Legislature(1995 - 1996)
02/28/1995 01:30 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.