Legislature(1995 - 1996)
02/28/1995 01:30 PM Senate L&C
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+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
February 28, 1995
1:30 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator John Torgerson, Vice Chairman
Senator Mike Miller
Senator Jim Duncan
Senator Judy Salo
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 95
"An Act requiring offers of automobile liability insurance to
include coverage for uninsured or underinsured motor vehicles with
policy limits for that coverage equal to coverage voluntarily
purchased for bodily injury or death; and providing for an
effective date."
SENATE BILL NO. 94
"An Act relating to workers' compensation coverage for certain high
school students in uncompensated work-study programs."
SENATE BILL NO. 53
"An Act relating to insurance, to the licensing, accreditation,
examination, regulation, and solvency of persons engaged in the
insurance business, including insurers, nonadmitted insurers,
purchasing groups, risk retention groups, and United States
branches of alien insurers; relating to the management of and the
filing of reports by persons licensed or otherwise doing business
under the insurance code; amending Alaska Rule of Civil Procedure
45; and providing for an effective date."
PREVIOUS ACTION
No previous action to consider.
WITNESS REGISTER
Josh Fink
Legislative Aide to Sen. Kelly
State Capitol
Juneau, Alaska 99811
POSITION STATEMENT: Answered questions on SB 94.
Larry Wiget, Director of Government Relations
Anchorage School District
4600 Debarr Road
Anchorage, AK 99519
POSITION STATEMENT: Supported concept of SB 94.
Larry Gordon
King Career Center
2650 E. Northern Lights
Anchorage, AK 99508
POSITION STATEMENT: Supported SB 94.
Cliff Stockton
King Career Center
2650 E. Northern Lights
Anchorage, AK 99508
POSITION STATEMENT: Supported SB 94.
Brad Thompson
Division of Risk Management
Dept. of Administration
P.O. Box 110218
Juneau, Alaska 99811-0218
POSITION STATEMENT: Commented on SB 94.
Sherman Ernouf
Senate Labor & Commerce
Committee Aide
State Capitol
Juneau, Alaska 99811
POSITION STATEMENT: Commented on SB 95.
Don Koch
Division of Insurance
Dept. of Commerce & Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Commented on SB 95.
Linda Hall
Alaska Independent Insurers Association (AIIA)
c/o Ribelin & Lowell & Co.
3111 C Street, Suite 300
Anchorage, AK 99503
POSITION STATEMENT: Supported SB 95.
John George
National Association of Independent Insurers (NAII)
3328 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: Supported SB 95.
Senator Dave Donley
State Capitol
Juneau, Alaska 99811
POSITION STATEMENT: Commented on SB 95.
ACTION NARRATIVE
TAPE 95-8, SIDE A
SL&C - 2/28/95
SB 94 WORKERS' COMP FOR WORK-STUDY STUDENTS
CHAIRMAN KELLY called the Senate Labor and Commerce Committee
meeting to order at 1:35 p.m. The first order of business was SB
94. SENATOR KELLY stated he introduced SB 94 at the request of
Representative Bettye Davis, and noted a similar measure passed the
Legislature last year but was vetoed by former Governor Hickel.
JOSH FINK, legislative aide to Senator Kelly, informed committee
members this same legislation passed the 18th Legislature as SB
141. He explained that under current law, a student enrolled for
credit at a public high school in a course which combines academic
instruction with work experience, outside of the school for a non-
profit agency, is an employee of the state for purposes of Workers'
Compensation. SB 94 broadens the coverage so that all students
participating in on-the-job training, as part of an academic
program, for no financial compensation, would be covered. This
would include students who participate in automotive maintenance,
welding, carpentry and various other work programs, in businesses
other than non-profits. SB 94 would cover uncompensated students
injured at the worksite for medical benefits only, and not for lost
wages. SB 94 also provides immunity from being sued, for the
school district in which the school is located, for the employer
providing the training, and the state. He stated without the
immunity provision, private employers will not participate in these
training programs.
SENATOR SALO inquired whether non-profit volunteers are covered
under the Workers' Compensation Act under a very recent change made
by the Legislature. MR. FINK replied yes, but clarified SB 94
differs in that it covers students in a work study program placed
with non-profit agencies.
LARRY WIGET, representing the Anchorage School Administration,
testified via teleconference. He noted they support the concept of
SB 94, but they are concerned that any claims expenses would be
charged back to the school districts who may not have the dedicated
funds for that purpose. He stated it should be the state's
responsibility to cover claims in the event of an injury to a
student. He restated that the Anchorage School Administration
supports the concept of SB 94, but it does not support charging
school districts for the claims.
Number 142
LARRY GORDON, Job Placement Coordinator at the King Career Center
in Anchorage, stated the relationship between student and employer
is a training and learning one, rather than an employee-employer
one. He noted there are many employers who want to assist students
but are afraid of liability problems, and he has lost excellent
training opportunities for students because of this concern. The
employers need to be protected as they can provide excellent
learning opportunities for students and often provide jobs after
the training is completed. He urged committee members to support
SB 94.
SENATOR KELLY questioned why work experience, rather than training
experience, has been emphasized in SB 94. MR. FINK replied those
terms should be synonymous. SENATOR KELLY questioned whether the
employers would be willing to pick up the Workers' Compensation
premiums. MR. FINK commented employers are not presently doing so,
as students are often limited in the number of hours they can work
during the semester.
Number 175
SENATOR KELLY asked Mr. Gordon if he thought any of the employers
would be willing to pay the Workers' Compensation payments for the
students. MR. GORDON replied the students are only on the premises
for a limited number of hours per week, and essentially the
employer is providing a learning opportunity for the student.
Employers want to be covered while they are teaching the student,
but do not feel the activity is sufficient enough for them to pay
Workers' Compensation premiums.
SENATOR KELLY asked what a Workers' Compensation premium would cost
for a typical work-study student.
Don Koch, Marketing Surveillance Officer of the Division of
Insurance, stated the costs vary depending on the occupation of the
employer, but the range is from 50 cents per $100 to $75 per $100.
SENATOR KELLY asked if the rates would be lower since only medical
benefits would be paid. MR. KOCH replied that currently there is
no structure for not including the indemnity portion of the
payment. Approximately 50 percent of the rate is attributed to
medical costs.
Number 224
SENATOR MILLER stated, in his experience as an employer, the
company usually bases the amount on the overall salary earned,
therefore if the student is not compensated, there is nothing to
base the premium on. MR. KOCH stated that is correct, and
something would have to be structured in. He noted an equivalent
is usually negotiated for volunteers.
SENATOR KELLY asked if the premium is normally based on an hourly
wage. MR. KOCH answered it is based on each $100 of wages earned;
the only state that uses an hourly wage approach is Washington. He
added it would not be difficult for an actuary to determine those
amounts.
CLIFF STOCKTON, an aviation maintenance technology instructor at
the King Center, testified. He spoke in support of SB 94, as he is
aware of many opportunities for industry-related hands-on
experiences not being used. The proprietors and owners willing to
provide this training are not willing to take any money out of
their pockets to enhance training of students. They feel it is the
state's and school districts' responsibility to provide the
training.
Number 269
BRAD THOMPSON, Director of the Division of Risk Management,
prepared the fiscal note in committee packets. He advised it is an
estimate of future costs based on the average cost per employee the
state sees in its employee group applied after reducing medical
costs and discounting it further. It is a nominal cost of $24,000
carried annually, but that cost could easily vary as claims per
employee can average $8,000 per claim.
SENATOR KELLY asked if $24,000 would pay for student work study
programs statewide. MR. THOMPSON replied affirmatively, but for
uncompensated students receiving medical benefits only. SENATOR
KELLY asked how many students that number would include. MR.
THOMPSON answered that number is unknown, but a modest estimate of
250 students was used, which was included in SB 141, passed last
session. He noted the Division's costs are charged to each agency
on an interagency allocation system based on their actual claims
experience.
SENATOR SALO questioned whether this type of approach might
discourage apprenticeships, in which the employer pays the worker
a low level of pay. A speaker from the Career Center answered that
usually apprenticeships occur after the student has graduated from
high school. SB 94 addresses students who attend on-the-job
training instead of attending a high school class.
Number 330
SENATOR KELLY stated he would like to do further work on SB 94 and
would bring it before the committee at a later date.
SL&C - 2/28/95
SB 95 INSURANCE AGAINST UNINSURED DRIVERS
The committee took up SB 95 as the next order of business. SHERMAN
ERNOUF, committee aide, gave the following testimony. He stated SB
95 is identical to HB 403 from the 18th Legislature. It seeks to
remove the mandatory offer of uninsured and underinsured motorist
coverage in excess of coverage voluntarily purchased by an insured.
Uninsured coverage protects the vehicle owner against being injured
in a collision with an at-fault motorist with no bodily liability
insurance. Uninsured motorist coverage applies only if the
uninsured motorist is legally liable for the resulting injury.
This coverage puts the injured insured in the same position as if
he/she had been in an accident with a motorist who was covered. If
the injured driver cannot be compensated for an injury by a
negligent party who has no insurance, then the injured party can
turn to his/her own insurance company for compensation.
MR. ERNOUF continued. Over three years ago, the Legislature passed
legislation which required Alaskan insurance companies to offer
uninsured and underinsured coverage of between $1-$2 million, one
of the highest amounts in the nation. This mandatory coverage has
increased the cost of liability insurance for all policy holders
due to the high level of coverage insurance companies are mandated
to provide. SB 95 seeks to assure the Alaskan consumer of
competitive premiums in the auto insurance arena by requiring
insurance companies to provide only the requested amount of
uninsured/underinsured coverage with a statutory limitation. By
statute, there would still be a mandatory minimum, but buyers could
choose the level of protection they desire. Alaska is the only
state that requires such a high level of coverage.
MR. ERNOUF stated SB 95 will encourage a competitive market for
premiums as well as provide the consumer with an individual option
to purchase coverage in excess of the statutory minimum. The
consumer would still be protected by the statute, but would not be
forced to pay for liability coverage in excess of $1 million.
Number 401
SENATOR KELLY referred to the underinsured motorist limits chart
and noted Alaska already has the highest level of mandated
liability insurance. MR. ERNOUF agreed. SENATOR KELLY stated in
addition, insurers are required to offer excess coverage of $1-$2
million, which limits the number of insurers that can operate in
Alaska and increases rates. MR. ERNOUF replied affirmatively and
explained the premiums would also be artificially high because the
insurance company impacts, into the cost of all premiums, this high
level of liability for uninsured/underinsured motorist coverage.
Therefore with a $1-$2 million ceiling, across-the-board hikes in
premiums occur.
SENATOR SALO commented in some states, vehicle registration is
contingent upon keeping and maintaining liability insurance
coverage. She asked whether the premium rates for insurance in
Alaska are affected by the fact that we don't do this. She also
asked what the rate of participation is. MR. ERNOUF was unable to
provide that information.
LINDA HALL, President of the Alaskan Independent Insurance Agents
(AIIA), testified in support of SB 95. She described a major
discrepancy between the amounts of liability insurance motorists
are required to carry on themselves and the amount they can
purchase for uninsured motorists, under Alaska law. She stated
there should be a relationship between the amount of protection
purchased by an individual for his/her acts against others and the
amount of protection he/she purchases for his/her own protection.
If an individual is interested in providing extra protection, there
are numerous methods available, such as medical, life, and
disability insurance, that offer broad protection for many
circumstances. No other statute governing other types of insurance
protection mandates the maximum amount of coverage to be provided;
only minimum amounts are addressed. Many other states have
experienced crises in automobile insurance coverage. The AIIA
wishes to continue to protect Alaskan consumers by working to
create an atmosphere that encourages insurance competition. She
urged the committee to support SB 95.
Number 441
SENATOR KELLY asked what the effective result of the $2 million
requirement is. MS. HALL stated insurance companies, after looking
at that requirement, are concerned about committing their financial
resources. Small companies operate with strict regulatory
guidelines for their financial reserves.
DON KOCH, Division of Insurance, commented the legislative intent
of the existing law was to allow purchasers of automobile liability
insurance, which covers injured third parties, to consider purchase
of insurance providing personal protection for themselves and their
families. It allows for limits that exceed the coverage that is
required to be purchased, or is voluntarily purchased, as third
party bodily injury liability. A number of states (17) have
adopted no-fault statutes to allow the purchasers of insurance to
provide for personal protection first, and then for third party
coverage second. Alaska was the first state under a tort system to
provide for substantial offer of personal protection via the
uninsured/underinsured motorist bill.
MR. KOCH agreed with Ms. Hall that the same coverage can be
provided through other types of policies (i.e., medical) but this
method may be the most convenient. He described the policy issue
as whether the state wants to limit the coverage for a person
buying automobile insurance for their own protection to the amount
that a person voluntarily purchases for the protection of a third
party. The focus of financial responsibility laws is for
protecting third parties since the protection of personal assets is
covered by other measures. He noted the Division of Insurance is
not convinced that the high limits of coverage act as a deterrent
to new markets coming into Alaska, as new markets have come in.
Insurance companies can purchase reinsurance coverage.
Referring to the chart, MR. KOCH noted 17 states have a no-fault,
add-on feature, seven of them are modified no-fault states, and
five states are under the tort system that have offers of higher
limits. North Carolina has a mandatory offer of up to $1 million.
He suggested retaining the statute but removing the $2 million
limit as the top offer. A recent U.S. District Court decision in
the case of Colonial Company of California vs. Derrick Tumbleson
overturned the uninsured motorist provisions of our statute by
saying that the only trigger for underinsured motorist coverage is
if you have an uninsured motorist to begin with. He suggested an
additional amendment be considered to restore the intent of the
1990 law to allow the use of underinsured coverage whether the
other party is insured or not.
Number 518
SENATOR TORGERSON asked for clarification. He described a
situation brought to his attention by a constituent who tried to
collect the difference between his $300,000 underinsured motorist
coverage, and the other party's $100,000 coverage, after an
accident. He was denied by the insurance company on the grounds
that the other party had the minimum amount of coverage.
MR.KOCH explained that the case he referred to was a U.S. District
Court case which is under appeal. But, insurers are denying claims
based upon that decision which the Division of Insurance thinks is
an inappropriate result. When a consumer buys underinsured
motorist coverage on their policy, they expect that coverage to
pick up the difference. He added that typically automobile
insurers offer a maximum of $3-$500,000 coverage. Beyond that they
will offer an excess policy. The original policy covers an offer
of a like amount of uninsured/underinsured motorist coverage, which
the excess policies do not. Four other states use the same system
as Alaska: three of those states do not have a maximum limit;
North Carolina has a limit of $1 million. He suggested reducing
the $2 million maximum to $1 million.
JOHN GEORGE, representing the National Association of Independent
Insurers (NAII), testified. The NAII provides a large proportion
of the automobile insurance sold in the State of Alaska. Although
he was unfamiliar with the U.S. District Court case, he agreed the
"trigger," referred to by Mr. Koch, should be reinstated, so that
consumers get the coverage they are paying for. He responded to
Senator Salo's concern about uninsured motorists. Some states
remove license plates from uninsured vehicles after the Division of
Motor Vehicles has been notified by an insurance company that
insurance has lapsed. Locating those vehicles is a time consuming
process, however, and a low priority for many state troopers.
Other states require motorists to carry a "proof of insurance" card
but if insurance is cancelled, it is difficult to retrieve the
card. In Alaska, motorists are required to sign a sworn statement,
under penalty of perjury, that they have insurance. It is
relatively effective, as the cost is low. If that motorist is
responsible for damages, he/she is liable for perjury as well.
TAPE 95-8, SIDE B
In response to Senator Torgerson's question about his constituent,
MR. GEORGE stated the limit of liability is not necessarily what is
received as proof of damage is required; that is where the problem
may lie. Regarding the issue of reinsurance being available to
insurers, MR. GEORGE noted the cost of reinsurance for the $1
million coverage to small insurance companies is costly, especially
when very few customers may chose to buy it.
SENATOR KELLY questioned why an individual would want to buy $1
million in coverage. MR. GEORGE replied it is conceivable an
individual could have injuries and property damage to that amount.
SENATOR KELLY asked if people who buy this coverage are mainly
concerned about protecting assets. MR. GEORGE explained the
difference in protection provided in both uninsured and
underinsured policies.
Number 523
SENATOR KELLY asked what the cost of a typical $1 million policy
would be. LINDA HALL replied the cost would be approximately $150
to $200 per year on a non-commercial vehicle. She noted the
statute also applies to commercial vehicles.
SENATOR TORGERSON asked if death benefits are covered under the
underinsured policy. MR. GEORGE answered affirmatively. SENATOR
TORGERSON explained there was a death in the accident he mentioned
earlier, yet the additional monies were denied to the insured. MR.
GEORGE suggested the court decision may have been applied in that
case.
SENATOR DONLEY stated the present status of the law serves an
important purpose: it allows all Alaskans to exercise self
responsibility to protect themselves and their passengers from
other irresponsible drivers who may be uninsured or underinsured.
Self protection insurance is first party insurance; liability
insurance is considered third party insurance. Without regulation,
the opportunity for people to buy limits to protect themselves and
their families of up to $1-2 million, would not exist.
SENATOR KELLY clarified that $1 million is the limit for an
individual and $2 million is the limit for the driver and
passengers.
SENATOR DONLEY continued. He noted this insurance is voluntarily
purchased by the motorist, however if insurance companies are not
mandated to provide it, they will not offer it because whichever
company provides the excess coverage in a multiple claim case will
get stuck paying the bill. If all companies are required to sell
it, one company will not get stuck paying the entire cost. He
stated without this coverage, the State of Alaska, through the
catastrophic medical program, ends up paying the bill when serious
accidents occur. People who take the opportunity to buy excess
insurance are acting responsibly and are potentially saving the
state money. He stated the present law is not causing problems and
that no proof exists as to the assertion that competition is
limited by this law. He supported the position of the Division of
Insurance: to establish a $1 million dollar limit and to reinstate
the "trigger." He confirmed Mr. Koch's statement that there has
been no across the board cost increase as a result of this law.
Number 431
In response to Ms. Hall's statement that there should be no
distinction between the limit on the amount of liability insurance
and the limit on the amount of excess insurance, SENATOR DONLEY
disagreed. He stated third party insurance protects other people
and one's assets, but first party insurance protects oneself and
family, and is optional. He clarified that the law does not
mandate the maximum amount an insurance company can offer, rather
it mandates the minimum amount. Regarding the Colonial case, which
was decided January 20, the court interpreted what the Legislature
did do, rather than what they did not do. They completely
misinterpreted the legislative intent. The case should have been
decided in state court rather than federal court. SENATOR DONLEY
commented if the appeal is unsuccessful, the solution rests with
the proposal put forward by the Division of Insurance. The appeal
is centered around the fact that the case should have been decided
by a state court.
SENATOR KELLY asked if the misinterpretation in the court's
decision can be fixed in SB 95. SENATOR DONLEY replied
affirmatively.
SENATOR SALO questioned how Senator Torgerson's constituent could
be better served. SENATOR DONLEY answered the solution is to get
the Ninth Circuit Court to certify this question back to the state
courts for an appropriate decision on state law.
SENATOR TORGERSON expressed concern that insurance companies are
charging premiums but not paying off on them. SENATOR DONLEY
agreed. SENATOR TORGERSON asked if the premiums would be
reimbursed. SENATOR DONLEY stated it is within the authority of
the Division of Insurance to make that order, since many people are
being denied coverage they already paid for.
Regarding reinsurance, SENATOR DONLEY explained there are two
kinds. Treaty reinsurance allows a company to reinsure for all
risks; a second type allows a company to buy coverage for a single
risk. He commented that it is slightly more difficult and
expensive to get the single-risk type of insurance, but that is
built into the rate base. He added more umbrella policies are now
structured to include uninsured/underinsured coverage which he
believes is a result of the mandated offer. This presents an
additional option to the consumer. He urged the committee to leave
the law the way it is but to make some minor adjustments including
the resolution of the Colonial case.
SENATOR KELLY asked about the court decision. SENATOR DONLEY
stated the court decided, that since the Legislature did not amend
a definition statute when they passed the law (which is what Mr.
Koch referred to as the "trigger"), the law was basically
meaningless. He added the legislative drafters are completely
perplexed by the decision because definition statutes are not
substantive sections of the law and are not used to reinterpret
substantive sections of the law.
SENATOR DONLEY reiterated that he supports the changes proposed by
the Division of Insurance.
SENATOR KELLY announced SB 95 would not be passed out of committee
at this time, and that a meeting would be held on Thursday at 1:30
to hear the Insurance Code Revision.
SENATOR KELLY adjourned the meeting at 2:48 p.m.
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