Legislature(2001 - 2002)
05/02/2002 03:08 PM Senate TRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
May 2, 2002
3:08 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Jerry Ward, Vice Chair
Senator Robin Taylor
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 523(TRA)
"An Act naming the state airport at the City of Unalaska the Tom
Madsen Airport."
MOVED CSHB 523(TRA) OUT OF COMMITTEE
SENATE BILL NO. 348
"An Act relating to insurance for and work on certain motor
vehicle repairs; and providing for an effective date."
MOVED CSSB 348(TRA) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
HB 523 - No previous action to record.
SB 348 - See Transportation minutes dated 4/11/02.
WITNESS REGISTER
Ms. Susan Wells
Staff to Representative Carl Moses
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the purpose of HB 523.
Mr. Frank Kelty
POB 162
Unalaska AK 99685
POSITION STATEMENT: Supported HB 523.
Mr. Sinclair Wilt
POB 502
Unalaska AK 99685
POSITION STATEMENT: Supported HB 523.
Ms. Annette Deal
Staff to Senator John Cowdery
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the changes made in CSSB 347(TRA).
Mr. Michael Lessmeier
State Farm Insurance Company
3000 Vintage Blvd. No. 100
Juneau AK 99801
POSITION STATEMENT: Expressed concern that certain provisions of
CSSB 347(TRA) would limit competition.
ACTION NARRATIVE
TAPE 02-22, SIDE A
Number 001
HB 523-TOM MADSEN AIRPORT AT UNALASKA
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 3:08 p.m. and announced HB 523 to be up for
consideration.
MS. SUSAN WELLS informed members that HB 523 has the full support
of the mayor of the City of Unalaska and surrounding communities.
She noted that Tom Madsen was very highly thought of by everyone
on the entire Aleutian Chain.
MR. FRANK KELTY said he is the former mayor of Dillingham and
that all the villagers believe it is an appropriate honor to name
the airport after Tom Madsen.
MR. SINCLAIR WILT related that 15 years ago, when one of his
daughters was only 14 months old, she got into her mother's iron
tablets and had to get to a hospital within 18 hours or she could
die. Wind and snow was blowing 50 -60 knots at the time. Tom
Madsen said he would try to get her to Cold Bay, which he did.
From there she was shuttled to a hospital and survived.
SENATOR TAYLOR moved HB 523 from committee with individual
recommendations.
SENATOR ELTON objected to say that he is one of the few people in
the state who never met Tom Madsen, but he wanted the committee
to know that Stephanie Madsen was present. She had been a
gracious host to him in Dutch Harbor when he first met her and a
great public servant, serving on the North Pacific Fisheries
Management Council, the Rural Development Council, and the State
Chamber for the City of Cordova. He thanked her for attending.
CHAIRMAN COWDERY asked if there were any objections to moving the
bill from committee. There were no further objections and it was
so ordered.
SB 348-MOTOR VEHICLE REPAIRS
CHAIRMAN COWDERY announced SB 348 to be up for consideration.
SENATOR WARD moved to adopt the proposed committee substitute
(CS) to SB 348, Version C, as the working document before the
committee. There were no objections and it was so ordered.
MS. ANNETTE DEAL, staff to Senator Cowdery, said that the CS is a
little different from the original bill. A major concern
expressed during the last committee meeting was that the motor
vehicle repair facility had to actually supply a warranty. The CS
clarifies that the insurer has the responsibility to maintain the
warranty and not the motor vehicle repair facility. Another
concern was that insurance premium rates might increase if this
type of legislation was enacted but the opposite seems to be true
according to GAO reports. In almost every state that has enacted
similar legislation, premiums have been reduced.
MS. DEAL pointed out that Alaska is one of ten states that
doesn't offer some form of protection that relates to an
insurance company's ability to mandate use of aftermarket crash
parts. This bill also asks for consumer consent prior to the
repair, which eight other states require. The second part of the
bill calls for disclosure if aftermarket cars are used, which 28
states require. Consumers should have the right to decide whether
aftermarket crash parts are used to repair their vehicles. They
are best protected when their repair options are fully disclosed
and they have the right to choose. Also, an insurer is protected
from future losses.
MR. MICHAEL LESSMEIER, State Farm Insurance representative, said
that he just received a copy of the CS and that it contains
changes that are important in terms of impact. He did not believe
any other members of the industry had seen the new version. He
urged members not to do anything that could handicap competition
in the use of parts because competition is good for consumers. He
explained that State Farm writes approximately 25% of the
insurance premiums for automobiles in Alaska. State Farm Mutual
is owned by its policyholders, so when State Farm Mutual believes
it is doing better, it actually gives money back. It has returned
millions of dollars to Alaskan policyholders. Ultimately, one of
the big driving costs of automobile insurance is the cost of
repairing automobiles, which has gone up significantly. To the
extent that the cost of collision repair and property damage is
higher, the insurance rates for those coverages are going to be
higher.
MR. LESSMEIER noted competition with aftermarket parts serves two
functions. In many instances, aftermarket parts are the
equivalent of the parts from the original equipment manufacturer
(OEM) but they are significantly cheaper. There is a secondary
effect; when there is competition it drives down the cost of OEM
parts as well. He commented:
The first point that I would make to the committee is
please do not do anything that would interfere with
competition. Unfortunately this bill as it is written
does do something to interfere with competition.
The second point that I would like to make to the
committee is that it is inaccurate to say that there is
no guarantee or no warranty that currently exists under
Alaska law. For many, many years, there have been
guarantees and those guarantees are a part of the
Unfair Claims Settlement Practices Act that exists in
the regulations that have been adopted by the Division
of Insurance. Essentially, what those regulations
provide for - and they occur in several different
places in the regulations in 3 AAC 26.080, which deals
with standards for prompt, fair and equitable
settlements of motor vehicle claims, subsection (f)
says that if a person adjusting or settling a claim
elects to have repaired a claimant's motor vehicle and
chooses a specific facility for the repairs, that
person shall guarantee the repairs and cause a damaged
motor vehicle to be restored to its condition before
the loss at no additional cost. So, we could argue
about whether that guarantee is identical with the
warranty that is set forth in your bill but, there is
at least to that extent, a guarantee that already
exists in terms of the administrative regulations that
have been on the books for many years in Alaska.
The third thing that I would like the committee to be
aware of is at least the current practice of Alaska. If
you were to go to State Farm's website, you would find
that there is a guarantee for parts. You would also
find this thing at the website and it says,
'Competition has lead to dramatic reductions in the
costs of many original equipment manufacturers
replacement parts and has caused significant
improvements in their warranties. This results in
higher quality at lower cost for the consumer.' And we
think that is important. We certainly are willing to
stand behind the parts that we use. We've told people
that and we will do that in Alaska and I don't think
there has been a problem in Alaska, at least State Farm
has not had a significant problem that I know of.
MR. LESSMEIER cautioned that no matter who the insurer is, to the
extent that costs of repairing vehicles rises, the consumer will
pay through higher premiums. State Farm does not have any
difficulty with the disclosure provision or with the warranty
provision, although it is arguable as to whether it is broader
than the guarantee already provided in Alaska law. He said some
provisions of the bill are simply unworkable as written. For
example, the bill has an immediate effective date and requires
the insurer to provide written notice of the warranty available
before issuing a renewing policy. Furthermore, Section 2, dealing
with consent, will handicap competition. State Farm very rarely
uses after-market parts in this state, but if they are being
used, the consumer is being told and given a choice. There is a
difference in price. State Farm believes that is fair.
MR. LESSMEIER said a second concern with Section 2 has to do with
the warranty language. In his view it is not accurate. For
example, the second sentence (page 2, lines 17-19) says, "A
warranty applicable to these replacement parts is provided by the
insurer rather than the manufacturer of your vehicle." He stated:
The truth is that the warranty in each of these
instances would be provided not just by the insurer,
but by the manufacturer of the aftermarket part as
well. That's a subtle issue but to be accurate that
should be included. The next sentence, though, is not
accurate.
He said he looked at the federal Magnuson Moss Act and found that
Section 2302(c) says:
No warrantor of a consumer product may condition his
written or implied warranty of such product on the
consumer's using it in connection with such product,
any article or service, which is identified by brand,
trade or corporate name.
MR. LESSMEIER said Section 2302(c) also says there are conditions
under which the Federal Trade Commission can weigh that. He
thought the sentence in the CS, to the effect that the use of a
motor vehicle replacement part not made by the original equipment
manufacturer may invalidate the remaining warranty as
contemplated in federal law, is contrary to federal law. He
explained when you couple the consent with statements like that,
that are at best misleading, you handicap fair competition and
that is State Farm's concern. He also noted that he didn't
understand the basis for subsection (d) on line 24.
CHAIRMAN COWDERY asked if he was talking about third-party
claims.
MR. LESSMEIER indicated that he was.
CHAIRMAN COWDERY commented that if a person was walking down the
street with a Sony TV and fell and broke his arm, the insurance
company would pay for the broken arm, but it wouldn't pay for the
broken TV. He then said if, in the same situation the man
carrying the TV was hit by a car, the medical costs would be
covered and the TV would be repaired, and not with off brand
parts.
MR. LESSMEIER responded that he didn't understand the provision
that deals with a third-party claimant. He said perhaps the
intent is to say someone who is injured and whose vehicle is
damaged through the negligence of an insured should have their
vehicle should repaired under the provisions of this bill.
MR. LESSMEIER said he also questions the definition of an
aftermarket crash part. He said all of the testimony he has heard
has focused on aftermarket crash parts, as opposed to what
industry calls the hard parts or mechanical parts, yet the bill
deals with all of the other parts. He said State Farm is not
aware of any problems with the hard parts and conceded that State
Farm's warranty does cover hard parts. He added there is some
ambiguity in the administrative regulation as to what is meant by
guarantee. He suggested that the law already contains protections
and that the bill as drafted is problematic. He repeated that it
will interfere with fair competition. He offered to work with
committee members on the warranty issue and stand behind the
products that State Farm uses.
CHAIRMAN COWDERY contended the owner of the vehicle should have
the right to determine which parts to use.
MR. LESSMEIER said the owner has that choice under existing
practice. The only difference is that the premium is not based on
that choice, it is based on something else. He repeated that
State Farm believes that is far better for competition as long as
there is fair disclosure. He then referred to the definition in
subsection (e) on line 27, and said the definition of an
aftermarket crash part does not require that the part be
manufactured by the original equipment manufacturer; it only has
to be supplied by the original equipment manufacturer. He said
that could be read to mean that the original equipment
manufacturer can outsource an aftermarket part, and as long as
the original equipment manufacturer supplies the part, it is not
considered to be an aftermarket crash part. He said in many
instances these parts are manufactured by the very same
facilities. State Farm believes the Legislature can accomplish
what it wants to do by requiring disclosure and a warranty. State
Farm urges the committee to restrict the bill to those
requirements if it intends to go forward with this legislation.
CHAIRMAN COWDERY asked Mr. Lessmeier if he was saying that car
manufacturers should manufacture all of their parts.
MR. LESSMEIER said he was not. He said this legislation will
create a situation in which the original equipment manufacturer
could obtain a part from the aftermarket manufacturer and that
part would be treated differently just because the original
equipment manufacturer obtained it. He said that many people have
commented on the Avery case but what he found interesting was
that no one has looked at the safety records of the automobile
manufacturers and resulting lawsuits. He noted there have been
far more lawsuits against automobile manufacturers about
defective parts than against the aftermarket parts industry. He
submitted the issue of the use of aftermarket parts, at least
with respect to crash parts, is not an issue of safety. It is an
issue of fit, finish, and those sorts of concerns. He said State
Farm is willing to stand behind the parts it uses. He again
cautioned that the ultimate losers in all of this to the extent
that fair competition is inhibited will be the consumers.
SENATOR TAYLOR asked how many Alaskans were involved in the Avery
class action lawsuit.
MR. LESSMEIER said he did not know but the effect of that
decision is that State Farm has stopped using aftermarket parts
in Alaska. The cost of State Farm's collision coverage and
property damage coverage had been relatively stable in Alaska for
the two years preceding Avery. After that, those costs increased
significantly.
SENATOR TAYLOR said his question was how many Alaskans were
included in the suit. He asked Mr. Lessmeier to get that
information for the committee because members are talking about
Alaskans and over 4 million people were involved in that class
action lawsuit. He then asked whether State Farm has changed the
wording of its policies since the Avery decision.
MR. LESSMEIER said he did not know that answer to that and that
he does not claim to be an expert on the Avery lawsuit. He said
he does know that State Farm has stopped using the parts that
were identified in the Avery case. He does know what
representations State Farm makes to consumers in Alaska. He said
he believes there have been very few complaints in Alaska about
the way State Farm repairs vehicles.
SENATOR TAYLOR commented that Mr. Lessmeier has testified three
or four times that since the Avery decision, State Farm quit
using aftermarket parts for the most part. He said that was not a
company choice; State Farm was required to do that as a result of
the lawsuit.
MR. LESSMEIER said that is untrue. He said it is his
understanding that the Avery suit dealt with a finding of 25 or
26 different parts.
SENATOR TAYLOR said there were 25 parts at issue in the case. He
then asked Mr. Lessmeier to elaborate on his comment about the
Division of Insurance regulations on deceptive practices.
MR. LESSMEIER said he was referring to the Alaska insurance
regulations (3 AAC - Section 26). He believed the entire scheme
of those regulations was put in place around 1989. He said if
there has been a problem in this area, people could go to the
Division of Insurance.
SENATOR TAYLOR said the unfair settlement practice regulations
were on the books during the period of time that the conduct
occurred over which State Farm litigated the Avery case.
MR. LESSMEIER said those regulations were on the books but he
doesn't think there was an issue as to whether the regulations
were violated. He said it is important to understand that the
Avery case did not involve a single incident of an individual
coming forward and showing that an aftermarket part had been
provided to that insured that was defective. The case involved a
trial of expert witnesses, as he understands it, who were trying
to show that a class of these parts were defective. He noted if
one wanted to look at whether a specific regulation was violated
because of no guarantee, he or she would have to look at the
specific fact situation. He suggested there is not a history of
that kind of activity in Alaska.
SENATOR TAYLOR read the following statements from the Avery case:
The plaintiffs claimed State Farm had a nationwide
claims practice that uniformly specified cheaper non-
OEM crash parts on damage estimates issued to its
policyholders despite the fact that it knew that those
parts were inferior in quality and condition and would
not return the damaged vehicle to its pre-loss
condition. State Farm deceived its policyholders in
that it failed to inform them of the inferior quality
of specified replacement parts. It was alleged that
State Farm was able to succeed in this deception by
representing that the inferior parts met high
performance criteria and by offering a bogus guarantee
of replacement of unsatisfactory non-OEM parts at no
cost to the policyholder.
The court determined that in each policy, State Farm
made the identical promise to pay for parts of like
kind and quality that would restore the vehicle to its
original, pre-loss condition.
SENATOR TAYLOR commented that State Farm had a policy in place of
searching the net for cheaper parts, according to the court
decision. He read further:
Plaintiffs presented evidence in the form of State
Farm's own documents and testimony from past and
current State Farm employees to show that State Farm
knew that the non-OEM parts were inferior in terms of
fit, quality, function, performance, corrosion
resistance, appearance and safety. These parts were
represented to policyholders as quality replacement
parts.
There was also evidence State Farm's guarantee, that it
would replace non-OEM parts at no cost to the
unsatisfied policyholders upon demand, was bogus. If
the aftermarket part was warranted by the part
manufacturer, the policyholder was required to contact
the manufacturer for relief. In most cases these were
part manufacturers located outside the United States in
Taiwan or another country. If the policyholder
demanded replacement of the non-OEM part, a State Farm
adjuster was required to investigate the claim and, if
it was approved, an OEM replacement part was installed
but the cost was charged to the policyholder as an
indemnity payment.
SENATOR TAYLOR said that all of this discussion about warranty
and the fact that a number of lawsuits have been brought against
United States' manufacturers but not against aftermarket people
raises the question of how one would sue somebody in Taiwan,
which is why the court found that the warranty was bogus. The
trial court also found that "State Farm misrepresented,
concealed, suppressed, or omitted material facts concerning the
non-OEM crash parts with the intent that its policyholders rely
upon these deceptions in violation of CFA."
He said that is why he asked about the unfair settlement
practices regulations on the books. He asked if CFA is a
regulation or a standard within the industry.
MR. LESSMEIER said he did not know.
SENATOR TAYLOR commented that he couldn't believe that anyone
could read the unfair settlement practices administrative
regulations in the State of Alaska and the Avery case without
coming away with the very strong impression that throughout the
period of time that the regulation was in place, State Farm had a
policy in place, according to the judgment of the court, that was
specifically intended to violate that regulation, which is to
conceal, suppress, and omit material facts. He noted the words
frequently used by the court were "to defraud." Senator Taylor
said he did not understand how State Farm could not have been in
violation of unfair settlement practices because Mr. Lessmeier
said there were some Alaskans involved in the lawsuit.
MR. LESSMEIER responded that he did not say that, Senator Taylor
had made that statement.
SENATOR TAYLOR said Mr. Lessmeier said he did not know how many.
He asked Mr. Lessmeier if he was saying there were no Alaskans.
MR. LESSMEIER said he did not know and was not aware of a single
instance where the regulation discussed was violated. He said he
would bet that instances of regulation violations, if any, would
be few and far between. He added that it is one thing to quote
from portions from an opinion and take statements out of context
while it is quite another thing to look at both sides of an issue
and understand the case that was tried and is on appeal. He said
the issue before the committee right now is what to do in Alaska.
He said it is hard to avoid the concept that what is important is
to preserve fair competition and let the Division of Insurance do
its job.
SENATOR TAYLOR said he only wanted to know if Alaskans were
involved because the court concluded that State Farm's deceptive
practices were neither specifically authorized nor in compliance
with laws in any of the 48 states. He said he did not know
whether Alaska was excluded but the only states that were
specifically excluded were Tennessee, Arkansas, Illinois and
California. He said he is making the assumption that there must
have been some Alaskans involved in this suit and that the court
has found violations of a nature that would seem to be violations
of that regulation. He noted that he and Mr. Lessmeier apparently
differ in that interpretation.
MR. LESSMEIER thought Senator Taylor misunderstood the Avery
decision. He explained that the Avery decision did not involve
specific claimants. Rather, the aftermarket parts were tried as a
whole, which is why he was saying one would have to look at what
was happening in Alaska to an individual claimant.
CHAIRMAN COWDERY asked Mr. Lessmeier if he believes the public
understands the difference between original and aftermarket
parts.
MR. LESSMEIER said it is hard for him to answer that question on
an individual basis but when an estimate is written, the
aftermarket parts are identified. He noted there is an issue
about consent and about disclosure. Disclosure can be
accomplished without requiring consent.
TAPE 02-22, SIDE B
MR. LESSMEIER said that State Farm customers are told the choice
is theirs. If the customer prefers parts other than those
included in the estimates, the customer should notify the
repairer. If use of other parts increases the repair cost, the
customer is expected to pay the difference.
CHAIRMAN COWDERY said a person has a reasonable expectation when
he or she buys insurance, especially on a new vehicle, that it
will be repaired with new vehicle parts if damaged.
MR. LESSMEIER said he did not think that is an unreasonable
expectation and that he believes the market works very well right
now. He said he thinks the issue of the warranty is also
important. He said although he cannot speak for the entire
industry, he believes most members would be willing to work with
the legislature to ensure a warranty as long as the issue of
competition is not negatively impacted. He repeated that the
losers in the Avery case are the consumers throughout the country
who are not able to take advantage of the increased savings of
using aftermarket parts. One result of the Avery case is that
State Farm was not able to provide dividends over those years. He
acknowledged that it is hard to say those dividends were
exclusively due to the use of aftermarket parts. He said that
State Farm agrees with the committee on the issue of disclosure
and would have no problem working out an agreement on the type of
warranty required.
SENATOR ELTON said he views Section 1 of the CS as a quality
guarantee set by industry and adopted by the state and Section 2
as a consumer awareness and choice provision. He said he
understands Mr. Lessmeier's concern that the sentence of page 2,
line 19, does not reflect the current law right now. He said he
is prepared to vote to move the bill forward, but he would like
Mr. Lessmeier to provide a citation to back up that concern. He
then said that given that Section 1 is a quality assurance
provision and that Section 2 gives consumers a choice, he fails
to understand how setting a quality standard set by the original
parts manufacturer is anti-consumer.
MR. LESSMEIER replied that State Farm is not arguing that
provision. It is arguing the timetable for enforceability and
saying that existing law already contains a guarantee.
SENATOR ELTON said if that is the case, this provision would
merely replicate existing law. He then questioned how one can
argue that Section 2, regarding consumer choice, is anti-
competition because one of the basic thresholds of competition is
that the consumer be aware of the choices available.
MR. LESSMEIER said State Farm is not arguing that consumer
awareness is anti-competitive. He said his testimony was that
State Farm supports fully informing consumers on this issue.
SENATOR ELTON asked why State Farm views the bill as anti-
competitive.
MR. LESSMEIER said there are two issues. First, there is a
difference between fair disclosure and misleading disclosure. He
believes the disclosure required by subsection (c) is at best
misleading and inaccurate because of the two sentences he
referred to earlier. The second issue is the issue of consent. He
said State Farm could not base a premium structure on the use of
aftermarket parts if consent is involved. State Farm does not
know the number of people who will choose an aftermarket part
when there is no perceived savings; only experience will tell. He
said that during the first hearing on this legislation,
representatives from the aftermarket parts industry had grave
concerns about that, which State Farm shares.
SENATOR ELTON asked how State Farm's premium structure could be
affected if State Farm's practice is to do what the intent of the
bill does.
MR. LESSMEIER said there is no perceived savings on the
aftermarket part on an individual basis. That only occurs on a
collective basis. The bill takes away the ability of a company to
use aftermarket parts and base its premium structure on that use.
The consumer would make the choice to use aftermarket parts when
he or she buys that policy. The consumer can still choose which
part to use for a car repair, but the consumer will pay the
difference in cost if he or she does not use an aftermarket part.
SENATOR ELTON said he understood Mr. Lessmeier to say in earlier
testimony that this bill will codify State Farm's existing
practice. He asked if there is anything in this bill that
precludes State Farm from continuing its current practice and
asked Mr. Lessmeier to direct him to that specific language in
the bill.
MR. LESSMEIER said the default is different. The bill reads (page
2, line 5), "Except with the consent of the motor vehicle owner,
a motor vehicle repair facility may not use an aftermarket crash
part for repair work on a motor vehicle..." He said he interprets
that to mean that State Farm cannot continue with its existing
practice because it could not have a premium structure based on
the use of aftermarket part with the customer paying the balance
for an OEM part because if the consumer did not consent to that,
everyone would be paying the additional cost of the OEM part.
SENATOR ELTON said he may be missing something in Mr. Lessmeier's
argument, but he believes the language on line 5 does not
preclude State Farm from telling consumers they will have to pay
more if they do not consent to the use of an aftermarket part.
MR. LESSMEIER said if that were the understanding, State Farm
would have fewer problems with CSSB 348(TRA).
SENATOR TAYLOR said Mr. Lessmeier continually used the phrase
"existing practice" when explaining to Senator Elton the
difference in choice. He asked,
Even following Avery, that's [State Farm's] existing
practice is that you - if there is an aftermarket part
that cost 40 percent less, that you're still, you're
giving the choice to your customer and saying we'll
either replace it with the aftermarket part, which is
40 percent cheaper, or we'll replace it with the
manufacturer's part, which is more expensive but as our
customer, you pay the difference. Is that your current
practice?
MR. LESSMEIER said his understanding of current practice is that
State Farm rarely uses aftermarket parts in Alaska.
SENATOR TAYLOR asked if, in the cases in which State Farm does
use them, that is the choice he was explaining to Senator Elton.
MR. LESSMEIER said that is his understanding.
SENATOR TAYLOR said he realizes the Avery case is on appeal, but
State Farm has obviously changed some of its practices based on
that case.
MR. LESSMEIER replied, "Senator Taylor, I think that you
misunderstand the issue. The issue here is different than the
issue that was litigated in Avery."
SENATOR TAYLOR said he understands the issue.
MR. LESSMEIER stated, "I'm not sure you do because I think the
impression that you're trying to create is that existing practice
for something like this is prohibited by Avery and that is not
correct."
SENATOR TAYLOR said he understands Mr. Lessmeier's interpretation
but he is not suggesting that it is prohibited by the Avery case.
He said he was just asking if, in fact, where there is an
aftermarket part that is less expensive, that the existing
practice is to tell the customer that he can have the
manufacturer's part but he must pay the difference.
MR. LESSMEIER said that is accurate in the context in which he
made that statement, but he said that statement needs to be
looked at in the complete context. He offered to provide members
with a web address that describes State Farm's practices. He
stated,
What that practice provides is if you authorize repairs
by a repairer that we agree upon using new quality
replacement parts that we include in our estimate, and
we pay for those parts, then there is a guarantee. We
talk about competition, we talk about standards, and we
say the choice is yours. The final choice as to which
parts will actually be used in repairs rests with you,
the vehicle owner. If you prefer parts other than those
included in our estimate, you should notify your
repairer. Should use of those parts increase the repair
cost, you will be expected to pay the difference. And I
will confirm - I will confirm whether that is the
existing practice although again, in Alaska we're not,
to my knowledge, using these parts since Avery. I think
in very rare instances the parts will be used and in
those instances it's usually a situation of lack of
availability of the OEM. And I don't think that there's
been a problem with this thing - with the use of these
parts.
SENATOR TAYLOR commented that since Avery, State Farm has
significantly changed its policy regarding aftermarket parts and
their utilization in Alaska. He asked Mr. Lessmeier if that is a
fair statement.
MR. LESSMEIER said he did not know when these changes were made
but he thought they were because there are certain aftermarket
parts that are not being used at all, and those are the parts
that were identified in Avery.
SENATOR TAYLOR commented, "And that's because of the Avery case
and the possible liability that may flow out of it if you
continued the same practice you were continuing before."
MR. LESSMEIER said it is his understanding that it is because of
the Avery decision.
CHAIRMAN COWDERY asked if anyone wished to testify. [There was no
response.]
SENATOR TAYLOR moved CSSB 348(TRA) from committee with individual
recommendations.
CHAIRMAN COWDERY announced that without objection, CSSB 348(TRA)
moved from committee. He then adjourned the meeting at 4:15 p.m.
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