Legislature(1997 - 1998)
04/30/1997 03:38 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
April 30, 1997
3:38 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Jerry Sanders
Representative Tom Brice
Representative Gene Kubina
Representative Joe Ryan
MEMBERS ABSENT
Representative Bill Hudson
COMMITTEE CALENDAR
HOUSE BILL NO. 218
"An Act relating to regulation and examination of insurers and
insurance agents; relating to kinds of insurance; relating to
payment of insurance taxes and to required insurance reserves;
relating to insurance policies; relating to regulation of capital,
surplus, and investments by insurers; relating to hospital and
medical service corporations; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 209
"An Act regulating the use of pre-hire project labor agreements for
public construction projects by the state and political
subdivisions of the state."
- SCHEDULED BUT NOT HEARD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 218
SHORT TITLE: OMNIBUS INSURANCE REFORM
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/27/97 872 (H) READ THE FIRST TIME - REFERRAL(S)
03/27/97 872 (H) LABOR & COMMERCE
04/04/97 (H) L&C AT 3:15 PM CAPITOL 17
04/04/97 (H) MINUTE(L&C)
04/07/97 (H) MINUTE(L&C)
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
04/18/97 (H) MINUTE(L&C)
04/23/97 (H) L&C AT 3:15 PM CAPITOL 17
04/23/97 (H) MINUTE(L&C)
04/25/97 (H) L&C AT 3:15 PM CAPITOL 17
04/25/97 (H) MINUTE(L&C)
04/28/97 (H) L&C AT 3:15 PM CAPITOL 17
04/28/97 (H) MINUTE(L&C)
04/30/97 (H) L&C AT 3:30 PM CAPITOL 17
WITNESS REGISTER
MARIANNE BURKE, Director
Division of Insurance
Department of Commerce and
Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Answered questions on HB 218.
SENATOR DAVE DONLEY
Alaska State Legislature
Capitol Building, Room 508
Juneau, Alaska 99801
Telephone: (907) 465-3892
POSITION STATEMENT: Sponsor of Amendment 2, HB 218.
MIKE FORD, Attorney
Legislative Legal and Research Services
Legislative Affairs Agency
130 Seward Street, Suite 409
Juneau, Alaska 99801
Telephone: (907) 465-2450
POSITION STATEMENT: Answered legal questions regarding HB 218.
MICHAEL LESSMEIER, Attorney
State Farm Insurance Company
One Sealaska Plaza, Suite 303
Juneau, Alaska 99801
Telephone: (907) 586-5912
POSITION STATEMENT: Testified on HB 218, Amendment 2.
ACTION NARRATIVE
TAPE 97-53, SIDE A
Number 001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee to order at 3:38 p.m. Members present at the
call to order were Representatives Rokeberg, Sanders, Brice and
Kubina. Representative Ryan arrived at 4:16 p.m. Representative
Cowdery arrived at 4:19 p.m. Chairman Rokeberg then called for a
brief at-ease at 3:39. The meeting was called back to order at
3:40 p.m.
HB 218 - OMNIBUS INSURANCE REFORM
Number 056
CHAIRMAN ROKEBERG announced the committee would address HB 218, "An
Act relating to regulation and examination of insurers and
insurance agents; relating to kinds of insurance; relating to
payment of insurance taxes and to required insurance reserves;
relating to insurance policies; relating to regulation of capital,
surplus, and investments by insurers; relating to hospital and
medical service corporations; and providing for an effective date."
He indicated it is his intention to move the bill to the House
Finance Committee. He noted the Senate version of the bill will be
referred to the Finance Committee the following day.
Number 109
CHAIRMAN ROKEBERG indicated there were three amendments to the
Senate version of the bill. One was adopted in the Senate Finance
Committee and two were adopted on the Senate floor. He said the
committee has an amendment labeled B.1, Ford, 04/30/97. It should
be referred to, generically, as the Duncan amendment. Chairman
Rokeberg explained there are some changes in the amendment as it
relates to the version adopted on the floor.
CHAIRMAN ROKEBERG referred to the second amendment, B.2, and said
it should be referred to as the Donley amendment.
CHAIRMAN ROKEBERG referred to the third amendment, B.3, and said it
is the Senate Finance Committee amendment.
Number 247
MARIANNE BURKE, Director, Division of Insurance, Department of
Commerce and Economic Development, came before the committee. She
urged the committee to move the bill.
CHAIRMAN ROKEBERG said the Amendment B.3, for the record, will be
called Amendment 1. He said the amendment relates to rental car
insurance.
Number 299
MS. BURKE indicated the amendment relates to rental car insurance.
She stated the Division of Insurance doesn't have an objection to
the amendment as it clarifies the order of which policy goes first
in the settlement of claims.
CHAIRMAN ROKEBERG said Amendment 1 would be put on the table for
further consideration. He referred to Amendment B.2, the Donley
amendment, and said it should be marked as committee Amendment 2.
He asked Ms. Burke to give the department's opinion on the
amendment.
Number 368
MS. BURKE said the department does not wish to take a position one
way or another. She said the amendment addresses a highly
controversial area. As she has previously testified, it is a
subject that is before the Alaska Supreme Court as a result of two
contradictory decisions rendered on this issue. Ms. Burke said,
"The state has filed an amicus brief on this issue and because this
amendment is so controversial, I am very very reluctant to take a
position in favor of it or against it which might jeopardize our
bill in total."
CHAIRMAN ROKEBERG asked Senator Donley come forward to explain the
amendment.
Number 472
SENATOR DAVE DONLEY said the reason for the department's neutrality
on the amendment is not the policy call involved, but it's the
importance of the rest of the bill. He said from a policy point of
view, the Department of Law has intervened in that case in support
of the position that is represented by the amendment. The state's
official policy is to advocate for the amendment and the effects of
the amendment to be the actual status of existing law. He
explained the amendment is about underinsured motor vehicle
coverage. Senator Donley said in 1983, when the legislature was
working on mandatory auto insurance, the legislature added for the
first time in Alaska, coverage for underinsured vehicle coverage.
Up until that time, we had uninsured vehicle coverage, but not
underinsured vehicle coverage. Senator Donley said, "What that
meant was that if you were hit by somebody who didn't have
insurance, you had coverage. But if you were hit by somebody who
had let's say they had $100 insurance policy, you didn't have any
protection against the difference between what their policy covered
and what you're policy covered, because they weren't uninsured.
They were simply underinsured. So we added underinsured to the
list of type of products you could buy in Alaska - were mandated
for offer in Alaska." He said one of the results of that was since
we had mandatory insurance, people typically bought underinsured
coverage for up to $100,000. Since everybody was required to have
mandatory auto insurance, which tended to be for $5,100, you would
be covered up to that amount of money. But since people had
mandatory auto insurance and it had a minimum legal amount,
frequently people bought up to that amount, so they actually didn't
get any additional coverage as long as the people who hit them
actually had insurance. Although they were paying for this, all
they were really insuring themselves against was the possibility
that they had a sub legal limit amount or no insurance.
SENATOR DONLEY said about eight years ago, he sponsored legislation
that provided that when you bought underinsured motorist coverage,
it stacked. So what you were buying was coverage in addition to
what whoever hit you had. That was first party insurance which
meant you would buy this insurance to protect yourself against
somebody else not being able to pay you the damage they did to you.
Senator Donley said if you had $125,000 worth of damages under the
old system and you had $100,000 worth of underinsured motorist
coverage and they $100,000 worth of coverage, you were out $25,000
of legitimate damages. Under the new system that was adopted about
eight years ago, your coverage would extend up to $200,000 and you
would get compensated for your actual total damages. Senator
Donley said there is no double recovery. It would be only for what
the actual damages were. It extended your coverage above and
beyond what the person who hit you had. He noted he was the
sponsor and Mr. Ford drafted the legislation. Senator Donley said
about four years ago, one insurance company decided they didn't
want to pay that. Rates had been established for that coverage
based on losses in Alaska and people paid insurance based on that
being what they were supposed to get under the law. The insurance
company said, "We don't want to pay that and, in fact, since you
haven't amended this other section of existing insurance law,
28.22.201, we're not going pay, we're not going to stack." Senator
Donley continued, "A district federal court judge agreed with them
and actually said that -- told me what I intended, as the sponsor,
was not to stack. Well being the person who did the law and Mr.
Ford being the person who drafted at my request, we know that was
wrong because we knew what we intended. We said it all the way
through the process. There was no other reason to adopt the change
we made unless that's what we intended to do."
SENATOR DONLEY explained in a subsequent federal district court
case another federal district judge said just the opposite. He
said he couldn't believe that the other judge ruled that way
because it was obvious that this was what the legislature wanted.
It went to the Ninth Circuit. At that point, the state did an
amicus brief arguing the same thing that he is currently arguing to
the committee in that these policies should have stacked because
that was the intent of the legislature when the law was passed. He
noted the federal government hasn't any business dealing with this
because it's a state law issue. The Ninth Circuit agreed and
certified the issue back to state supreme court where is currently
is. He stated he feels confident that the court will agree as it
is very clear from the record what was intended.
SENATOR DONLEY said currently in Alaska, we've got some insurance
companies that are under a court order to pay this and some are
refusing to pay because of ruling from the first judge. The
amendment would clarify and restore us to what should be the status
quo and say that for underinsured and uninsured claims in Alaska,
policies stack so that the consumers are getting the protection
they paid for and it has supposedly been programmed into the rate
base since this law was changed.
Number 937
MIKE FORD, Attorney, Legislative Legal and Research Services,
Legislative Affairs Agency, came before the committee to discuss
the amendment. He explained there is an argument by an insurance
company that was accepted by a court. The amendment that is before
the committee is intended to clear up any argument that, in fact,
the policies are not going to stack as Senator Donley described.
He indicated there are some changes to existing law. Mr. Ford said
at the time they attempted to stack them, they didn't believe these
were issues, but apparently one court believed they were.
Number 993
SENATOR DONLEY said this is very important as people have been
paying for this coverage and now they're being denied this coverage
even though they paid for it. He said this was the intent when the
law was written. This problem needs to be fixed and this is the
appropriate way to do it. He noted he believes it passed the
Senate 18 to 1.
Number 1048
CHAIRMAN ROKEBERG asked Mr. Ford if he agrees with Senator Donley's
analysis of the circumstances surrounding the need for this
amendment.
MR. FORD indicated he agrees.
CHAIRMAN ROKEBERG asked Mr. Ford if he believes that by passage of
the amendment, it would make moot the cause of actions before the
supreme court.
MR. FORD responded he believes it would resolve the question.
CHAIRMAN ROKEBERG asked if the lawsuits would go forward because of
the interpretation of the time.
MR. FORD indicated it wouldn't have a retroactive effect. It would
only apply to policies of insurance that are entered into or are
renewed on or after the effective date of the bill, but it would
resolve the issue. He said in the cases where companies are
continuing to dispute that, he thinks that upon renewal or the
issuance of new policies they won't have that argument. He stated
this is really the best approach to take to resolve the issue if
that is what the legislature wishes to do.
Number 1143
MICHAEL LESSMEIER, Attorney, State Farm Insurance Company, came
before the committee. He explained that the amendment does
something far different than what was just been explained to the
committee. He said the amendment hasn't been heard before any
other committee. It involves a complex area of the law and will
have a negative affect in terms of what Senator Donley intend the
amendment to do. He said, "The proposal for mandated offers of
uninsured and underinsured motorist coverage was a proposal that we
made to the legislature back in 1983, in recognition of the fact
that we were going to have mandatory automobile insurance. And
even if you have mandatory automobile insurance, there are certain
percentages of people that are going to uninsured or underinsured.
And as a result of that, the legislature enacted law requiring
mandated offers of uninsured and underinsured motorist coverage.
Now it's very important that you understand what we mean by
underinsured motorist coverage because the way it was defined in
statute is that a person would go out choose how much underinsured
motorist coverage to purchase. If they chose to purchase $100,000
of underinsured motorist coverage, then by statute, an underinsured
motorist was defined as someone who had liability coverage of less
than that. In other words, if you bought protection for yourself
of $100,000 of underinsured motorist coverage and somebody hits you
with $50,000, then you would have -- they would be underinsured
based on the coverage that you chose to buy. And that definition
is contained in the Alaska statutes, and that was how one
determined whether a person was underinsured. The way this
coverage started out, it was what is called difference in limits
covered. If the person that hit you had $50,000 in coverage and
you had $100,000 of underinsured coverage, what you got from your
own carrier was the difference in the limits. In other words, an
additional $50,000." Mr. Lessmeier explained in 1990, Senator
Donley changed that to be excess coverage. He said what wasn't
changed was the definition of what is an underinsured motorist. He
stated it is not a question of stacking and that wasn't the basis
of the decisions made by the federal district court judges. The
basis of their decisions was, "How is an underinsured motorist
defined?" He said what they held was if somebody hits you and
their policy limits are equal or greater than what you chose to
purchase as underinsured motorist coverage, then the coverage
wasn't triggered. That is based on a specific provision of the
law. Mr. Lessmeier said he would encourage the legislature to not
go down this road again. He referred to the first line of the
amendment and explained that it would require that uninsured and
underinsured motorists, motor vehicle insurance, apply to the
claims of an insured even if other policy limits are not exhausted.
Mr. Lessmeier stated the reason we had underinsured motorist
coverage to begin with was to make a person whole. He asked, "If
the other person doesn't have adequate insurance, why in the world
do you want to make underinsured motorist coverage apply if the
other person's limits are not exhausted?" Mr. Lessmeier stated he
doesn't know the answer, but would like to know the answer because
that is ludicrous in terms of how underinsured motorist coverage is
defined. He said it doesn't make sense.
Number 1407
CHAIRMAN ROKEBERG asked if it is a question of the priority of
where the funds would be coming from.
MR. LESSMEIER explained it is a question of not only priority, but
in terms of how you define someone that's an underinsured motorist.
The whole purpose of the coverage has been if somebody doesn't have
adequate insurance, but if they haven't exhausted the other
insurance, how do you decide whether they're underinsured. He
said, "It takes what this coverage was intended to be and turns it
on its head to something that it wasn't intended to be."
MR. LESSMEIER explained it changes in one part of the statutes, but
not other parts of the statute, as to how the coverage applies. It
says it applies to bodily injury, sickness, disease even if the
limits of the liability bonds of policies that apply have not been
used up. He pointed out that in AS 28.24.045 it says that
uninsured and underinsured coverages may not apply to bodily
injury, sickness, death, until the limits of the liability of all
bodily injury and property liability bonds have been used up. The
amendment would build in an irreconcilable conflict in the statutes
with this law.
MR. LESSMEIER said the third thing that is being done is it says
that the insurer shall, in each instance, receive a credit against
the insurer's total damages for amounts actually received by the
insurer. He stated he doesn't understand what is being talked
about. He questioned a credit from what. Mr. Lessmeier explained
the way the coverage typically works is an insured makes a claim
against the uninsured motorist, receives coverage from the
uninsured or underinsured motorist which isn't adequate and then
files a claim against their own insurer for what is left. He asked
how that would be done under this law is not clear. Mr. Lessmeier
said it will be litigated to death because it's not clear. He
stated an amendment is being created that is fundamentally
inconsistent with the mandatory insurance law that was passed in
1983.
MR. LESSMEIER referred to the repealers on page 2 of the amendment
and said there are things that are repealed that have been on the
books for 14 years and there is no good reason to repeal them. For
example, 23.24.045(c) was repealed. The only thing that subsection
does is it determines priority of payments. It doesn't have any
affect on how much is paid, it just determines priorities. Mr.
Lessmeier stated the definition of an underinsured motorist was
repealed. He asked, "Without a definition, how do we decide if
somebody is un insured? How do we write that coverage as to
whether they're underinsured or not?"
Number 1574
MR. LESSMEIER referred to AS 28.24.445(e) and said it talks about
what uninsured and underinsured motorist coverage may apply to. It
is directly in conflict with the provision that is currently in the
bill. He said the amendment hasn't been thought out very well, it
creates huge problems and will ultimately turn out to be a problem
for every motorist that chooses to buy the coverage. He urged the
issue shouldn't be part of an omnibus bill that is essentially
noncontroversial. It should be legislation that proceeds on its
own merits. He said, "If you were to do it right and change the
trigger, according to our figures it's going to increase the cost
of uninsured underinsured motorist coverage to everyone in Alaska
in excess of $20 per year. I mean if you were to do it right --
and I think that this is an important enough concept to -- if
you're going to do it, you ought to do it right."
Number 1695
CHAIRMAN ROKEBERG referred to the 1990 amendments to the insurance
code and asked if State Farm has undertaken to do their rating and
underwriting to accommodate the stack effect as far as their
payouts.
MR. LESSMEIER stated that he believes there was an initial rating
change to deal with the stacking, but not to deal with the trigger
change. He said there wasn't a change in the trigger. Mr.
Lessmeier said he believes they did not rate for the change in
trigger. This coverage has been a very big loss for State Farm.
CHAIRMAN ROKEBERG asked if that is why the premiums may go up as
much as $20.
MR. LESSMEIER responded in the affirmative
CHAIRMAN ROKEBERG asked if that would be $20 per policy.
MR. LESSMEIER responded State Farm believes the change would be an
average annual rate increase of $22 per car.
MR. LESSMEIER said if is the policy call for the legislature to
change the trigger, then that can be done, but it ought to be done
properly and carefully. The amendment goes much further than
changing the trigger and it fundamentally changes underinsured
motorist coverage in Alaska. It does it in a way that is not clear
as there are conflicting provisions.
CHAIRMAN ROKEBERG asked what "changing the trigger" means.
MR. LESSMEIER responded that it defines who is an underinsured
motorist. The way the law is currently written, an underinsured
motor vehicle is one in which the liability limits on that vehicle
are less than the amount that the person chose to purchase for
uninsured or underinsured coverage. In other words, if you
purchased $500,000 of uninsured or underinsured coverage and the
person that hits you has $100,000 of liability coverage, then you
have been hit by a motorist that, by definition, is underinsured.
Number 1994
CHAIRMAN ROKEBERG said he is really disturbed to hear the testimony
about the $22 increase, when in fact the policy call was made by
the legislature in 1990.
MR. LESSMEIER responded, "That's not how we underwrote this. And
the $22 increase is based on our experience under this coverage.
I mean I can tell you that our experience has not been very good
with the underinsured and uninsured motorist coverage and let me
give you an example. I have no accidents and I just got my premium
notice a few days ago. And I have $500,000 of liability coverage
and $500,000 UMUIM (?) and my UMUIM coverage now is almost as
expensive of as my liability coverage."
CHAIRMAN ROKEBERG said some day there will probably be no-fault
insurance because of this.
MR. LESSMEIER said that is a different issue. He stated the point
he wants to make is that if it is the legislature's policy call is
to make it pure access and change the trigger so that the trigger
comes into effect, regardless of your policy limit, it comes into
effect when the person that hits you doesn't have enough insurance.
He stated there is a way to do that and to do it right.
Number 2089
CHAIRMAN ROKEBERG asked Mr. Ford to come before the committee. He
stated he is concerned about the repealers and the effective date
where some numbering was done. He asked Mr. Ford if he is
confident that those are in order.
MR. FORD explained they are simply renumbering section references
and they are all correct. He referred to the amendment and said
regarding the stacking issue, he would agree with Mr. Lessmeier
that this should be reviewed carefully. If in fact there is a
narrower way to effect the stacking provision, then that's a good
idea. He said he believes that the problems there have been with
this area of the law have existed because there hasn't been enough
input and time spent in crafting the changes. If the policy of the
legislature is to effect the trigger and the trigger only, and
there is concern about the additional changes made, that's probably
a good criticism. He said this is a complex area of the law and
the criticisms by Mr. Lessmeier may be well taken. It may prudent
to examine Mr. Lessmeier's comments and determine if there is an
additional affect beyond the trigger he is not aware of.
Number 2180
CHAIRMAN ROKEBERG said Amendment 2 is on the table.
REPRESENTATIVE JOHN COWDERY said he had a hard time understanding
the Donley amendment. He said he isn't sure what it does and
doesn't do.
CHAIRMAN ROKEBERG indicated Amendment 2 is on the table and the
committee will move to Amendment 3. He pointed out Amendment 3 is
marked B.1. He asked Mr. Ford to address the amendment.
Number 2254
MR. FORD said the amendment was adopted on the Senate floor and was
offered by Senator Duncan. It's intended to allow someone who
wishes to exclude a member of their household or relative from
coverage. There are currently provisions in law where a policy
does apply to all people who live in the same household. There was
some belief, at least on Senator Duncan's part, that you are unable
to remove someone that you wish to have excluded. This provision
would allow you to exclude someone if you do not wish to have them
on your policy.
Number 2285
REPRESENTATIVE COWDERY asked if it was a minor that you chose to
exclude, the parent would still be responsible whether the minor
was insured or not.
MR. FORD said he doesn't believe that is correct.
REPRESENTATIVE COWDERY asked Mr. Ford if he doesn't think that a
parent of a minor would be liable for something that minor did.
MR. FORD explained that the common law is that you have no
liability from a parent/child relationship. He said, "You have
perhaps negligence on your part. You could be sued for that, but
simply from the fact that you are the parent, no. There is no
vicarious liability there."
Number 2316
CHAIRMAN ROKEBERG said, "Mr. Ford, I think the testimony will bring
out that the automobile is insured by the parents, if you will, in
that hypothetical, and the insurer will have to pay off even though
the excluded member of the family had not been underwritten, nor
the premium adjusted for that coverage. Is that right?"
MR. FORD indicated that may be the case because you also provide
coverage for someone who uses the vehicle with your permission. He
noted it may be a provision that has some unintended consequences.
You may find that the underwriting for that, as a result of this,
the premiums may go up.
CHAIRMAN ROKEBERG stated his fear is that this may not be a
positive thing, not only for the insurance industry in the state,
but also for the parents. He said, "Although I think that there is
an ability, through artful drafting, to reach the goal of this
particular amendment, that this isn't it. And no disrespect meant
because I understand."
MR. FORD said he believes the amendment does accomplish the intent
of Senator Duncan. He pointed out the amendment is slightly
different than the Senate's version as it amends our mandatory
insurance law. The provision in SB 104 actually amends a chapter
that basically kicks in after you have an accident. He said that
Alaska has dual insurance provisions and he would recommend that if
the committee adopts the amendment that a similar provision be
added to AS 28.20 as well, so that there are mirror provisions.
CHAIRMAN ROKEBERG asked if there were any further questions on
Amendment 3. There were no further questions. He said Amendment
3 is currently tabled.
Number 2443
REPRESENTATIVE JOE RYAN said it seems in criminal law, nobody is
responsible for anything and in civil law, everybody is responsible
for everybody. He said, "I think this would be a good place to put
that - right where you did - on the table."
CHAIRMAN ROKEBERG said there are two other amendments the committee
will take up when a quorum is present. He indicated he has
concerns about the amendments. He said the bill would be brought
up as soon as a quorum is present. Chairman Rokeberg then called
for a brief at-ease at 4:30 p.m. He called the meeting back to
order at 4:50 p.m.
TAPE 97-53, SIDE B
Number 021
CHAIRMAN ROKEBERG announced no other action would be taken on HB
218, HB 266 or HB 209 because of a lack of a quorum.
CHAIRMAN ROKEBERG recessed the House Labor and Commerce Committee
meeting at 4:52 p.m.
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