Legislature(2005 - 2006)CAPITOL 17
04/03/2006 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB298 | |
| HB480 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 298 | TELECONFERENCED | |
| *+ | HB 494 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 480 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 3, 2006
3:26 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Pete Kott
Representative Gabrielle LeDoux
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 298(JUD)
"An Act relating to loans from trust property; relating to a
trustee's power to appoint the principal of a trust to another
trust; relating to challenges to, claims against, and
liabilities of trustees, beneficiaries, and creditors of trusts
and of trusts and estates; relating to individual retirement
accounts and plans; relating to certain trusts in divorce and
dissolutions of marriage situations; and providing for an
effective date."
- MOVED HCS CSSB 298(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 480
"An Act relating to voluntary self-evaluative audits by insurers
and providing for an insurance compliance self-evaluative
privilege; and indirectly amending Rules 104, 402, and 501,
Alaska Rules of Evidence, Rules 16, 26, 30, 31, 33, 34, 36, and
40, Alaska Rules of Civil Procedure, and Rules 15, 16, and 17,
Alaska Rules of Criminal Procedure."
- HEARD AND HELD
HOUSE BILL NO. 494
"An Act relating to private professional conservators and
private and public guardians."
- BILL HEARING POSTPONED TO 4/5/06
PREVIOUS COMMITTEE ACTION
BILL: SB 298
SHORT TITLE: TRUSTS: CHALLENGES; CLAIMS; LIABILITIES
SPONSOR(s): SENATOR(s) SEEKINS
02/14/06 (S) READ THE FIRST TIME - REFERRALS
02/14/06 (S) L&C, JUD
02/23/06 (S) L&C AT 1:30 PM BELTZ 211
02/23/06 (S) Moved SB 298 Out of Committee
02/23/06 (S) MINUTE(L&C)
02/27/06 (S) L&C RPT 3DP
02/27/06 (S) DP: BUNDE, SEEKINS, STEVENS B
03/02/06 (S) JUD AT 8:30 AM BUTROVICH 205
03/02/06 (S) Moved CSSB 298(JUD) Out of Committee
03/02/06 (S) MINUTE(JUD)
03/03/06 (S) JUD RPT CS 4DP 1NR SAME TITLE
03/03/06 (S) DP: SEEKINS, FRENCH, THERRIAULT,
HUGGINS
03/03/06 (S) NR: GUESS
03/22/06 (S) TRANSMITTED TO (H)
03/22/06 (S) VERSION: CSSB 298(JUD)
03/24/06 (H) READ THE FIRST TIME - REFERRALS
03/24/06 (H) JUD, FIN
03/27/06 (H) L&C AT 3:15 PM CAPITOL 17
03/27/06 (H) Scheduled But Not Heard
03/28/06 (H) FIN REFERRAL REMOVED
03/28/06 (H) L&C REFERRAL ADDED BEFORE JUD
04/03/06 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 480
SHORT TITLE: INSURANCE COMPANY SELF-AUDIT INFORMATION
SPONSOR(s): REPRESENTATIVE(s) ANDERSON
02/13/06 (H) READ THE FIRST TIME - REFERRALS
02/13/06 (H) L&C, JUD, FIN
03/31/06 (H) L&C AT 3:15 PM CAPITOL 17
03/31/06 (H) <Bill Hearing Postponed>
04/03/06 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
SENATOR RALPH SEEKINS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of SB 298.
MARK A. AMES
Fairbanks, Alaska
POSITION STATEMENT: Testified during hearing on SB 298.
BETH CHAPMAN, Attorney at Law
Faulkner Banfield, PC
Juneau, Alaska
POSITION STATEMENT: Answered questions during hearing on SB
298.
DOUGLAS BLATTMACHR, President and Chief Executive Officer (CEO)
Alaska Trust Company
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 298.
MITCHELL GANS, Law Professor
Hofstra University School of Law
Hempstead, New York
POSITION STATEMENT: Answered questions during hearing on SB
298.
DAVID SHAFTEL, Estate Planning Attorney
Law Offices of David G. Shaftel, PC
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 298.
RICHARD THWAITES, Chairman
Alaska Trust Company
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 298.
HEATH HILYARD, Staff
to Representative Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of the sponsor, Representative
Anderson, explained CSHB 480, Version Y.
BRIAN HOVE, Staff
to Senator Ralph Seekins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Speaking on behalf of the sponsor, Senator
Seekins, explained the changes encompassed in HCS CSSB 298,
Version S.
SHELDON WINTERS, Attorney at Law
Lessmeier & Winters
Lobbyist for State Farm Insurance
Juneau, Alaska
POSITION STATEMENT: Explained CSHB 480, Version Y, and answered
questions.
MICHAEL SCHNEIDER, Attorney at Law
Law Offices of Michael J. Schneider, PC
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 480.
DONNA MCCREADY, Attorney at Law
Ashburn & Mason;
Alaska Action Trust
Anchorage, Alaska
POSITION STATEMENT: Urged the committee to hold HB 480.
JEFFREY TROUTT, Deputy Director
Juneau Office
Division of Insurance
Department of Commerce, Community, & Economic Development
Juneau, Alaska
POSITION STATEMENT: Testified on HB 480.
ACTION NARRATIVE
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:26:07 PM. Representatives Kott,
Guttenberg, Rokeberg, and Anderson were present at the call to
order. Representatives Lynn, LeDoux, and Crawford arrived as
the meeting was in progress. Also present was Senator Seekins.
3:26:33 PM
SB 298-TRUSTS: CHALLENGES; CLAIMS; LIABILITIES
CHAIR ANDERSON announced that the first order of business would
be CS FOR SENATE BILL NO. 298(JUD), "An Act relating to loans
from trust property; relating to a trustee's power to appoint
the principal of a trust to another trust; relating to
challenges to, claims against, and liabilities of trustees,
beneficiaries, and creditors of trusts and of trusts and
estates; relating to individual retirement accounts and plans;
relating to certain trusts in divorce and dissolutions of
marriage situations; and providing for an effective date."
3:27:47 PM
SENATOR RALPH SEEKINS, Alaska State Legislature, Sponsor,
explained that SB 298 is an improvement to the current trust
system in the state. He said that, since 1997, the legislature
has worked with individuals who are active in the field to
update and improve the laws regarding the use and administration
of trusts. As a result, Alaska is one of the premier trust
jurisdictions in the country. However, he said, other states
have enacted similar legislation in an attempt to take business
away from Alaska. He said that the updates proposed in SB 298
are intended to help preserve the state's leading position as a
trust provider. In addition, he said, the laws encourage
Alaskans to keep their trust assets in the state, and attract
capital from all over the country, which creates greater job and
investment opportunities for residents of the state. In
conclusion, he said, SB 298 clarifies prior trust legislation,
making the administration of trusts more efficient and cost
effective, which would help maintain Alaska as the jurisdiction
of choice.
3:30:14 PM
CHAIR ANDERSON opined that SB 298 is "timely," and surmised that
the law would need to be updated every two years due to the
growth of the field.
3:30:51 PM
MARK A. AMES began by highlighting the six published goals of
Alaska's state historic preservation plan. He then pointed out
the claimant of interest in the May 1, 1968, trust. He
continued by stating that there are premises within the City of
Fairbanks "that a trust, with regard to the state of Alaska,
regarding federal reserve lands, ... has been abused and
violated." He said that [SB 298] does not include adequate
protection from this. He stated that he is a claimant and has
requested full investigation into the aforementioned trust. He
expressed his belief that there was a violation of Sections 1-2
of the constitution. In conclusion, he said that [the state]
needs to ensure that its current trusts are not being violated.
3:34:54 PM
BETH CHAPMAN, Attorney at Law, Faulkner Banfield, PC, stated
that she has been practicing law in Juneau for 18 years,
focusing on trusts and estates. She said that she currently
represents individual families, along with trustees and trust
beneficiaries. She expressed her belief that SB 298 will
provide the tools needed to assist clients with their estate
planning goals. She said that this includes reducing
administrative costs and aligning the trust and probate laws.
Referring to Section 2 of the bill, she said that families need
the ability to respond to changes in circumstance. This portion
of the bill would allow the trustee to continue to hold assets
in trust, with the same standards; however, they do not need
court approval to do so. Moving on to Section 3, she said that
this section relates to the statute of limitations, reducing it
from three to one statute of limitations per report. She stated
that the beneficiaries must be notified by the trustees of the
length of the statute of limitations and informed of what they
must do to assert their claims.
3:37:10 PM
REPRESENTATIVE GUTTENBERG, referring to Section 2, asked for the
reasoning behind changing "absolute discretion" to "authority,"
and "discretion" to "authority."
3:37:48 PM
MS. CHAPMAN replied that under current law, no standard is
needed and only a trustee with "absolute authority" is able to
create a new trust for the benefit of the beneficiary. She said
that a "typical standard" in a trust states that it can be
invaded for the beneficiary's health or education. This change
would allow a trust with this standard to create a new trust for
the beneficiary, as long as the aforementioned standard is
maintained.
3:38:32 PM
REPRESENTATIVE GUTTENBERG, referring to page 2, line 10, asked
for the definition of "inter vivos."
MS. CHAPMAN answered that this means "during life."
3:39:08 PM
DOUGLAS BLATTMACHR, President and Chief Executive Officer (CEO),
Alaska Trust Company, began by noting his support of SB 298. He
opined that it will "modernize" the state's trust laws and keep
the state competitive.
3:39:30 PM
REPRESENTATIVE ROKEBERG, referring to [pages 3-4], Section 7,
noted that the statute of limitations on a claim is being
changed from 24 months to 6 months. He asked if this is due to
the competitive nature of the business and/or a policy call
regarding the statute of limitation policy.
MR. BLATTMACHR replied that both of these are involved. He said
that the majority of the professional community wanted to make
the timelines more consistent. In addition, he said, reducing
the time [to] six months, along with a "bold" print, would cause
the beneficiary to "have more of [an] urgency" in taking an
action if a problem was detected.
3:40:30 PM
REPRESENTATIVE GUTTENBERG, referring to Section 6, noted that
the timeline for a claim has been reduced from 90 to 60 days.
MR. BLATTMACHR said that this is consistent with the probate
code, as is the change from 60 to 45 days.
3:40:59 PM
REPRESENTATIVE ROKEBERG, referring to [Section 8], asked if the
notification required is judicial notification. He noted that
this is a significant difference in the amount of time allowed
for filing a claim.
3:41:49 PM
MITCHELL GANS, Law Professor, Hofstra University School of Law,
in regard to the statute of limitations, said that Florida
currently uses the six month timeframe. He said that from a
policy perspective, it is more appropriate to shorten the
statute of limitations. He explained that a trustee can shorten
the amount of time he/she is liable by "commencing a judicial
accounting." This, however, involves an expense which is borne
by the beneficiary of the trust. He characterized it as
inefficient and inequitable. He said that a judicial accounting
results in a shorter statute, while an informal accounting
results in a much longer statute, and added that he does not see
a "good reason" for this. Finally, a shorter statute of
limitations is more likely to result in the beneficiary focusing
more carefully on his/her rights. He said that these reasons
show that the [six-month] timeframe is a "very good idea."
3:44:37 PM
DAVID SHAFTEL, Estate Planning Attorney, Law Offices of David G.
Shaftel, PC, informed the committee that he is involved with a
group of individuals that has worked with the legislature since
1997 regarding the state's trust statutes. He mentioned that he
assisted drafting several sections of SB 298, and offered his
belief that [SB 298] contains provisions that are "very
helpful," for residents of the state. In addition, nonresidents
who are using Alaska law for their estate planning will also
benefit from this legislation. In regard to the statute of
limitations, he stated that the uniform probate code also
provides for a process which has a six-month statute of
limitations. He said that he supports SB 298.
REPRESENTATIVE ROKEBERG asked what kind of impact previous
changes have had on Mr. Shaftel's business, and on the "Alaska
Trust business" in general.
MR. SHAFTEL said:
For example: the ... optional community property
system, which the legislature has enacted; the ability
to extend [a] trust's duration for as long as the
trusts have assets; the ability to create trusts that
will be able to allow Alaska residents to save
considerable estate taxes and allow other nonresidents
to use those kinds of trusts; [these] have ... been
very, very beneficial to my clients. ... We use all
of [the aforementioned benefits] for all of our
clients. Our clients at our practice here in
Anchorage are medium to large estates and ... have
lived here in Anchorage for a long time. ... They are
very appreciative of being able to do this kind of
planning. So, it's been a great benefit ....
Indirectly, ... there are ... four institutions here
in Anchorage which provide ... trustee services for
these kinds of trusts, and I know that there's been a
very substantial use of these vehicles.
3:48:34 PM
MR. SHAFTEL went on to say that in addition to in-state use,
many out-of-state individuals are using Alaska's financial
resources. He opined that this can "only be good" in terms of
developing the state as a financial center.
3:48:46 PM
RICHARD THWAITES, Chairman of the Alaska Trust Company, said
that he is in support of SB 298.
3:49:20 PM
MR. THWAITES, in response to a question from Representative
Rokeberg, said that many of his clients have found the statutory
provisions useful. In particular, he said, his clients have
used the optional community property act. He gave an example of
a client whose spouse passed away, resulting in a step-up in tax
basis for the surviving spouse. He said that the aforementioned
client was able to save over $1 million in savings on the state
tax, which would have otherwise fallen to the children of the
family. He added that, regarding income tax, there was
considerable savings between the death of the mother and father.
MR. THWAITES went on to say that the Alaska Trust Company has
had 1,000 or more trusts, 10 percent of which are in-state. He
said that at least $2 million has gone to the state treasury
from the increased premium tax. In addition, jobs have been
provided to residents of the state.
3:51:18 PM
REPRESENTATIVE GUTTENBERG asked if the ability of the
legislature to be proactive has kept Alaska "ahead of the wave."
MR. THWAITES replied yes, adding that the legislature has
developed a "very good" rapport with practitioners in the state.
He noted that while it took Alaska [4 years] to pass the initial
legislation, Delaware was able, in 16 weeks, to pass an act that
mimics the Alaska statutes. He explained that the Delaware act
stated that it was "an effort to copy the Alaska statutes
recently enacted to keep Delaware the number one in trusts."
However, the aforementioned legislation did not include
provisions considered "crucial" by the Internal Revenue Service.
This discrepancy allowed Alaska to stay ahead in this area. He
said "Clearly, the ... legislature in Juneau has ... facilitated
that with their ... willingness to listen to these modifications
as we go through."
3:53:12 PM
CHAIR ANDERSON closed public testimony.
REPRESENTATIVE ROKEBERG said that he was "pleased to hear" that
the state received $2 million in premium tax insurance receipts.
He reminded the committee that this was due to the legislature
limiting the tax on the [trust industry], which increased the
investment in the state. He opined that this is a "good
exercise" that should be kept in mind.
3:54:19 PM
CHAIR ANDERSON agreed.
REPRESENTATIVE ROKEBERG moved to report CSSB 298(JUD) out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSSB 298(JUD) was
reported from the House Labor and Commerce Standing Committee.
[The committee returns to SB 298 later in the meeting.]
3:54:46 PM
HB 480-INSURANCE COMPANY SELF-AUDIT INFORMATION
CHAIR ANDERSON announced that the final order of business would
be HOUSE BILL NO. 480, "An Act relating to voluntary self-
evaluative audits by insurers and providing for an insurance
compliance self-evaluative privilege; and indirectly amending
Rules 104, 402, and 501, Alaska Rules of Evidence, Rules 16, 26,
30, 31, 33, 34, 36, and 40, Alaska Rules of Civil Procedure, and
Rules 15, 16, and 17, Alaska Rules of Criminal Procedure."
3:55:12 PM
HEATH HILYARD, Staff to Representative Anderson, Alaska State
Legislature, pointed out that the committee packet should
include a proposed committee substitute (CS) to which all the
presentation materials refer.
CHAIR ANDERSON moved to adopt Version 24-LS1592\Y, Bailey,
3/15/06, as the working document. There being no objection,
Version Y was before the committee.
MR. HILYARD explained that this legislation emulates the law in
place in eight other states. This legislation would allow
insurance companies to voluntarily conduct self-evaluative
audits in order to determine whether the company's practices and
procedures are in concert with all applicable state statute and
regulations. Essentially the legislation was brought forward as
a model act that had been adopted in Illinois. During the
course of deliberations between the Division of Insurance and
those who brought the legislation forward, there were four to
five iterations of the legislation. The current version doesn't
require amendment to the Alaska Rules of Court and Evidentiary
Rules. Mr. Hilyard characterized Version Y as a scaled-back
version.
3:56:58 PM
The committee took an at-ease from 3:56 p.m. to 3:59 p.m.
[The committee returns to HB 480 later in the meeting.]
3:59:32 PM
SB 298-TRUSTS: CHALLENGES; CLAIMS; LIABILITIES
CHAIR ANDERSON returned the committee's attention to SB 298. He
explained that the bill was moved from committee prior to the
adoption of a committee substitute.
4:00:12 PM
REPRESENTATIVE ROKEBERG made a motion to rescind the committee's
action in reporting CSSB 298(JUD) from the House Labor and
Commerce Standing Committee. There being no objection, CSSB
298(JUD) was back before the committee.
REPRESENTATIVE ROKEBERG moved to adopt HCS CSSB 298, Version 24-
LS1113\S, Bannister, 3/31/06, as the working document. There
being no objection, Version S was before the committee.
REPRESENTATIVE ROKEBERG requested a brief explanation of the
changes made by Version S.
4:01:00 PM
BRIAN HOVE, Staff to Senator Ralph Seekins, Alaska State
Legislature, speaking on behalf of Senator Seekins, sponsor,
explained that on page 2, line 20, of Version S "beneficiary" is
changed to "beneficiaries."
4:01:28 PM
REPRESENTATIVE ROKEBERG moved to report HCS CSSB 298, Version
24-LS1113\S, Bannister, 3/31/06, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, HCS CSSB 298(L&C) was reported from
the House Labor and Commerce Standing Committee.
4:01:44 PM
HB 480-INSURANCE COMPANY SELF-AUDIT INFORMATION
CHAIR ANDERSON returned the committee's attention to HB 480.
4:01:53 PM
MR. HILYARD explained that Version Y is an amalgamation of an
ongoing conversation between Allstate Insurance, Legislative
Legal and Research Services, and the Division of Insurance.
4:02:32 PM
SHELDON WINTERS, Attorney at Law, Lessmeier & Winters, Lobbyist
for State Farm Insurance, began by saying that Alaska's laws
should encourage and protect those who play by the rules as well
as those who actively evaluate whether they are following the
rules. The aforementioned isn't that simple in this day and
age. "Insurance companies that are interested in using
proactive, voluntary, self-evaluations are limited by the harsh
reality that these evaluations may be turned against them
inappropriately and used against them inappropriately," Mr.
Winters highlighted. This legislation addresses the
aforementioned concerns by providing a limited protection for
voluntary self-evaluations. He related that voluntary self-
evaluations has wide support throughout the country. Virtually
every legal and scholarly writing has supported the policy of
such a privilege. Therefore, in a variety of settings virtually
every state has adopted some form of a self-evaluative
privilege. Most states, including Alaska, have such a privilege
for environmental assessments and medical peer reviews. Mr.
Winters opined that the aforementioned illustrates bipartisan
support for this type of protection. He specified that within
the insurance industry and its regulators there is broad support
for this protection. In fact, HB 480 is modeled after a model
act from the National Conference of Insurance Legislators
(NCOIL), although it's watered down quite a bit. Furthermore,
the National Association of Insurance Commissioners (NAIC) also
supports the policy of encouraging voluntary self-evaluations.
The NAIC is an agency to which the legislature has deferred to
before, which has resulted in Alaska Statute including many of
NAIC's model laws regarding examinations and conduct of
insurers.
MR. WINTERS highlighted that [the insurance industry] has worked
with the Division of Insurance to create acceptable legislation,
which [Version Y] seems to be. He then explained that Version Y
is limited and applies only to a voluntary internal evaluation,
specifically designed to identify problems and improve
compliance with laws and regulations. However, the legislation
doesn't apply to any assessment that a company is required to do
by law or the regulator. Furthermore, the legislation doesn't
apply to any other preexisting material, files, claims, or file
statistics. The legislation only applies to the insurance
company's decision to review that data and evaluate it. Still,
from a practical standpoint the Division of Insurance would
receive more information. Mr. Winters highlighted that the
legislation doesn't create immunity from criminal or civil
liability. The privilege embodied in Version Y is limited from
the NCOIL model and the Division of Insurance receives the self-
critical analysis document that it wouldn't have received
otherwise.
4:08:35 PM
MR. WINTERS posed a situation in which an insurance company
wants to do a review in Alaska to determine whether it's paying
its property damage claims on autos properly. The insurance
company takes 3,000 claims files in Alaska for review and
discover that in 20 percent of the claims a mistake is being
made and enough money isn't being paid. Ideally, the insurance
company would pay the claims. Under this legislation, the
company could provide the document and review to the Division of
Insurance and inform it of the mistake and the corrective action
taken. Therefore, the division will be provided with
information that it wouldn't have otherwise had. At that point,
the division can write off on the aforementioned or if the
division believes more involvement is necessary, the division
can perform its own investigation and issue its own penalties.
Mr. Winters then posed the possibility of one of the claimants
suing the insurance company, and specified that there is no
difference because the [division] receives the claims file and
the other 3,000 claims files could be obtained in order to
determine whether [the problem is related] to an inherent policy
of the insurance company. Furthermore, the division can perform
any assessment it desires, the division just can't receive its
own assessment. Mr. Winters clarified that this matter boils
down to whether a voluntary self-evaluation by a company should
be provided protection or allowed to be used against that
company.
4:10:46 PM
MR. WINTERS then addressed why this protection is desirable in
Alaska. As mentioned earlier, [protection of self-evaluations]
encourages self-correction, which is in the public's best
interest. Furthermore, such [protection] enhances regulatory
enforcement in three ways. First, limited resources don't allow
regulators to address all the potential problems. Second, the
privilege allows insurers to inform the division of corrective
conduct and thereby informs the division of the conduct that it
wouldn't otherwise have. Third, the privilege is clarified. He
informed the committee that currently there is movement for
courts to have a common law privilege. Those states that have
adopted such haven't allowed the regulators to obtain the
internal, voluntary self-audits. This legislation defines the
privilege in a limited manner such that it can be provided to
the division. Therefore, the insurance company receives
certainty and the regulator receives the document.
4:12:18 PM
MR. WINTERS then concluded by saying that self-correction is a
far better policy than regulation by lawsuits. Self correction,
he opined, delivers a more immediate and comprehensive result.
Since the division receives the document, there is no downside.
He acknowledged that there is some question with regard to any
advantage [provided by this legislation]. To that, Mr. Winters
said that when deciding whether to be candid or even perform the
review, there is concern regarding whether it would be used
against the individual or the company. This legislation helps
eliminate such concern.
4:13:46 PM
REPRESENTATIVE LEDOUX inquired as to whether there is any
particular impetus for this legislation, which embodies an idea
put forth in a 1983 Harvard law review analysis.
4:14:15 PM
MR. WINTERS said there has been a recent trend to perform self-
evaluative privileges for corporations and insurance companies.
He recalled that insurance companies began the process in 1999
and in the short six years since, about eight jurisdictions have
adopted this statutorily. Corporations are concerned with
ramifications of self-evaluations. Therefore, there are many
cases that address this matter, but there isn't a particular
case in Alaska.
4:15:12 PM
MR. WINTERS, in further response to Representative LeDoux, said
that Version Y no longer amends the Rules of Evidence. He
explained that the NCOIL model act included a provision in which
the regulator, the division, didn't automatically receive the
[self-evaluation] document. If the insurance company objected
to providing the document, a court procedure followed to issue a
decision regarding whether the [insurance company] is protected
or not. The aforementioned provision isn't included in Version
Y because the regulator receives the document upfront.
Furthermore, Court Rules 402 and 501 that have been suggested as
possibly being impacted both say, "the evidence rule is a
general rule that privileges may be recognized in court only as
provided ..., except as otherwise provided by the enactments of
the Alaska Legislature." Therefore, there is no conflict.
4:16:45 PM
MR. WINTERS, in response to Representative Crawford, agreed that
a self-audit would be inadmissible under [Version Y] if an
insurance company undertakes a self-audit, but doesn't follow
the recommendation provided. However, the regulator still
receives the document, he emphasized.
4:17:53 PM
CHAIR ANDERSON surmised that HB 480 was introduced because the
risk a company would assume when performing self-audits resulted
in many not performing them. "If you can be exempted from
having to reveal the self-audit ... then it helps the consumer,
it helps the process, and there's no one harmed from it," he
further surmised.
MR. WINTERS agreed, adding that Chair Anderson's understanding
is one of the strongest arguments for the privilege.
REPRESENTATIVE LEDOUX asked if [State Farm Insurance] performs
self-audits currently.
MR. WINTERS replied yes, and opined that the good companies are
actively trying to do so. However, he indicated that there are
probably things that [State Farm Insurance] would want to do in
addition. For the companies already performing self-audits,
this legislation defines what is to be given to the division.
4:19:19 PM
REPRESENTATIVE LEDOUX inquired as to how the public will benefit
from this legislation, when there are companies that are already
performing self-audits. Furthermore, the legislation takes away
something that the public would normally be able to obtain.
MR. WINTERS said, "I don't want there to be any confusion that
by doing self-audits we are doing everything we possibly can. I
certainly believe that there are some other companies out there
that maybe would be encouraged to do more with this provision
out there." He reemphasized that one of the benefits of this
legislation is that there will be more self-audits and they will
be more candid.
4:20:22 PM
REPRESENTATIVE LEDOUX related her understanding that currently
the Division of Insurance can require audits under certain
circumstances if it believes something is incorrect.
MR. WINTERS replied yes, which includes obtaining documents and
materials from the company.
REPRESENTATIVE LEDOUX opined then that in a situation in which
[a company] believes something might be wrong and fears that the
division might require an evaluation/audit, it would be smarter
for the company to perform a self-audit prior to the division
requirement. Furthermore, without this legislation the public
would be able to obtain the information when the information
required the audit.
MR. WINTERS clarified that [under this legislation] the division
will always receive the self-audit. However, this legislation
doesn't preclude the division from conducting its own
examination nor does it immunize the company from any penalty,
sanction, or examination.
4:23:05 PM
REPRESENTATIVE LEDOUX reiterated her concern that the public
wouldn't be able to receive the information [under this
legislation] whereas if the insurance company required the
audit, the public would be able to obtain the information.
MR. WINTERS pointed out that the privilege includes an exception
such that if the [self-audit] is performed for fraudulent
reasons, then it doesn't apply.
CHAIR ANDERSON related his presumption that eight other states
chose this course because it was in the best interest of
consumer protection.
4:24:19 PM
MR. WINTERS agreed because these companies are performing self-
audits that they otherwise may not do.
REPRESENTATIVE GUTTENBERG requested a side-by-side of the NCOIL
recommendations and this legislation.
4:25:06 PM
CHAIR ANDERSON agreed to do so.
REPRESENTATIVE GUTTENBERG posed a situation in which [Version Y]
passes and a company performs a self-audit and the division
recommends changes that the company doesn't make. At this
point, the division has the information, although not the work
product. In such a situation, what happens if the division does
the work to do the same audit and gets the same results as the
company's self-audit. He asked if that would preclude it from
being public.
MR. WINTERS replied no. This legislation only protects the
company's mental process and evaluation. All the underlying
data, the claims files, and other records are still "fair game."
Mr. Winters said, "The fact that we used that information for
our own evaluation doesn't protect that preexisting material
whatsoever." The protection, he reiterated, is for the document
and the mental process.
4:27:55 PM
REPRESENTATIVE GUTTENBERG posed a situation in which an
insurance company performs an audit that determines 10 percent
of [claimants] are being paid late while the division says it's
15 percent. Two years later, an audit specifies that 30 percent
of [claimants are paid late]. He questioned whether the product
of those two audits [would be available to the public.]
Representative Guttenberg opined that this legislation doesn't
seem to be consumer friendly.
4:29:02 PM
MR. WINTERS explained that the statistics and data that come up
with an analysis are "fair game for anybody at any time" and
this legislation doesn't change that. The intent of this
legislation and that of the other eight states with such
legislation already in place is to encourage the insurer to take
the data and review whether things are being done correctly.
The review reveals a bad standard, that wouldn't have otherwise
been revealed, and how to fix it can be addressed. The
aforementioned is what this legislation protects. What the
division does on its own has nothing to do with this privilege.
4:30:10 PM
REPRESENTATIVE ROKEBERG related that it seems that the goal is
to expose a problem and develop a remedy that minimizes the
sanctions while benefiting the public.
MR. WINTERS agreed that [the legislation is being introduced] in
order to find the problem, present it to the division, and
negotiate with it. If the division isn't happy with the
company's remedy, then the company has tipped the division to
the problem.
REPRESENTATIVE ROKEBERG pointed out that the legislation
specifies that the report is privileged, but the "raw" data is
not. Therefore, if the division wants to perform its own
investigation, it can do so, he surmised.
MR. WINTERS agreed.
REPRESENTATIVE ROKEBERG requested a column in the aforementioned
requested comparison between Version Y and NCOIL's model act
that specifies the current status. Representative Rokeberg
related his understanding that currently insurers can perform
self-audits and don't have to turn them into the division and
that wouldn't change under the legislation.
MR. WINTERS replied that currently there is no statute or Alaska
case law addressing [whether a company has to provide a self-
audit to the division]. He noted that other states have adopted
a self-evaluative privilege. Therefore, one of the reasons for
HB 480 is to clear this up by specifying that there is a limited
privilege in Alaska.
4:33:05 PM
REPRESENTATIVE ROKEBERG questioned whether a company that
decides, of its own volition, to perform a self-audit has a duty
to provide the self-audit to the division or can it withhold the
self-audit at the company's discretion.
MR. WINTERS answered that under this legislation, a company
can't withhold a self-audit. The self-audit will be provided to
the division by the company voluntarily or the division requests
the self-audit and the company must provide it.
4:34:53 PM
REPRESENTATIVE LYNN related his understanding that the self-
audit doesn't automatically go to the Division of Insurance.
Furthermore, the division may not even know the self-audit was
performed and thus wouldn't request it.
MR. WINTERS said that is correct. This legislation doesn't
provide that anything the insurers do will automatically be
provided to the division.
REPRESENTATIVE LYNN asked if any of the 42 states have reviewed
legislation such as HB 480 and expressed why they don't want to
implement such legislation.
MR. WINTERS offered to obtain information regarding those states
that [haven't expressed interest in similar legislation].
4:36:26 PM
MICHAEL SCHNEIDER, Attorney at Law, Law Offices of Michael J.
Schneider, PC, informed the committee that he has been
practicing in Anchorage since 1975. Mr. Schneider stated that
he is adamantly opposed to HB 480. He recalled earlier
testimony regarding the self-assessment privilege already
recognized in Alaska law for environmental and health care
matters. The aforementioned areas are areas in which peoples'
lives and futures are in the balance. However, this legislation
addresses insurance industry money. He highlighted that with
few exceptions, the insurance industry is not centered in the
state. He then informed the committee that New York attorney
general's testimony before a U.S. Senate committee related that
in a recent year, premium income for the insurance industry in
the U.S. amounted to 10 percent of the gross domestic product.
He said he brings this forth because the idea that the insurance
industry is controlled or manipulated by the existing Alaska
Fair Claims Settlement Practices Act or the Alaska Division of
Insurance is not meritorious.
MR. SCHNEIDER recalled earlier testimony that the narrow
definition [in the legislation] only applies to the thoughts,
the evaluative process, and the resulting document isn't
expressed as such in Version G. He opined that many "sins"
could be swept into the self-evaluative insurance audit and
protected from view, at least as written [in Version G]. Mr.
Schneider further opined that this legislation promotes perjury
and will result from this protective legislation. "The gift
that this legislation brings to the industry is at the expense,
I would suggest, of all of your constituents no matter what side
of the aisle you're on," he said. He further said, "There is no
need to give the ... most rich and powerful game in town more
protection from the law."
4:41:24 PM
DONNA MCCREADY, Attorney at Law, Ashburn & Mason; Alaska Action
Trust, urged the committee to hold HB 480 in order to analyze it
further. Ms. McCready related that she had a copy of Version G
and believes the legislation to have a lot of downstream
consequences. Ms. McCready expressed grave concern that this
legislation will hurt consumers as well as the business
community. The insurance industry is asking to be given a
privilege only given to physicians and those performing
environmental evaluations. "There's no reason to do this," she
opined. The insurance industry is already performing self-
audits as would any business. Although the privilege is being
presented as very narrow, she expressed concern that the
insurance industry will interpret in a much broader fashion.
Ms. McCready inquired as to who is going to enforce this
privilege and determine whether the insurance industry is only
protecting documents as stated by the proposed legislation. In
conclusion, Ms. McCready again urged the committee to hold HB
480 in order to properly analyze it.
4:44:42 PM
MS. MCCREADY, in response to Representative Rokeberg, explained
that the Alaskan Action Trust is a group of plaintiff attorneys
and criminal defense attorneys. The group, she further
explained, watches legislation that they feel will hurt
consumers in the state.
4:45:27 PM
JEFFREY TROUTT, Deputy Director, Juneau Office, Division of
Insurance, Department of Commerce, Community, & Economic
Development, began by noting that he had problems with the
original legislation as it wasn't clear that the Division of
Insurance would be entitled to a self-evaluative audit. He was
also concerned with the original legislation because there were
provisions that excluded it from a criminal trial. He mentioned
that he has faced this issue previously with product safety when
he worked for the Consumer Product Safety Commission in
Washington, D.C. In the product safety arena, there are those
who believe that a self-evaluative audit should be excluded from
discovery in civil cases. On the federal level most courts have
rejected the aforementioned argument. Drawing upon his
experience with consumer product safety, Mr. Troutt opined that
an environment in which those who work for a company can
candidly evaluate what they do is desirable. However, that
doesn't mean there shouldn't be consequences when things are
found to be wrong. "I'm less persuaded in the insurance agency
than in the product safety area that's all that's necessary
because as a previous testifier suggested ... nobody's going to
die ... as a result of this," he said. Still, he indicated that
he believes service could be improved and insurance companies
could possibly be more likely to ferret out wrong doing within
their own company. If the aforementioned is the case, then this
legislation is good consumer litigation.
4:49:31 PM
MR. TROUTT went on to say that this legislation allows one
document, a document that may be large and include attachments,
out of court and discovery. However, under this legislation the
underlying facts aren't privileged and nor is any other
document. Mr. Troutt said he understood this legislation not to
allow the division to take the insurer's audit and use it
against it and implement a civil penalty. Still, the division
isn't prevented from taking action [when something is found to
be wrong], although it may keep a lucrative admission out of a
civil case. He said he understood why the plaintiff's attorneys
would want such an admission.
4:51:06 PM
MR. TROUTT opined that this legislation doesn't interfere with
the division's work. "It's very important ... that ... the
Division of Insurance have access to those kinds of documents
and that we be able to use these in a subsequent civil or
administrative action," he specified.
4:52:02 PM
REPRESENTATIVE LYNN asked if Mr. Troutt believes HB 480 to be
good legislation for consumers.
MR. TROUTT replied, "On balance, it's more likely than not." He
assured the committee if this turns out to be bad for consumers,
the division will inform the legislature.
4:52:36 PM
REPRESENTATIVE KOTT pointed out that two components are under
discussion: the insurance compliance audit and the insurance
compliance audit documents. He inquired as to the location in
the legislation that would provide the division additional
information and authority that requires the insurer to submit
the audit to the division. He then pointed out that the
legislation says "the insurer may voluntarily" [provide the
insurance compliance audit]. Therefore, he inquired as to how
the division would obtain [that audit] if the insurer doesn't
report it to the division.
MR. TROUTT acknowledged that the division wouldn't always know
an [audit] document exists. However, he expected that during a
financial or market conduct exam by the division, the first
question would be regarding whether the insurer has performed
any self-evaluative audits. Presumably, the division would then
know whether such existed. In regard to the attachments to the
audit, he said that any attachment that exists outside of the
audit would be "fair game." He said he could understand why one
may not want to exclude photographs, which document a moment in
time. Mr. Troutt specified that under [Version Y] any
photograph that exists will be subject to the division's process
and wouldn't be excluded. "While I can see it would be
sensible, you may want to look at it and ask, well documents
created in the course of the audit, whether or not those ought
to be not subject to a privilege. I think you ... could do that
without affecting the underlying thing that you want to
accomplish from this, which is really basically removing ...
'admissions' from discovery or admissibility," he explained.
4:56:19 PM
REPRESENTATIVE LEDOUX said that if one believes the notion that
people aren't candid when they could get into trouble for it,
then the fact that these internal review documents are available
to the division would seem to decimate the entire analysis.
MR. TROUTT said that's a valid point with which he didn't
disagree. However, he didn't believe this legislation would
solve that problem. He opined that the only way to solve that
problem is to provide the privilege for everyone, which isn't
desirable.
REPRESENTATIVE LEDOUX questioned, "Since this bill doesn't solve
that problem and that problem is a good portion of the reason
for the bill, why do the bill?"
MR. TROUTT said that he isn't enthusiastically sold on HB 480,
but he believes there is a balance. "More than likely than not,
on balance you'll get better compliance with that bill," he
opined.
4:58:53 PM
REPRESENTATIVE LEDOUX related her understanding that these cases
aren't civil personal injury claims, but rather are about
situations in which insurance agencies haven't properly serviced
their own insurers.
4:59:28 PM
CHAIR ANDERSON recalled Mr. Troutt's testimony that the
legislation is more beneficial to the consumer because of the
company regulating and self-auditing, bettering, itself.
MR. TROUTT noted his agreement.
REPRESENTATIVE GUTTENBERG turned the committee's attention to
page 4, lines 7-24, which says that the division will fall under
the attorney-client privilege. Therefore, the division will
never be able to inform the legislature regarding how this
legislation is working.
5:00:13 PM
MR. TROUTT opined that the aforementioned provision doesn't
impact existing [restrictions related to the attorney-client
privilege].
5:00:56 PM
CHAIR ANDERSON reviewed the areas requiring further information
from the interested parties and announced that the earlier
mentioned comparison matrixes will be available at the next
meeting.
REPRESENTATIVE KOTT related his assumption that the Division of
Insurance doesn't want to see every self-evaluative audit.
MR. TROUTT agreed.
5:01:53 PM
REPRESENTATIVE KOTT asked if the division would want to see
those audits revealing a major discrepancy that negatively
impacted the insuree.
5:02:08 PM
MR. TROUTT replied, absolutely, and added that if it rises to a
certain level, the division may want to take administrative
action.
[HB 480 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:02 p.m.
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