Legislature(1999 - 2000)
02/21/2000 03:23 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.