Legislature(2003 - 2004)

06/22/2004 01:30 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                         June 22, 2004                                                                                          
                           1:50 p.m.                                                                                            
                                                                                                                                
TAPE(S) 04-72                                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Ralph Seekins, Chair                                                                                                    
Senator Scott Ogan, Vice Chair                                                                                                  
Senator Johnny Ellis                                                                                                            
Senator Hollis French                                                                                                           
Senator Gene Therriault                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 1002                                                                                                            
"An   Act  providing   for  a   special   deposit  for   workers'                                                               
compensation  insurers;  relating  to  assigned  risk  pools  and                                                               
workers'  compensation   insurers;  relating  to  the   board  of                                                               
governors of  the Alaska Insurance Guaranty  Association; stating                                                               
the  intent  of the  legislature,  and  setting out  limitations,                                                               
concerning the  interpretation, construction,  and implementation                                                               
of  workers' compensation  laws;  relating  to restructuring  the                                                               
Alaska  workers'  compensation  system;  eliminating  the  Alaska                                                               
Workers' Compensation Board; establishing  a division of workers'                                                               
compensation  within  the  Department   of  Labor  and  Workforce                                                               
Development  and assigning  certain Alaska  Workers' Compensation                                                               
Board functions to  the division and the Department  of Labor and                                                               
Workforce  Development;  establishing   a  Workers'  Compensation                                                               
Appeals  Commission; assigning  certain functions  of the  Alaska                                                               
Workers' Compensation Board to  the Workers' Compensation Appeals                                                               
Commission and  the office  of administrative  hearings; relating                                                               
to  agreements that  discharge  workers' compensation  liability;                                                               
providing for administrative law  judges in workers' compensation                                                               
proceedings; relating  to workers' compensation  awards; relating                                                               
to an  employer's failure to  insure and keep insured  or provide                                                               
security;  providing   for  appeals  from   compensation  orders;                                                               
relating  to  workers'  compensation proceedings;  providing  for                                                               
supreme  court   jurisdiction  of   appeals  from   the  Workers'                                                               
Compensation Appeals  Commission; providing for a  maximum amount                                                               
for  the  cost-of-living  adjustment  for  workers'  compensation                                                               
benefits;  providing for  administrative penalties  for employers                                                               
uninsured   or    without   adequate   security    for   workers'                                                               
compensation; relating to fraudulent  acts or false or misleading                                                               
statements  in  worker's  compensation;   and  providing  for  an                                                               
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
SB 1002 - No previous action to record.                                                                                         
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Doug Wooliver                                                                                                               
Alaska Court System                                                                                                             
303 K St.                                                                                                                       
Anchorage, AK  99501-2084                                                                                                       
POSITION   STATEMENT:      Answered  questions   about   workers'                                                             
compensation cases in the Alaska Court System                                                                                   
                                                                                                                                
Commissioner Greg O'Claray                                                                                                      
Department of Labor & Workforce                                                                                                 
  Development                                                                                                                   
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION  STATEMENT:    Discussed  the need  for  reform  of  the                                                             
workers' compensation system                                                                                                    
                                                                                                                                
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT:  Discussed the  impact of the  current system                                                             
on workers' compensation rates                                                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-72, SIDE A                                                                                                            
                                                                                                                                
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee  meeting  to  order  at 1:50  p.m.  Chair  Seekins  and                                                               
Senator  Ogan were  present. Because  a quorum  was not  present,                                                               
Chair Seekins announced  the committee would hold  a work session                                                               
until other  members arrive.   He asked Commissioner  O'Claray to                                                               
begin  and, since  Senator French  arrived, he  officially called                                                               
the meeting to order.                                                                                                           
                                                                                                                                
                                                                                                                                
        SB 1002-INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                    
                                                                                                                                
COMMISSIONER  GREG O'CLARAY,  Department of  Labor and  Workforce                                                               
Development  (DOLWD),  asked  to  set  the  stage  for  why  this                                                               
legislation was  before the committee.  He reminded  members that                                                               
legislation [SB  311] was introduced  during the  regular session                                                               
that  went through  several  iterations.  The Administration  met                                                               
with  representatives  of   organized  labor,  business,  defense                                                               
attorneys and  claimants' attorneys to  get input on  the changes                                                               
made to that bill. He  indicated that Mr. Nordstrand would detail                                                               
the differences  between SB 311  as passed  by the Senate  and SB
1002 later.                                                                                                                     
                                                                                                                                
COMMISSIONER  O'CLARAY  said it  is  critical  to deal  with  the                                                               
workers' compensation  system now.  Workers' compensation  law is                                                               
very complex  and has  taken years  to fine tune  to where  it is                                                               
today.  The last  major  fine-tuning took  place  in 1988,  which                                                               
immediately followed  a 25 percent  increase in premiums.  In the                                                               
last few  years, rates have  been escalating again. He  said over                                                               
the last three years, the average  rate on a cumulative basis has                                                               
increased 35 percent. During the  last year, some businesses have                                                               
experienced a 60  to 70 percent increase in  their premium rates.                                                               
Early last year, the Administration  focused on dealing with ways                                                               
to  adjust the  workers'  compensation system  to  slow down  the                                                               
escalation of  premium costs. The Administration  looked at three                                                               
alternatives.  First,  it  looked  at  changing  benefits,  which                                                               
amount to about  38 percent of the $210 million  paid out in 2002                                                               
to injured workers. He pointed out  that a little over 50 percent                                                               
of  the $210  million went  to  medical providers  for care.  The                                                               
amount that was  paid to lawyers equaled about  $11 million. That                                                               
was  the  only area  the  Administration  felt it  could  address                                                               
without  attacking reimbursement  rates or  benefits for  injured                                                               
workers, which  the Governor  was not willing  to change  at this                                                               
time.                                                                                                                           
                                                                                                                                
COMMISSIONER   O'CLARAY  said   the   major   criticism  of   the                                                               
representatives of  organized labor  of SB 311  was aimed  at two                                                               
areas: the cost  of the commission created under SB  311; and the                                                               
fact  that  organized  labor and  industry  felt  their  decision                                                               
making  influence  on  the  commission  panel  would  be  reduced                                                               
regarding appeals.  Since adjournment of the  regular session and                                                               
the call  for the special  session, the Administration  worked to                                                               
change the bill substantially.                                                                                                  
                                                                                                                                
CHAIR  SEEKINS  asked  Senator  Gary  Stevens  and  Senator  Bert                                                               
Stedman to join members.                                                                                                        
                                                                                                                                
COMMISSIONER O'CLARAY said if the  Legislature does not deal with                                                               
this issue during this special  session, he fears in future years                                                               
the only solution  will be to reduce  medical reimbursement costs                                                               
and benefits to reduce the rates.                                                                                               
                                                                                                                                
MS.  LINDA HALL,  Director  of the  Division  of Insurance,  said                                                               
making  changes  to  the  workers'  compensation  environment  is                                                               
necessary  for the  following reasons,  the  first being  premium                                                               
increases.  She said  as of  January  1, 2004,  the average  rate                                                               
increase  in   Alaska  was   21.2  percent;   17  classifications                                                               
increased  more than  50  percent.  She referred  to  a chart  in                                                               
members'  packets that  represents  the NCCI's  overview of  rate                                                               
increases  in 39  states. Alaska  rated  at the  bottom with  the                                                               
highest increase  in premiums  for workers'  compensation. Alaska                                                               
has experienced a gradual increase.  In 2002, the rates increased                                                               
an  average  of 10.2  percent;  in  2003,  the increase  was  3.5                                                               
percent; in  2004, the  increase was  21.2 percent.  In addition,                                                               
Alaska  [insurance]  carriers  have  experienced  a  decrease  in                                                               
profitability  - Alaska  carriers  have lost  5  percent more  on                                                               
average compared  to other states  between 1997 and 2002.  In the                                                               
year 2000, an  average of $1.54 was paid out  in claims for every                                                               
$1  in  premiums taken  in.  The  cost  of medical  benefits  has                                                               
increased;  those  benefits  comprise   55  percent  of  workers'                                                               
compensation premiums.                                                                                                          
                                                                                                                                
The   fourth  component   of   Alaska's  unattractive   insurance                                                               
marketplace  is its  assigned risk  pool. Alaska's  assigned risk                                                               
pool has  placed the largest  burden on insurance  companies from                                                               
losses in the assigned risk pool of any state.                                                                                  
                                                                                                                                
MS. HALL  told members  she believes  Alaska needs  available and                                                               
affordable workers'  compensation insurance and it  needs to make                                                               
the  marketplace  more attractive.  She  indicated  that SB  1002                                                               
contains a number of insurance provisions  - some from SB 311 and                                                               
some new provisions. She described those as follows:                                                                            
                                                                                                                                
   · Section 3 is from SB 311 and adds a requirement for an                                                                     
     increase in deposits from all insurers - a flat $1 million                                                                 
     special deposit.                                                                                                           
   · Section 4 is new. It requires a separate deposit by                                                                        
     insurance  companies  for  their  share  of  the  losses  in                                                               
     Alaska's assigned  risk pool. Today,  when there  are losses                                                               
     in the  pool, insurance  companies pay their  prorated share                                                               
     of   those.  If   insolvency   occurs,   those  losses   are                                                               
     reallocated among  the carriers left in  the marketplace. If                                                               
     deposits  are required,  money would  be  available to  draw                                                               
     from  so  that  an  additional   burden  is  not  placed  on                                                               
     insurers.                                                                                                                  
   · Section 5 creates an order of priority in insolvency                                                                       
     proceedings.                                                                                                               
   · Section 6 is new and requires that the assigned risk pool                                                                  
     operate on a self-funding basis on a three-year moving                                                                     
     average.                                                                                                                   
   · Section 7 is from SB 311. It changes the composition of the                                                                
     Guaranty Association Board of Governors to provide broader                                                                 
     representation.                                                                                                            
   · Section 111 repeals the 25 percent statutory cap on the                                                                    
     surcharge for assigned risk pool rates. In order to make                                                                   
     the pool self-funding, the artificial cap must be removed.                                                                 
                                                                                                                                
MS. HALL said  those are the six insurance provisions  in SB 1002                                                               
and offered to answer questions.                                                                                                
                                                                                                                                
CHAIR SEEKINS  asked Ms.  Hall about  the industry's  position on                                                               
Section 4.                                                                                                                      
                                                                                                                                
MS.  HALL said  the industry  is  desirous of  Section 4  because                                                               
although it  will tie  up their assets,  the industry  is already                                                               
statutorily required  to make  deposits. She  noted that  she was                                                               
encouraged by industry to include that provision.                                                                               
                                                                                                                                
CHAIR SEEKINS announced a brief at-ease at 2:00 p.m.                                                                            
                                                                                                                                
Upon  reconvening   at  2:05  p.m.,   CHAIR  SEEKINS   asked  Mr.                                                               
Nordstrand to address the committee.                                                                                            
                                                                                                                                
MR. SCOTT  NORDSTRAND, Deputy  Attorney General,  Civil Division,                                                               
Department of Law (DOL), told  members he would provide a summary                                                               
of the differences between SB 311 and SB 1002. He began:                                                                        
                                                                                                                                
     I've given you a two-page  sheet here that I think will                                                                    
     be of some  help - a significant  differences sheet and                                                                    
     the second page is actually  a simplified chart so that                                                                    
     we can all sort of follow along.                                                                                           
                                                                                                                                
     Let me  start at  the beginning.  I'll start  where the                                                                    
     commissioner left off with the  two basic concerns that                                                                    
     were  identified by  the  critics of  SB  311 [that]  I                                                                    
     think really fall  into two categories. One  was the de                                                                    
     novo review  question and the relationship  between the                                                                    
     appeals commission  and the  hearing panels  or whoever                                                                    
     actually  did   the  trial  -   what  was   the  review                                                                    
     relationship? Secondly was the  cost of the commission,                                                                    
     vis-a-vis the  amount of  cases that  it would  have to                                                                    
     handle based  upon an estimate  of what  Superior Court                                                                    
     appeals  are  brought  now   because,  of  course,  the                                                                    
     commission would be replacing the Superior Court.                                                                          
                                                                                                                                
     What we looked at is we  took the old bill, which - let                                                                    
     me just run  through it quickly here. The  old bill, SB
     311, had hearings  conducted by panels of  three. A new                                                                    
     and improved hearing officer would  sit on that panel -                                                                    
     a lawyer  admitted to practice  in the State  of Alaska                                                                    
     with  some experience  in  workers'  comp. This  person                                                                    
     would  be joined  by two  hearing board  members -  one                                                                    
     from industry,  one from labor, a  citizen panel member                                                                    
     ... and, much like the  current system, they would hear                                                                    
     the cases. They  would decide the cases.  The only real                                                                    
     distinction at  that level  had to  do with  what power                                                                    
     each of  them had.  In the bill  there was  a provision                                                                    
     that  the hearing  officer or  hearing  examiner as  we                                                                    
     called them  would have the  power to say what  the law                                                                    
     is and  instruct the  other members on  the law  to run                                                                    
     the hearing, that  sort of thing. But  other than that,                                                                    
     it was pretty much like  the present system and, as you                                                                    
     know,  that was  an accommodation  from our  first bill                                                                    
     that began with just  an administrative hearing officer                                                                    
     -  part  of  the  process that  we  went  through  when                                                                    
     negotiating with organized labor about this.                                                                               
                                                                                                                                
     That  was  the first  level.  The  second level  was  a                                                                    
     commission   of  three   attorneys  appointed   by  the                                                                    
     governor,  confirmed  by  the legislature,  again  with                                                                    
     experience  in  workers'   compensation  law.  And,  of                                                                    
     course,  the intent  was to  create -  I guess  the two                                                                    
     watchwords that  we had for  the bill  were consistency                                                                    
     and  efficiency and  we thought  that  this new  system                                                                    
     would do that.                                                                                                             
                                                                                                                                
     Now let's compare the criticisms  to that structure and                                                                    
     what we've done in  the new structure. Criticism number                                                                    
     one  was  the  cost  of the  commission  itself.  Three                                                                    
     fairly  high  paid attorneys  -  that  was somewhat  by                                                                    
     design  to attract  attorneys to  take those  positions                                                                    
     but we understood  the criticism. So what  we did first                                                                    
     was  we   eliminated  two  of  the   lawyers  from  the                                                                    
     commission  in  the new  bill  and  replaced these  two                                                                    
     lawyers  so that  there'd be  only  one remaining.  One                                                                    
     lawyer would act as chairman  of the appeals commission                                                                    
     under  SB  1002.  The   other  commissioners  would  be                                                                    
     replaced  by  citizen  representatives, much  like  the                                                                    
     original hearing  panel. So essentially we  changed the                                                                    
     place where citizen  representation participated in the                                                                    
     process and  we created  two employer and  two employee                                                                    
     positions for commissioners to  sit on this commission.                                                                    
     They would  be a  five-member commission at  this point                                                                    
     and they,  too, would receive advice  from the attorney                                                                    
     on  the panel  as to  what  the law  was but,  frankly,                                                                    
     we're  not  requiring that  they  have  to follow  that                                                                    
     advice in this bill.                                                                                                       
                                                                                                                                
     The members  of this commission  will sit in  panels of                                                                    
     three, just  like the three attorney  panels would have                                                                    
     sat, but we didn't want to  put too much of a burden on                                                                    
     citizen members  so we had  two each so there  could be                                                                    
     some relief  pitching, so to  speak, and  they wouldn't                                                                    
     have to do  all of the cases with  two volunteers. They                                                                    
     are  provided  to  be  paid   fairly  well  as  far  as                                                                    
     volunteer commissions go  - $200 a day  per diem, which                                                                    
     is  designed  to  get  people  who  are  qualified  and                                                                    
     capable to want  to take these positions.  Even at that                                                                    
     the   cost  associated   with   having  one   full-time                                                                    
     commissioner - and, by the  way, we reduced the cost of                                                                    
     that commissioner  significantly too in this  bill. The                                                                    
     old bill  was about  $100,000 a  [year] for  the chair.                                                                    
     The present  bill is a range  27 A through F,  which is                                                                    
     comparable to the chief  administrative law judge under                                                                    
     SB  203,  and  that's   between  76  and  91  thousand,                                                                    
     depending  on  which  step the  person  would  come  in                                                                    
     at....                                                                                                                     
                                                                                                                                
     So, overall,  we've cut the  cost of  two commissioners                                                                    
     and used lay people on  the commission and we think the                                                                    
     savings there  means that  - and you  know I'm  not the                                                                    
     fiscal note guy but it about  cut the cost in half from                                                                    
     the $600 and  some odd thousand dollars down  to 300 or                                                                    
     less. That's what I estimate  that to be and the fiscal                                                                    
     notes speak for themselves.                                                                                                
                                                                                                                                
     So that's how we addressed  the cost. And the other way                                                                    
     we addressed  the cost, by  the way, is at  the hearing                                                                    
     level.  At   the  hearing   level  we   eliminated  lay                                                                    
     participation  altogether  and  just  not  having  this                                                                    
     hearing panel saved  $60,000 off the bat  at that level                                                                    
     because there  is 7  and 7, as  you recall.  And rather                                                                    
     than have  anyone in the  Department of Labor  do these                                                                    
     hearings who  might be beholden to  the commission, and                                                                    
     I  think that  was some  of  the criticism  of the  old                                                                    
     hearing of  the hearing examiner provisions  in SB 311,                                                                    
     to move  all the hearings  to the central panel  in the                                                                    
     Department of  Administration that's to be  created and                                                                    
     I guess start up in July of '05.                                                                                           
                                                                                                                                
     So an  administrative law judge from  the central panel                                                                    
     will be  assigned to  hear each case  and they  will be                                                                    
     required   to   have  certain   workers'   compensation                                                                    
     experience that's  consistent with  what we  had before                                                                    
     the hearing  examiners in  our old  bill, so  we're not                                                                    
     'dumbing' down the position in  terms of experience and                                                                    
     capabilities. They'll have to  have the same experience                                                                    
     and so they'll do the hearings.                                                                                            
                                                                                                                                
     Now let's  get to the  second criticism, not  just cost                                                                    
     but de  novo. And this  is where I think  this proposal                                                                    
     is very,  I think, innovative and  answers the concerns                                                                    
     that  were raised,  legitimate concerns.  And that  is,                                                                    
     rather  than having  a commission  of  lawyers have  de                                                                    
     novo  review of  factual determinations  of this  three                                                                    
     person panel  below where the lay  people participated,                                                                    
     both  for labor  and industry,  we're going  to let  an                                                                    
     administrative  law judge  do the  initial hearing  and                                                                    
     then let the  lay people - a majority of  lay people on                                                                    
     the commission can  have the de novo  review. They will                                                                    
     have the power to review  de novo to create consistency                                                                    
     and right wrongs  that need to be righted  or to affirm                                                                    
     decisions  that  we  assume   most  of  them  would  be                                                                    
     affirmed.  And so,  in that  way,  we've addressed,  we                                                                    
     think, both of the concerns  about access to the system                                                                    
     for  lay people  and those  with experience  with labor                                                                    
     and  management   would  increase  the   access.  We've                                                                    
     expanded the  influence. And  then we've  addressed the                                                                    
     cost as well.                                                                                                              
                                                                                                                                
CHAIR SEEKINS asked how this [new system] will establish a body                                                                 
of precedent.                                                                                                                   
                                                                                                                                
MR. NORDSTRAND said the key in understanding the multiplicity of                                                                
decision makers in the present system is:                                                                                       
                                                                                                                                
     ...  that  right  now we've  got  all  these  different                                                                    
     panels,  all  kinds  of different  combinations.  There                                                                    
     could be 30;  there could be 10, who  knows? It depends                                                                    
     on how  you take  the 7-7  and 8 and  mix them  up. And                                                                    
     they come to  a decision collectively and  then it goes                                                                    
     to  30, 40  different  Superior Court  judges. None  of                                                                    
     these decision makers  at each level have  the power to                                                                    
     tell the  other set that  they are wrong.  One Superior                                                                    
     Court judge, for example, deciding  a legal question on                                                                    
     the  Workers'  Compensation  Act cannot  say  ...  I've                                                                    
     decided that  this is  the law  so this  Superior Court                                                                    
     judge must agree with me and decide that way.                                                                              
                                                                                                                                
     The same  is true of  these panels. One panel  of three                                                                    
     at the hearing level can't  tell another panel of three                                                                    
     that's the  law you have  to decide our  way. Precedent                                                                    
     is the  sense of coming  together of  the law in  a way                                                                    
     that allows those  below to understand what  the law is                                                                    
     and follow  it. The only  way to do  that is to  have a                                                                    
     central place where decisions are made.                                                                                    
                                                                                                                                
     Now  the one  accommodation to  consistency that  we've                                                                    
     made for practical  reasons is we have  five members on                                                                    
     this   panel  and   so  there's   two   labor  or   two                                                                    
     employer/employee  so  there  could  conceivably  be  a                                                                    
     difference  of   opinion  between   one  panel   of  an                                                                    
     employer/employee  and the  chair and  another one.  We                                                                    
     would hope that part of the  role of the chair would be                                                                    
     to avoid that and  to encourage consistency and thought                                                                    
     because that  same attorney chairman will  be there for                                                                    
     all  the decisions.  But now  we will  be able  to have                                                                    
     precedent established  by this  commission that  can be                                                                    
     relied upon  by the  six administrative law  judges who                                                                    
     will be  doing workers' comp  and we'll just  have that                                                                    
     many less decision makers and  that much more certainty                                                                    
     and outcome. So that's the consistency issue.                                                                              
                                                                                                                                
CHAIR SEEKINS announced that Senator Therriault joined the                                                                      
committee some time ago. He then opened the meeting to questions                                                                
from members.                                                                                                                   
                                                                                                                                
SENATOR FRENCH asked where the de novo review section is located                                                                
in the bill.                                                                                                                    
                                                                                                                                
MR.  NORDSTRAND referred  Senator  French to  page 43,  paragraph                                                               
(b),  and pointed  out  that  the language  is  identical to  the                                                               
version  of  SB 311  that  passed  out  of the  Senate  Judiciary                                                               
Committee.                                                                                                                      
                                                                                                                                
SENATOR FRENCH asked about the number of Superior Court judges.                                                                 
                                                                                                                                
MR.  NORDSTRAND did  not  have  the exact  number  but said  that                                                               
Anchorage alone has 13.                                                                                                         
                                                                                                                                
SENATOR FRENCH asked  if DOL considered assigning  these cases to                                                               
one Superior Court judge for the sake of consistency.                                                                           
                                                                                                                                
MR. NORDSTRAND  said that was  considered and part of  the answer                                                               
to  the question  is  that  given the  fact  that Superior  Court                                                               
judges tend to remain on the  bench for extended periods of time,                                                               
the  idea  of creating  that  kind  of  single authority  on  all                                                               
workers' compensation  cases would centralize power  and decision                                                               
making  and not  be  good public  policy. He  added  that DOL  is                                                               
comfortable with  having representatives of labor  and management                                                               
sit  at the  commission level,  not  just attorneys  or a  single                                                               
judge.                                                                                                                          
                                                                                                                                
SENATOR OGAN thanked  Mr. Nordstrand for the work he  has done on                                                               
this  legislation and  noted  he  supported SB  311  but is  more                                                               
comfortable with the new version.  He maintained that he has been                                                               
a big  supporter of  the administrative  law judge  central panel                                                               
idea for a  long time. He believes the general  public is unaware                                                               
of the impact that the  adjudication of administrative law has on                                                               
them.   He explained that he  supported SB 311, even  without the                                                               
administrative panel,  because businesses are being  strangled by                                                               
rising insurance  costs. He asked  Mr. Nordstrand to  address the                                                               
reasons for the huge increase in  those costs and whether SB 1002                                                               
will create some relief.                                                                                                        
                                                                                                                                
MR.  NORDSTRAND  referred  to Commissioner  O'Claray's  statement                                                               
about the $11 million cost of  legal fees and said if one assumes                                                               
that 20,000 claims are filed each  year but only a few hundred go                                                               
to a  hearing and  between 40  and 50 go  to Superior  Court, and                                                               
perhaps 12  are appealed to  the Supreme Court, one  must realize                                                               
that the money is being  spent where attorneys are participating.                                                               
He  indicated, for  the sake  of argument,  that attorneys'  fees                                                               
might be  awarded in  500 cases  per year so  the $11  million is                                                               
being spent in a very few number of cases. He continued:                                                                        
                                                                                                                                
     I understand,  and you're welcome to  have the director                                                                    
     of the Division of Workers'  Comp come here and talk to                                                                    
     you  a  little bit  about  the  scheduling issues  that                                                                    
     happen  because of  the citizen  panels at  the hearing                                                                    
     level.  That's not  to say  that folks  don't do  their                                                                    
     best to  participate and that  they try  to accommodate                                                                    
     the schedule  for hearings, but  hearings can  be long,                                                                    
     drawn-out affairs. Often hearings  have to proceed with                                                                    
     only  two members  - one  hearing officer  and a  labor                                                                    
     member  or an  industry  member and  there  is not  the                                                                    
     benefit of  that balance simply because  there's no one                                                                    
     available. That's what they do - they go forward.                                                                          
                                                                                                                                
     And  so it's  difficult  to  accommodate scheduling  at                                                                    
     that level  with that  many different  hearings because                                                                    
     you're talking  about hundreds. And  so what we  can do                                                                    
     with   the  central   panel   situation   is  we   have                                                                    
     essentially  six captive  judges whose  job will  be to                                                                    
     take care of  these hearings day in,  day out everyday.                                                                    
     So,  at  the outset,  I  think  scheduling will  become                                                                    
     easier.  Time is  money and  law and  I think  that can                                                                    
     help.                                                                                                                      
                                                                                                                                
     Even  more  important though  is  what  happens at  the                                                                    
     commission level, the appeal  level. We heard testimony                                                                    
     in  Senate  Finance   from  defense  practitioners  who                                                                    
     talked about  the time  it takes  for a  board decision                                                                    
     record to be certified on  appeal to Superior Court. It                                                                    
     can be very  long. I mean we had one,  the attorney who                                                                    
     spoke  I   think  was  Connie  [Indisc.]   from  Holmes                                                                    
     Weddell. She  mentioned she  had a  case that  had been                                                                    
     more than a  year in time to just get  the record ready                                                                    
     to  start  the  process.  And then  the  next  step  is                                                                    
     briefing  and briefing  is  conducted  in the  Superior                                                                    
     Court  in a  very formal  way that  it should  be, much                                                                    
     like  the  Supreme  Court. This  bill  will  allow  the                                                                    
     commission some  flexibility on how much  briefing, how                                                                    
     detailed it will  have to be depending on  the case. In                                                                    
     other words  it won't  necessarily have  to be  at that                                                                    
     same,  I guess,  Supreme Court  level that  is required                                                                    
     now in Superior Court.                                                                                                     
                                                                                                                                
     And then  finally is the  time for  decision-making. In                                                                    
     this bill,  the commission  has 90  days from  the time                                                                    
     the case is right, either  because the briefing is done                                                                    
     and there's  no oral  argument to be  held or  the oral                                                                    
     argument is  done. In the  case of the  Superior Court,                                                                    
     the recommended  time is up  to 180 days. So  the whole                                                                    
     process will be shorter.                                                                                                   
                                                                                                                                
     Now let me  tell you why I think that  saves money. The                                                                    
     obvious way it  saves money is just  lawyers working on                                                                    
     a  case less  time  probably is  going  to save  money.                                                                    
     Anybody  who has  ever hired  a  lawyer probably  knows                                                                    
     that.  But   secondly,  there's   the  effect   on  the                                                                    
     participants. If  you're an employer and  you're paying                                                                    
     benefits  either as  a  self-insured  employer or  your                                                                    
     insurance company is paying him  after a board decision                                                                    
     and then  you go on  to go  to the Superior  Court, you                                                                    
     think  you've  been  wronged,   this  is  an  incorrect                                                                    
     decision, I shouldn't have to  pay some or all of these                                                                    
     benefits  - when  you go  forward with  this case,  you                                                                    
     could have  two years  to wait,  a year  and a  half to                                                                    
     wait to  find out  - and let's  say in  this particular                                                                    
     case you were right. The  Superior Court judge says you                                                                    
     were right  - you shouldn't  have paid. The  result for                                                                    
     you is basically  a bad one. It's good  news, bad news.                                                                    
     You  don't have  to  pay anymore  but  you likely  will                                                                    
     never get  all the  money you paid  back so  the longer                                                                    
     the  process  takes,  the more  it  could  affect  that                                                                    
     employer in a bad way and  that is a cost to the system                                                                    
     but there's an even more  important cost and that's the                                                                    
     alternative.                                                                                                               
                                                                                                                                
     If an  employee is denied  benefits at the  board level                                                                    
     now,  and  they  want  to appeal,  they  go  through  a                                                                    
     superior  court process  that could  take two  years, a                                                                    
     year  and a  half, a  year. But  all that  time they're                                                                    
     going to  have no  benefits, they're  going to  have no                                                                    
     medical payments, they're going  to have house payments                                                                    
     to make  and they're going  to have all  those troubles                                                                    
     that could be  alleviated in a more  quick manner. What                                                                    
     we're hoping  is that  this commission  can do  a case,                                                                    
     start to finish,  on average in six to  eight months as                                                                    
     opposed  to a  year or  more and  that will  in and  of                                                                    
     itself save money.                                                                                                         
                                                                                                                                
     Now how  much money and what  it will do to  rates? I'm                                                                    
     not  the  expert  but we  think  that  this  efficiency                                                                    
     element will reduce  the cost of at  least some portion                                                                    
     of that $11 million.                                                                                                       
                                                                                                                                
SENATOR OGAN interjected  to say he feels  the administrative law                                                               
judge panel  system creates  a fair and  impartial way  to review                                                               
the administrative law  because the panel is not  employed by the                                                               
commissioner [who made  the decision]. He pointed  out that other                                                               
states  have  found that  having  an  independent panel  provides                                                               
accountability and  improves efficiency and regulations.  He then                                                               
stated for the record that he  does not have a financial interest                                                               
in  this  legislation  but  he   does  have  an  active  workers'                                                               
compensation  claim  so  he  declared  a  potential  conflict  of                                                               
interest.                                                                                                                       
                                                                                                                                
CHAIR SEEKINS  noted that in  previous discussions about  SB 311,                                                               
many  commented   that  any  reform  to   the  existing  workers'                                                               
compensation  process  would  come  at  a  cost  to  the  injured                                                               
employee.  He asked  Mr. Nordstrand  if he  sees any  validity to                                                               
that claim.                                                                                                                     
                                                                                                                                
MR.  NORDSTRAND said  he would  challenge anyone  to look  at the                                                               
bill and find that problem in the system. He stated,                                                                            
                                                                                                                                
     Frankly,  we are  starting now  with an  administrative                                                                    
     law  judge panel  that was  unanimously passed  by both                                                                    
     houses of  the Legislature. It  is a great idea  and we                                                                    
     are simply adopting  that as the basis  for making that                                                                    
     initial decision so I can't  imagine how that would not                                                                    
     be fair  to start with.  And secondly ...  we've dialed                                                                    
     back  the lawyers  in the  process here.  We had  three                                                                    
     lawyers to  do the  commission and  now we've  said ...                                                                    
     we'll only  have one and  we'll actually give  over the                                                                    
     majority of the commission to  the lay panel member, to                                                                    
     the  citizens,  representatives  as they  were  on  the                                                                    
     workers' comp board  and ... it's hard to  see how that                                                                    
     couldn't be viewed as at least fair and even-handed.                                                                       
                                                                                                                                
2:25 p.m.                                                                                                                       
                                                                                                                                
CHAIR SEEKINS  asked Mr. Nordstrand  if he believes that  SB 1002                                                               
will  shorten  the  process  between  the  claim  and  the  final                                                               
adjudication, thereby  either addressing illegitimate  claims and                                                               
bringing that  settlement earlier in the  process and eliminating                                                               
the  long interim  period for  either party,  and result  in less                                                               
expense.                                                                                                                        
                                                                                                                                
MR. NORDSTRAND said that is true  but added that there is another                                                               
element of consistency  that has nothing to do  with the specific                                                               
cases that  go to  the commission  itself. That  element involves                                                               
the cases  that people decide not  to take to the  commission. He                                                               
explained  that   over  time,  the  commission   will  hand  down                                                               
decisions  that  will  outline  details   of  the  law  that  are                                                               
presently unclear.  Those details will provide  greater certainty                                                               
about  what would  happen if  a particular  case went  before the                                                               
commission.  He suspected  that  once  the workers'  compensation                                                               
attorneys  learn that  the law  is consistent  in certain  areas,                                                               
they will not appeal those cases again.                                                                                         
                                                                                                                                
SENATOR FRENCH said  he was no fan of the  appeals commission but                                                               
in SB  311, three  lawyers would have  been interpreting  the law                                                               
for the  hearing panel. In SB  1002, a lawyer and  two lay people                                                               
will be telling judges what the  law is, which he sees as "topsy-                                                               
turvy."   He  questioned   how  one   can  expect   the  workers'                                                               
compensation system  to gain  respect for  decisions made  by lay                                                               
people when judges  underneath them have already done  a good job                                                               
at it.                                                                                                                          
                                                                                                                                
MR. NORDSTRAND  replied that  in the  present system,  lay people                                                               
tell claimants what the law is  because most of the cases are not                                                               
appealed. He countered:                                                                                                         
                                                                                                                                
     All  we're saying  is  that  administrative law  judges                                                                    
     that are not  judges in the traditional sense  - I mean                                                                    
     they are hearing officers,  they are professional, they                                                                    
     are   going   to   be   impartial   but   they're   not                                                                    
     constitutional  judges,  they're   not  Superior  Court                                                                    
     judges. We  are simply  letting the commission  that is                                                                    
     going to  be the central  authority with regard  to the                                                                    
     law  and the  factual conclusions  that are  reached in                                                                    
     cases have  the final say.  If the law is  wrong, there                                                                    
     is a very  simple remedy and that is  the Supreme Court                                                                    
     and I'm sure  they'll correct the commission  a time or                                                                    
     two.                                                                                                                       
                                                                                                                                
SENATOR  OGAN  noted  that  four of  the  five  Senate  Judiciary                                                               
Committee  members are  lay people  and they  pass laws,  thereby                                                               
telling judges  what the law is.  He added that there  are people                                                               
who are not trained attorneys who have good judgment.                                                                           
                                                                                                                                
CHAIR SEEKINS referred  to paragraph (b) on page 43,  the de novo                                                               
review provision, and  noted the de novo review  is restricted at                                                               
the first  level regarding  the credibility  of testimony  of the                                                               
witness. The  review panel  will not be  deciding who  is telling                                                               
the truth; the panel of attorneys will make that decision.                                                                      
                                                                                                                                
MR.  NORDSTRAND  affirmed  that  is correct  and  said  the  same                                                               
limitations  that  were imposed  upon  the  trial level  and  the                                                               
commission level  apply [in that provision.]  He reminded members                                                               
that there are two kinds of de  novo review. In de novo review of                                                               
law, the  judge interprets the law  for those below. In  SB 1002,                                                               
the de novo review applies to factual conclusions. He explained:                                                                
                                                                                                                                
     But the  difference between  weighing the  evidence and                                                                    
     this  substantial evidence  test  that  now applies  is                                                                    
     what we're talking  about here and what  we're going to                                                                    
     do is  to let the  commission weigh the  evidence, like                                                                    
     this. A substantial evidence test  to review is sort of                                                                    
     like saying  if a  case comes before  an administrative                                                                    
     law judge  or currently a panel  and it may or  may not                                                                    
     be a  workplace injury  ... one idea  is well,  he hurt                                                                    
     his back  fishing on the  Kenai, the other one  says he                                                                    
     was lifting a  box at work. That's the  issue. Well, at                                                                    
     the end of  the hearing there will be  evidence on both                                                                    
     sides. There will be testimony  from all parties. There                                                                    
     will be doctor's  evidence. There will be  all kinds of                                                                    
     evidence. And a substantial  evidence test simply means                                                                    
     the  board or  the  hearing  panel picked  occupational                                                                    
     injury  at work  and there  was a  substantial pile  of                                                                    
     evidence  to  support  that conclusion  but  we're  not                                                                    
     going  to  go look  at  the  pile  over here  by  'went                                                                    
     fishing and hurt his back'  because we've got this pile                                                                    
     here  and it's  substantial. All  we're saying  de novo                                                                    
     review is  is that you  get to  grab onto both  bits of                                                                    
     evidence and see  if it makes sense in  the judgment of                                                                    
     this one  attorney and two citizen  members. That's the                                                                    
     review that's  allowed here but  not on  credibility as                                                                    
     you say.                                                                                                                   
                                                                                                                                
CHAIR SEEKINS  said he  just wanted  to be  clear that  this bill                                                               
does not  require absolute de novo  review. He then asked  if, in                                                               
conclusions  of  law,  one  member  of the  review  panel  is  an                                                               
attorney.                                                                                                                       
                                                                                                                                
MR. NORDSTRAND  said that is  correct and explained that  the new                                                               
commission   will  have   one  attorney   schooled  in   workers'                                                               
compensation, who  will serve  as chair.  That person  is charged                                                               
with advising  the other  lay members  with what  the law  is. He                                                               
noted the person  is not charged with instructing  the lay people                                                               
intentionally because there might be  an occasion where the other                                                               
two panel  members might  want to overrule  the attorney.  If the                                                               
matter comes down  to a legal question, the case  is likely to go                                                               
before the Supreme Court.                                                                                                       
                                                                                                                                
CHAIR SEEKINS  repeated, for the  purpose of  clarification, that                                                               
the intent  is not to  reduce compensation for those  people with                                                               
legitimate injuries but rather to  shorten the timeframe from the                                                               
time those people appeal until a final decision is made.                                                                        
                                                                                                                                
MR. NORDSTRAND agreed  and added the intent is  also to encourage                                                               
less litigation by consistency of  decision making and creating a                                                               
clear body of law.                                                                                                              
                                                                                                                                
SENATOR FRENCH asked for information  about the decision rates by                                                               
Superior Court judges  and the degree to which  the Supreme Court                                                               
overturns those decisions.  He felt it necessary  to see evidence                                                               
that   the  Superior   Court  judges   are  making   inconsistent                                                               
decisions.                                                                                                                      
                                                                                                                                
MR. NORDSTRAND  said he does  not have those numbers  but numbers                                                               
were presented  in committee  hearings in  the past,  although he                                                               
did not know where they were generated.                                                                                         
                                                                                                                                
CHAIR  SEEKINS thought  members  had those  numbers  and said  he                                                               
believes the  appeal numbers are  very low and that  the Superior                                                               
Court judges  have done a  good job  in coming up  with decisions                                                               
that have not been overturned on appeal.                                                                                        
                                                                                                                                
MR.  NORDSTRAND said  knowing  how many  times  a Superior  Court                                                               
judge  reverses a  panel says  nothing about  consistency because                                                               
there  is no  consistency among  the decisions  made by  Superior                                                               
Court judges.                                                                                                                   
                                                                                                                                
SENATOR  FRENCH  clarified that  he  was  asking how  many  times                                                               
Superior  Court judges  are overturned  by the  Supreme Court  on                                                               
workers' compensation decisions.                                                                                                
                                                                                                                                
CHAIR SEEKINS believed the number was less than 2 percent.                                                                      
                                                                                                                                
SENATOR FRENCH  said if he were  trying to convince this  body to                                                               
change the  law, he would  have those numbers handy  because that                                                               
would provide strong evidence that  the Superior Court judges are                                                               
rendering inconsistent decisions.                                                                                               
                                                                                                                                
CHAIR SEEKINS said he was not  sure that is what the committee is                                                               
trying to address. He continued  by saying that Mr. Nordstrand is                                                               
saying a body  of law can be  built so that a person  can look at                                                               
previous decisions when contemplating an appeal.                                                                                
                                                                                                                                
MR.  NORDSTRAND  agreed and  noted  that  a defense  practitioner                                                               
testified  before the  Senate Finance  Committee  last month  and                                                               
said a board  panel in Fairbanks recently rendered  a decision on                                                               
a  legal  question  concerning  workers'  compensation  law.  The                                                               
following week, a  panel from Anchorage addressed  the same legal                                                               
question  and  reached  the  opposite  conclusion.  He  said  the                                                               
Anchorage  case is  likely to  be  appealed to  a Superior  Court                                                               
judge.                                                                                                                          
                                                                                                                                
TAPE 04-72, SIDE B                                                                                                              
                                                                                                                                
MR. NORDSTRAND said an appeal will  probably also be filed in the                                                               
Fairbanks Superior Court and the  results could flip. He said the                                                               
only way there  can be a final resolution to  that dispute is for                                                               
one or  both parties  will have  to ask  the question  before the                                                               
Supreme Court. He  said under SB 1002, that would  not be allowed                                                               
to go  beyond the commission level  and he believes that  will be                                                               
good for the whole system.                                                                                                      
                                                                                                                                
SENATOR  THERRIAULT noted  that according  to information  from a                                                               
previous witness,  36 cases  are appealed  to the  Superior Court                                                               
and 25 percent of those cases  are appealed to the Supreme Court.                                                               
He  maintained  that the  committee  has  no information  on  the                                                               
number of  cases that are overruled,  but a lot of  cases are not                                                               
appealed so that inconsistency is left to stand.                                                                                
                                                                                                                                
MR. NORDSTRAND  added that  people stop litigating  for a  lot of                                                               
reasons. He said  two-thirds of those cases fall  off because the                                                               
claimants believe  the Superior Court  was correct or  that their                                                               
chances of  prevailing in the  Supreme Court are  low. Therefore,                                                               
the  inconsistencies remain  and that  is what  could be  avoided                                                               
with passage  of SB 1002. He  noted another thing that  was added                                                               
to the  bill at the suggestion  of Senator Bunde that  allows the                                                               
director of the Division of  Workers' Compensation to investigate                                                               
workers'  compensation fraud  and  it gives  people  who want  to                                                               
provide  information  on  potential  fraud  a  certain  level  of                                                               
immunity. That is patterned after  the insurance code provisions.                                                               
It will allow  those with the expertise  on workers' compensation                                                               
to assist in investigating fraud.                                                                                               
                                                                                                                                
SENATOR THERRIAULT  asked Mr. Nordstrand to  cite those sections.                                                               
He  also noted  that he  has heard  complaints from  constituents                                                               
about the  length of  time workers'  compensation claims  take to                                                               
resolve. Those  people are also  aware of others who  are abusing                                                               
the system so he supports the provision to stop the abuse.                                                                      
                                                                                                                                
SENATOR OGAN said  his workers' compensation claim  is the result                                                               
of an injury he sustained while  flying on state business. He has                                                               
seen several doctors, one appointed  by the workers' compensation                                                               
system. He  has found the  doctors to  have a wide  difference in                                                               
attitudes. He asked if most litigation is for disability claims.                                                                
                                                                                                                                
MR.  NORDSTRAND did  not  know  but pointed  out  that the  fraud                                                               
provisions in  Section 98 also  apply to doctors and  anyone else                                                               
involved in the system.                                                                                                         
                                                                                                                                
SENATOR OGAN clarified  that the doctors he referred  to were not                                                               
trying to defraud the system but merely had different positions.                                                                
                                                                                                                                
MR.  NORDSTRAND  said  instances  of too  much  treatment  for  a                                                               
particular injury  that benefits  the providers are  reported all                                                               
of the time.                                                                                                                    
                                                                                                                                
CHAIR  SEEKINS  announced  that  members  need  to  attend  other                                                               
meetings  today  so the  committee  would  take public  testimony                                                               
tomorrow.  He asked  anyone who  is interested  in testifying  to                                                               
contact Brian Hove, committee aide.                                                                                             
                                                                                                                                
SENATOR  THERRIAULT asked  Mr. Wooliver  for  information on  the                                                               
number of Superior Court judges in Alaska.                                                                                      
                                                                                                                                
MR. WOOLIVER said  the Alaska Court System has  34 Superior Court                                                               
judges.                                                                                                                         
                                                                                                                                
2:50 p.m.                                                                                                                       
                                                                                                                                
CHAIR SEEKINS recessed the meeting to the call of the chair.                                                                    

Document Name Date/Time Subjects