sign the
bill. Therefore, he indicated, the company will have adequate
notice if the effective date is 1/1/01.
Number 1281
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development (DCED), testified via
teleconference from Anchorage, specifying that he would focus on
the question of the effective date. First, he believes it is
unlikely that a large number of accidents would fall into this
category, although he doesn't have specific statistics on that.
Just based on the way this arose and the length of time the
statute has been in effect, however, this issue doesn't seem to
have arisen very often. Second, if the legislature
hypothetically had decided to change the law but the effective
date had not yet arrived, and if there were one serious accident,
Mr. Lohr said there would be a consumer protection issue for that
individual or family. He stated:
I don't believe anybody is proposing to try to make it
retroactive. We simply heard that the concern was
about the cost of notification of current
policyholders, and we observed that the current policy
language allows coverage to be broadened without the
necessity of either reissuing the policy or, I believe,
doing customer notification. So, from that point of
view, it would not be necessary to incur additional
expense to provide the broader coverage.
MR. LOHR informed members that finally, he believes that the
impact on rates is to be determined by actuaries; he noted that
Sarah McNair-Grove of the Division of Insurance was available in
the audience. Mr. Lohr returned to the question of the breadth
of the impact; he noted that 56 insurers wrote private-passenger
automobile physical damage coverage in Alaska in 1998, and 129
insurers wrote commercial auto physical damage coverage for the
same year. Mr. Lohr said he believes accidents [related to the
bill] are quite few, although he couldn't assert that this would
have a "zero" rate of impact. He would want to see the numbers
developed on that. He suggested there may be a middle ground
where there is an advanced effective date, but only advanced so
far as necessary to avoid retroactivity.
Number 1440
MICHAEL COHN, Attorney at Law, Phillip Paul Weidner and
Associates, testified via teleconference from Anchorage. He
noted that in the case discussed in his own letter [which had
inspired this legislation], his client's vehicle was struck by a
second vehicle that crossed the center line; however, the [driver
of] the other vehicle had claimed that a third vehicle, which had
come from a side street, had caused the crossing of the center
line and had then disappeared after causing the accident.
Although something similar could happen to anybody in Alaska, he
said, it apparently hasn't happened very frequently.
MR. COHN referred to the new language in CSHB 248(L&C) requiring
the witness to be a disinterested person not occupying the
insured vehicle. He mentioned earlier remarks about the
definition of "disinterested person" and whether that would also
apply to the person in the second vehicle. Mr. Cohn noted that
the new language excludes every person in the insured vehicle
from testifying. He submitted that there shouldn't be an
assumption necessarily that people are going to bring fraudulent
claims. He suggested instead that people's testimony should be
considered under the regular general rules that apply in
arbitration, or in court, in determining the credibility of
witnesses.
MR. COHN referred to the language that requires direct physical
contact. He said it appears that was written to ensure that
there was actually an accident involving at least two motor
vehicles. He pointed out, however, that physical evidence on the
scene - such as skid marks from a vehicle that crossed the center
line and then disappeared - can show that another vehicle was
involved, even without direct physical contact or a
"disinterested" witness to the actual accident. Mr. Cohn said
his concern is with the narrowing in an effort to close this
loophole.
Number 1619
CHAIRMAN KOTT told Mr. Cohn the added language was somewhat of a
compromise between himself and the industry. He asked whether
this language would have helped his particular client.
MR. COHN said yes. In that case, other witnesses on the scene
who were not in their car had observed the other vehicle,
although they didn't get the license plate [number]. He stated,
however, that he is concerned about the next situation that may
arise, if all the witnesses were in the insured's car, for
example, or if a witness in another vehicle were determined not
to be "disinterested." His concern is for the next accident, not
the last one.
Number 1720
REPRESENTATIVE MURKOWSKI stated:
A few of us looked at this "disinterested person" issue
and whether or not we needed to define "disinterested"
and say that it can't be a family member, or ... you
can't have had more than five beers with this person,
... and recognized that whether or not the person is
truly disinterested is going to be ... an issue that
the court is going to have to determine. They're going
to have to weigh the evidence in front of them and make
that determination as to whether it's disinterested.
So I agree with you, Mr. Cohn.
I had some concerns initially, just looking at that
term, what exactly constitutes a "disinterested
person." ... I'm probably more satisfied with where we
are, just leaving it as it is, "disinterested person,"
and recognizing that that will be one of the factors
that the judge is weighing when they're considering the
testimony of the witness.
MR. COHN pointed out that it won't be for a judge to decide,
however, if the language remains as it is now, because it
automatically excludes the testimony of any person who was in the
vehicle with the insured.
Number 1809
REPRESENTATIVE CROFT said he still isn't sure that the person in
the middle car is disinterested. The problem is that the judge
isn't weighing this. Furthermore, the judge could find such a
person credible but not disinterested under the statutes; the
person in the middle car would have an interest in pointing to
liability of the "phantom" car, because the middle car, after
all, ended up rear-ending the truck.
REPRESENTATIVE ROKEBERG indicated, on the other hand, that the
judge could find that a passenger in the second car - if there
were one - may be a witness, because that person wouldn't have
been the proximate cause of the accident, especially if that
person isn't married to the driver, for example.
REPRESENTATIVE CROFT pointed out that a person standing on the
street corner could be related somehow or could for some reason
not be a "disinterested person" under this, and yet that person
could have relevant testimony that a jury or judge might find
credible. He explained that normally, in a trial, that is all
put into the "mix." Witnesses aren't disqualified for being
people's relatives, for example; instead, they are put on the
stand, they give testimony, and counsel brings out that
relationship for the judge or jury to weigh along with everything
else.
REPRESENTATIVE CROFT suggested that if the word "disinterested"
were removed, so that the language just said "witnessed by a
person not occupying the insured vehicle," the judge would still
be able to hear about the interest, which is bias that is always
admissible. As it is now, however, the person couldn't testify
as a witness, no matter how credible otherwise. Representative
Croft acknowledged that Mr. Lessmeier's point is good that this
is a balance in an area which is difficult to prove; therefore,
it may need some sideboards, which exist [in this section].
Number 2157
REPRESENTATIVE ROKEBERG said he believes the issue here is what
the public policy should be. In the past, the legislature has
said the public policy should be to deny that [coverage] because
the potential for fraud is greater than the public interest with
higher premiums. Because of an unusual fact pattern here, he
suggested there is a need to make sure that this type of an
injustice doesn't happen again. He suggested the legislature
needs to weigh the public policy in terms of increased costs to
all of the ratepayers in the state, and yet open it up somewhat
to make sure that the injured party can have some compensation
without opening a floodgate. He said that is the idea of making
a balance.
REPRESENTATIVE CROFT responded that he thinks it is appropriate
that it not be allowed solely on the evidence of the insured.
However, he isn't sure that putting all the sideboards on the
other witness makes sense. He questioned the need for
"disinterested" or "not occupying the vehicle," but said maybe
"disinterested" is the main one. He pointed out that proof in
civil court requires a verifying witness, and the question here
is how much to limit who that witness is.
REPRESENTATIVE ROKEBERG surmised that the substantial majority of
these cases would be for less than $10,000 if there is just
property damage. He mentioned the need to take another look,
however, if they are talking about personal injury or medical
costs, which could skyrocket; he suggested that bifurcating this
in terms of statutory structure to make that distinction would be
difficult. He said the statute should be clear enough, on its
face, so that administrative judgments and agreements can be made
without litigation. He pointed out that the bill opens up an
area that was prohibited before, which he believes is the
balance.
CHAIRMAN KOTT agreed it loosens it up quite a bit, but said it
also requires a couple of restrictions: the witness cannot be
occupying the vehicle for which the claim is made, and must be a
disinterested party.
Number 2411
REPRESENTATIVE MURKOWSKI indicated she has talked herself into
accepting the "disinterested person" language. She pointed out
that the statute doesn't say what a "disinterested person" is,
and suggested a court could determine whether a person meets that
standard. She cited an example.
TAPE 00-27, SIDE A
Number 0001
CHAIRMAN KOTT told the committee that trying to define
"disinterested" was, clearly, one of the problems when looking at
this [initially], and no concrete agreement or conclusion had
been reached about that. He mentioned situations where a judge
would have to decide whether a person is truly "disinterested."
REPRESENTATIVE MURKOWSKI indicated that is the balancing that the
judge or jury does with any witness, weighing credibility and
giving weight to the evidence accordingly.
REPRESENTATIVE ROKEBERG surmised that in Mr. Cohn's actual case,
the people in the car that hit the [insured's] car would be
disinterested and credible in the eyes of the court because there
were corroborating witnesses.
CHAIRMAN KOTT replied that hopefully the companies involved in
insuring these individuals would make their own determinations as
to whether a witness is interested or disinterested. The last
resort is to go to court.
REPRESENTATIVE ROKEBERG said that is a good point. If a company
wants to pay off the claim because of this law, that might cut in
half the court activity or disputes over claims like this.
Rather than one case every 10 years, for example, there will be
one every 20 years. "So, there's some value in your bill," he
concluded.
CHAIRMAN KOTT called an at-ease at 2:55 p.m., then called the
meeting back to order immediately.
Number 0290
DANE HAVARD, President, Northern Adjusters, Inc., testified
briefly via teleconference from Anchorage, informing members that
his company handles claims from a lot of insurance companies.
Mentioning the discussion about letting the courts decide, Mr.
Havard pointed out that the claims adjuster handling the claim
must make a decision on this, and it needs to be as objective as
possible. He explained:
If we have to deal with the issue of "disinterested"
and we determine ... that a person is somehow or other
interested and they take that to court, then that
subjects the insurance company, as well as the
adjuster, to potential bad faith; and that's a rather
big issue that would cause many adjusters ... to decide
that it must be covered, even when it might not
otherwise should be. ... That's a real problem that
adjusters face in these kind of situations.
So I would like to suggest perhaps the word
"disinterested" be eliminated or very objectively
defined. And I realize the problem with defining it,
but ... I think you'll have, actually, ... considerable
trouble if you do not define it. So I would like to
suggest that we take that out.
Number 0401
CHAIRMAN KOTT posed a situation where he is riding in a vehicle
that is rear-ended by a car driven by his own daughter, whose car
had been plowed into by a third vehicle, resulting in her car
hitting his own. He asked Mr. Havard whether, in his experience,
the daughter would be considered a disinterested or interested
party.
MR. HAVARD answered that it seems she might be an interested
party if she is Chairman Kott's daughter.
CHAIRMAN KOTT said that is his point.
Number 0470
REPRESENTATIVE CROFT observed that the part about not occupying
the insured's vehicle is easy to determine, but the
"disinterested" gets into problems both ways, including problems
with interpretation. For example, does the gas station owner at
the corner who witnessed the accident have any interest in not
having his corner known as a dangerous place? He pointed out
that there are many arguments regarding this issue.
CHAIRMAN KOTT continued with that line of thought, asking whether
the gas station owner would be interested if he had just loaned
his car to his employee, and that car had been the one plowed
into.
Number 0532
REPRESENTATIVE MURKOWSKI commented that she had talked herself
into "disinterested" but could be talked out of it too. She said
that sounds like the way the committee is going, and she doesn't
have a problem with that. Noting that Mr. Lessmeier had
indicated this really broadens things, she asked him whether it
broadens it that much more by removing "disinterested." She said
she doesn't believe it does but asked him to comment.
CHAIRMAN KOTT invited Mr. Lessmeier back up, adding his own
opinion that he isn't so sure it expands it that much.
MR. LESSMEIER returned to the witness table and stated:
Our concern is that you do broaden it up. And the
reason that we came up with the language of
"disinterested" is because we believe that the decision
about whether to pay or not to pay should not always be
an automatic decision just based on whether there's
contact or not contact. We believe that what the
adjuster ought to be doing ... is looking at the case
and making a determination of whether there is fraud
involved or not fraud involved, and only in instances
where they believe there was no contact and fraud
involved should this provision ever be used.
And the thing that I think you ought to remember ... is
that there is some benefit to having a term like
"disinterested" that is broad enough to cover many
different situations, because there will be incentive,
then, for both sides to look at this language and make
a determination, and hopefully the determination will
be made to use this provision only when there is a
legitimate and real issue of fraud. ... And that's the
reason that we propose this language. If you take out
this term, "disinterested," you will have created a
situation where there really is very little way ... of
making this determination. And then you will have
opened a loophole. And we don't know how wide that
loophole is, but in terms of this coverage, when you
broaden this coverage, you increase the cost of this
coverage.
And I don't know if the members of this committee have
seen the history that we have done of this coverage in
this state. If you haven't, ... it's very dramatic.
And if you look back, and you go back to 1984, the rate
changes for State Farm for UM/UIM [uninsured
motorist/underinsured motorist] since 1984, that
coverage has increased 154.6 percent. And all
coverages have declined by 1 percent during that period
of time for ... automobile insurance coverage. ... What
we have done with UM/UIM coverage is we have made
changes after change after change, and that's why that
coverage has ... gotten expensive. And you make this
change and you're [going to] to broadening that
coverage more.
And so, what we did, when you came up with idea, is try
to come up with a compromise that, in our judgment, was
a fair compromise that didn't open a loophole that
would be wide and still preserve what this is designed
to preserve. And this is what we came up with. And I
think it does satisfy -- certainly, it satisfied Mr.
Cohn as of the last hearing that we had on this, and I
thought it satisfied you, Mr. Chairman. So my
recommendation would be that we go with this language.
If we still have a problem after this, we can always
come back and loosen it up some more. But give this at
least an opportunity to work.
Number 0789
CHAIRMAN KOTT noted that Mr. Havard had suggested that if the
"disinterested" were left in, the adjuster would likely go along
with the motorist who was harmed, thus avoiding further
litigation, which would, in his own mind, adjust costs upwards
for the consumer.
MR. LESSMEIER said the concern is that there will be cases where
there is a legitimate suspicion of fraud, but where there is an
inability to deny the claim. He restated the need for balance
and opening this coverage wider, but going no further than CSHB
284(L&C), as he believes going further would be bad for [State
Farm's] policyholders and adjusters.
Number 0860
CHAIRMAN KOTT asked what the current penalty is for fraudulent
claims.
MR. LESSMEIER said he doesn't know. He added that he doesn't
know that he has seen anybody prosecuted for claims that are
fraudulent. He said no matter how "disinterested" is defined, it
won't cover every single situation. He reiterated that the
intent is to broaden this but not go too far, and to create a
balance.
Number 0927
MR. COHN responded to Mr. Lessmeier by clarifying that at the
last hearing, he hadn't necessarily agreed with the language of
"disinterested person not occupying the insured vehicle." As he
recalls, his suggestion in his letter was that there be
corroborating evidence beyond just the testimony of the insured
person who was driving the vehicle.
MR. COHN restated concern that absolutely excluding people who
had occupied the insured vehicle would be too restrictive. He
believes there is little likelihood that this will open a
floodgate of cases. Furthermore, fraud can occur even if there
has been direct physical contact, because fraud is a potential
problem in all cases. He suggested that this doesn't exclude
fraud but just excludes people who have legitimate claims.
Number 0991
REPRESENTATIVE ROKEBERG referred to earlier testimony and
expressed his belief that removing the "disinterested" language
would create a "private fiscal note" and a higher probability of
fraudulent claims, without affecting the number of cases that
this is intended to fix.
REPRESENTATIVE CROFT pointed out that under the rule of this
provision, the committee wouldn't have allowed Mr. Lessmeier to
testify, as he is an interested person in this regard. He said
it is appropriate to hear from him, however, because the
committee can hear his testimony, know that he is an interested
party, and put it all in the mix; the legislature does this with
interested persons all the time.
REPRESENTATIVE CROFT continued. He agreed that there ought to be
some corroboration, not just the word of the insured, as happens
in other areas where there is a worry about fraud or
falsification. He said it seems to be a good piece of
legislation as written, but possibly it would be better without
the word "disinterested," while still barring [testimony from] a
person - no matter how credible - who was occupying the insured's
vehicle.
Number 1182
CHAIRMAN KOTT asked if there was further discussion, then
announced that HB 284 would be held over for further analysis and
to address the effective date.
HB 310 - ALASKA INSURANCE GUARANTY ASSOCIATION
CHAIRMAN KOTT announced that the final order of business before
the committee is HOUSE BILL NO. 310, "An Act relating to the
Alaska Insurance Guaranty Association; and amending Rule 24,
Alaska Rules of Civil Procedure." Chairman Kott called upon
Representative Rokeberg to present the bill. [The bill was
sponsored by the House Labor & Commerce Committee by request;
that committee is chaired by Representative Rokeberg.]
REPRESENTATIVE ROKEBERG, Alaska State Legislature, addressed the
committee as the sponsor of HB 310. He said that Mr. George
would be available to discuss the legislation.
Number 1266
MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and
Lobbyist for State Farm Insurance Company, informed the committee
that he was speaking on behalf of State Farm. He noted that CSHB
310(L&C), Version LS1030\H, is before the committee for
consideration. He said he believes this legislation is the
product of a joint desire to bring the Alaska Insurance Guaranty
Association laws into conformity with the model National
Association of Insurance Commissioners (NAIC) Act. He noted that
Tom Andritsch, Dane Havard and Don Thomas are available via
teleconference. He reported that Mr. Thomas actually drafted the
changes, which Mr. Lessmeier understood to be approved by the
Division of Insurance and the Alaska Insurance Guaranty
Association.
MR. LESSMEIER explained that the Alaska Insurance Guaranty
Association is a nonprofit "creature" of the Alaska statutes.
The purpose of the Alaska Insurance Guaranty Association is to
step in when an insurance company becomes insolvent and pay the
claims that are made. He recalled that someone had likened the
Alaska Insurance Guaranty Association to the Federal Deposit
Insurance Corporation (FDIC). Mr. Lessmeier requested that Mr.
Andritsch be allowed to briefly summarize how [this bill] came to
be.
Number 1428
TOM ANDRITSCH, Chairman, Alaska Insurance Guaranty Association,
testified via teleconference from Port Townsend, Washington. He
noted that he had been elected Chairman of the Alaska Insurance
Guaranty Association last June. He also noted that he is
basically the President of Umialik Insurance Company, an Alaskan
domestic property and casualty insurance company; he has held
that position since 1986. Prior to that he was with the
Providence Washington Insurance Company in Alaska, from 1976 to
1986.
MR. ANDRITSCH explained that the process which led to this
legislation began in 1991 when the Chairman of the Alaska
Insurance Guaranty Association and its attorney at the time, now
Supreme Court Justice Bob Eastaugh, recommended changes to the
Act to conform to the model Act of the NAIC and the NCIGF [The
National Conference of Insurance Guaranty Funds]. The changes
were recommended to the then-director of the Division of
Insurance, Dave Walsh. Nothing progressed until 1996 when the
Guaranty Association chairman advanced the issue again with the
then Director of the Division of Insurance, Marianne Burke.
MR. ANDRITSCH said the issue was then pursued by the following
director of the division, and proposed changes were agreed upon
with Ms. Burke and the chairman of the Guaranty Association. Mr.
Andritsch informed the committee that he has recently met with
the current director of the Division of Insurance, Bob Lohr.
Both have agreed upon the language and the changes encompassed in
the bill as it stands now. Basically, the intent is to make the
statutes conform with other state statutes. Therefore, when
Alaska deals with conflicts among other states with regard to
insolvency, Alaska would be dealing with the same model Act. Mr.
Andritsch offered to answer questions, but he deferred any
questions regarding administration of the plan to Mr. Havard and
Mr. Thomas.
Number 1509
DANE HAVARD, President, Northern Adjusters, Inc.; and Fund
Manager for Alaska Insurance Guaranty Association, testified via
teleconference from Anchorage, offering to answer any questions
with regard to the operations of the Alaska Insurance Guaranty
Association. He informed the committee, "We have been the fund
administrator for the Alaska Guaranty Association since 1984 and
we have actually handled the claims since about 1978."
REPRESENTATIVE KERTTULA referred to page 8, Section 9, subsection
(b), of the House Labor & Commerce committee substitute (CS).
She noted that the language in paragraph (1) is being eliminated,
which is language referring to the notification of insolvency.
She asked if there is a notice requirement in another part of the
bill.
MR. HAVARD explained that the language on page 8, lines 27
through page 9, line 3, is being deleted because in general [the
notice requirement] is being handled under the liquidation
statutes by the receiver of the insolvent carrier. As a
practical matter, [the receivers of the insolvent carrier] have
all the addresses for the insured and all the interested parties.
That information is not kept by the Alaska Insurance Guaranty
Association and would have to be obtained by [the receiver of the
insolvent carrier] anyway.
REPRESENTATIVE KERTTULA said her understanding, then, is that as
a practical matter the notice is happening, and no deadlines will
pass before the notice is given.
MR. HAVARD said, "As far as I know from the liquidation statute."
REPRESENTATIVE KERTTULA asked whether there is a chance that
there would not be a notice before something happened, or whether
that is taken care of through the liquidation statute.
MR. HAVARD deferred to the Division of Insurance.
Number 1604
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development, testified via teleconference
from Anchorage. He informed the committee that the division
supports CSHB 310(L&C). With regard to Representative Kerttula's
question, Mr. Lohr explained that the statutory receiver is the
director of the Division of Insurance. The receivership statute
requires [the division] to give notice to all potential claimants
in a timely manner. If that does not occur, the court can tell
the division to do it properly. Mr. Lohr said he believes that
statute is in the receivership area and is adequate to cover
notice.
REPRESENTATIVE MURKOWSKI pointed out that a provision allows the
director to appoint two individuals as members of the [Board of
Governors] in order to represent the public. She understood that
there have not been public members in the past. She inquired as
to why one would want public members on a board such as this.
MR. LOHR said he believes having public members [on the board] is
consistent with the NAIC model. He recognized that it is a
fairly technical area which represents the interests of the
companies that have a mandatory assessment to cover the costs and
any distributions for the guaranty fund. However, he believes
the nature of this organization supports having representatives
of the public.
REPRESENTATIVE MURKOWSKI asked whether the Alaska Insurance
Guaranty Association is in agreement with this.
MR. ANDRITSCH replied yes.
REPRESENTATIVE MURKOWSKI clarified, in response to Chairman Kott,
that she was referring to Section 6 on page 3. She then
recognized that the language is discretionary due to the use of
the word "may."
Number 1774
REPRESENTATIVE ROKEBERG noted that there was a fairly lengthy
discussion in the House Labor & Commerce Standing Committee with
regard to barring the timeframe and actions. He recalled that
[the discussion] was brought by the Department of Labor &
Workforce Development, who upon further review told
Representative Rokeberg their objections were misguided.
Therefore, he said, the department agreed that it is not a
problem.
CHAIRMAN KOTT closed the public testimony.
Number 1813
REPRESENTATIVE MURKOWSKI made a motion that the committee move
CSHB 310(L&C) out of the House Judiciary Standing Committee with
individual recommendations and a zero fiscal note. There being
no objection, CSHB 310(L&C) was moved from the House Judiciary
Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:24 p.m.
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