Legislature(1997 - 1998)
02/19/1998 01:33 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
February 19, 1988
1:33 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Jerry Mackie, Vice Chairman
Senator Tim Kelly
Senator Mike Miller
Senator Lyman Hoffman
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 202
"An Act relating to insurance; amending Rules 79 and 82, Alaska
Rules of Civil Procedure; and providing for an effective date."
- HEARD AND HELD
SENATE BILL NO. 158
"An Act relating to motor vehicle liability insurance covering a
person who has had the person's driver's license revoked."
- MOVED CSSB 158 OUT OF COMMITTEE
SENATE BILL NO. 283
"An Act relating to noneconomic damages resulting from an
automobile accident."
- BILL POSTPONED
PREVIOUS SENATE COMMITTEE ACTION
SB 202 - No previous action to consider.
SB 158 - See Labor and Commerce minutes dated 2/5/98.
SB 283 - No previous action to consider.
WITNESS REGISTER
Senator Dave Donley
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Sponsor of SB 202.
Ms. Sarah McNair-Grove, Insurance Analyst
Division of Insurance
Department of Commerce and Economic Development
P.O. Box 110805
Juneau, AK 99811-0805
POSITION STATEMENT: Commented on SB 202.
Mr. John George
National Association of Independent Insurers
3328 Fritz Cove Rd.
Juneau, AK 99801
POSITION STATEMENT: Opposed SB 202.
Mr. Michael Lessmeier
State Farm Insurance
124 W 5th
Juneau, AK 99801
POSITION STATEMENT: Opposed SB 202.
ACTION NARRATIVE
TAPE 98-7, SIDE A
Number 001
SB 202 - MOTOR VEHICLE INSURANCE
CHAIRMAN LEMAN called the Senate Labor and Commerce Committee
meeting to order at 1:33 p.m. and announced SB 202 to be up for
consideration.
SENATOR DAVE DONLEY said SB 202 has as its goal to correct some of
the unfairness that is going on in the current settlement practices
of the insurance industry in Alaska in the form of reduced claim
payments.
Section #3 prohibits insurers from terminating contracts with an
insurance producer, agent, broker, or independent adjuster without
good cause. It also requires the Director of Insurance to adopt
regulations to implement and enforce this section. He said he had
talked to agents over the summer who told him of feeling threatened
by some insurers when they stuck up for their clients. They wanted
security that they wouldn't be fired unless it was for a legitimate
reason.
SENATOR DONLEY said the insurance industry is the only industry
that is exempt from the anti-trust law, so it should be regulated
differently.
Section #4 makes it clear that insurance companies cannot limit
communications between agents and insureds and also people who
repair property that is damaged. There is no good public policy
reason for a company to tell an agent what it should or should not
communicate to the insured. Repair people should be able to give
estimates, if it's legitimate information, to insureds whether or
not the repair is covered. There is no reason a repair person
should be intimated into not giving estimates because insurance
doesn't cover it.
Section #5 was requested by the Division of Insurance and the
Division of Motor Vehicles. It prohibits an insurance company from
canceling a policy if an individual in the household has a driver's
license suspended or revoked for minor consuming or minor in
possession of drugs or alcohol. This section relates to section
the "Use It, Lost It" bill required high-risk (SR22) insurance when
a driver's license is administratively revoked for a non-driving
violation. The insurance industry has been refusing to insure, or
in some cases, cancel policies for families unless they purchase
the high-risk insurance.
Section #6 prohibits limitations or reductions of prejudgment
interest legally due to an insured party, as a result of a claim
covered under an insurance policy. This provision would apply even
if the amount of prejudgment interest exceeded applicable policy
limits. Unless prejudgment interest is covered, because insurance
companies write into the contract that they control the defense of
the insured, the insurance company can negotiate policy in the
settlement and if they subsequently refuse to pay the prejudgement
interest on that, the person who bought the insurance policy is
left hanging with the obligation and they didn't get to participate
in their own defense.
SENATOR DONLEY said that people don't think they will have a
problem like this until it happens to them. Section #7 is the most
important part of the legislation. It changes the way claim
practice is conducted in Alaska. Currently, if an agreement cannot
be reached between the insured and the insurance company on
appropriate compensation, the negotiations can go on for months
until someone files a lawsuit. All this time the injured party
probably receives no compensation at all. The insurance company
wants them to agree to their dollar amount before they will pay
them anything. He said he didn't think that was right. The way it
ought to work is that the parties get together, have a discussion,
and if they disagree, the insurance company ought to be able to
ascertain what they think is appropriate compensation at the very
least and proceed to pay that. The dispute should be on the
difference, so the fight now becomes over a much smaller dollar
amount and there is no longer the economic black mail hanging over
the burned-out family or the person in the hospital who needs help
with medical bills.
Number 271
SENATOR DONLEY said the next section deals with arbitration and in
some instances, an insurer may require a policy holder to pay the
costs of arbitration or mediation before the process even begins.
This type of activity discourages claimants from pursuing a fair
settlement, especially when the amount at issue is less than the
cost of arbitration. This section prohibits this practice and
affords insured motorists a fair opportunity to pursue equitable
claims.
Section #9 intends to set out premium limits for what insurance
companies can charge for premiums. He said that some insurance
companies have been violating existing law for some time by not
offering the mandatory seven-day policies. The fact that a law
exists on this issue shows that it is problematic. This section
establishes a policy amount so that when insurance companies start
to follow the law, they will have a reasonable policy amount.
The medical claims section is the same as the property claims
section saying the insurance company should go ahead and pay what
they can agree on right away and then negotiate the rest. There is
also a requirement for the insurance company to have a local or
toll-free telephone number, if the insurer sells automobile
insurance in this State.
SENATOR LEMAN said that three agents of State Farm oppose this
legislation because they don't want the State interfering with
their contractual relationship with the company. He asked what
Senator Donley thought about that.
SENATOR DONLEY responded that he thought there are a lot of
different feelings among independent insurance agents and agents
who work for specific companies. He thought there was tremendous
pressure from the companies on agents to toe the line. However, he
thought that some agents are happy with their relationships. He
didn't see why a company would be unhappy with a due cause
provision. He didn't see how it would interfere with a private
contract other than that this industry is exempt from anti-trust
laws and traditionally they get regulated differently than other
private industries.
Number 372
SENATOR MACKIE said he feels reluctant to have government interfere
with private enterprise. He asked if there were circumstances
where an independent agent agreed to pay legitimate claims, and had
been intimidated by an insurance company.
SENATOR DONLEY said they certainly shouldn't be afraid and this
bill is intended to make sure they are not afraid. Agents should
legitimately be representing their clients. He informed the
committee that the State of Alaska already interferes with this
industry's private contracts in that they are the only people in
Alaska who are forbidden by statute to discount their services. If
they were allowed to discount contracts, the public would be hurt
because agents wouldn't be able to provide the level of service
they do under the current scheme. He, personally, would be happy
to trade their statutory protection from fee discounting for this
provision any day. He would like to see a free market. He said
the agents are given a guaranteed rate of return and the public
needs some protection.
Number 400
MS. SARAH MCNAIR-GROVE, Insurance Analyst, Division of Insurance,
said the Division's first concern is in section #3. It's been the
historical position of the Division that it doesn't interfere with
the contract between the agents and the insurer and this is viewed
as interference in contracting. The Division requires that there
is a contract, but not the provisions it must contain. When the
insurer cancels a contract with an agent, it has to give the agent
a reason for that termination. If it's for cause, the Division
investigates to make sure it is in compliance with statutes.
SENATOR MACKIE asked if they are required to investigate
terminations for cause.
MS. GROVE answered that is correct. They write regulations that
determine what good cause is and their role is to see that insurers
comply with the statute.
CHAIRMAN LEMAN asked what they do.
MS. GROVE answered that if there is a termination which is against
current statutes, the Division does an investigation. If it's an
illegal action, they take appropriate action. If it's not illegal,
there's nothing they can do about it. She said it seems that the
scope of this legislation is a little broad and she didn't think
that was the intent. It does include another person representing
an insurer and insured which could be someone like an attorney.
CHAIRMAN LEMAN asked her to submit language that would clarify
that.
MS. GROVE said section #6 on prejudgement interest is placed in
chapter 42 which in the insurance title deals with policy
provisions and only with admitted insurers. A more appropriate
place is to put this in chapter 36 which deals with trade
practices, because it would apply to non-admitted insurers as well.
For personal autos it's not too big of a problem, but there is no
limitation here so there may be more of a problem with commercial
policies. They assume the intent is to have the prejudgement paid
in addition to the policy, but that's not clear as it is written.
They are not sure how the prejudgement interest would be
calculated. Would it be calculated on the total amount of the
judgement or only on the policy?
Regarding section #7 they already have regulations in place that
provide time frames for insurers to respond and pay fines, and so
some of this is redundant. It also seems like there are conflicts
between section (b) and (c). (b) says if you can't reasonably
determine what a loss is, when that point in time comes that you
can determine the value, you have 15 days to pay it, but (c) says
within 30 days after you receive notice of a claim, you have to pay
it. So the 30 days could be before you know what the value of the
loss is and it's hard to get someone to pay something if they don't
know what the value is specifically. They have the same question
with section (d) when there are legitimate coverage disputes with
the penalties that would be required.
Number 485
SENATOR HOFFMAN said he had a constituent who had a fire in 1996
and they have been fighting with the insurance company ever since.
He asked what he could do to expedite the process under current
law.
MS. GROVE answered that the regulation requires undisputed amounts
to be paid within 30 days. If he thinks something is wrong, he can
contact her Division and they will help in any way they can to get
things moving.
SENATOR HOFFMAN said he hired a private adjuster as well, and even
with him the claim hasn't been finalized.
MS. GROVE explained that the regulation also specifies that once a
claim has gone into another forum, you deal with the time frames in
that forum. She said they have no objection to section #8,
arbitration fees, although it is unclear what would happen if the
arbitrator asked the insured to pay some of the fees and the
insured was unable to do so.
She explained in section #9, putting in a specific number like the
200 percent limit tends to become the only figure people use, and
she suggested using another way to accomplish it.
CHAIRMAN LEMAN said he thought this meant that we would no longer
have the 0 - 7 day policy. It could be for any number of days.
SENATOR DONLEY explained that the seven days hasn't worked, because
insurance companies just aren't offering it. He hoped to give them
an option to go from seven to 30 days.
Finally, she mentioned section #12, medical payments, and suggested
it be structured more along the line of the uninsured/underinsured
motorist coverage, because now it's in Title 28 which is the
Division of Motor Vehicles and insurers are regulated under Title
21.
Number 533
SENATOR MACKIE asked if these sections were clarified, would the
Division support the bill.
MS. GROVE answered that they have no position except for section
SENATOR MACKIE said it would help him to know where the Department
is coming from on some of these issues rather than not having a
position.
MR. JOHN GEORGE, National Association of Independent Insurers,
opposed SB 202. He said it is absolutely true that the insurance
industry is exempted from anti-trust laws, but for the limited
purpose of collecting data. Insurance rates are based on large
numbers, he explained, and rate making is the only reason they are
exempted from anti-trust laws. He said that all rates are subject
to approval by the regulator. The agent's contract with an
insurance company is a different kind of product and it would be
the same as the State interfering with any other employee/employer
relationship.
TAPE 98-7, SIDE B
He said some companies will quote a policy to an agent at three
different commission levels. They do have problems with the
requirement that the claimant has to be paid within 30 days,
because a lot of them just aren't ready to be paid then. Some
claims may involve fraud, and so they may need more time to
investigate. They have an obligation to their other policy holders
to not be too quick to pay for things they think are too
questionable.
MR. GEORGE said that there is some question whether the toll free
phone numbers applies only to insurance companies or to agents,
brokers, or possibly, adjusters. He added that he isn't aware of
any other industry that's required to have an 800 number. A hotel
has one, because it's to their competitive advantage to have it.
MR. MICHAEL LESSMEIER, State Farm Insurance, said one of the
biggest challenges in his industry is affordability. Liability
insurance is a fact of life in Alaska and it has to be affordable.
You have to look at the problem and see if it's so widespread that
it justifies legislative action on one hand and then find out the
cost and benefit of the solution being proposed on the other.
State Farm just finished returning to Alaska policy holders $6.6
million. Legislation like this would change that figure.
State Farm doesn't think this legislation is necessary and it would
also be expensive and intrusive. He said that State Farm has a
relationship with 32 agents in Alaska and for more than 50 years
their relationship has been set by contracts which provide for
termination for due cause. The relationships are built on trust
and sustained by trust. These have been good relationships.
Fourteen of those have been State Farm agents for more than 20
years, 21 of them have been State Farm agents for more than 15
years, and 27 of the 32 have been State Farm agents for more than
10 years. There have been only three terminations in the last nine
years. He said they are not aware of a problem in the relationship
between agents and insurers in Alaska. To say someone else will be
the arbiter of their trust destroys the basis for the relationship.
State Farm strongly opposes that provision. He asked who it is
supposed to protect and what is it supposed to protect them from.
Another concern he raised is that this legislation creates a new
private cause of action in Alaska that presently doesn't exist. It
will occur on a regular basis and he referred to the requirement to
pay a claim that is reasonably determinable within seven days. In
almost every case where that is going to be an issue, there will be
a secondary lawsuit for the kinds of increased penalties and
damages that this legislation creates.
This bill also creates a bad faith cause of action and in those
states that have had that, the cost of insurance has gone up
dramatically. This bill also creates mandatory offers of medical
payment coverage and he again asked what the need was since these
coverages are widely available today. He hadn't heard any
justification for yet another mailing and he asked what the limits
were supposed to be. These are the kinds of things that lead to
litigation.
Number 448
SENATOR MACKIE asked him to expand on why this would cost the
consumer more money.
MR. LESSMEIER explained that it creates a new cause of action that
would be largely common cause of action. There will be great
pressure on insurers to not dispute claims that they should be
disputing. There's a cause of action for reasonable actual
attorney's fees, interest, and penalties added here; it isn't in
the law right now. There is the potential for bad faith claims
practices against the insurer which they presently don't have
either. They currently have bad faith on the part of a first
party, but not a third party. This has been demonstrated in other
states, like California and Arkansas, to be expensive.
He said in the tort reform that passed last year is an offer of
judgement provision that works both ways. It says if you have to
come to court and enter a [indisc] judgement within very strict
time frames and you lose, you will have to pay a certain percentage
of the other side's attorney fees. If you enter it early, you
might have to pay as much as 75 percent which provides an incentive
for both parties to fairly evaluate their claims. When you create
a new cause of action like this that ultimately leads to
litigation, that's where the cost will occur.
MR. JOE FLOOD, a consumer who suffered a recent loss, said there is
also an increased cost factor that the consumer now ends up paying.
He explained that last April 25 he suffered a loss here in Juneau
and to this date it hasn't been settled and it won't be settled.
He has talked to a number of other business people around Alaska
with similar circumstances who are afraid to come to people like
legislators, because they are afraid the insurance companies won't
pay. They have suffered major losses and have been "beat up on" by
the adjusters, not the agents, who demand terribly unreasonable
things. He explained that he had to supply his insurance company
with over 3,500 documents and they still want more. It (insurance
company) has gone to his bank, his accountants, and his attorneys
and duplicated his efforts. It turns around and gives all the
paperwork to an accounting firm in Seattle and charge that to him.
He said if it wasn't for the local banks, he would have gone
bankrupt. The insurance company asked him if he had gone bankrupt,
yet. "They want you up against the ropes so you will end up
settling for what they want to offer," he said. "It's unfair to
the consumer and something should be done about it, especially
section #7 in this bill."
CHAIRMAN LEMAN said testimony from insurance people has indicated
that some of the time limits are already in place by regulation.
However, it's possible some of the time limits don't apply when you
get into litigation.
MR. FLOOD said HE had a time line of when HE had to come up with
his proof of loss. The insurance company doesn't have a time line.
He has business interruption insurance, but they don't pay you
while you are down. They encourage you to get open as soon as you
can and then pay you for the down time and negotiate that down.
SENATOR MACKIE said he wasn't interested in the personal details of
his case, but he wanted to know if the insurance company he was
dealing with ever indicated to him specifically what it was
disputing in terms of the coverage he assumed he had.
MR. FLOOD answered no.
SENATOR MACKIE asked him if he went to the Division of Insurance
and ask it for help and what was its response.
MR. FLOOD replied that he did go to the Division of Insurance and
they are willing to help, but if you hire an attorney, they can't
get involved and that's where he is. His fire was first called
spontaneous combustion and State Farm sent a claim adjuster
specialist down from Anchorage who brought up a fireman from
Seattle and they both suggested it was arson. There have been a
couple of other arson fires in Juneau and the injured parties have
had the same experience of fighting to keep their heads above water
while the insurance company is saying they can't pay anything until
they finish their investigation. They keep putting things off and
he thinks they are attempting to make you settle for something less
than what you purchased.
SENATOR HOFFMAN related that his constituent had full coverage
replacement cost and the insurance company he was with changed its
policy January 1, 1997 and insured residences for 125 percent of
the original cost of the home. He also hired an independent
appraiser and figured what the cost was and the value of his home
had doubled. He figured the reason the insurance company is not
willing to settle is because he hired an independent appraiser and
the insurance company wants to make sure people in the community
know he did and has problems because of it.
MR. FLOOD said that the independent adjuster he hired out of
Seattle does work all over Alaska and they are currently involved
with attorneys in California who are filing a class action suit
because of that.
Number 274
MS. GROVE clarified that when she was talking about regulations
that are in place, she was referring to the undisputed amount that
has a time limit.
SENATOR DONLEY added that what she means is once it's disputed and
the insurance company doesn't agree to settle for what the injured
party wants, they're, of course, not going to pay anything.
MS. GROVE said according to regulation the undisputed amount must
be paid.
CHAIRMAN LEMAN said he would hold SB 202 until he could get more
information and then bring it back before the committee.
SB 158 - INSURANCE CHANGES FOR DR. LIC REVOC.
CHAIRMAN LEMAN announced SB 158 to be up for consideration.
SENATOR MACKIE moved to adopt CSSB 158(L&C). There were no
objections and it was so ordered.
CHAIRMAN LEMAN asked if there was any discussion on this bill.
There was no response.
SENATOR MACKIE moved to pass CSSB 158(L&C) from committee with
individual recommendations.
CHAIRMAN LEMAN asked if Mr. Ambrose, Staff to Senator Taylor,
agreed with this version. He said he did. There were no other
objections and it was so ordered.
SB 283 - AUTOMOBILE CIVIL LIABILITY
CHAIRMAN LEMAN announced that SB 283 would be held for another
meeting and adjourned the meeting at 3:05 p.m.
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