Legislature(2001 - 2002)

05/04/2002 09:05 AM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                    
                SENATE LABOR & COMMERCE COMMITTEE                                                                             
                           May 4, 2002                                                                                          
                             9:05 am                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Ben Stevens, Chair                                                                                                      
Senator Alan Austerman                                                                                                          
Senator John Torgerson                                                                                                          
Senator Bettye Davis                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Loren Leman                                                                                                             
                                                                                                                              
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR HOUSE BILL NO. 274(L&C)                                                                                                  
"An Act relating  to the qualification of a physician  used for an                                                              
employer's independent  medical examination  and to  the authority                                                              
of the Alaska Workers' Compensation  Board to provide an expedited                                                              
hearing when  an employee needs  medical treatment;  and providing                                                              
for an effective date."                                                                                                         
                                                                                                                                
     MOVED SCSHB 274(L&C) OUT OF COMMITTEE                                                                                      
                                                                                                                                
CS FOR HOUSE BILL NO. 246(JUD)                                                                                                  
"An Act  relating to  regulation of  a person providing  insurance                                                              
for  the cost  of medical  care, to  confidentiality of  insurance                                                              
records, to insurance  hearings, to insurance fees,  to annual and                                                              
quarterly statements  by insurers,  to managed care  insurance, to                                                              
taxes on insurance, to insurer certificates  of authority, to risk                                                              
based  capital  for  insurers,  to  unauthorized  and  nonadmitted                                                              
insurers,  to surplus  lines insurance,  to  health insurance,  to                                                              
life  insurance,   to  annuity   insurance,  to  consumer   credit                                                              
insurance, to  insurer liquidation,  to multiple employer  welfare                                                              
arrangements,  to the  Alaska Insurance  Guaranty Association,  to                                                              
hospital and  medical service corporations,  and to  regulation of                                                              
insurance  producers, agents,  brokers,  managers, and  adjusters;                                                              
and providing for an effective date."                                                                                           
                                                                                                                                
     MOVED CSHB 246(JUD) OUT OF COMMITTEE                                                                                       
                                                                                                                                
SENATE CS FOR CS FOR HOUSE BILL NO. 393(L&C)                                                                                    
"An Act  relating to unfair and  deceptive trade practices  and to                                                              
the  sale of  business  opportunities; amending  Rules  4 and  73,                                                              
Alaska Rules  of Civil Procedure;  and providing for  an effective                                                              
date."                                                                                                                          
                                                                                                                                
     MOVED SCSHB 393(L&C) OUT OF COMMITTEE                                                                                      
                                                                                                                                
CS FOR HOUSE BILL NO. 499(JUD)                                                                                                  
"An Act declaring  legislative intent to reject  the continuity of                                                              
enterprise  exception  to  the  doctrine  of  successor  liability                                                              
adopted in  Savage Arms, Inc. v.  Western Auto Supply, 18  P.3d 49                                                              
(Alaska 2001) as it relates to products  liability; providing that                                                              
a successor  corporation  or other business  entity that  acquires                                                              
assets of  a predecessor corporation  or other business  entity is                                                              
subject to liability  for harm to persons or property  caused by a                                                              
defective product  sold or  otherwise distributed commercially  by                                                              
the  predecessor only  if  the acquisition  is  accompanied by  an                                                              
agreement for the successor to assume  the liability, results from                                                              
a  fraudulent conveyance  to  escape liability  for  the debts  or                                                              
liabilities  of the  predecessor, constitutes  a consolidation  or                                                              
merger  with  the  predecessor,  or  results  in  the  successor's                                                              
becoming  a continuation  of the  predecessor; defining  'business                                                              
entity'  that acquires  assets to include  a sole  proprietorship;                                                              
and  applying this  Act to  the sale,  lease,  exchange, or  other                                                              
disposition  of  assets  by a  corporation,  a  limited  liability                                                              
company,  a  partnership,  a  limited   liability  partnership,  a                                                              
limited  partnership,  a sole  proprietorship,  or other  business                                                              
entity  that occurs  before, on,  or after the  effective date  of                                                              
this Act."                                                                                                                      
                                                                                                                                
     MOVED CSHB 499(JUD) OUT OF COMMITTEE                                                                                       
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
HB 274 - See Labor and Commerce minutes dated 3/14/02.                                                                          
                                                                                                                                
HB 246 - See Labor and Commerce minutes dated 4/30/02.                                                                          
                                                                                                                                
HB 393 - See Labor and Commerce minutes dated 4/30/02.                                                                          
                                                                                                                                
HB 499 - No previous action to record.                                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
Representative John Coghill                                                                                                     
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Sponsor HB 274.                                                                                           
                                                                                                                                
Representative Lisa Murkowski                                                                                                   
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Sponsor of HB 246.                                                                                        
                                                                                                                                
Mr. Bob Lohr, Director                                                                                                          
Division of Insurance                                                                                                           
Department of Community and Economic Development                                                                                
3601 C Street, Ste. 1324                                                                                                        
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Commented on HB 246.                                                                                      
                                                                                                                                
Ms. Katie Campbell, Life and Death Actuary                                                                                      
Division of Insurance                                                                                                           
Department of Community and Economic Development                                                                                
POB 110805                                                                                                                      
Juneau AK 99811-0805                                                                                                            
POSITION STATEMENT: Commented on HB 246.                                                                                      
                                                                                                                                
Representative Gary Stevens                                                                                                     
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Sponsor of HB 393.                                                                                        
                                                                                                                                
Mr. Gene Dau                                                                                                                    
AARP                                                                                                                            
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supported HB 393                                                                                          
                                                                                                                                
Ted Pease, Atty                                                                                                                 
Burr, Pease & Kurtz                                                                                                             
810 N St.                                                                                                                       
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported HB 499.                                                                                         
                                                                                                                                
Mr. Jim Powell, Atty                                                                                                            
550 W 7th Ave.                                                                                                                  
Anchorage AK 99501-3563                                                                                                         
POSITION STATEMENT: Opposed HB 499.                                                                                           
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 02-28, SIDE A                                                                                                            
Number 001                                                                                                                      
               HB 274- WORKERS' COMP: MEDICAL EXAM                                                                          
                                                                                                                              
CHAIRMAN BEN STEVENS called the Senate Labor & Commerce Committee                                                             
meeting to order at 9:05 am and announced HB 274 to be up for                                                                   
consideration.                                                                                                                  
                                                                                                                                
REPRESENTATIVE COGHILL,  sponsor of HB 274, said that  it ran into                                                              
a problem  with due  process with the  expedited hearing  and that                                                              
was  deleted.  Now the  doctors  are  simply  required to  have  a                                                              
license in a place where the examination occurs.                                                                                
                                                                                                                                
SENATOR TORGERSON  moved to  adopt the  CS to  HB 274, LS0  983\L.                                                              
There were no objections and it was so ordered.                                                                                 
                                                                                                                                
SENATOR AUSTERMAN  moved to pass  SCS HB 274(L&C)  with individual                                                              
recommendations and  $0 fiscal note. There were  no objections and                                                              
it was so ordered.                                                                                                              
                                                                                                                                
                  HB 246-OMNIBUS INSURANCE BILL                                                                             
                                                                                                                                
CHAIRMAN STEVENS announced HB 246 to be up for consideration.                                                                   
                                                                                                                                
REPRESENTATIVE  LISA  MURKOWSKI,   sponsor,  said  this  bill  was                                                              
requested by the Division of Insurance.  She said that it was much                                                              
more comprehensive  last  year and  that they  had dealt with  the                                                              
Gramm-Leach-Blighly provisions.  She said the changes  in terms of                                                              
policy matters  are limited  to two  areas. The  first is  as they                                                              
related to  multiple employer  welfare arrangements.  Essentially,                                                              
past  employee welfare  benefit plans  have been  regulated as  an                                                              
insurer. HB  246 sets  up a less  burdensome regulatory  structure                                                              
for  them.   The  other  area  is   issues  that  relate   to  the                                                              
confidentiality  of  records.  HB 246  provides  for  confidential                                                              
information sharing  arrangements. Confidentiality  provisions are                                                              
required  for   Alaska  to  remain  accredited   by  the  National                                                              
Association of Insurance Commissioners.                                                                                         
                                                                                                                                
She  said that  the other  provisions  correct existing  insurance                                                              
laws.  Essentially,  the  director   went  through  the  insurance                                                              
provisions and  did a lot of  the cleanup, addressing  things like                                                              
fees  for late  payment  of  premium taxes,  establishing  minimum                                                              
benefit  levels for  stop  loss insurance  contracts  and for  the                                                              
first time,  it provides for an annual  fee to operate  as a joint                                                              
insurance arrangement. It also revises  the assessment formula for                                                              
the guarantee fund and has more corrections and clarifications.                                                                 
                                                                                                                                
SENATOR  TORGERSON  asked  if  the  joint  insurance  arrangements                                                              
affect   the   AML-JAI's.   He   also   had   questions   on   the                                                              
confidentiality on  page 36 where, "the director  may withhold the                                                              
rating form  from public  inspection for as  long as  the director                                                              
determines   that  it   is  necessary  to   protect  the   service                                                              
corporation"  is  deleted  and replaced  with  "confidential".  He                                                              
wanted to know why they did that.                                                                                               
                                                                                                                                
REPRESENTATIVE MURKOWSKI  replied that  Director Lohr was  on line                                                              
to  answer  the last  question  and  pointed  out that  the  joint                                                              
insurance arrangements are discussed under section 48.                                                                          
                                                                                                                                
MR.  LOHR,  Director,  Division  of  Insurance,  answered  Senator                                                              
Torgerson's last question saying  that basically there are certain                                                              
types of  documents that are  invariably declared  confidential by                                                              
the  division including  work papers  from an  examination by  the                                                              
division. The degree of confidentiality  associated with a case by                                                              
case determination  is not enough  to satisfy other states  or the                                                              
National Association. Basically,  a state that shares the contents                                                              
of an exam with other states is information  that will not get out                                                              
to the public  or to third  parties. This language is  designed to                                                              
do exactly that.                                                                                                                
                                                                                                                                
SENATOR TORGERSON  noted his concern  was with section 58  on page                                                              
36.                                                                                                                             
                                                                                                                                
MS. KATIE CAMPBELL, Life and Health  Actuary, said this particular                                                              
provision,  section  3,  they  put  in a  definition  of  what  it                                                              
actually means  to be confidential.  This provision  was tightened                                                              
up  a little  bit,  because Blue  Cross/Blue  Shield  is the  only                                                              
entity that has  to file rates with the division  and they're very                                                              
concerned that they're the only ones  who have to file, so all the                                                              
details  of  the  rating information  are  kept  confidential  for                                                              
proprietary reasons.                                                                                                            
                                                                                                                                
SENATOR TORGERSON  asked what impacts this has  on joint insurance                                                              
arrangements.                                                                                                                   
                                                                                                                                
MS. CAMPBELL  explained  that although the  division doesn't  have                                                              
regulatory  authority  over JAI's,  they  are  often asked  to  be                                                              
brought  into that  to do  some work  on  it and  there are  costs                                                              
associated with it.                                                                                                             
                                                                                                                                
MR. LOHR  added that basically  JAI's are  not in the  business of                                                              
insurance.   The   chapter  that   sets   them   up  states   that                                                              
specifically.                                                                                                                   
                                                                                                                                
     However,  each of the  JAI's from  time to time  accuses                                                                   
     the other  ones of intruding  into what is  the business                                                                   
     of insurance,  which would then become regulated  by the                                                                   
     division to the  extent that they are going  outside the                                                                   
     boundaries of the joint insurance arrangement.                                                                             
                                                                                                                                
The expenses  are born by  the fee payers  to the division,  since                                                              
they are entirely  a fee-supported agency. So the  fees are passed                                                              
on to the JAI's.                                                                                                                
                                                                                                                                
SENATOR TORGERSON  asked what  other JAI's  the state has  besides                                                              
AML.                                                                                                                            
                                                                                                                                
MR. LOHR replied that there is Alaska Public Entities Insurance.                                                                
                                                                                                                                
SENATOR TORGERSON  said this would  only affect them if  they step                                                              
outside of their statutory authority.                                                                                           
                                                                                                                                
MR. LOHR  replied, "That's correct.  It's only if they  stray into                                                              
the area of regulating  activity outside of the bounds  of the JAI                                                              
organizing statute."                                                                                                            
                                                                                                                                
SENATOR  TORGERSON moved  to pass  SCSHB  246(L&C) from  committee                                                              
with  individual recommendations  and  the $0  fiscal note.  There                                                              
were no objections and it was so ordered.                                                                                       
                                                                                                                                
             HB 393-SALES OF BUSINESS OPPORTUNITIES                                                                         
                                                                                                                                
CHAIRMAN STEVENS announced HB 393 to be up for consideration.                                                                   
                                                                                                                                
REPRESENTATIVE  GARY  STEVENS,  sponsor,  said that  this  is  not                                                              
intended to hurt legitimate businesses  at all and Avon ladies are                                                              
exempted.                                                                                                                       
                                                                                                                                
MR. GENE  DAU, AARP,  supported HB  393. He said  a lot  of senior                                                              
citizens  are trying  to supplement  their  income and  adds in  a                                                              
paper could  be scams catch their  eyes real fast. Passing  HB 393                                                              
would help seniors be less vulnerable to this type of scam.                                                                     
                                                                                                                                
MS. CINDY DRINKWATER,  Assistant Attorney General, said  this is a                                                              
good   consumer  protection   piece   of   legislation.  From   an                                                              
enforcement  perspective   this  bill  is  important   because  it                                                              
requires  registration  similar  to  how other  states  deal  with                                                              
business  opportunities   and  allows   the  department   to  find                                                              
something  out   about  these  businesses  ahead   of  time.  They                                                              
anticipate  that there  would  be  a lot  of sellers  of  business                                                              
opportunities  who  would not  register.  She  said that  this  is                                                              
important legislation.                                                                                                          
                                                                                                                                
SENATOR  AUSTERMAN said  there was  an  indeterminate fiscal  note                                                              
with the  bill and he  raised the question  about what  the actual                                                              
cost would be. He  asked if the legislature was going  to find out                                                              
how  much it  was going  to  cost next  year  when the  department                                                              
requests new employees.                                                                                                         
                                                                                                                                
MS.  DRINKWATER replied  that it  is  possible that  they will  be                                                              
asking for additional  funds, but at this point they  don't have a                                                              
sense of how many enforcement actions  they would have to take and                                                              
how many  registrations there  might be. At  this point,  they are                                                              
anticipating they  will be able to  afford this because  it is the                                                              
kind of work they do.                                                                                                           
                                                                                                                                
SENATOR  AUSTERMAN said  he  appreciated the  fact  that they  are                                                              
anticipating absorbing all the cost on this.                                                                                    
                                                                                                                                
CHAIRMAN  STEVENS said  he anticipated  the  discussion about  the                                                              
$250 - $500  threshold would continue because  Senator Leman still                                                              
has concerns about  it. He suspected it would be  raised again and                                                              
asked her to reiterate why they chose $250 instead of $500.                                                                     
                                                                                                                                
MS. DRINKWATER  replied that initially  the department  proposed a                                                              
$200 threshold  because they wanted  to protect as  many consumers                                                              
as possible.  Other states use a  range of $200 - $500.  They know                                                              
there are  a number  of fraudulent  "busops" out  there that  have                                                              
payment  requirements far  less  than even  $200.  When the  House                                                              
added "an aggregate  of $10,000" there was the  concern that there                                                              
are scam  artists bilking hundreds  of people out of  a relatively                                                              
small  amount  of  money  hoping  they  would  sneak  through  law                                                              
enforcement  radar and  people wouldn't  feel  like they  wouldn't                                                              
have to  vigorously protect  their investment.  They felt  at some                                                              
point that  a line  has to be  drawn somewhere,  so they  drew one                                                              
that other states had drawn.                                                                                                    
                                                                                                                                
The department  did  an informal  survey to find  if other  states                                                              
found the  $500 was  reasonable or whether  it should  be lowered.                                                              
The uniform  response  was that it's  best to  keep the  threshold                                                              
amount as low  as possible for the reasons she  already suggested.                                                              
In state's where there is a $500  threshold busops will sell their                                                              
product for $495  and that same package would be  sold for $199 in                                                              
a state with a $200 threshold.                                                                                                  
                                                                                                                                
     The  purpose of  keeping it  at the lower  amount is  to                                                                   
     throw  the net  as widely as  they could  to include  as                                                                   
     many fraudulent  sellers as possible. It seems  like the                                                                   
     real objection  to the  $500 amount  is from the  direct                                                                   
     callers association, but they  would be exempt under our                                                                   
     exemption  #5. So,  they wouldn't  be  affected by  that                                                                   
     provision anyway.                                                                                                          
                                                                                                                                
SENATOR AUSTERMAN asked how many complaints do they get a year.                                                                 
                                                                                                                                
MS.  DRINKWATER  replied  that  in   2001  there  were  six  busop                                                              
complaints. She  said they average 6  - 8 complaints per  year and                                                              
they  are aware  of  8 -  12  additional complaints  from  Alaskan                                                              
consumers that were filed with the  Federal Trade Commission. That                                                              
number might  seem low, but  it is viewed  as only the tip  of the                                                              
iceberg. Also, people are often surprised  to find that there is a                                                              
consumer protection  unit in state  government again. There  are a                                                              
variety of reasons that people may  not file complaints currently.                                                              
                                                                                                                                
SENAATOR AUTSERMAN moved to pass  SCS HB 393(L&C) out of committee                                                              
with individual  recommendations. There were no  objections and it                                                              
was so ordered.                                                                                                                 
                                                                                                                                
        HB 499-SUCCESSOR LIABILITY FOR PRODUCT LIABILITY                                                                    
                                                                                                                              
CHAIRMAN STEVENS announced HB 499 to be up for consideration.                                                                   
                                                                                                                                
REPRESENTATIVE  ROKEBERG, sponsor, said  this legislation  in part                                                              
overturns an Alaska  Supreme Court case, at the  invitation of the                                                              
court that  indicated they  made their  ruling because  the Alaska                                                              
Legislature  never spoke on  this issue  - successor liability  in                                                              
tort  cases  of product  liability,  only.  The issue  before  the                                                              
legislature  is,  should  the  State  of  Alaska  adopt  the  U.S.                                                              
standard  of "continuation  of enterprise  in successor  liability                                                              
tort  cases,"  which  has  been   dismissed  by  the  overwhelming                                                              
majority.  Forty-six  states  expressly rejected  in  the  current                                                              
third restatement of torts which was the 1998 edition.                                                                          
                                                                                                                                
     HB 499 answers  that question with a resounding  'no' by                                                                   
     adopting  the four  exceptions  to the  general rule  of                                                                   
     successor  liability, which  is set  forth in the  third                                                                   
     restatement  of  torts.  This would  make  Alaska's  law                                                                   
     conform with the rest of the country.                                                                                      
                                                                                                                                
Section 2, (a)(4)(1),(2),(3)  and (4) language are  a direct quote                                                              
out of  the third  restatement of  tort, which  provides that  any                                                              
time a successor should be liable  for product liability is if you                                                              
agreed to it, if there is a fraudulent  conveyance, if there was a                                                              
consolidation  or   merger  and  when  the  successor   becomes  a                                                              
continuation  of  the predecessor  or  mirror  continuation  where                                                              
ownership  of  the corporation  is  similar  or  the same  as  its                                                              
succeeding  business.  The  Supreme   Court  accepted  the  mirror                                                              
continuation  theory, but  they also adopted  the continuation  of                                                              
enterprise theory,  which in  his study of  the issue,  allows the                                                              
court  to  do whatever  they  want  to  do  in terms  of  applying                                                              
liability.                                                                                                                      
                                                                                                                                
Justice  Eastaugh said  that he  believed that  the minority  view                                                              
could be adopted by the State of  Alaska because there weren't any                                                              
economic studies  justifying that  position otherwise.  Almost all                                                              
the other  states in the  Union rejected  that theory and  it's no                                                              
wonder there  are no economic studies.  He went on to say  that he                                                              
felt  the accumulated  good  will  in any  kind  of a  transaction                                                              
should be adequate to cover any unforeseen  future liabilities. He                                                              
thought that was extraordinary.                                                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  said the retroactivity part  of this bill                                                              
is to an on-going court case.                                                                                                   
                                                                                                                                
     A  Kenai  District  Court ruling  was  appealed  to  the                                                                   
     Supreme Court  to find out  basically what the  real law                                                                   
     was  in the  State  of Alaska  and  the ruling  in  this                                                                   
     particular  case came  in the  middle of  the Cole  Case                                                                   
     that  has  been  remanded back  to  the  Kenai  Superior                                                                   
     Court.   So,  it   becomes  an  issue   of  should   the                                                                   
     legislature insert itself in  an existing on-going court                                                                   
     case. In fact, by the Supreme  Court adopting a standard                                                                   
     or a  rule that doesn't conform  to the rest  of country                                                                   
     and apply it to something already  happened, the Supreme                                                                   
     Court is retroactively applying the standard.                                                                              
                                                                                                                                
He submitted that the legislature  has the same power and even the                                                              
obligation to make sure the law of  the land is the law of Alaska,                                                              
also. Another aspect is that it's  very clear that in a court case                                                              
that  hasn't  reached  its  final  conclusion  going  through  the                                                              
various levels  of appeal, that there's  no vested right  to claim                                                              
that there's a problem of the state getting involved with this.                                                                 
                                                                                                                                
     The final  determination has  not already occurred.  So,                                                                   
     it's clear  in the  law that  unless there's a  judgment                                                                   
     that's been fully vested, that  that's a property right.                                                                   
     Statements have  been made and you'll hear  it that what                                                                   
     the  state  is  doing is  an  inverse  condemnation.  By                                                                   
     passing  this  law, we'd  be  making  a taking  of  this                                                                   
     judgment. That's  not true.  What I find interesting  as                                                                   
     an  old  law  school  dropout   is,  and  a  student  of                                                                   
     constitutional law, is that  the basic principle of that                                                                   
     was articulated  by Chief Justice  John Marshal  in 1801                                                                   
     in the Schooner  Peggy Case…which said unless  you had a                                                                   
     vested right, it wasn't a taking.                                                                                          
                                                                                                                                
MR. TED PEASE  of Burr, Pease and Kurtz, Counsel  for Savage Arms,                                                              
Inc.,  supported HB  499  in relation  to  their  court case  with                                                              
Western  Auto.  This bill  provides  fairness  and  predictability                                                              
[indisc.].                                                                                                                      
                                                                                                                                
     I think a recitation of [case  between] Arms and Western                                                                   
     Auto  will  make clear  the  unfairness of  the  Supreme                                                                   
     Court's  ruling and  the devastating  effect  it has  on                                                                   
     companies  like  Savage  Arms to  purchase  assets  from                                                                   
     another company  and the find  out they're subject  to a                                                                   
     code of liability for defective  product manufactured by                                                                   
     that other company, a liability  that was unknown at the                                                                   
     time of the sale.                                                                                                          
                                                                                                                                
MR. PEASE gave the committee an outline of the relevant                                                                         
facts.                                                                                                                          
                                                                                                                                
     On April  8, 1989  Kenai, a boy  named Taylor was  badly                                                                   
     injured   when   a   model   125,   22   caliber   rifle                                                                   
     malfunctioned.  That gun was  manufactured in 1982  by a                                                                   
     company  called Savage  Industries,  Inc.  who had  been                                                                   
     making firearms  for some  time. Savage Industries  sold                                                                   
     the  gun to  Western Auto  and  sold it  a purchaser  in                                                                   
     Maine  in  1983   and  then  the  gun  went   through  a                                                                   
     succession of  owners and ended  up in Kenai in  the gun                                                                   
     shop where it was purchased  by the Taylor boy's father.                                                                   
     On February  2, 1988, Savage  Industries was  in serious                                                                   
     management trouble and filed  for chapter 11 bankruptcy.                                                                   
     This is before the accident  ever happened. The accident                                                                   
     occurred more  than a year later. Savage  Industries had                                                                   
     gone  bankrupt and  had no insurance.  In the  meantime,                                                                   
     following  the  chapter  11   filing,  an  international                                                                   
     publicly  traded  corporation called  Challenger  became                                                                   
     interested  in purchasing a  substantial portion  of the                                                                   
     assets of  Savage and carrying on the  gun manufacturing                                                                   
     business.  There  is  a subsidiary  shop  called  Savage                                                                   
     Arms,   Inc.  In   the  sale   negotiated  with   Savage                                                                   
     Industries and approved by the  bankruptcy court, Savage                                                                   
     Arms, Inc.  purchased a large  portion of the  assets of                                                                   
     Savage  Industries.  The assets  purchase  included  the                                                                   
     manufacturing plant  in Massachusetts, the  Savage name,                                                                   
     the core  product [indisc.],  but not  the model of  the                                                                   
     gun  that injured  the Taylor  boy,  and machinery.  The                                                                   
     sale  concluded   in  November  1989  and   Savage  Arms                                                                   
     thereafter  manufactured  and  sold firearms  under  the                                                                   
     Savage name and it continues to do so today.                                                                               
                                                                                                                                
     Now, at the time of the sale,  no lawsuit had been filed                                                                   
     and neither  Savage Industries  nor Savage Arms  knew of                                                                   
     the  accident   in  Kenai.   Over  a  year   after  that                                                                   
     [indisc.],  in  December 1990,  the  plaintiff,  Taylor,                                                                   
     sued Savage Industries from Kenai.                                                                                         
                                                                                                                                
TAPE 02-28, SIDE B                                                                                                            
                                                                                                                              
     [SOME TESTIMONY WAS MISSED IN TURNING THE TAPE OVER]                                                                       
                                                                                                                                
     Western Auto  is insured 100% by Allstate  [indisc.] and                                                                   
     Allstate  defended Western Auto  and ultimately  settled                                                                   
     with the plaintiff  for $5.4 million in June  1995. Now,                                                                   
     Allstate  has brought Savage  Arms into the  litigation,                                                                   
     claiming  its  entitled to  recover  the amount  of  its                                                                   
     settlement  with Taylor plus  interest and costs,  which                                                                   
     now  we're told  approach $20  million  and maybe  more.                                                                   
     They  argue  that  Savage  Arms  was  the  successor  in                                                                   
     liability  to   Savage  Industries,  which  was   a  gun                                                                   
     manufacturer  under  this [indisc.]  doctrine  that  has                                                                   
     been almost  universally rejected by those  states which                                                                   
     have considered  it and which  is not the law  of Alaska                                                                   
     and  which  has  been criticized  and  rejected  by  the                                                                   
     American  Law  Institute  in its  third  restatement  of                                                                   
     torts product liability in section 12.                                                                                     
                                                                                                                                
The  American  Law  Institute is  a  very  prestigious  group                                                                   
that's  recognized by  all the  courts  in the  country as  a                                                                   
leading  authority on  all  kinds of  laws.  They do  careful                                                                   
studies, collect  data and come out with  restatements, which                                                                   
the Alaska Supreme  Court often sites and  follows (usually).                                                                   
They  didn't in  this case.  He said  that none  of the  four                                                                   
generally  accepted exceptions  to  the successor  liability,                                                                   
which are  adopted by  the restatement  really fit the  case,                                                                   
making it  difficult for  Western Auto  to recover  indemnity                                                                   
from Savage Arms.                                                                                                               
                                                                                                                                
     So,  Allstate  urged this  other  discredited  successor                                                                   
     liability, called continuity  of enterprise, which could                                                                   
     make Savage Arms  liable to Western Auto  as a successor                                                                   
     in liability to Savage Industries.                                                                                         
                                                                                                                                
Savage Arms  was reviewed  by the Alaska  Supreme Court  before it                                                              
proceeded   at  Judge   Link's,   who  stayed   the   proceedings,                                                              
suggestion. The Supreme  Court accepted the petition  and on March                                                              
2001 handed down the decision that  adopted the almost universally                                                              
rejected  and discredited  doctrine of  continuity enterprise  and                                                              
sent the case back to Judge Link  for trial, which as set in Kenai                                                              
for November  2002. HB  499 specifically  disapproves and  rejects                                                              
the continuity of enterprise doctrine  and makes it retroactive to                                                              
apply to  the pending  case. There  are two  reasons. This  is not                                                              
accepted law  in any state,  including Alaska  and it will  make a                                                              
more  uniform  standard  for  all companies  who  are  in  similar                                                              
situations in  the future. He cited  a case in 1989  called Kichen                                                              
v. United States that said:                                                                                                     
                                                                                                                                
     No  person  has  a  vested right  in  any  rule  of  law                                                                   
     entitling him  to insist that it shall  remain unchanged                                                                   
     for his  benefit. This is true  after the suit  has been                                                                   
     filed and continues to be true  until final unreveiwable                                                                   
     judgment is obtained.                                                                                                      
                                                                                                                                
MR.  JIM POWELL,  Attorney, said  he represented  Western Auto  in                                                              
front of  Judge Link  and he continues  representing Allstate  and                                                              
underwriters who  are the carriers  for Western Auto and  who made                                                              
the ultimate payment to resolve the  Kevin Taylor injury claim. He                                                              
opposed  HB  499  because  it  is   special  interest  legislation                                                              
designed  to protect  a group  of Texas  investors called  Servico                                                              
Partners,  who before  this bankruptcy  controlled  all the  stock                                                              
through   their  various   corporations   and   have,  since   the                                                              
bankruptcy, guaranteed the result  to Savage Arms of any judgment,                                                              
which is paying for this.                                                                                                       
                                                                                                                                
     They  are attempting  by virtue of  this legislation  to                                                                   
     use  the Alaska  Legislature  to relieve  them of  their                                                                   
     obligation to  pay for any  liability coming out  of the                                                                   
     litigation in Kenai where Kevin Taylor was injured.                                                                        
                                                                                                                                
He said the rifle was found, as a  matter of law by Judge Link, to                                                              
be  defectively  manufactured and  fell  apart in  Kevin  Taylor's                                                              
hands, it spun like  a baton and fell to the  ground discharging a                                                              
bullet  into  his temple  causing  him  serious brain  damage  and                                                              
substantial paralysis from the mid-chest down.                                                                                  
                                                                                                                                
Western  Auto was  the  innocent retailer  that  sold the  firearm                                                              
without inspection  and under Alaska law, retailers  can't be held                                                              
liable for the  manufacturer's faults. When Servico  Partners sold                                                              
their  interest  to the  current  president  of Savage  Arms  they                                                              
guaranteed if  there was a judgment  of claim arising out  of this                                                              
incident,  they  would  stand  good  for  it,  but  now  they  are                                                              
attempting to  use the legislature  to make good on  its promises.                                                              
Also, he said it is very rare for  the legislature to pass any law                                                              
that  is retroactive.  He thought  it  would raise  constitutional                                                              
questions  and there might  be a  question of  whether there  is a                                                              
taking by the state of that cause of action.                                                                                    
                                                                                                                                
10:12 am                                                                                                                        
                                                                                                                                
SENATOR  TORGERSON  said  the last  statement  in  his  memorandum                                                              
states the potential liability on  the part of the State of Alaska                                                              
is $14.5 million and asked how he got from $5.4 to $14.5.                                                                       
                                                                                                                                
MR. POWELL  replied that it includes  the cost of defense  and the                                                              
interest  rate  is 10.5%  per  annum.  They have  made  settlement                                                              
offers and  offers of  judgment to  Savage for substantially  less                                                              
than  the  amount of  the  liability.  "If  we are  successful  in                                                              
proving  liability which  exceeds  those offers  of judgment,  the                                                              
interest  rate goes  to 15.5%  under  the rules  existing at  that                                                              
time."                                                                                                                          
                                                                                                                                
REPRESENTATIVE  ROKEBERG objected to  Mr. Powell's statement  that                                                              
this is  special interest legislation.  "This applies  to anybody,                                                              
any manufacturer."                                                                                                              
                                                                                                                                
CHAIRMAN STEVENS  said that the  decision whether  the legislature                                                              
should  be  involved in  a  Supreme  Court  decision lies  in  the                                                              
Judiciary Committee and it was his intent to move it there.                                                                     
                                                                                                                                
SENATOR DAVIS moved to pass CSHB  499(JUD) with attached $0 fiscal                                                              
note from  committee with  individual recommendations.  There were                                                              
no objections and it was so ordered.                                                                                            
CHAIRMAN STEVENS adjourned the meeting at 10:18 am.                                                                             

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