Legislature(1997 - 1998)
03/12/1997 03:22 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
March 12, 1997
3:22 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Bill Hudson
Representative Jerry Sanders
Representative Joe Ryan
Representative Tom Brice
Representative Gene Kubina
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
*HOUSE BILL NO. 179
"An Act relating to fraternal benefit societies; and providing for
an effective date."
- MOVED CSHB 179(L&C) OUT OF COMMITTEE
*HOUSE BILL NO. 10
"An Act requiring mediation in a civil action against an architect,
engineer, or land surveyor; amending Rule 100, Alaska Rules of
Civil Procedure; and providing for an effective date."
- MOVED CSHB 10(L&C) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 179
SHORT TITLE: FRATERNAL BENEFIT SOCIETIES
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/06/97 561 (H) READ THE FIRST TIME - REFERRAL(S)
03/06/97 561 (H) LABOR & COMMERCE, JUDICIARY
03/12/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 10
SHORT TITLE: MANDATORY MEDIATION/DESIGN PROF LAWSUITS
SPONSOR(S): REPRESENTATIVE(S) GREEN
JRN-DATE JRN-PG ACTION
01/13/97 29 (H) PREFILE RELEASED 1/3/97
01/13/97 29 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 29 (H) LABOR & COMMERCE, JUD, FINANCE
03/12/97 (H) L&C AT 3:15 PM CAPITOL 17
ACTION NARRATIVE
WITNESS REGISTER
Richard Kleven
Assistant Vice President
Lutheran Brotherhood of the
Fraternal Brotherhood Society
National Fraternal Congress
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Telephone: (612) 340-7216
POSITION STATEMENT: Testified on HB 179
DON KOCH, Chief
Market Surveillance
Division of Insurance
P.O. Box 110805
Juneau, Alaska 99811-0805
Telephone: (907) 465-2577
POSITION STATEMENT: Testified in support of HB 179
JEFF LOGAN, Legislative Assistant
Representative Joseph Green
Alaska State Legislature
State Capitol, Room 118
Juneau, Alaska 99801
Telephone: (907) 465- 4931
POSITION STATEMENT: Provided information on HB 10
DOUG WOOLIVER, Administrative Attorney
Office of the Administrative Director
Alaska Court System
820 W 4th Avenue
Anchorage, Alaska 99501-2005
Telephone: (907) 264-8265
POSITION STATEMENT: Provided information on HB 10
TAPE 97-20, SIDE A
Number 001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee to order at 3:22 p.m. Members present at the
call to order were Cowdery, Hudson, Sanders and Brice.
Representatives Ryan and Kubina arrived at the respective times:
3:25 p.m. and 3:30 p.m.
HB 179 - FRATERNAL BENEFIT SOCIETIES
CHAIRMAN ROKEBERG indicated that the committee would consider House
Bill 179, "An Act relating to fraternal benefit societies; and
providing for an effective date."
Number 092
RICHARD KLEVEN, Assistant Vice President, Lutheran Brotherhood of
the Fraternal Brotherhood Society, National Fraternal Congress,
came forward to testify on HB 179. He stated that this bill was
very similar to one that has been passed in approximately 35 other
states. Fraternal benefit societies are self-help membership
organizations. They are created by people usually of a common
religion, ethnic, or national origin. He mentioned the ones
operating in the state of Alaska: Knights of Columbus, Independent
Order of Foresters, Sons of Norway, Aid Association for Lutherans
and Woodman of the World. These are organizations that exist to
benefit their members and communities. They are very tightly
controlled by the members through a representative form of
government. Lodges are required to exist by law. There are 45 of
them in the state of Alaska that gather for fellowship, but they
also to do volunteer work.
Number 218
MR. KLEVEN stated that these organizations offer their members
insurance products on a limited basis, usually life and annuity
benefits. In Alaska there are about 7,000 fraternals. In 1995 the
fraternals provided about a 1/4 of a million dollars in aid to
various charitable projects in the state and their members
contributed about 58,000 hours of volunteer service. There
currently exists a chapter in Alaska law which regulates these
organizations, but noted that it's been 30 years since this
original law was passed in 1966. There has been a lot of
regulatory and legal changes on the federal level since then. Some
of what these organizations would like to do under existing law run
afoul with some of the IRS regulations, Securities and Exchange
Commission Laws, and laws affecting tax and financial planning.
They need a code which keeps better pace with what's going on.
Number 305
MR. KLEVEN stated that the bill was 28 pages long. Generally,
there is nothing in the bill that radically changes anything. It
allows fraternals to write variable life and annuity products.
These are products written by most life insurers and are primarily
regulated by the federal government as well as by the state's
Division of Insurance. Variable contracts are regulated by the
Securities and Exchange Commission and the way the fraternal laws
are written now it is impossible for them to write the types of
insurance their members want. This change in law will also allow
some flexibility in the law so that when new kinds of insurance
products are created, the Director of Insurance will have the
authority to approve those if they are appropriate for fraternals
to write. It also makes it clear that fraternals can have
subsidiaries do things that are in furtherance of their purposes
which are required by law to be charitable, fraternal, educational,
religious, patriotic or moral.
MR. KLEVEN continued that this legislation would also help improve
some of the regulatory language in the Alaska code so it's clear
that unfair trade practice issues or market conduct apply to the
fraternals as they do to the commercials. This is only fair. The
fraternals should be bound by these, whether licensing requirements
or other. This bill will make it clear that their members are
allowed assignments to their policies, issue contracts on a third
party basis, or irrevocable beneficiaries, etc. These are all
important tools in tax, financial and estate planning. This bill
also does a lot of things in updating language. It makes it
clearer what the Director of Insurance can do, what the directors'
regulatory authority is over the fraternals, reorganizes sections
of the code, makes them gender neutral, provides more up-to-date
language, but it still maintains their essential character. They
are required to be a charitable organization. All the same
elements are there and won't change what small place the fraternals
have in this market place. This legislation won't affect any of
the existing members in the state either, but it should provide
them better protection and more flexibility.
Number 549
MR. KLEVEN noted two amendments would be considered and his
organization supports both of these. One of these amendments is
technical in nature to make sure that the changes made in the law
today will conform with the Kassenbalm/Kennedy law regarding health
insurance which passed at the federal level last year. The other
amendment is also technical and makes it clear how fraternals are
governed. In most cases, their supreme governing body is not their
Board of Directors, but instead, is something called the General
Assembly. This amendment makes it clear that anybody at any level
running for this General Assembly has to be a member of the
society.
Number 618
REPRESENTATIVE JOHN COWDERY asked how the Alaska legislation was
different from that passed in the other 30 or so states.
MR. KLEVEN responded that these differences were very subtle. The
basic thrust of this Alaska legislation is very close to the model
passed in every other state. There is no substantial difference to
speak of at all. Every state has its way to write code and there
might be a nuance, for instance, related to agent licensing. A few
states have not wanted to take the approach of re-writing the
entire code. They've done so piecemeal. Thirty-three of the 37
have taken the broader approach, which in Alaska the Division of
Insurance supports.
Number 688
REPRESENTATIVE JOE RYAN said that he was interested in what and how
they do estate planning. He asked what the extent of this was.
MR. KLEVEN responded that their members buy insurance from them.
They often buy this product in the context of estate planning. The
fraternal organization doesn't do the estate planning, but the
client works with a local attorney to do so. They do have experts
in their home office who will educate the field employees about
such things, but they insist that people use their own attorneys or
local tax advisors in the overall estate planning.
Number 743
REPRESENTATIVE BILL HUDSON asked, in the absence of this
legislation, who would provide these services.
MR. KLEVEN stated that Alaska has a code on the books now. They
could continue to operate under this code, but feel they could do
a better job with a new one.
Number 764
CHAIRMAN ROKEBERG said it was interesting to note that the term
"domestic" in the statute relates to an organization organized in
the state of Alaska, that "domestic" equals Alaskan and therefore,
"foreign" means an organization from the outside. The fraternal
organizations operating in the state of Alaska are of foreign
status under this legislation. This bill is set up in large part
to deal with any organization that wishes to establish itself in
Alaska.
MR. KLEVEN responded that this was correct.
Number 820
REPRESENTATIVE JERRY SANDERS asked if the fraternals broker
insurance for insurance company or do they operate as an insurance
company.
MR. KLEVEN responded that they have their own insurance operation.
Lutheran Brotherhood, for example, issues life and annuity policies
and long term care for members on their paper. These fraternal
organizations write their own insurance. The Alaska Division of
Insurance regulates them. Almost all of the laws governing life
and annuity insurance would also apply to the fraternals. They are
required to meet financial tests, generate reports, follow
restrictions on how they invest, etc. He stated that this code
helps to clarify some of these things.
Number 880
REPRESENTATIVE TOM BRICE asked if a domestic organization under
these new laws discriminates based on age, sex, nationality, etc.
MR. KLEVEN responded that a domestic society can be created in
Alaska with membership requirements. Usually these are religion
based with certain purposes outlined. The Lutheran Brotherhood is
religious and all its members are Lutheran. To that extent only
those people and their families are eligible. He didn't think
whether one could be created based on age or anything like that, he
didn't think that has ever been done. He did give a breakdown of
age requirements for the Lutheran Brotherhood.
REPRESENTATIVE BRICE inquired whether the Lutheran Brotherhood
excluded women.
MR. KLEVEN responded that no, they did not.
Number 974
CHAIRMAN ROKEBERG asked if there was anything in this legislation
to restrict the marketing of their product, such as requiring that
someone be part of a member's immediate family and asked, if so,
was there anything in place where they could step beyond this.
MR. KLEVEN noted that societies have their own rules regarding
membership which generally regard immediate family members.
Number 988
CHAIRMAN ROKEBERG asked what the origin of this insurance service
was.
MR. KLEVEN responded that these services were organized by
immigrants at the turn of the century. These were people who
couldn't get insurance or needed to bond together for other
reasons, not just for insurance then or now. These organizations
are self-help groups who help each other and the cause that they
are formed around whether this be a religion or communities in
general. The same charitable purposes exist today.
Number 1085
DON KOCH, Chief, Market Surveillance, Division of Insurance, came
forward to testify in support of HB 179. The Division has been
involved from the standpoint of looking at the changes that the
fraternals wished to make. They've had a fair amount of input as
it has progressed and there are not a lot of areas where they have
concern. Mr. Koch reviewed the bill, as well as the Division's
financial staff and they've had about four other different areas of
the Division that have looked at this legislation in one form or
another.
MR. KOCH stated that many of the changes can be characterized as
reorganization of the code itself into areas of interest; for
example, the things which relate to the financial regulation have
been put into one area of this chapter, where before some of these
were scattered around. A number of those changes have very little
difference in the existing text as versus the new text. One of the
bigger changes is the ability for fraternals to establish separate
accounts for the purpose of supporting variable products, such as
life and annuities. The other life insurers have had this
opportunity available to them since the late 60's.
Number 1218
MR. KOCH responded to the "foreign" versus "domestic" conversation
earlier and noted that this was an already existing distinction
that's been in the code for a long time. He continued that a
domestic insurer has been referred to as "domiciled" in the state
and foreign insurers are everyone else. A further distinction is
made that an insurer from another country is called an "alien"
insurer.
MR. KOCH added that the Division proposes an amendment to this
legislation. He provided a copy of it to the committee. The
fraternal code has a provision in it that lists all of the statutes
outside of that particular chapter which applies to a fraternal.
This is an area where such things are considered such as the Unfair
Trade Practices Act and the licensing statutes, etc. These are all
things external to that chapter of law referenced in this
particular area. The Department of Law noted that they had
neglected to list two chapters of the insurance code that contained
provisions affecting group health insurance in this legislation
which are also being addressed in the Kassenbalm/Kennedy bill.
This new federal law will impose certain things on anyone writing
health insurance. That reference was left out of this fraternal
bill, but this change is enumerated in this amendment to read as
follows:
Following Line 7 on Page 18, insert the following:
"(15) AS 21.54;
(16) AS 21.56;"
Renumber existing (15) through (18) accordingly.
MR. KOCH continued that the references to these two chapters are
references to group health insurance statutes in the code to make
sure that those also apply to fraternals should they write this
type of insurance. For the most part, fraternals do not write
group products, but individual ones. Typically these fraternals
write only for their members and their direct family. He noted
that he was also a member of a fraternal, the Knights of Columbus,
and noted all the charitable activities they are involved in. He
noted that insurance was incidental to their activities.
Number 1443
REPRESENTATIVE GENE KUBINA noted that this legislation seemed to
strengthen some of the provisions in the existing law, for example,
increasing the bonding required rather than lowering it. He asked
if this was accurate.
MR. KOCH responded that this was accurate. The legislation is
really an attempt to update the current law which was originally
adopted in 1966 when Alaska first accepted the insurance code.
There have been a lot of changes since this time, the least of
which that some amounts appropriated as standards back then are no
longer appropriate now. These have been upgraded. He thought
there was a lot to this bill which made language more clear. It's
a long piece of legislation, but he stated that it does tend to
strengthen the existing law. As a regulator he supports this
concept.
Number 1516
MR. KOCH shared an additional observation. A few years ago he and
Division personnel were concerned about what constituted a
fraternal organization and how they operated. With that they
looked at the fraternals with insurance ratings in the state. At
that time there were five existing that had some level of premium
volume written in the state of Alaska. They examined four of these
five, one was so small, it wasn't worth bothering with. They sent
examiners in to get a good idea of how they operated. These were
market conduct exams as opposed to financial exams. They were
fairly impressed because the things they might compare with when
looking at a life insurer they noted how some big differences
existed. Generally, these differences were favorable, things which
were done right as compared to how other types of entities
conducted business, things they didn't have the same comfort level
were working as they should.
Number 1580
CHAIRMAN ROKEBERG asked if the fraternals were more conservative in
their financial decision making.
MR. KOCH said he couldn't speak to the financial aspects of these
organizations since he wasn't involved with this aspect of the
review. These were market conduct exams which take a look at how
they settle claims, how they deal with customers and how they
generally conduct themselves. They were fairly impressed. The
level of cooperation was greater.
Number 1629
REPRESENTATIVE HUDSON asked what positive or negative impact this
legislation will have on military fraternal organizations.
MR. KOCH stated that these organizations are not fraternals in the
sense intended by this chapter of law. These are commercial
insurers. This would have no affect on them. These military
organizations have product opportunities the fraternals don't have,
but hope to gain. They see no reason to bar them from this.
Number 1702
REPRESENTATIVE KUBINA made a motion to move amendment number one as
outlined. Hearing no objection it was so ordered.
Number 1715
CHAIRMAN ROKEBERG introduced amendment number two as follows:
Page 1, Line 13 after "body":
Insert: ",or any intermediate assembly"
Number 1760
MR. KLEVEN offered to explain the reason for this change.
Fraternal organizations are membership groups. Their supreme
governing body can be organized in two ways. A more common way is
to have a group formed called the General Assembly which is the
supreme governing body. There is still a Board of Directors, but
the General Assembly is elected by the membership and serve as
delegates to elect the Board of Directors. In the case of some
fraternal benefit societies, there is an intermediate group before
the General Assembly is elected which are called intermediate
assemblies. These assemblies gather usually in a region to elect
delegates. This amendment clarifies that if there is an
intermediate assembly the only people eligible for this body would
be members, just as there is a membership requirement to be elected
to the Board of Directors or the General Assembly.
Number 1823
REPRESENTATIVE SANDERS asked if there were organizations in Alaska
that are big enough to have or need this intermediate assemblies.
MR. KLEVEN noted that there were no domestics in Alaska; however,
if there is representation for any society that operates here,
there are going to be members in Alaska that are going to vote. He
stated that it wasn't a function so much dependent on size, but
it's the way societies are structured and how they conduct their
voting. There was some further discussion regarding the definition
of intermediate assemblies.
Number 1897
REPRESENTATIVE HUDSON made a motion to move amendment number two as
outlined. Hearing no objection it was so moved.
CHAIRMAN ROKEBERG stated that he was reluctant to move this bill
out of committee since it was so lengthy. He wanted to make sure
that everyone had read the entire text and noted that he had
planned to assign it to a subcommittee. The members agreed that
they had already read the legislation and felt comfortable moving
it from the committee.
Number 1936
REPRESENTATIVE RYAN moved and asked unanimous consent to move HB
179 out of committee with individual recommendations and the
accompanying fiscal note. Hearing no objection, CSHB 179(L&C) was
moved out of the House Labor and Commerce Committee.
CHAIRMAN ROKEBERG asked Mr. Koch and Mr. Kleven to provide written
explanation of the amendments to the committee as attachments to
the CS process.
HB 10 - MANDATORY MEDIATION/DESIGN PROF LAWSUITS
Number 1990
JEFF LOGAN, Legislative Assistant to Representative Green, came
forward to present testimony on HB 10, "An Act requiring mediation
in a civil action against an architect, engineer, or land surveyor;
amending Rule 100, Alaska Rules of Civil Procedure; and providing
for an effective date." This legislation is an effort to keep
people out of court, not by restricting their rights to file an
action, but by providing an alternative venue and method to address
their complaint. The goal is to facilitate a mutually agreeable
pre-trial settlement.
MR. LOGAN continued that if a plaintiff is seeking damages from a
design professional the case must go to meditation with a few
limited exceptions. These are firstly, if all parties to the suit
desire to by-pass mediation they go straight to trial. Secondly,
if in those cases where the judge determines that the plaintiff is
indigent the judge can require the defendant to pay all the costs
of mediation. In those cases the defendant can refuse this option,
by-pass mediation, and go to trial.
Number 2078
MR. LOGAN walked the committee through the steps allowed for in
this legislation. The process begins by someone filing out a
motion. The case is assigned to a judge. On a form the judge will
indicate when a case should go through mandatory mediation. After
the defendant is notified there is communication between the judge
and the parties. The court system keeps a list of mediators on
file. If the parties agree on the mediator the judge appoints this
choice. If the parties don't agree there is a process already
incorporated in the court rules for the judge to select three
names. The parties each get an opportunity to challenge and from
this list the judge selects the mediator.
MR. LOGAN stated that the plaintiff and defendant meet with the
mediator in formal conference. Before they meet, the parties can
provide the mediator with a brief of not more than five pages
explaining the situation as they see it. The mediator can meet
individually with each party after an initial meeting with everyone
present. The meetings are private, the discussions are
confidential and the mediator cannot be called upon in court to
discuss what happened during these meetings. After these meetings,
the information is reviewed and each party's position is assessed.
If someone wants out and they don't believe they can get what they
want from this process the mediation is terminated. If the parties
do want to continue they do so with help from the mediator and when
or if they reach settlement, the plaintiff files for a motion for
dismissal. The defendant writes the check and that's the end of
it.
Number 2165
MR. LOGAN noted a letter of support from the Alaska Design
Professionals in the packet and this 5,000 member organization,
through their Legislative Action Committee, have asked for this
legislation. He added that after a review of the files related to
this legislation, before HB 414 was proposed last session (a bill
that addressed this issue), he found a letter from a constituent on
December 10, 1994 asking for some type of a pre-trial process to
avoid these types of cases. He gave an historical overview of this
legislation's progress and all the work that has gone into this
effort.
Number 2330
REPRESENTATIVE HUDSON referred to the Rules of Court and asked if
these were the original province of the legislature or the courts.
MR. LOGAN stated that he had no idea.
Number 2355
DOUG WOOLIVER, Administrative Attorney, Alaska Court System, came
forward to provide information on HB 10. He stated that the court
has the primary responsibility for writing court rules, but under
the Alaska constitution the legislature can amend these rules by a
two-thirds majority vote out of both houses. The court originally
writes them, the legislature can amend them.
CHAIRMAN ROKEBERG asked what would happen to the rest of a piece of
legislation with an incorporated court rule if a two-thirds vote
was not obtained.
MR. WOOLIVER responded that the rest of the bill would stay as is,
just like an effective date. This happened with tort reform last
year. All the court rules didn't pass so they all got dropped and
the rest of the bill stood.
Number 2411
REPRESENTATIVE RYAN noted that Alaska has an excellent set of
statutes related to arbitration and asked if anyone had considered
putting this as a first step, arbitration as the second and finally
a courtroom hearing for the third option to help relieve the court
load.
MR. LOGAN responded that this was considered. The agreement that
the trial attorneys and the design professionals came to was that
they wanted something to bind the parties to mediation. Under
Court Rule 100 as it is now, there is an option for mediation, but
both sides wanted a motivator to compel people to go through this
process. This is why they seek these changes.
MR. LOGAN added that this process began with a Certificate of Merit
which means a tribunal of an attorney, an engineer and some other
public member would review these cases as they came in to determine
the merits of each. This original option didn't get the support
they needed. This present legislation did.
TAPE 97-20, SIDE B
Number 005
REPRESENTATIVE HUDSON asked what the response has been from the
trial bar.
Number 020
MR. LOGAN stated that he did not know why they weren't present at
this meeting. No written testimony has been received. They did
testify in the past. A Mr. Russ Winter testified throughout the
process last year. On April 17, of last year, in the House
Judiciary Committee hearing he said, "This may be one of the first
instances when the trial lawyers and possible defendants have
reached agreement on change in the court system which is actually
quite a nice thing to be able to say." Mr. Winter did make some
points he was still concerned about, one of which was why the scope
of the bill was limited only to design professionals. Mr. Logan
noted the simple reason for this was that no one has asked to be
included in this during the entire time they've been working on
this piece of legislation.
Number 079
MR. WOOLIVER noted that the only thing the court asks is that the
effective date be dropped, in large part, because this legislation
does include court rule changes. Even if this legislation makes it
through both the House and Senate, it might not be transmitted to
the governor or signed immediately. Last year there were several
bills signed at the end of June with a July 1 effective date, this
makes it extremely difficult to get all the court rules written in
a timely manner. They also ask that it become effective 90 days
after the governor's signature.
Number 120
REPRESENTATIVE HUDSON made a motion to amend HB 10 by technically
removing the section 4, line 18, page 2, the effective date by
deleting this entire section. Hearing no objection it was so
moved. Amendment number one was conceptually adopted.
Number 142
REPRESENTATIVE RYAN moved and asked unanimous consent to move HB 10
out of committee with individual recommendations and accompanying
fiscal note as amended. Hearing no objection CSHB 10(L&C) was
moved out of the House Labor and Commerce Committee.
ADJOURNMENT
Number 153
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Committee
at 4:15 p.m.
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