Legislature(1995 - 1996)

02/28/1995 01:30 PM L&C

Audio Topic
* first hearing in first committee of referral
+ 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             
 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                   
 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              
 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             
 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                     
 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                       
 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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