02/04/2014 01:30 PM Senate LABOR & COMMERCE

        SB  58-CANCEL INS. ON CERTAIN ABANDONED PROPERTY                                                                    
                                                                                                                                
1:51:46 PM                                                                                                                    
CHAIR  DUNLEAVY   reconvened  the   meeting  and   announced  the                                                               
consideration of SB 58. "An Act  allowing an insurer to cancel an                                                               
insurance policy  if property becomes entirely  abandoned and the                                                               
abandonment increases the hazard  insured against." He noted that                                                               
the bill received one hearing at the end of last session.                                                                       
                                                                                                                                
1:52:09 PM                                                                                                                    
SENATOR DENNIS EGAN, sponsor of SB 58, read the following                                                                       
sponsor statement into the record:                                                                                              
                                                                                                                                
     SB 58 clarifies that insurance  can be cancelled when a                                                                    
     property   owner   abandons   the   property,   thereby                                                                    
     increasing a hazard covered by the insurance.                                                                              
                                                                                                                                
     AS  21.36.210 lists  allowable  reasons for  cancelling                                                                    
     personal insurance,  including a grossly  negligent act                                                                    
     by  the insured  that  increases a  covered hazard  and                                                                    
     physical changes  in the  insured property  that result                                                                    
     in the  property becoming uninsurable. As  this statute                                                                    
     is  currently written,  it is  not clear  whether these                                                                    
     reasons would  include abandonment  of the  property by                                                                    
     the insured.                                                                                                               
                                                                                                                                
     Homeowners  insurance  is  underwritten  based  on  the                                                                    
     property  generally being  occupied. An  abandoned home                                                                    
     greatly increases  the risk of  damage beyond  what was                                                                    
     contemplated  in  the   insurance  contract,  including                                                                    
     damage  caused by  vandalism,  broken  water pipes  and                                                                    
     fire. Cancellation  of insurance  when the  property is                                                                    
     abandoned is  necessary to  manage insurance  costs for                                                                    
     all consumers.                                                                                                             
                                                                                                                                
     SB  58 clarifies  that insurance  on property  that has                                                                    
     been entirely abandoned can be  cancelled in Alaska, as                                                                    
     it can  in all other  states. However, it  is important                                                                    
     to   note  that   SB  58   would  establish   the  most                                                                    
     restrictive   circumstances   in   the   country.   For                                                                    
     instance, thirty  days advance  written notice  must be                                                                    
     given  to the  insured  and any  lender  on record.  In                                                                    
     addition,  insurance  cannot  be  cancelled  where  the                                                                    
     owner   demonstrates  that   the   property  is   being                                                                    
     reasonably   maintained  and   monitored.   SB  58   is                                                                    
     responsible  legislation   that  helps   manage  claims                                                                    
     costs,  the  risk  pool  and   the  cost  of  insurance                                                                    
     coverage for Alaska homeowners.                                                                                            
                                                                                                                                
1:54:19 PM                                                                                                                    
SENATOR OLSON asked how the abandonment provision affects a                                                                     
property that is mortgaged.                                                                                                     
                                                                                                                                
SHELDON WINTERS, Lobbyist, State  Farm Insurance, Juneau, Alaska,                                                               
explained that  the insurance company would  provide the required                                                               
30-day  notice of  cancelation to  the owner.  SB 58  provides an                                                               
added  protection that  requires  the insurance  company to  send                                                               
notice of cancellation  to any lender of record that  it is aware                                                               
of.                                                                                                                             
                                                                                                                                
SENATOR  OLSON   asked  how  many   other  states   have  similar                                                               
legislation.                                                                                                                    
                                                                                                                                
MR.  WINTERS offered  his understanding  that every  state has  a                                                               
cancellation  statute.  Some  statutes   are  more  complex  than                                                               
others, but in no state other  than Alaska has State Farm had any                                                               
concern  about  the  ability  to  cancel  a  policy  on  entirely                                                               
abandoned property. The  issue arose in Alaska  when the Division                                                               
of Insurance said that under  a strict interpretation the current                                                               
statute  would not  allow cancelation  even if  the property  was                                                               
entirely abandoned. He highlighted  that SB 58 builds protections                                                               
into the  statute to make sure  that it only applies  to property                                                               
that is unquestionably abandoned.                                                                                               
                                                                                                                                
1:59:31 PM                                                                                                                    
SENATOR MICCICHE  posed a hypothetical  scenario similar  to what                                                               
happened in the  late 1980s when a lot of  rental properties were                                                               
vacant for long  periods. He asked how the bill  would affect him                                                               
as owner of that abandoned rental.                                                                                              
                                                                                                                                
MR. WINTERS said  his understanding is that this  only applies to                                                               
personal  insurance which  means fewer  than four  units. If  the                                                               
rental falls under personal insurance,  abandonment is defined as                                                               
nobody  living  there  as intended  in  the  insurance  contract.                                                               
Vacancy   between   rentals  wouldn't   constitute   abandonment.                                                               
Abandonment is when the property  is vacant, uncared for, and not                                                               
maintained.  He  said  it's counterintuitive  to  think  that  an                                                               
insurance company would  want to cancel the insurance  on a piece                                                               
of property without a significant reason.                                                                                       
                                                                                                                                
2:01:29 PM                                                                                                                    
CHAIR DUNLEAVY opened public testimony.                                                                                         
                                                                                                                                
2:01:39 PM                                                                                                                    
RUBEN  WILLIS,   representing  himself,  State   Farm  Insurance,                                                               
Juneau, Alaska, related  his experience as an  insurance agent in                                                               
Alaska.  He  stated  support  for  SB  58  as  a  means  of  risk                                                               
management. If risk changes  substantially, it's appropriate that                                                               
the cost isn't  passed on to people who are  taking care of their                                                               
homes  and  properties. He  described  the  process he  would  go                                                               
through  to contact  the owner  if an  insured property  appeared                                                               
abandoned.                                                                                                                      
                                                                                                                                
2:04:00 PM                                                                                                                    
SENATOR OLSON  asked how long  it would take before  an insurance                                                               
company would consider a vacant property abandoned.                                                                             
                                                                                                                                
MR. WILLIS clarified  that State Farm hasn't  canceled anyone for                                                               
abandoned property yet because it  hasn't been an option, but the                                                               
most likely scenario is that he  would find out directly from the                                                               
insured.                                                                                                                        
                                                                                                                                
SENATOR OLSON restated the question about timeframes.                                                                           
                                                                                                                                
MR. WILLIS deferred to Mr. Winters.                                                                                             
                                                                                                                                
2:05:56 PM                                                                                                                    
MR.  WINTERS  said  there  was some  discussion  early  on  about                                                               
putting  in a  timeframe so  people would  have a  guide, but  no                                                               
other state does that because  it's too restrictive. He cited the                                                               
example  of  an  abandoned  house in  Fairbanks  in  the  winter.                                                               
However, with realtors'  assistance the language in  the bill was                                                               
narrowed  to cover  only clearly  abandoned property.  Even after                                                               
the notice goes  out, the owner or their  representative can show                                                               
the  agent that  the property  is being  cared for  and it's  not                                                               
deemed  abandoned. In  addition to  the safeguards  in the  bill,                                                               
oversight by the Division of  Insurance provides another layer of                                                               
protection to property owners.                                                                                                  
                                                                                                                                
SENATOR OLSON asked  how many of his clients are  not on the road                                                               
system.                                                                                                                         
                                                                                                                                
MR. WILLIS estimated less than 25.                                                                                              
                                                                                                                                
SENATOR  OLSON asked  if an  insurance company  could cancel  the                                                               
insurance if a homeowner went to  Acapulco for most of the winter                                                               
and  their  vacant  house  froze  up even  though  a  friend  was                                                               
overseeing the property.                                                                                                        
                                                                                                                                
MR.  WINTERS  said  that  property  is  not  entirely  abandoned.                                                               
Moreover, the bill does not  allow an insurance company to cancel                                                               
a policy  after a claim  is made.  The bill addresses  a property                                                               
that no longer fits within the risk pool.                                                                                       
                                                                                                                                
SENATOR  MICCICHE  asked  how recreational  cabins  fit  in  this                                                               
category, assuming they're insured.                                                                                             
                                                                                                                                
2:12:07 PM                                                                                                                    
MR.  WINTERS  said  those  too would  be  protected  because  the                                                               
insurance   is  defined   by  the   policy.   By  definition,   a                                                               
recreational cabin  is likely to  be vacant for  extended periods                                                               
of time, but that doesn't mean abandoned. He added the caution                                                                  
that an insured home has to be occupied or have somebody taking                                                                 
care of it.                                                                                                                     
                                                                                                                                
CHAIR DUNLEAVY kept public testimony open and held SB 58 in                                                                     
committee.