Legislature(1999 - 2000)
02/21/2000 03:23 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 21, 2000
3:23 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Lisa Murkowski
Representative John Harris
Representative Tom Brice
Representative Sharon Cissna
Representative Jerry Sanders
MEMBERS ABSENT
Representative Andrew Halcro, Vice Chairman
COMMITTEE CALENDAR
HOUSE BILL NO. 284
"An Act relating to uninsured and underinsured motor vehicle
insurance."
- MOVED CSHB 284(L&C) OUT OF COMMITTEE
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. 314
"An Act clarifying the requirements for limited liability
companies and partnerships to qualify for the Alaska bidder's and
disability preferences under the State Procurement Code; and
providing for an effective date."
- BILL HEARING POSTPONED TO 2/23
PREVIOUS ACTION
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
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
WITNESS REGISTER
PAT HARMAN, Legislative Aide
to Representative Pete Kott
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of Representative Kott,
sponsor of HB 284.
MICHAEL COHN, Attorney
1023 West 16th Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 284.
BOB LOHR, Director
Division of Insurance
Department of Community and Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified on HB 284; testified on HB 310,
Version H.
MICHAEL LESSMEIER
State Farm Insurance
245 North Franklin, Suite 400
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 284; testified on HB 310,
Version H.
TOM ANDRITSCH, Chairman
Alaska Insurance Guaranty Association
1101 Cordova, Number 142
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 310, Version H.
DANE HAVARD, President, Northern Adjusters Incorporated
and Fund Administrator for the Alaska Insurance Guaranty
Association
1401 Rudakof
Anchorage, Alaska 99508
POSITION STATEMENT: Testified on HB 310, Version H.
JOHN GEORGE
National Association of Independent Insurers
3328 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 310, Version H.
PAUL GROSSI, Director
Division of Workers' Compensation
Department of Labor and Workforce Development
P.O. Box 25512
Juneau, Alaska 99802-5512
POSITION STATEMENT: Testified on HB 310, Version H.
DON THOMAS, Counsel
for Alaska Insurance Guaranty Association
Attorney
Delaney, Wiles, Hayes, Gerety & Ellis, Incorporated
1007 West Third Avenue, Suite 400
Anchorage, AK 99501
POSITION STATEMENT: Testified on HB 310, Version H.
SARAH MCNAIR-GROVE, Actuary
Division of Insurance
Department of Community and Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Answered questions on HB 310, Version H.
DWIGHT PERKINS, Deputy Commissioner
Department of Labor and Workforce Development
P.O. Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Testified on HB 310, Version H.
ACTION NARRATIVE
TAPE 00-16, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:23 p.m. Members present
at the call to order were Representatives Rokeberg, Murkowski,
Harris and Brice. Representatives Cissna and Sanders arrived as
the meeting was in progress.
HB 284-UNINSURED MOTOR VEHICLE INSURANCE
CHAIRMAN ROKEBERG announced the first order of business would be
HOUSE BILL NO. 284, "An Act relating to uninsured and
underinsured motor vehicle insurance."
Number 0095
PAT HARMAN, Legislative Aide to Representative Pete Kott, came
forward to testify on behalf of Representative Kott, sponsor of
HB 284. He stated that all of the committee members should have
received a letter over the interim from Michael Cohn, attorney.
He indicated Mr. Cohn might be online to testify. He said there
is an apparent situation where there is a loophole in the law.
There are situations where an uninsured "phantom" vehicle leaves
the scene of an accident and may not have made direct physical
contact with the victim. An example of this is the victim of an
accident who is at a stoplight and is struck by a second vehicle,
which strikes the victim as a result of a third vehicle striking
the second vehicle, and then the third vehicle leaves the scene
of the accident. Since the current law requires direct physical
contact, the victim is not able to collect under their uninsured
motorists insurance because the "phantom" vehicle did not make
direct physical contact with the victim's vehicle. The intent of
HB 284 is to correct this situation. There is also a proposed
amendment to HB 284 which reads as follows:
Section 1. AS 28.20.455(f) is amended to 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, or where the accident
is witnessed by a disinterested person, not occupying the
insured vehicle, who will attest to the facts of the accident
and the involvement of a motor vehicle that left the accident
scene without being identified. 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.
Insert twice the underlined portion above to the underlined
section of bill:
Section 1, page 1, lines 7-8.
Section 2, page 1, line 15 through page 2, line 2.
There have been discussions with people in the industry, and they
are coming forward with a compromise that may satisfy industry
and some of the consumer aspects of the bill. When the laws were
drafted this loophole was an unintended oversight and HB 284 is a
fairly simple concept attempting to correct the situation.
CHAIRMAN ROKEBERG asked if the amendment pertains only to Section
1, subsection (f).
MR. HARMAN clarified the amendment pertains to both Sections 1
and 2 in HB 284. The intent of the amendment is in situations
where direct physical contact does not occur to have a
disinterested witness, other than the insured, attest that a
"phantom" vehicle was involved.
Number 0392
CHAIRMAN ROKEBERG wondered:
You say you're at a stoplight and you're car A, there's
somebody behind you that's car B. And car C comes down
the pike and hits car B in the back which hits car
A...Is that kind of what happened in that back pattern
there?
MR. HARMAN clarified that is not the case that Mr. Cohn will
testify to, but it is a more simple example of the situation he
was trying to describe.
CHAIRMAN ROKEBERG wondered whether, if nobody else was around,
the driver of car B could be considered a disinterested party.
MR. HARMAN said he believes the driver of car B would be
considered disinterested with respect to the amendment.
CHAIRMAN ROKEBERG said it is important to make sure this is not
an undue burden on the industry and in no way would affect
consumers negatively. He also commented that it is important to
make sure the insurance companies pay when there is damage.
Number 0582
MICHAEL COHN, Attorney, testified via teleconference from
Anchorage. He noted that he had a situation come up regarding
the impacts of AS 28.20.445(f). This is the reason he had
written a letter to all of the Alaska state legislators regarding
this statute. He explained:
I was working for a law office and representing a woman
that had been struck by another vehicle on O'Malley
Road in Anchorage. The other vehicle had crossed the
center line and struck her. That vehicle was
uninsured, and I felt that we had some clear fault
involved, so we sought uninsured coverage from the
injured party's insurance company.
However, their defense was that the individual that
crossed the line and hit her was faced with a sudden
emergency when another vehicle came out from a side
street blocking his line of traffic causing a sudden
emergency which resulted in him losing control of his
vehicle. And, at the time, I was unaware of this
provision and I said, well, even if that other vehicle
that left the scene would be the equivalent of an
uninsured vehicle and so it wouldn't matter which one
had actually hit her, there would still be liability
and then I was informed of this provision. And when I
looked it up, since the first person was claiming that
the vehicle that left the scene was the cause of the
accident and it did not directly strike my client, they
were then claiming that there was no liability under
the uninsured motorist coverage. And, in this case,
there happened to be other witnesses who had seen the
other vehicle which left the scene.
So, I assume that the reason for the provision in the
first place was so that someone couldn't leave the road
due to their own negligence or carelessness, strike a
tree, and then claim that they swerved to avoid another
car that they couldn't locate. In this case, we have
other witnesses. It was clearly witnesses that were
not with just the injured individual that would attest
to the other vehicle that actually caused the accident.
CHAIRMAN ROKEBERG asked if his client swerved and hit something.
MR. COHN clarified that his client actually got hit by another
car. The person driving the car that hit his client claimed he
was not negligent because he was avoiding another car.
CHAIRMAN ROKEBERG wondered if the person who hit Mr. Cohn's
client had insurance.
MR. COHN stated that he was uninsured. Some money was recovered
from him because his own reactions to avoid an accident were in
dispute. In certain circumstances, the person who hit his client
might be found to not be involved even though he hit her because
of a third vehicle. He thought this circumstance was the type
that could affect every person in Alaska because most people have
uninsured motorist coverage.
CHAIRMAN ROKEBERG wondered if this situation deals with proximate
cause. He said it is a classic tort case.
MR. COHN said the problem with this case is with the way the
statute is worded. There would not be any recoveries for the
fault of the car that did not strike the injured person. His
client thought she could not recover under an uninsured motorist
coverage against the person that came out of the side street.
Number 0899
CHAIRMAN ROKEBERG asked if there are any cases in court law that
give direction about whether or not they should refer back to the
proximate cause.
MR. COHN said the big problem is the way the statute is worded.
He explained that under proximate cause a person can cause an
accident and not be the person that directly strikes the other
vehicle. Direct physical contact means that a person might be
the negligent party that causes the accident, but not be the one
that directly, physically impacts the other vehicle. As the
statute is worded, that person might be the proximate cause of
the accident, but then be absolved of liability.
CHAIRMAN ROKEBERG asked, "For the statute then you'd have a
causative action against that person pulling out onto the roadway
then, you think under tort law?"
MR. COHN replied a person could have had a claim under uninsured
motorists coverage. The woman involved in the accident he
described earlier would have recovered for full damages.
CHAIRMAN ROKEBERG wondered if a person could claim under the
uninsured motorists coverage if the responsible party drove off.
MR. COHN responded yes.
Number 0991
REPRESENTATIVE MURKOWSKI described a scene in which a dog darts
out into the road and is responsible for causing an accident.
She wondered if it would be correct that this situation would not
be covered because it is not a motor vehicle that left the scene.
MR. COHN has not analyzed that before. Because this pertains to
uninsured and underinsured motor vehicle insurance, the accident
would have to involve an uninsured or underinsured motor vehicle
for that particular coverage to take affect. He is not sure what
the affect would be if a dog or something else was responsible.
REPRESENTATIVE MURKOWSKI is trying to think this through. From
what she has read in statute, it appears it has to be an
uninsured vehicle which is unknown.
MR. COHN said that is correct.
REPRESENTATIVE MURKOWSKI reiterated that it has to be an
uninsured vehicle which precipitates the event.
MR. COHN added that if it is an unknown vehicle he believes under
the law that vehicle would be considered an uninsured vehicle.
He noted that the statute states, "the vehicle that has left the
scene of the accident when an insured vehicle is presumed to be
uninsured, if the person insured reports the accident to the
appropriate authorities within 24 hours". He said under the
statute as it is presently worded, that vehicle would be presumed
to be uninsured. He has a question regarding the language and
stated:
I see this language as sort of a compromise in that, if
there's a concern about a person that there's no other
witness to that can then make a claim that they were
struck when they swerved on the road on their and
there's no other witness to the accident. I don't
know if there's that concern which is why this bill as
written would protect the client that I had if that
similar situation happened in the future, but might not
protect every individual that is in an accident with an
uninsured vehicle that leaves the scene. So, that's
one question.
The second one I had where it says "a person other than
the insured"; So, you can have a situation where
somebody's driving in a car and, even if they have
passengers with them, in certain situations, those
other passengers could be considered covered under the
insurance. So, would these passengers in the car be
insured and whether their testimony would be sufficient
to support recovery, is the question I have under this
bill.
Number 1243
CHAIRMAN ROKEBERG said that is a good point. He wondered if Mr.
Cohn is referring to the suggested amendment and whether or not
he has a copy of it.
MR. COHN wondered if Chairman Rokeberg is referring to the
language which states "or where a person other than the insured
attests that a motor vehicle involved in the accident left the
scene without being identified".
CHAIRMAN ROKEBERG responded no. The language he is referring to
states "or where the accident is witnessed by a disinterested
person not occupying the insured vehicle who will attest to the
facts of the accident or the involvement of a motor vehicle that
left the accident scene without being identified".
MR. COHN wondered if the version, as it's worded now, means that
the person could not rely on other witnesses that were in their
own car.
CHAIRMAN ROKEBERG stated that is correct.
MR. COHN said, if he understood earlier testimony, they could
perhaps rely on the testimony of the individual in the other
vehicle who claims to have swerved to avoid an accident.
CHAIRMAN ROKEBERG said that is correct and added that it could
also be anyone else who may have been a witness to the accident
such as a person standing on the sidewalk. He stated, "I guess
the desire here is to not allow somebody to have a single car
accident and then rely on trumped up testimony from a passenger
to try and make a claim under uninsured motorists."
MR. COHN replied that it seems to be a situation that can apply
in all cases where people would be able testify. He wondered if
it should be under the general rules of tort law or for an
arbitrator to determine if someone is telling the truth because
all of the uninsured motor vehicle provisions would probably have
an arbitration clause in the contract.
CHAIRMAN ROKEBERG stated that is a good question. He thanked Mr.
Cohn for bringing this issue to the attention of the Legislature.
MR. COHN said he is gratified by the number of responses he
received by legislators.
Number 1402
BOB LOHR, Director, Division of Insurance, Department of
Community and Economic Development, testified via teleconference
from Anchorage.
CHAIRMAN ROKEBERG asked Mr. Lohr if he is in receipt of the bill
and its amendment, and wondered if the Department of Community
and Economic Development (DCED) has any comments on it.
MR. LOHR stated he has seen the bill and Mr. Cohn's letter. He
noted that the Division did respond to the letter. He asked if a
copy of that response is available to the committee members.
CHAIRMAN ROKEBERG indicated they are not in receipt of that
response.
Number 1430
MR. LOHR said:
If I may I would just (indisc.) one example, a scenario
that was set out in that letter which is the basis for
the Division's support for the concept of the
bill...Car 1 through no fault of Car 1's driver is hit
by Car 2 only because Car 3, whose driver was acting
negligently, struck Car 2 forcing it to hit Car 1. Car
3 flees the scene. In this scenario, Car 1 will not be
able to recover damages from Car 2 because Car 2 will
not be allocated fault under Alaska's comparative
faults laws and, therefore, will not be legally liable
for the damages to Car 1.
Without legal liability, Car 2's insurer will not have
an obligation to pay out under its policy. Car 1 will
not be able to recover from Car 3 since Car 3 left the
scene and the owner and operator are unknown. Car 1
also cannot recover under its uninsured/underinsured
motorists coverage because it did not have direct
physical contact with Car 3 as required by [AS
28.20].445(f). Car 1, therefore, is left without
coverage for the damage arising out of the accident.
This result is contrary to the intent of the motor
vehicle safety responsibility and mandatory insurance
laws where there's a single provision which is to
ensure compensation for innocent victims involved in
automobile accidents. Therefore, the Division supports
HB 284 and could live with the direction that the
amendment seems to be going.
Number 1524
CHAIRMAN ROKEBERG asked if Mr. Lohr has seen the amendment.
MR. LOHR stated he has not seen the actual text of the amendment,
but has heard it described.
CHAIRMAN ROKEBERG pointed out that the amendment would prohibit a
witness in the car from being the disinterested party. He
wondered if Mr. Lohr has a comment on that.
MR. LOHR replied that he reserves the opportunity to follow-up.
He observed that the Regulatory Commission of Alaska (RCA), in
situations like this, gives the witnesses the weight they are
due. He said the fact that a witness is in the car of an insured
person would certainly be a factor the arbitrator would take into
account, but would do so in an able manner.
Number 1582
CHAIRMAN ROKEBERG wondered if there would have to either be an
administrative hearing or litigation unless there is mandatory
arbitration clause.
MR. LOHR said that is correct.
Number 1650
MICHAEL LESSMEIER, State Farm Insurance, came forward to testify
on HB 284. He commented:
I think that to view this in context you almost need to
go back to 1983, which is when this state adopted
mandatory insurance. And I would just briefly tell you
that the current scheme that we have was a mandatory
offer of uninsured and underinsured motorists coverage
to be coupled with residents being required to also buy
liability insurance to basically give people an ability
to protect themselves from drivers that we know will
drive uninsured no matter how much, or what the
penalties are for driving without insurance.
And so, what the legislature did is they struck a
balance and it created a scheme for uninsured and
underinsured motorists coverage because before in
"1993" some companies were offering underinsured
motorists coverage, but there weren't many. And we
didn't have a comprehensive scheme, and so the
legislature created a comprehensive scheme that had
some balance. And the balance was to provide
protection from uninsured and underinsured motorists in
certain situations with the idea being that that
coverage would then be affordable for people. And this
provision was a provision that is commonly in statutes
requiring uninsured and underinsured motorists simply
to prevent fraud.
What we have done is we have met with the sponsor in an
effort to work out some language that would deal with
the situation Mr. Cohn refers to, but also provide some
reasonable protection from claims that are difficult to
fight and claims that experience has shown we need to
be protected from because ultimately the cost of
uninsured and underinsured motorists is important for a
number of reasons.
That cost is ultimately borne by the people who
purchase it and to the extent that this coverage gets
too expensive, people won't purchase it. And so you
want to keep the coverage at somewhat of an affordable
level and that's why this balance was drawn. We tried
to strike another balance in the proposed amendment
that is before you and that balance would basically say
that if there's is not physical contact. In other
words, there is no objective way of tying this
uninsured or underinsured vehicle to the accident.
Then we at least need a disinterested witness who is
not occupying the vehicle. And I think that balance is
acceptable to the sponsor and I would hope that it
would be acceptable to this committee.
Number 1783
REPRESENTATIVE MURKOWSKI wondered how a disinterested party would
be defined. She asked if it is something that needs to be
defined as a person who, for example, is not related by blood or
the individual in the car.
MR. LESSMEIER stated that he believes "disinterested" would be
defined as someone who is not in the car and somebody that is
simply unbiased. He said it is a commonly defined term, and he
does not think it needs to be defined.
REPRESENTATIVE MURKOWSKI said it goes back to what somebody
stated earlier regarding the weighting given to credibility of
the witness. She commented:
If, in fact, your only witness happens to be somebody
that you have gone out and had a few beers with on
several occasions; does that automatically disqualify
him from giving any kind of credible testimony? I
wouldn't think so, but I think that that should perhaps
be taken into account when we look at his or her
testimony. So, I would hate to think that you're
automatically going to discard and say because you are
a disinterested person, you knew this person from
whatever relationship, therefore we can't take it into
account. So, I would like to think that if we're going
to say, if we're not going to define exactly what
"disinterested" is, and I think that that is difficult
to do, there does need to be some weighting that goes
into the testimony that's being given by those
individuals.
CHAIRMAN ROKEBERG said he thinks Mr. Lessmeier's points are
important. He said:
The public policy issue here is a balancing of whether,
perhaps, there may be a very rare injustice done to
somebody that thinks they had insurance coverage when
they get hit, by not paying that person off versus the
larger citizenry of the State who may be, because of
any relative increase cost, may be dissuaded from
buying insurance which is mandated. And to not have
some parameter here, like the disinterested or
occupier, you would open yourself up to what I would
consider; the insurance industry would open themselves
up to any constant strain of claims that were bogus if
not to say fraudulent.
MR. LESSMEIER said that is basically it.
CHAIRMAN ROKEBERG stated, "So, there's a matrix here of judgement
that goes beyond just the view of this and it makes it a little
more difficult."
Number 1943
MR. LESSMEIER explained:
There have been a number of changes made back since we
originally adopted these mandated offers of uninsured
and underinsured motorists coverage and I don't know if
you folks have looked at the premiums that you pay, but
the premiums for UM and UI, ... I know my own have
gotten to the point where it's almost equivalent to
what I pay for liability coverage. And part of that is
because we have made change after change after change
to these coverages over the years.
We have increased the mandated offers to the point
where I think the mandated offers now are something
like a million, two million of coverage. It really is
a good thing because that's really the only control we
sometimes have is the ability to go out and purchase
our own coverage. We can't control what other people
do, but every time we make a change like, there also is
a cost and whenever there's a cost and you raise the
costs of a product then there are a certain number of
people that, for whatever reason, will choose not to
pay that cost. So, there always is a balance.
CHAIRMAN ROKEBERG asked Mr. Lessmeier to provide the House Labor
and Commerce Standing Committee and the House Judiciary Standing
Committee with a brief description of what the costs have been
historically and what the trend line is.
MR. LESSMEIER said he would certainly try to do that.
Number 2064
REPRESENTATIVE MURKOWSKI referred back to the issue of a
disinterested person. She is concerned that they are not able to
define it more. She realizes the issue can be delved into
further in the Judiciary Committee. She feels comfortable moving
the bill out of committee.
REPRESENTATIVE HARRIS made a motion to adopt Amendment 1.
REPRESENTATIVE BRICE objected. He concurs with Representative
Murkowski's statements with respect to defining a disinterested
person. He believes it muddies the waters a little more than
he's comfortable with. He thinks there is a process by which the
people who will have the final decision weigh the factors of
whose presenting what. For this reason, he is more comfortable
with this than just excluding somebody from being able to be a
witness.
A roll call vote was taken. Representatives Rokeberg, Murkowski,
Sanders and Harris voted in favor of Amendment 1.
Representatives Cissna and Brice voted against it. Therefore,
Amendment 1 was adopted by the House Labor and Commerce Standing
Committee by a vote of 4-2.
REPRESENTATIVE BRICE made a motion to move HB 284, as amended,
out of committee with individual recommendations and attached
fiscal note. There be no objection, CSHB 284(L&C) moved from the
House Labor and Commerce Standing Committee.
HB 310-ALASKA INSURANCE GUARANTY ASSOCIATION
Number 2240
CHAIRMAN ROKEBERG announced the next order of business would be
HOUSE BILL NO. 310, "An Act relating to the Alaska Insurance
Guaranty Association; and amending Rule 24, Alaska Rules of Civil
Procedure."
REPRESENTATIVE HARRIS made a motion to adopt the proposed
committee substitute (CS) for HB 310 [Version H, 1-LS1030\H,
Ford, 1/27/00] as a working draft. There being no objection,
Version H was adopted.
Number 2325
MICHAEL LESSMEIER, State Farm Insurance, came forward to testify
on HB 310, Version H. He stated:
I have been working with the Alaska Guaranty
Association [Alaska Insurance Guaranty Association] to
bring this legislation before you and I want to thank
you and the committee for considering it. I think you
all by now that the Alaska Guaranty Association is the
entity, it is a non-profit entity, that it is a
creature of state statute and it is the entity that
steps in and deals with claims against that would
otherwise be made against an insurance company that
goes insolvent. And it is truly a consumer oriented
organization, and I think you all also know that all
insurers that do business in the State of Alaska have
responsibilities to the Guaranty Association and,
ultimately, the way it works is the Association to the
extent it pays out money that it can't collect against
the insolvent insurer assesses people that buy
insurance policies in Alaska. So, it is ultimately a
risk-sharing concept.
The current law was adopted in 1970 and although there
had been changes, things have moved, as I understand,
much more quickly than the changes. There is a
National Association of Insurance Commissioners', NAIC
Model Act, and the purpose of the legislation before
you is to bring Alaska more in conformity with the
Model Act. And it is my understanding that the
Division of Insurance supports these changes.
Number 2461
TOM ANDRITSCH, Chairman, Alaska Insurance Guaranty Association,
testified via teleconference from Anchorage. He stated:
I was elected to that position [Chairman] last June
when the former chairman resigned and moved out of
state. The last two chairmen of this committee were
both from Alaska National Insurance Company. I am the
president of Umialik Insurance Company,...I've held
that position since 1986. Prior to this, I was vice-
president and general manager of Providence Washington
Insurance Company in Alaska from 1978 to 1986. And as
a representative of Umialik, I've been on the Board
since the early 1990s, and I was formerly on the
Guaranty Association Board with Providence Washington.
I did serve as ... [tape switched sides]
TAPE 00-16, SIDE B
Number 0004
MR. ANDRITSCH continued:
... recommended changes to the Act to conform with the
NAIC and NCIGF [National Conference of Insurance
Guaranty Funds] Model Act, to the Director of
Insurance, Dave Walsh. At that time, nothing really
happened, but in 1996, Jim Pfeifer (ph), the chairman
of the Guaranty Association, advanced the issue again
with director, Marianne Burke. This issue was again
pursued by the next chairman, Ray McMahon (ph), with
Marianne Burke with discussions on proposed changes and
generally agreed upon areas to be advanced in this bill
that would be supported by the Division of Insurance.
I've also met with our new director, Bob Lohr, to get
into agreement on the changes proposed in this bill
that are being advanced.
The intent is to bring the Alaska statute more in line
with the model Act as supported by the NAIC and the
NCIGF. The NAIC has been advancing towards more
standardization and uniformity of state's acting to
move towards the model Act. In dealing with
insolvencies, in various states, various
administrations find it less cumbersome and complicated
if we're all playing basically with the same set of
rules.
REPRESENTATIVE MURKOWSKI referred to the Board of Governors
proposed in Version H. She asked what the reasoning was behind
the provision for replacing two insurer members with the
appointment of two public members on the board.
MR. ANDRITSCH explained that it is in conformity with the model
Act. He said there are only eight members at the present time
and one vacancy.
REPRESENTATIVE MURKOWSKI wondered if is the intent to have nine
members by adding a public member.
MR. ANDRITSCH replied yes.
REPRESENTATIVE MURKOWSKI asked for further clarification that
this is being done to follow the model Act.
MR. ANDRITSCH affirmed that.
Number 0107
CHAIRMAN ROKEBERG wondered if all insurance companies that do
business in the state, not just those domiciled in Alaska, are
covered by the Alaska Insurance Guaranty Association Act.
MR. ANDRITSCH replied no. It does not include non-admitted
companies.
CHAIRMAN ROKEBERG asked Mr. Andritsch to define non-admitted
companies.
MR. ANDRITSCH explained that it deals with the way the companies
are licensed in Alaska. Companies which are surplus lines
markets are not admitted, but operate as surplus lines market in
the state. They sell insurance in the state, but are not covered
under the Guaranty Association.
CHAIRMAN ROKEBERG wondered if surplus lines markets are similar
to reinsurances.
MR. ANDRITSCH stated that is not necessarily the case. He said,
"It can be primary insurance also, but they just haven't gone
through the process of becoming admitted in the state. And I
think Director can answer that better than I can."
Number 0150
CHAIRMAN ROKEBERG asked, "But it's not just those that are
domiciled, like Umialik or Alaska National?"
MR. ANDRITSCH said that is correct and there are very few
domiciled companies in Alaska that would qualify for this.
CHAIRMAN ROKEBERG wondered, "So, if it's an admitted company from
Wisconsin and they go bankrupt, then we still may have some
obligations under this association for them?"
MR. ANDRITSCH said absolutely.
Number 0175
DANE HAVARD, President, Northern Adjusters Incorporated, and Fund
Administrator for the Alaska Insurance Guaranty Association,
testified via teleconference from Anchorage. He stated:
My company has handled the claims on behalf of the
Guaranty Association since 1978 and has been the
contract administrator since 1984. My personal
involvement with the Association began in about 1978
when I joined Northern Adjusters.
Our main function for the Association is to handle the
day-to-day operations of the Association, and I'll list
out a few of those and you may have some questions on
some of those at some point. But we handle the receipt
of all the claims when a carrier is declared insolvent,
we receive those claims, we calculate the amounts that
we feel are needed to pay (indisc. -- coughing), and
then we assess that amount to all the members of the
Guaranty Association.
After that, we handle the insurance claims of the
insolvent carrier on behalf of the Association and
report those and all financial data to the Board of
Directors. We file claims then with the receiver of
the estate in whatever state that carrier was domiciled
and we seek a recovery of funds after they have sold
off the assets and collected all the funds that they
can from the insolvent carriers estate. Following
that, then we might refund any excess money to the
members after all the reported claims have been
sufficiently funded.
Just for background information, since 1984 the
Association has incurred over $24 million in claims
resulting from insolvencies and we've recovered
approximately $17 million from the receivers. I
believe you have before you a document [Alaska
Insurance Guaranty Association-HB 310 handout included
in bill packet] that may give you a little operations
history of the Guaranty Association and I'll be happy
to walk you through that if you'd like and give you a
little more detail.
CHAIRMAN ROKEBERG asked Mr. Havard to go ahead and walk the
committee through that document.
MR. HAVARD explained that the Alaska Insurance Guaranty
Association (AIGA) in general is a mechanism to pay covered
claims of those insurance carriers that have been declared by a
court to be insolvent. An amount is assessed to each member of
the Association and the collected assessment is used to pay the
claims of the insolvent carrier. The assessment is based on the
amount of direct-written premium a company collects on Alaskan
insurance policies.
MR. HAVARD stated that a receiver is generally appointed by the
court and, generally, the receiver might be the Division of
Insurance who then might appoint a debit receiver in the
insolvent carrier's state of domicile. The receiver, similar to
an executor, of the estate of the insolvent company attempts to
sell of the assets of the carrier and gather the liquid assets
from all possible sources. The receiver also set a date after
which he/she will not allow any additional claims against the
estate. This date is referred to as the bar date. This deadline
is typically less than a year.
MR. HAVARD said he believes the statute for receivership in
Alaska states that it must be in excess of six months. There is
no deadline which exists for insureds or claimants to file a
claim against the AIGA. In the past, the lack of a deadline has
resulted in situations where the AIGA was still receiving and
paying claims after the deadline for filing claims for recovery
against the estate of the insolvent carrier had passed. In such
situations, the cost of these old claims is borne solely by
subsequent purchasers of insurance through premium surcharges.
MR. HAVARD further stated that after paying the expenses and
claims of the estate, the receiver distributes the funds to the
AIGA to reimburse for claims and administrative expenses paid. A
receiver will review each claim submitted by the AIGA for
reimbursement and denies recovery on claims filed with the AIGA
after the bar date established by the receiver. This is
necessary to allow a fixed date on which to calculate the pro
rata amounts to be distributed to each creditor of the estate.
When collected assessments and recovered funds from the receiver
exceed the amount needed to pay claims and administrative
expenses of the AIGA for that particular insolvency, the excess
funds are refunded to the membership in proportion to the amount
originally assessed.
MR. HAVARD said the Act allows members to recoup the assessments
that they pay through surcharges on insurance premiums charged to
policyholders. Historically, the AIGA has recovered millions of
dollars for liquidators/receivers of insolvent members. The
recovery is rarely 100 percent on the dollar. Thus, the recovery
of assets from the estate of insolvent insurers plays a direct
role in reducing the cost of property and casualty insurance to
Alaska policyholders.
Number 0427
CHAIRMAN ROKEBERG asked Mr. Havard to direct committee members to
the section in Version H relating to the bar date.
MR. HAVARD said he believes the bar date is referenced in Section
7, page 4, under AS 21.80.060(a)(1)(B).
CHAIRMAN ROKEBERG wondered if the bar date is set by the court.
MR. HAVARD replied yes, it is part of the model Act. The AIGA is
recommending the bar date be the final date the receiver sets for
the insolvent carrier. In order for a creditor to make a claim
against the insolvent estate, the creditor must do so before a
certain date. The AIGA is suggesting the same bar date be set
for submitting claims against the AIGA.
CHAIRMAN ROKEBERG asked Mr. Havard to provide an example of how
the bar date comes into play.
MR. HAVARD replied that there have been quite a few claims that
have come up on some of the cases related to asbestos. These
claims have arisen several years after the closure date for the
insolvent carrier.
CHAIRMAN ROKEBERG wondered if it is like a worker's compensation
claim.
MR. HAVARD indicated there may have been two worker's
compensation claims. It is difficult to identify exactly where
there had been any worker's compensation claims that the bar date
would have been a problem for.
Number 0546
CHAIRMAN ROKEBERG asked what an asbestos claim is.
MR. HAVARD explained that some of the asbestos claims they
received related to people filing products liability cases
against a manufacturer or distributor of asbestos products.
CHAIRMAN ROKEBERG inquired, "So, there have been general
liability for damages?"
MR. HAVARD replied yes.
Number 0568
CHAIRMAN ROKEBERG wondered if the current statute states that the
bar date cannot be less than six months.
MR. HAVARD commented that the current statute does not have a bar
date. He explained, "If someone would like to present a claim
that had never been presented before, they could do so 10, 20, 50
years after the insolvent carrier was declared insolvent."
CHAIRMAN ROKEBERG asked if the courts allow for the closing out
of an insolvency now.
MR. HAVARD indicated the court will allow the insolvent carrier
to close by the receiver. The AIGA has a separate statute and
they do not have a bar date. The AIGA must take all claims that
come in and investigate them regardless of when they come in.
One of the problem this presents is the more time that passes,
the more likely it will be the AIGA is prejudiced in their
investigation because the documentation and witnesses are
sometimes difficult to locate.
CHAIRMAN ROKEBERG wondered if the courts now typically set a bar
date.
MR. HAVARD clarified that there is a liquidation statute which
contains a bar date and the courts are able to set a bar date for
this. In the Guaranty Act, the courts do not come into play and
they do not set a bar date.
CHAIRMAN ROKEBERG said there is some type of a bar date as a
practical matter, but it is a variable now.
MR. HAVARD indicated that bar date does not protect the AIGA. It
only allows the receiver to close out the estate and distribute
the assets.
Number 0662
CHAIRMAN ROKEBERG noted there is one case regarding LICA (Life
Insurance Company of Alaska) he is familiar with. He believes
this case has been going on for almost 10 years.
MR. HAVARD believes there is a separate statute for carriers such
as LICA. They are not part of the AIGA Act. He is not familiar
with that case. He said Don Thomas, Attorney, might be able to
provide information on that.
CHAIRMAN ROKEBERG asked Mr. Havard to provide an example other
than asbestos which relates to a protracted period of time.
MR. HAVARD said there have not been very many of those and cannot
provide an example at this time.
CHAIRMAN ROKEBERG requested that Mr. Havard come up with an
example and provide it to his staff later.
MR. HAVARD said he would.
Number 0709
REPRESENTATIVE MURKOWSKI referred to the bar date and wondered if
the state statutes on statutes of limitations do not come into
play at all. She gave the example of a 10 year statute of
limitation on a contract claim.
MR. HAVARD indicated AIGA would have all of the defenses even an
insurance company might have. He explained, "In other words,
whatever defenses that the original insurance policy would have,
we would have, and that would include the statute of limitations
as they might apply them to the policy."
Number 0762
JOHN GEORGE, National Association of Independent Insurers, came
forward to testify on HB 310, Version H. He explained that his
organization is supportive of the modifications to the current
AIGA Act.
Number 0802
PAUL GROSSI, Director, Division of Workers' Compensation,
Department of Labor and Workforce Development, came forward to
testify on HB 310, Version H. He indicated the division has some
concerns regarding the bar date with respect to workers'
compensation. He said there could be problems with a specific
bar date for workers' compensation claims. In AS 23.30.105(a)
there is an allowance for a claim to be filed two years from the
date of knowledge of the problem.
CHAIRMAN ROKEBERG asked if Mr. Grossi is referring to existing
statute.
MR. GROSSI clarified that he is referring to existing workers'
compensation statutes. These statutes seem to run contrary to AS
21.80.060(a)(1)(B). He is not sure if the problem is a big one
or a small one. The Division does not know how many claims in
the past have arisen from insolvent carriers. He said:
The only insurance company that I know of that covered
workers' comp[ensation], that became insolvent, was
PACMAR [Pacific Marine]. And that was quite a while
back and I don't know that there were any particular
latent defects. Obviously, if the court would set a
really early time bar, six months,...there might be a
real problem...In the case of latent defects, there's
really no specific time bar, and I think you came up
with a classic example in an asbestos case. It can be
15 years before the symptoms show up in those types of
cases from the original exposure. If that happens,
obviously, there would be no coverage from the Guaranty
Association under this statute if the court sets a
time, say two years, six months,...so, that coverage
wouldn't be there from the Guaranty Association.
CHAIRMAN ROKEBERG wondered if there had been any asbestos claims
made in this state under workers' compensation.
MR. GROSSI replied yes and noted there have been a number of
them. He indicated those types of claims are subsiding.
CHAIRMAN ROKEBERG asked if there was a rash of those cases.
MR. GROSSI said he feels they were related more to exposure and
now exposure is far less common. He indicated the laws on
asbestos safety came out at a later date.
CHAIRMAN ROKEBERG pointed out that most of the asbestos claims
were bogus and there was no real exposure.
MR. GROSSI said asbestos exposure claims are not the only type of
latent defects which the Division has. He reiterated he does not
know if this is a big problem or a small one.
Number 1030
CHAIRMAN ROKEBERG asked Mr. Grossi if he is aware that this bill
has been in draft for three years and has not been changed in
many years. The insurance companies in this state have paid out
over $7 million in claims as a result of the AIGA program which
protects consumers.
MR. GROSSI said he is aware of this.
CHAIRMAN ROKEBERG wondered, "You wouldn't want to do anything to
hinder the passage of this bill, would you?"
MR. GROSSI commented that it would be good to have a provision
that would protect both workers and employers in this particular
situation.
CHAIRMAN ROKEBERG asked Mr. Grossi to clarify that the current
statute states that a workers' compensation claim must be filed
within two years of knowledge of a problem.
MR. GROSSI clarified that it must be within two years of
knowledge of a problem. A person could still make a claim 20
years after exposure to asbestos. The problem he sees is that an
employee cannot file a claim against the AIGA, but can still file
a claim against their employer.
CHAIRMAN ROKEBERG said he suspects that most of these claims
would be filed after a two-year period.
MR. GROSSI disagreed and stated that the vast majority of the
claims would be filed within two years. He thinks,
statistically, a small number would be filed after two years.
Number 1122
REPRESENTATIVE MURKOWSKI asked, "So, the exemption that you would
look for then would be to keep in place what is existing now; two
years from the date of discovery?"
MR. GROSSI apologized and stated that he did not spend a lot of
time on this bill. He sent some information to Chairman
Rokeberg. He suggests some type of workers' compensation
exemption that is similar to what is in there for amounts. He
referred to page 4, lines 24 through 25, of Version H which
states "the association shall pay the full amount of any covered
claim arising out a workers' compensation policy". A similar
exception could be made for the bar date or there could be a
provision for the requirement of the purchase of an excess
policy. This would allow the AIGA to make claims from the
insolvency and purchase some type of policy. The possibilities
of this would need to be discussed with the Division of
Insurance.
CHAIRMAN ROKEBERG commented, "Mr. Grossi, you indicated you are
not aware of any claims made in an insolvency situation under
worker's comp[ensation]."
MR. GROSSI clarified that many claims against the AIGA have
occurred in workers' compensation as far as PacMar is concerned.
He is not aware of the number of claims that were filed under
latent defects.
CHAIRMAN ROKEBERG asked Mr. Grossi to provide the committee and
any subsequent committees with information regarding the number
of claims and the time frame involved particularly with the
PacMar case.
MR. GROSSI said he would attempt to do that.
Number 1303
CHAIRMAN ROKEBERG stated:
It appears to me you're counting on a fishing
expert...you want to make sure this is available, but,
on the other hand, we've got a public policy issue here
of the need to put some kind of a bar on claims
eventually because these are insolvent organizations
we're dealing with and we're having by the goodwill and
the statutory force other companies picking up their
mistakes. So, there's a balancing act.
MR. GROSSI said he agrees. He is concerned with the rare
employee that has some sort of a latent defect.
CHAIRMAN ROKEBERG remarked:
You're not making a lot of headway with asbestos for me
cause I'm an old building manager-owner guy that does
not believe the alarm that was raised in this country.
As a matter of fact, we did more harm than good by
removing a lot of asbestos around and kicking it up in
the air.
Number 1358
MR. GROSSI responded:
That was just an example, but, obviously, it was a bad
example. But, I mean, there could be any number of
things. A back injury that's asymptomatic for a long
period of time and then, you know, something happens.
CHAIRMAN ROKEBERG presumes that most of these cases are open for
quite a lengthy period of time since there is a bar date.
Number 1411
DON THOMAS, Counsel to AIGA, and Attorney, Delaney, Wiles, Hayes,
Gerety & Ellis, Incorporated, testified via teleconference from
Anchorage. He stated:
We have been counsel to the Alaska Insurance Guaranty
Association for the better part of two decades. I was
asked to offer a brief attorney's perspective as to why
this bill should pass...By passing this bill, the
Guaranty Association is going to benefit from the
lessons learned nationally over the last 30 years that
has resulted in the NAIC; the underlying model Act,
which is the source of the Alaska statute. It makes
certain clarifications and resolves ambiguities that
exist currently in the statute.
Adoption of this bill would also provide the benefits
that come with uniformity. As far as these insurance
these companies, every state has an insurance guaranty
association, property and casualty...virtually all of
them are based on some form of the NAIC Model Act;
however, the initial Model Act dated back in '69.
There were amendments in the 80s. For example, it was
in 1985 that the NAIC Model Act was amended to add the
bar date that is now present in this statute, or one
that we would like to have added to the statute.
The states have been updating their own acts at various
rates and so there is not the uniformity that insurance
companies would prefer to have. They deal with the
guaranty associations across the country. Alaska is
one of them that has not joined the ranks and adopted
the most current version of the NAIC Model Act. The
amendments also (indisc. - coughing) offer minor
housekeeping changes that would be nice and maybe
aren't going to change the way the system operates, but
would be nice to have in there.
For example, the slight change from the Board of
Directors to Board of Governors would make this
consistent with the other guaranty associations found
in AS 21.79. for life and health insurers. Also,
another example of a minor housekeeping change is in
the limit to Section 120 of the Act that changes the
date of the certified financial report from March to
June which is in fact when the AIGA has been submitting
its report in order to obtain a more favorable rate
from the auditors by waiting until after April 15 to
have that report done.
Number 1608
I would like to respond to a couple of comments already
made regarding the bar date. As I indicated, the bar
date has been included in the model Act since 1985.
I've looked at a summary of the 50 states and
identified this national conference on insurance
guaranty funds that simply every state guaranty fund is
basically joined in with this national organization
(indisc.--paper shuffling), which acts as a
clearinghouse, basically, for information, and ... I
have a summary of 50 states' laws that says there that
39 states currently have some version of a bar date.
We do not have any bar date at all. And some of the
questions I was hearing gave me the impression that you
might think there is some version of a bar date, but
there is no bar date in the Act. Presently, at best,
the Guaranty Association can benefit from statute of
limitations offenses that might be asserted; however,
in Alaska we do have the discovery rule that applies to
statute of limitations when the statute does not
actually begin to run until the payment has notice of
the elements that was cause of action, so you can have
a situation where the statute of limitations doesn't
begin to run until years after the underlying act has
taken place.
As far as the bar date, vis-a-vis the workers'
comp[ensation]-type claims, the NAIC was the one who
carved out the exception for the workers'
comp[ensation] in terms of the fact that that there was
no monetary limit unlike anybody else's claims that
cannot exceed a $500, 000 gap (indisc. - coughing).
There is no such limit for workers' comp[ensation]
claims; however, the same entity that carved out that
exception, the NAIC did not carve out any such
exceptions for workers' comp[ensation] when it drafted
the bar date language. And I've been unable to locate
any cases that have said anything about the fact that
somehow that's not consistent...So, it's the wisdom of
the NAIC that has come up with this language and how it
should it be applied.
Number 1760
One thing I wanted to mention - something I wasn't
aware of until Chairman Rokeberg made reference to who
are members of the Guaranty Association, and there has
been a significant change that needs to be addressed -
I wasn't involved in the change between this bill, as
initially introduced, and then this committee
substitute. An important change exists in the
definition of member insurer which is in Section 18
[page 13, line 24, Version H] of the draft original
language regarding member insurer when the original
bill as introduced said that the member was somebody
whose life insurance, which is (A) and then (B), is
licensed to transact insurance in the state.
I see here, and I have no (indisc.) Chairman Rokeberg's
comment that under the committee substitute licensed
has been changed to authorized which could lend itself
to an interpretation that these surplus lines that were
being referenced are probably authorized to transact
insurance in this state, but not necessarily license.
I'm not sure how that occurred between the original
bill and this committee substitute, and, perhaps, those
people that were involved in that, which would be Mr.
Andritsch and Director Lohr, can tell the committee if
that's supposed to represent something substantive
there.
CHAIRMAN ROKEBERG asked if it is Mr. Thomas's opinion that
changing the word from "licensed" to "authorized" would include
the surplus lines.
MR. THOMAS said he does not know what the intent would be, but
stated he could see someone making the argument that there was
some intent behind making that change because "authorized" is a
larger subset than simply "licensed".
Number 1925
REPRESENTATIVE MURKOWSKI wondered if there are any states that do
allow for a specific workers' compensation exception to the bar
date.
MR. THOMAS referred to the summary he referenced in his
testimony. It was his understanding that Connecticut appeared to
have a specific exception for workers' compensation.
REPRESENTATIVE MURKOWSKI asked:
With the legislation as it's drafted now that would
allow the court to set the date for the filing of
claims -- so, for instance, if we had a really thorny
asbestos issue, I'm assuming that the court is going to
look at the types of claims that we may have presented
and, rather than just automatically say...there's a set
time-table, they would look at the types of claims that
are generally presented and could make allowances for
that?
MR. THOMAS said he thinks there is a statute that specifies some
sort of time frame for when the bar date in the liquidation
action has to be set. He does not know if it is termed that it
cannot be any less than a certain time or more than a certain
time. The first hurdle to clear would be whatever the existing
statute provides for. He said:
Please keep in mind that this bar date in the
liquidation,...the disorder that comes out of the court
who is entering the order of liquidation, it simply
states...any claims against the insolvent insurer's
estate have to be filed by such and such a date.
There's nothing in there that says any claim against
the Guaranty Association has to be filed by such and
such a date. This language that we are proposing here
in this bill, which is virtually identical to the NAIC
language, now adopts that bar date that is set in the
order of liquidation for the insolvent insurer is also
being the deadline for filing a claim with the Guaranty
Association in order for it to be covered.
REPRESENTATIVE MURKOWSKI wondered about how much flexibility the
courts actually have with the bar date. She thinks if there is a
fair amount of flexibility, then there may not be a problem from
the perspective of workers' compensation.
Number 2177
MR. THOMAS explained that there have been a couple of cases that
have talked about the reasons for bar dates from other states
that have language similar to the NAIC model language. It has
been commented that the purpose is to allow for early liquidation
of the insurer which would then benefit the claimants and
policyholders. The requirement to have claims filed by a certain
date indicates an intention on the part of the NAIC to provide a
cut-off date and to have a reasonable limit to liability and
finality to the proceedings.
MR. THOMAS said this would allow the AIGA to seek a greater
reimbursement from the receiver for the claim that is paid out
for properly filed covered claims. Without that the distribution
is prolonged to the detriment of other claimants. The liquidator
of the insolvent insurer does not wait until it is marshaled all
of the possible assets of the estate. As the assets are being
collected, there is a procedure called early access because is
the intent is to try to get the money into the hands of the
people that deserve it as quickly as possible. Typically, there
is not enough money to cover all the claims much less the
interest loss. Mr. Thomas further said:
So, you have this principle of early access where the
liquidator will go to the court who is supervising
liquidation and say, "I've collected this amount of
money. This would allow me to pay at least 25 percent
of all claims right now and still have enough left over
for the contingent claims or other claims that or other
things that will have to be paid out in the future."
And when you have a situation of the Guaranty
Association, for example, in the PacMar estate, I
believe it was the largest creditor, to the tune of
about 85 percent of the claims came from the Guaranty
Association. And when it's out there saying, "We don't
really know how much are claim is because we don't have
(indisc.)coming in because there's no bar date." And
the liquidator says, "I've got to set more money aside,
reserve more money for the future, because we really
don't know how much the Guaranty Association's claim
might be by the time the liquidator set a final
amount."...
By having this bar date, the liquidator will know what
the value is of the Guaranty Association claim sooner
and can get that money distributed sooner. I think
that's just one practical benefit of having a bar
date...I think a court would look at that and say,
"We'll give some leeway here." I think a court would
generally be reticent to make it, you know, like five
years to make claims. There are the same policy
concerns behind a statute of limitations...You don't
want those claims to get so stale and what not, that
they're hard to resolve. A court can and should
probably consider what types of claims might be coming
down the pike. As Mr. Havard said, the courts
typically are setting these bar dates as to the
liquidated estate for about a year out.
TAPE 00-17, SIDE A
Number 0007
CHAIRMAN ROKEBERG asked if it is correct that a typical bar date
would be a year.
MR. THOMAS indicated that is his understanding. He believes Bob
Lohr, Director, Division of Insurance, Department of Community
and Economic Development, would have a better basis to identify
what that time frame generally is.
CHAIRMAN ROKEBERG asked what is it a year from.
MR. THOMAS specified that it is a year from the date the order of
liquidation is entered.
CHAIRMAN ROKEBERG wondered if Mr. Thomas knows the specifics of
the PacMar case in terms of timing.
MR. THOMAS said he thinks Mr. Havard would know because he had to
meet the deadline on behalf of the AIGA. He stated that it
occurred sometime in the late 80s.
Number 0089
MR. HAVARD indicated he has the date. For Pacific Marine of
Alaska (PacMar), there were actually two carriers. One was
Pacific Marine of Alaska and the other was Pacific Marine of
Washington. He believes PacMar of Alaska was declared insolvent
in June of 1989. The bar date was set in March of 1990. PacMar
of Washington was declared insolvent in June of 1989 and their
bar date was set at October of 1989.
CHAIRMAN ROKEBERG wondered how long it took to resolve the case
after the bar date was set.
MR. HAVARD explained:
The way that it works is once we get the claim, if the
claim has previously been filed with Pacific Marine
before they went insolvent or they are filed prior to
the bar date, then we will handle them until they run
out. We have some cases, workers' comp[ensation]
cases, that will run out for as long as 20 years for
the life expectancy of the employee. So, that doesn't
change that. What we do is we reserve those cases based
on our best estimate for what the cost will be all the
way to the end of the claim which may be far into the
future. And we set those reserves and those are the
amounts that we make against the insolvent estate. So,
the only claims we would be talking about here are
those that were not filed either with the insolvent
carrier or with the Guaranty Association prior to that
bar date.
CHAIRMAN ROKEBERG commented, "So, the court set that date under
the Alaska Statute of not less than six months."
MR. HAVARD said he believes that is correct. He added that in
some of these cases, particularly the large asbestos cases, the
manufacturer files contingent claims. The manufacturer files
these contingent claims frequently prior to the bar date even
though they do not know the amount or the number of claims.
Litigation may occur several years later. He reiterated, "We try
to reserve our best estimate for what that will cost the State of
Alaska."
Number 0337
CHAIRMAN ROKEBERG asked Mr. Thomas for clarification on his
comment regarding not having a bar date but having a statutory
six-month minimum.
MR. THOMAS clarified that it refers to the liquidation Act.
CHAIRMAN ROKEBERG wondered if there is a de facto effect on the
bar date.
MR THOMAS replied it would under the adoption of Version H, but
there is currently no de facto effect.
CHAIRMAN ROKEBERG asked if courts will set bar dates on their own
if they lack any statutory direction.
MR. THOMAS responded no. He explained the courts have to set the
bar date under the liquidation Act, not under the Guaranty
Association Act. They set up a deadline for filing claims
against the insolvent estate. Everyone, including the AIGA, has
to meet that deadline; however, there is no deadline for an
insurer or a claimant to come to the AIGA with causative action
and make a claim. Under the existing act, the AIGA would have to
pay that claim. The AIGA would then need to inform the insolvent
estate they are now subrogated against them and would like to
recuperate their money. In the situation where the estate no
longer exists, there is no one to obtain subrogation from
anymore. The cost is passed on to purchasers of Alaska policies
as opposed to obtaining anything from the insolvent estate.
CHAIRMAN ROKEBERG asked Mr. Thomas to reclarify what the
liquidation date is.
MR. THOMAS explained there is an order of liquidation that has to
be entered. This is basically recognition by the court which
declares an estate insolvent and states that it will be
liquidated. One of rules of liquidation the court establishes is
the deadline for claimants to file a claim against the insolvent
estate. He would associate the term "liquidation date" with the
date the order of liquidation was entered.
Number 0542
CHAIRMAN ROKEBERG wondered, "So, there is a bar date by the court
order under that?"
MR. THOMAS replied yes.
CHAIRMAN ROKEBERG stated he was confused when Mr. Thomas
indicated that it is not a de facto bar date.
MR. THOMAS stressed there is no de facto because it does not
prohibit anyone who has a valid claim, that is not barred by a
statute of limitations, from going against the AIGA. The cannot
go against the insolvent insurer anymore, but they can go against
the AIGA.
CHAIRMAN ROKEBERG referred back to the issue of "authorized"
versus "licensed". He stated that authorization in Alaska occurs
via certification and not licensure. He cited AS 21.09.010
relating to the certificate of authority required. He referred
to page 4, line 22, of Version H which states that a covered
claim for return of unearned premium may not exceed $10,000 for
each policy. He asked Mr. Thomas to explain what this means.
MR. THOMAS indicated he cannot explain its meaning because he did
not draft the bill. He stated it is verbatim Model Act language.
The NAIC would need to answer that question.
CHAIRMAN ROKEBERG wondered what an unearned premium is.
MR. THOMAS explained:
That's where you bought a 12-month policy and the
insurer goes insolvent after three months and that
policy is terminated and so you pay for 12 months and
only got three, you should get back three-fourths of
your premium 'cause it was never earned.
Number 0736
CHAIRMAN ROKEBERG suggested that Mr. Thomas do some legal
research regarding that because there may be some question about
it.
MR. THOMAS reiterated that the language has been in the model Act
since 1985. There have not been any cases which have discussed
capping that amount.
Number 0829
BOB LOHR, Director, Division of Insurance, Department of Economic
Development, testified via teleconference from Anchorage. He
asked Sarah McNair-Grove, Actuary, to assist him in answering
questions.
CHAIRMAN ROKEBERG referred to an e-mail from Mr. Lohr regarding
the $10,000 unearned premium cap. He asked for an explanation
regarding this issue.
MR. LOHR said this is not a claim limit, but an unearned premium
limit for canceled policies. It was adopted in the NAIC Model
Act in 1985. He believes it represents an effort to control the
cost of the AIGA activities and tries to define, in a different
way, a limitation on the size of policies that would qualify for
full coverage.
CHAIRMAN ROKEBERG referred once again to the change of the term
"licensed" to "authorized" in Version H, page 13, line 12. He
asked if his explanation is consistent with Mr. Lohr's
understanding.
Number 0932
MR. LOHR affirmed that it is consistent, but they do not have the
benefit of the drafter's presence today. He explained that
"admitted insurer" is a defined term in Alaska Statutes. This
defines it as "authorized insurer" and an "authorized insurer" is
one to whom the Director has issued a certificate of authority to
transact the business of insurance in Alaska.
CHAIRMAN ROKEBERG wondered if there is a reason the non-admitted
surplus line people are not covered by this.
MR. LOHR does not believe they would be covered, but he indicated
he would check. He asked Sarah McNair-Grove if she knows.
SARAH MCNAIR-GROVE, Actuary, Division of Insurance, Department of
Community and Economic Development, came forward to answer
questions on HB 310, Version H. She said surplus line people are
not covered, but she is unfamiliar with the specific history
behind why they were excluded. The AIGA only covers admitted
insurers.
Number 0993
MR. GEORGE noted he was the former Director of Insurance and is
the one who put PacMar into receivership. He explained the
reason non-admitted insurers are not covered is because they are
different entity. There are requirements in order to become
licensed. They are a regulated market and forms and rates have
to be filed with the Director of Insurance
CHAIRMAN ROKEBERG interjected and said Alaska has licensed
insurers.
MR. GEORGE clarified that the companies that have certificates of
authority are generically called licensed. Companies with no
certificate of authority are the unauthorized market or the
surplus lines market. These are companies which are willing to
sell insurance, but they are not willing to obtain a certificate
of authority, file their rates and their forms, and be regulated
the same as authorized insurers. Certain types of coverages have
been carved out that these companies may write, but only if
authorized companies will not write them. An example of this is
medical malpractice or architects' errors and omissions where
there is no admitted market.
CHAIRMAN ROKEBERG asked if they pay premium taxes.
MR. GEORGE replied that they do pay premium taxes. The policy
holders who have a policy from an unauthorized insurer are not
entitled to collect from the AIGA.
CHAIRMAN ROKEBERG wondered if Mr. George knows of anyone who was
barred from filing in the PacMar case.
MR. GEORGE said he does not know of anyone who was barred from
filing.
MR. LOHR stated that the division supports Version H. He is glad
to see this version offered because there were some provisions in
the original bill which caused concern. He believes Version H
represents a reasonable approach to streamlining what is needed
in guaranty association. He commented on the testimony
regarding the importance of uniformity among the states. He
emphasized this in light of some of the changes the Gramm-Leach-
Bliley Act made to financial services. He stressed streamlining
businesses is crucial. Insurance companies need to have an
easier time of dealing with the multiple jurisdictions which
includes guaranty association as one of the key topics. He
believes if the AIGA bill were left in its current it could
represent a competitive disadvantage for Alaska insurance
companies and for the Alaska insurance market with respect to the
national picture. Adoption of those changes is well indicated.
Number 1233
CHAIRMAN ROKEBERG asked Mr. Lohr to comment on the bar date and
workers' compensation. He also asked Mr. Lohr to provide the
committee with written comments.
MR. LOHR explained that the bar date is not provided in law. The
restriction is a minimum amount of time that must occur between
the liquidation date and the bar date itself. There is, in fact,
a minimum amount of time that must occur. There are other
provisions that provide for treating a late claim as if it were
timely followed if certain conditions are met. One of the
principal reasons the PacAK [Pacific Marine Insurance Company of
Alaska] and PacMar liquidation has dragged out as long as it has
is tied with late filed claims. There were some filed as late as
four years after the bar date that had sufficient validity to
them to require a substantial review analysis by the receiver,
then ultimately litigation all the way up to the Supreme Court.
He commented:
I am very pleased to announce that recently, earlier
this month actually, we achieved an agreement with the
claimant for those, which is the Commissioner of
Insurance in Delaware, for settlement of those claims
in a way that should bring the PacAK receivership to
termination here in a very timely fashion.
CHAIRMAN ROKEBERG asked if this case is over 11 years old.
MR. LOHR said that is correct.
CHAIRMAN ROKEBERG wondered, "You said there were some provisions
for exceptions to claims and, therefore, claims were made in this
case. Is that under the liquidation provision?"
MR. LOHR replied that is correct and indicated he is referring to
the rehabilitation and liquidation chapter, which is AS
21.78.292. Subsection C refers to late-filed claims sharing and
distributions.
CHAIRMAN ROKEBERG asked if that is under the liquidation
provision, but not a guaranty.
MR. LOHR stated that is correct and pointed out this is where the
bar date parameters are established also. The bar date is set by
the Director of Insurance as the statutory receiver in the notice
to the claimant and then it is approved by the court.
CHAIRMAN ROKEBERG asked, "Is that under you regulations or
policy?"
MR. LOHR noted that it is also under AS 21.78.
CHAIRMAN ROKEBERG wondered if Mr. Lohr is suggesting that there
is a bar date here and the testimony from Mr. Thomas has been to
the contrary.
MR. LOHR said he is not suggesting there is a bar date
established by statute, but rather there is a minimum time that
must occur between the order of liquidation date and the bar date
established by the statutory receiver in the notice to the
claimant.
CHAIRMAN ROKEBERG indicated that is the issue here. He wondered
if a bar date is promulgated by the statutory receiver.
Number 1436
MR. LOHR replied that it is his understanding that it is
statutory and it is one of the requirements of the Act. He asked
Ms. McNair-Grove if she has any information.
MS. MCNAIR-GROVE apologized and commented that she does not.
CHAIRMAN ROKEBERG asked Mr. Lessmeier if there is confusion
between the terms "liquidation date" and "bar date".
MR. LESSMEIER said he thinks there may be confusion because there
is a bar date for presentation of claims against the estate of
the insolvent receiver. The bar date that is sought to be
imposed or created by Version H would apply to claimants that
would be making a claim against the AIGA. There are two separate
bar dates being discussed. He believes the bar date Mr. Lohr is
referring to is the bar date for claims by the Association
against the receiver.
Number 1514
MR. LOHR said he believes Mr. Lessmeier is correct. He is
referring to AS 21.78.100.
CHAIRMAN ROKEBERG asked Mr. George what his recollection of the
PacMar case is.
MR. GEORGE indicated he was gone from the Division of Insurance
during that case.
MR. LOHR made a final point concerning Mr. Grossi's testimony.
He believes Mr. Grossi's characterization of the uncertainty of
the size of the problem is important. Mr. Lohr also does not
know the answer, but he posed an alternative if it is a little
problem. He suggests that the statutory receiver consult with
the Division of Workers' Compensation to establish a bar date.
This would be one way to simply establish that those
considerations are factored in. Some approach which involves
consultation and consideration, but does not involve outright
exclusion or waiver of those considerations from the process
would be a possible alternative.
CHAIRMAN ROKEBERG stated that would certainly be an alternative
if they want to deviate from the Model Act.
REPRESENTATIVE MURKOWSKI mentioned the comment made in reference
to filing contingent claims in order to get in under the bar
date. She does not see any reference to the way the claim has to
be filed. It is not a final claim when it filed. She wonders if
the filing of a contingent claim can address the problem that
workers' compensation may be looking at.
Number 1666
MR. HAVARD said he is not aware there ever was a contingent claim
on workers' compensation. He explained an injured employee would
generally know at the time they are filing whether or not they
are injured. Contingent claims are normally done on large,
commercial types of insureds who are aware they have a problem
such as with asbestos. A contingent claim is filed without
knowing the amount of claims. He said:
In fact, just today I filed a claim on behalf of the
Guaranty Association with the receiver for Pinnacle
Insurance Company, who was found to be insolvent in
Georgia on the date of September 20 of 1999, but their
bar date is March 31 of 2000. On behalf of the
Guaranty Association, who has no bar date, I filed a
contingent claim with the State of Georgia in the event
that Pinnacle Insurance [does] present a claim against
us. But, if we pass the bar date, most likely Georgia
will not allow me to take any claims that come to me
after March 31.
The Guaranty Association will have to pay the claims on
Pinnacle Insurance Company next year and will not be
able to file them back against Pinnacle unless they
file them with me prior to March 31, unless an
exception is made by the receiver. With respect to
your contingent claims,...I file contingent claims.
I've also had contingent claims filed with us timely by
some of these large, commercial insureds.
REPRESENTATIVE MURKOWSKI said that is helpful.
CHAIRMAN ROKEBERG asked, "You said if we passed this
legislation,...the Guaranty Association would be protected or
liable?"
Number 1774
MR. HAVARD clarified:
When I received notice from Pinnacle that they had been
declared insolvent, I wrote a letter to Pinnacle and
said we have no claims for Pinnacle at this point...I
received a letter just a short time ago from Pinnacle
saying, "No, there are no claims in Alaska, but we
recommend you file a contingent claim just in case one
comes up." But, if we receive a claim after their bar
date, it's likely that they will have some problems
with us filing it against them.
As an example, I will go back to Pacific Marine of
Washington. I did actually have a claim come up with a
commercial insured here in the State of Alaska who
received notice of some claims. We set up a reserve
for those and began to incur expenses on investigating
those claims.
Now, there was some question as to the validity of the
claims, but we investigated them and did set up a
reserve. We filed those against the receiver in
Washington and they were denied. So, the Alaska
Guaranty Association bears the cost of those claims;
both the expense and the claims if we ultimately pay
any out. And we'll not receive any funds from the
Pacific Marine of Washington receiver because they
claimed they were late filed. Now we started some
litigation on that matter and we did ultimately settle
as a matter of fact, but it's something that's quite a
can of worms if we have to go there and we felt we
would lose. So, we did manage to settle out with them.
Number 1859
CHAIRMAN ROKEBERG asked Mr. Havard to explain the history of
PacMar with respect to the number claims and late claims
involved. He explained there is a desire to assess the validity
of a bar date.
MR. HAVARD said he does not believe there were any claims that
PacMar denied as late filed. He indicated Mr. Lohr alluded to
the fact that exceptions were made. On the other hand, PacMar of
Washington did deny some claims, but none of those were workers'
compensation claims. He thinks the workers' compensation claims
which came in after their bar date were claims that were simply
reopened and had already been filed. He believes they were
timely filed, but does not know this for a fact.
CHAIRMAN ROKEBERG wondered if the claims could have been
legitimately filed in a timely fashion, but reopened.
MR. HAVARD said that is correct.
CHAIRMAN ROKEBERG asked if Mr. Havard knows if there was any kind
of a bar date established by the courts for PacMar of Alaska.
MR. HAVARD commented that there was a bar date. He believes it
was set for a little over six months from the order of
liquidation date.
CHAIRMAN ROKEBERG asked if the AIGA could still be subject to a
claim from an alleged PacMar insured to this date.
MR. HAVARD replied yes. He expects to receive a final
distribution from the receiver probably within the next three to
six months. At that point, there will not be a chance of
returning to the receiver for any claim whatsoever. However,
the AIGA may receive a brand new claim at any point in the
future.
Number 1977
CHAIRMAN ROKEBERG wondered if that is because there is no bar
date.
MR. HAVARD said that is correct.
CHAIRMAN ROKEBERG asked Mr. Grossi if listening to the testimony
has changed his opinion any.
MR. GROSSI stated, as indicated by the testimony, that there was
no problem with the PacMar case. He thinks it may not be a
problem, but is not entirely sure. There might still be claims
out there that would be barred from filing against the AIGA.
Although, they are not barred from filing a workers' compensation
claim.
CHAIRMAN ROKEBERG explained that he would like to move HB 310,
Version H, to the House Judiciary Standing Committee. He thinks
the bar date issue might be a more appropriate topic in that
committee.
Number 2084
DWIGHT PERKINS, Deputy Commissioner, Department of Labor and
Workforce Development, came forward to testify on HB 310, Version
H. He stated:
Until we saw the introduction of this bill, you did
talk to Mr. Grossi a little about this,...and I just
want to say we were not in the development of this and
so his inability to show any case things going on with
whether it's going to be a big problem or a small
problem, is because we weren't involved in the crafting
of this legislation. And you know that we've had a
couple of major pieces of legislation we've been
working on and he just hasn't had the time to review
it. And we'll be more than happy to try to come to the
Judiciary Committee and discuss that and if there's
going to be a bigger problem. But that's the reason
he's not laying it out in front of you today as what
that problem may or may not be.
CHAIRMAN ROKEBERG said he appreciates Mr. Perkins' comments.
REPRESENTATIVE MURKOWSKI made a motion to move the CS for HB 310
[Version H, 1-LS1030\H, Ford, 1/27/00] out of committee with
individual recommendations and the attached zero fiscal note.
There being no objection, CSHB 310(L&C) moved from the House
Labor and Commerce Standing Committee.
ADJOURNMENT
Number 2168
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:37 p.m.
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