Legislature(1997 - 1998)
04/24/1998 01:07 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 430 - AUTOMOBILE CIVIL LIABILITY Number 1558 CHAIRMAN GREEN announced the next order of business would be HB 430, "An Act relating to noneconomic damages resulting from an automobile accident," sponsored by Representative Kott. JAMES HORNADAY, Legislative Assistant to Representative Pete Kott, Alaska State Legislature, came before the committee to testify. He told the committee that HB 430 denies recovery for noneconomic damages, for example, pain and suffering, to those convicted of driving while under the influence of intoxicating liquor, or any controlled substance and to uninsured motorists who were injured while operating a vehicle. The bill provides one exception: when an uninsured motorist is injured by a subsequently convicted drunk driver. With this one exception, an insurer is not liable for noneconomic damages. He noted that there is one zero fiscal note from the Department of Law. He pointed out over on the Senate side in SB 83, they took out the provisions that involved driving under the influence. MR. HORNADAY indicated they attempted to find answers to the questions that were proposed at the last committee meeting. He referred to Representative Berkowitz' question of how many cases would this involve in Alaska. He said they were not able to get direct information, but the Anchorage Police Department did provide information that in 1997 there were 331 cases of accidents where at least one drunk driver was involved. This figure is up from 1996 where there were 319 cases. He referred to another question from Representative Berkowitz which was: "How many uninsured drivers got insurance because of the proposition that passed in California?" He said, by way of review, there was a proposition that the people in California overwhelmingly supported, which is very similar to this legislation. He noted that Mr. Jinks of United Service Automobile Association (USAA) advised that it was hard to estimate the number because, at the same time, California toughened up its insurance before registration procedure, so a lot of people did buy insurance, but he could not say which bill was the reason. Another question by Representative Berkowitz was, "How much did the insurance rates go down in California?" He said, "Mr. Jinks advised that the rates are falling fast: mercury reduced rates - 25 percent; USAA gave a 15 percent rebate. State Farm gave a dividend as a result and he advises that he was advised by the California insurance director that as a result of a change in the law, consumers buying personal insurance for automobiles in California should save over $1 billion this year. This does not include the self-insurers like government agencies and large corporations." He noted that Juanita Hensley from the Division of Motor Vehicles raised the issue of whether she would have to suspend licenses for failure to insure if insurance companies withheld payment of economic damages pending a conviction for drunk driving. Mr. Hornaday indicated that Michael Lessmeier, attorney for Lessmeier and Winters, responded that the law requires the insurance to pay and that they could not withhold economic damages pending the conviction. MR. HORNADAY told the committee they should have in their packets a revised sponsor statement and several letters supporting the bill and one letter in opposition of the bill. He noted that the bill is supported by the Anchorage Police Department. Number 1781 JOHN GEORGE, Representative, National Association of Independent Insurers, came before the committee to testify. He noted that the legislature has already mandated that everyone has to buy automobile insurance. The legislature has also passed laws that say people may not drive in public intoxicated. He said, "If you're drunk and you run into somebody, then you still have to pay the economic damages, whether they're noneconomic damages and whether they're insured or not. The bottom line is that we're not taking all of the benefits away, we're only saying the noneconomic damages. If you're in violation of law, you don't have insurance but you're not at fault, you'll still get your car fixed, you'll still get your lost wages, you'll still get all the things that you can come up with receipts for, your medical bills. You just can't say, 'And I want half a million dollars in pain and suffering' or those types of things." MR. GEORGE said, "I think most legislators over their careers have heard a lot of constituents say it isn't fair. 'My automobile insurance costs too much and I buy it and then somebody hits me and they don't have any insurance and then I still won't collect.'" He noted at the last hearing on HB 430, there were a lot of specific questions. Consequently, he came up with a summary of all of the different combinations of the way this can work: If vehicle "A" is stopped at a stop sign, vehicle "B" runs into vehicle "A," vehicle "A" is totally at fault at the accident. If vehicle "A" is sober and insured and vehicle "B" is also sober, but uninsured and runs into vehicle "A," the driver and passenger in vehicle "A" don't get anything because vehicle "B" doesn't have any insurance. They turn to their own first party medical, they turn to their own first party collision coverage, their own uninsured motorist coverage, if they've paid extra premium, that's the way they're going to collect because the other guy didn't buy the insurance as the law has mandated. He stated that's really the crux of this bill is the fairness of it that if you buy insurance, you're entitled to reap the benefits of the entire system. He said, "If you fail to buy insurance to protect the other guy, this is one little slice that you're not going to get. You get the big pie, but you don't get this slice." He said it's inherently fair that people who participate in the insurance system can collect; those who don't participate in the insurance system have to pay some sort of penalty and this is their penalty. Number 2032 REPRESENTATIVE BUNDE said his understanding of the bill is to provide penalty for people who don't buy insurance. He asked, "If that's the case, why give them any recovery at all?" He said, according to Mr. George's testimony, a person can't sue for noneconomic damages, which is a small slice of the pie. He said, "Why not just say you don't have any insurance and you're in a wreck and you don't get any economic damages either?" MR. GEORGE replied that sounds attractive on a limited basis. We're also talking about a draconian measure. He said it may not be totally unfair, but he thinks it's a pretty severe penalty. He explained to the committee that "a noneconomic damage is something that you pull a number out of the hat and say, 'my pain is worth this much money, or my loss of consortium is worth this much money,' whereas your car, you've got an invoice." He feels that is a material difference. He said an economic damage is something that a person has really lost and, in fact, if the other person was negligent, the other person should not be held liable for that. He indicated it's really not a punishment as much as it's an incentive to get people to buy insurance. REPRESENTATIVE BUNDE commented that it sounds like it's very little incentive. He indicated he doesn't think that there are very many people who drive that think that maybe they'll get lucky and someone will hit them just hard enough that they will get hurt a little bit, but not get killed and they can go to the crap shoot and make a buck. He doesn't see that's a large incentive to go buy insurance. He referred to drunk drivers stating, "If you want incentive, say, you're driving drunk and even though you bought insurance, you don't get any recovery. As it is, the bill is a little bit pregnant." REPRESENTATIVE BERKOWITZ asked Representative Porter if he thought there was a section in the tort reform that passed last year, which indicated a person cannot collect if their injuries resulted during a violation of a crime. REPRESENTATIVE PORTER answered, "Yes, depending how it would apply here." REPRESENTATIVE BERKOWITZ asked what if a person is driving while intoxicated (DWI) and then hits someone else. REPRESENTATIVE PORTER asked an unidentified person, "Did we include DWI or was it just plain felonies?" UNIDENTIFIED PERSON replied, "DWI (indisc.)." REPRESENTATIVE BERKOWITZ asked if the insured DWI person would not be covered under the tort reform. Number 2290 MR. HORNADAY said his recollection last year on the drunk driving (indisc.) if it contributed to the accident, the person would denied all damages. REPRESENTATIVE PORTER said he believes the tort reform indicated that if it was a DWI or a felony and that act directly contributed to the accident, then a person would be precluded recovery. REPRESENTATIVE BERKOWITZ said, "Okay in the hypothetical that Mr. George gave us if driver 'B' was the driver behind, and driver 'A' was the driver in front." MR. GEORGE said, "'A' is in front." REPRESENTATIVE BERKOWITZ said, "If driver 'B' is intoxicated and gets hurt, then the tort reform would have covered it; he wouldn't have collected. But if driver -- this bill goes to if driver 'A' is stopped at a stop sign and is intoxicated ..." REPRESENTATIVE PORTER interjected and said, "And he's hit by another intoxicated driver." MR. GEORGE said, "Obviously, if you're not negligent it applies different. If you're in car 'B' and you run into somebody, whether you're drunk or not, you're the negligent person, not the guy that's stopped. So really what we're talking about is a -- this affects a non-negligent person who is uninsured, but if the driver that hits him is drunk, it removes that. If you're drunk and hit someone, you have to pay the .... REPRESENTATIVE BERKOWITZ asked what if a person is drunk and gets hit and they have no insurance. MR. GEORGE replied if a person has no insurance and someone runs into them, that person cannot collect for pain and suffering, whether you're sober or drunk. TAPE 98-70, SIDE A Number 0001 REPRESENTATIVE BERKOWITZ said "...and we're doing this to punish someone for not having insurance, or are we doing this to benefit the insurance companies who then pass the savings on to all the law abiding and insurance-bind citizens?" MR. GEORGE agreed. He explained that any savings the insurance company makes by not paying off noneconomic awards, ultimately it gets passed back to the people that did buy insurance. Insurance is highly regulated, noting that all rates and policy language have to be approved by the director of the Division of Insurance, which is based on justifying your overhead, your losses, your expected losses, and the rate that you have to collect in order to pay those. If the losses go down, you can't justify the higher premium, you've got to reduce your premium. In conclusion, he said if losses are reduced, insurance premiums for those that are required by law to buy insurance will go down. Number 0205 MICHAEL LESSMEIER, Attorney, State Farm Insurance Company, testified via teleconference from Anchorage. He informed the committee he wanted to give them some background. Since statehood, the state of Alaska has had financial responsibility on the books. And that responsibility law has required that people who operate motor vehicles maintain a certain level of financial responsibility and there have been consequences to that. He said in the mid-'80s, the legislature passed a mandatory insurance law, and in that mandatory insurance law was a recognition that driving a motor vehicle carries a certain amount of responsibility. The issue of responsibility relates directly to the potential damage a person might cause to someone else. The theory was that people who are responsible enough to have a vehicle and get behind the wheel should be financially responsible, at least to a certain minimal level. In Alaska that level is $50,000 per person and $100,000 per accident. He indicated that there still is a problem with uninsured motorists. He said, "We have submitted a letter to Representative Kott that gives you the benefit of our experience in Alaska, and that experience is that over the past five years the ratio of uninsured motorists claims, the bodily injury claims, brought us in the range of approximately 17 to 21 percent. Over the last 10 years that ratio has ranged from a low of 16 percent to a high of 23 percent. Regardless of where you are in the trend, there's a problem out there. And, frankly, there probably is always going to be a problem. The issue posed by this legislation is whether we can reduce that number because we all pay a subsidy for these people and we pay it in two ways. The first way we pay it, is the people that are driving without insurance, they participate right now fully in a liability system that is funded by insurance premiums, but they're not paying for this. What happens is you have people that are participating but not paying, and you have less people that are actually financially participating, so we all pay more. The second way we pay a subsidy is everyone of you that has uninsured motorist coverage has that coverage at the level of cost that you currently incur because of the number of accidents that are caused by uninsured motorists. And so you pay a subsidy in two ways. We look at this legislation and what we say is it is a simple and fair solution to what is a fairly complicated problem. It is simple in the sense that, 'if a car don't pay, no play.' If we don't pay for the financial responsibility of others, you don't deserve to participate in the system. And that is an issue of fairness, as well. If I don't (indisc.) that I would pay on that issue, is that this provides a significant incentive for people to be financially responsible, at least to the minimum limits required by the law. And it doesn't without an enforcement cost on the part of the state, and it doesn't without an enforcement cost that has to be borne by everybody else that is financially responsible. It is self-effectuating and we think it is a good idea. The last thing I'll say is that State Farm is a mutual company. And I know at least one of the companies that Mr. George represents is also a mutual company. What that means is that when our experience is better than we expect it to be, we give money back. Last year we gave back $6.6 million dollars to Alaskan policyholders. We also reduced automobile insurance premiums in Alaska by 2.4 percent and there are a lot of different reasons why that has occurred. I think Representative Porter is alluding to some of the changes that were made by the legislature. We think that legislation like this is a definite step in the right direction, it is beneficial to our policyholders, and it doesn't carry with it a corresponding cost. And so, we would urge that you support it." Number 0561 CHAIRMAN GREEN said he understands that California is "no pay, no play." MR. LESSMEIER replied it has been for a little over a year. CHAIRMAN GREEN asked what sort of results have happened in California and how much of that has been passed back to the policyholders. MR. LESSMEIER said he can't answer that question directly. He did inform the committee that the latest information they had was the California insurance commissioner said that after a year, insurance rates have already been lowered by five percent. He indicated that there are so many things going on in California that it's very difficult to look at one piece of the puzzle and say this is the reason for the change. He noted that California historically has had some of the highest insurance premiums in the country. He said he believes that trend has changed and for a lot of different reasons, but this is one of them. He pointed out that one of the differences between California's law and Alaska's law is that California's law was passed by an initiative applied to all of the cases on the books. In other words, it had a retroactive effect. That is quite significant when you start looking at improvements. He said Alaska's law is not retroactive. He said what is contained in HB 430 would apply only to causes of action that improved on or after the effective date. Mr. Lessmeier indicated they think HB 430 is a good idea and that it will have an effective date, but it's hard to predict how much. CHAIRMAN GREEN said that was the reason he asked the question about the results in California because the letter Mr. Lessmeier wrote to Representative Kott on March 31, 1998, indicated that California has already lowered insurance rates by 5 percent, which made a person believe that it was perhaps because of this. He noted that Mr. Lessmeier indicated there were several other factors involved. Number 0753 REPRESENTATIVE BUNDE said he is sympathetic to what Mr. Lessmeier is trying to do, but he feels he is "nibbling around the edges." He referred to his earlier testimony where he stated that if you really want incentive, you just remove all damages, not just noneconomic damages. He explained that it's his impression that many people who drive without insurance are relatively unsophisticated people and probably not people of means. The notion that they're going to sit up and take notice that, "Oh, good Lord, if I have an accident and I'm not insured, I won't get noneconomic damages." He remarked that most people like he just described couldn't define what noneconomic damages are. He asked, "Wouldn't we be more effective if we just passed a law that said you can't register your motor vehicle until you show proof of insurance?" MR. LESSMEIER said they have, over the years, looked at all kinds of different ways to try to ensure that people do carry insurance and that is one of them. "The difficulty with that proposal is then what happens is someone picks them up down the road when they don't renew it." He pointed out there are a number of states that have spent huge amounts of money trying to create systems to ensure that people who drive are all covered by insurance, and none of them have been very effective. He indicated it is one of the best ideas they have seen and the reason for that is because it does provide an incentive, but it provides an incentive without corresponding cost. He said there's no cost to the state for doing this, and there's no cost to the industry, which is passed along to the policyholders to doing this. He indicated that there are two benefits to this. One, is that you do encourage people to be financially responsible. The second is you're not eliminating the people that feed off the system, but don't pay for it and you're reducing the level of claims, which is a benefit as well. He said HB 430 isn't a perfect piece of legislation, but it's a really good idea in their view. Number 0916 REPRESENTATIVE BUNDE indicated the committee has information that 15-20 percent of the claims were from noninsured motorists, and he asked if that is for noneconomic damages or total claims. MR. LESSMEIER replied that it's the ratio of uninsured motorists claims to bodily injury claims. He told the committee almost every bodily injury claim he has seen has an economic and a noneconomic component. REPRESENTATIVE BUNDE said he doesn't believe that will encourage people who don't buy insurance to buy insurance. It would save the insurance companies money because they wouldn't be paying out noneconomic damages to those people. Regarding mutual companies, this may eventually filter back to some savings for the general public. MR. LESSMEIER said he thinks everybody recognizes that rates in Alaska are probably driven by the mutual companies. In other words, to the extent that our rates are low, everybody benefits because the people that are competing with this are going to have to compete with low rates, and he feels that it benefits every Alaskan that has to buy this coverage if they want to comply with the law. Number 1033 REPRESENTATIVE BERKOWITZ asked if Mr. Lessmeier said 16-23 percent of the payout was to uninsured motorists. MR. LESSMEIER said no. What he said is that the ratio of uninsured motorists claims to bodily injury claims over the past five years have ranged from approximately 17 to 21 percent. Over the last ten years, their experience is that the ratio has ranged from a low of 16 percent to a high of 23 percent. REPRESENTATIVE BERKOWITZ asked if he could tell how much money that amounts to. MR. LESSMEIER replied he could not. REPRESENTATIVE BERKOWITZ asked, "Would that be more than the 6.6 million you returned as a 5 percent savings?" MR. LESSMEIER responded he has no idea what that number is. REPRESENTATIVE BERKOWITZ said he is trying to find ways of lowering insurance rates, and said Mr. Lessmeier had indicated that the trend had been downwards recently, and even predating tort reform, and asked if he could pinpoint what had inspired those downward trends. MR. LESSMEIER said he does not know if he can pinpoint that and said there are a number of reasons why. It might be because the driving public is getting older and older people tend to have less claims. He said it's also a reflection, in part, of the changes in the law. It is a reflection, in part, of safer vehicles. It may be a reflection, in part, to highway maintenance, better roads, all of those things. He said this legislation isn't based on any of those things he just mentioned. REPRESENTATIVE BERKOWITZ said his concern is that he doesn't think this is the best vehicle for getting people to get insurance by passing a law that no one is going to know about until they get into an accident. MR. LESSMEIER said people already know about the need to be financially responsible. When a person signs their renewal registration on their motor vehicle, they are certifying under a penalty of perjury that they have insurance to meet the minimum limits of financial responsibility and that they will maintain their insurance. He said it's one thing to pass a law, and it's another thing to get the word out, but it's easy to get the word out. Number 1217 JUANITA HENSLEY, Chief, Driver Services, Division of Motor Vehicles, Department of Administration, came before the committee to testify. She informed the committee that the Division of Motor Vehicles (DMV) has kept a trend on the number of uninsured motorists that are involved in motor vehicles crashes, and has done so for a number of years, especially after the implementation of the mandatory insurance law in 1986. Prior to that law, DMV had a 21-25 percent uninsured motorist rate, those that are involved in motor vehicle crashes without insurance. After the law went into effect, that figure dropped to 7 percent. Currently, it's averaging between 11 and 13 percent uninsured motorists. She indicated that she does not know if the 17 to 21 percent of insurance claims that State Farm Insurance Company is paying out is a result of uninsured motorists. She noted, for the record, that she supports everyone having insurance. She also supports the fact that the state have stronger driving laws. She advised that there are a number of states that have an insurance database system that DMVs or law enforcement can query, without any additional cost, to determine if a person has insurance coverage. If Alaska had a provision that DMV could turn a person away without registering their vehicle until they had insurance, it would reduce the number of uninsured motorists. Ms. Hensley said if Alaska had a database - whether the state maintained or if it were contracted out - where the insurance companies reported to DMV and DMV queried that prior to registering a vehicle, that would allow a mechanism for DMV to turn people away until they could show proof of insurance. She indicated that is what DMV would prefer and she believes that the number of insurance claims would be reduced. MS. HENSLEY told the committee that a number of people who are involved in motor vehicle accidents think they are insured, but because of conditions outside of their control, they find out later that they are not insured. For example, if a person purchased and financed a new car through one of the vehicles corporations, i.e., GMAC, and purchased the lending institution's insurance, that only covers the person for comprehensive collision; it doesn't cover the person for liability. She told the committee that she has had to suspend several motorists' drivers license because of that one issue. She said under this bill, the individuals who think they're insured are going to get caught because if they are involved in a traffic crash, which is not their fault, they cannot file for noneconomic damages. Ms. Hensley said last year's tort reform bill indicated that a drunk driver had to cause the accident or the damage, but under this bill the drunk driver does not have to cause it; it is without causation. Without that causation, they may be the victim. She gave another example to the committee: If an intoxicated person got into their car and half a block down the road realized that they are too drunk to drive so they decided to pull over and call a cab from their cell phone. If the car that is pulled over gets hit, they could be convicted of drunk driving. This bill would not allow that person to recover noneconomic damages if they are in a wheelchair. They are not at fault in any way, form, or fashion, but they could still be convicted for drunk driving. Number 1568 REPRESENTATIVE BUNDE referred to Ms. Hensley's testimony regarding individuals who believe that they are insured, and later find that they are not. He also referred to Mr. Lessmeier's testimony regarding when a person signs their renewal registration on their motor vehicle, they are certifying under a penalty of perjury that they have insurance. He asked Ms. Hensley, "What would your response be to picking up these people who have insurance at the time of registration, but then let it lapse?" MS. HENSLEY replied that that is a problem and there are a number of people who have that; however, DMV currently doesn't have a mechanism to go after all of those individuals. She said the way the law is written requires a person to show proof of insurance. REPRESENTATIVE BUNDE again referred to people who don't know that they don't have insurance and said there is a simple answer to that problem. He referred to page 2, line 3, of HB 430, which reads: "...vehicle or operator was not insured as required by AS 28.22.011." He suggested inserting the word "knowingly" between "was" and "not" so that this wouldn't be a violation unless a person knowingly was not insured. He indicated he feels that it is appropriate considering there are all sorts of scenarios where a person legitimately thinks they are insured and they are not. MS. HENSLEY informed the committee that she has been doing some research on uninsured motorists and she came across something the other day, which she had brought up in the first hearing regarding this legislation. In that hearing it was brought up, is there a possibility that, pending the conviction of a drunk driver, that perhaps legitimate claims would not be paid. She referred to the letter from Michael Lessmeier in the committee's packets stating that it is against the law for those individuals not to be paid. In her research, she came across a court case from Boise, Idaho against State Farm Insurance for failure to pay claims in a timely manner. The person that was awarded the claim, the judgment was rendered against State Farm Insurance for $9.5 million for failure to file claims. In that court case, it was revealed that there was a history, and that's the reason the award was so high. Ms. Hensley stated that it was a concern of hers that she addressed at the first hearing, "Would they fail to pay claims in a timely manner pending the conviction of a drunk driving conviction?" Number 1728 RUSS WINNER, Attorney, Winner and Associates, PC, testified via teleconference from Anchorage. He said he thinks that everyone who looks at this issue favors mandatory automobile insurance. He said the question is whether this bill is well tailored to further that goal. His view is that HB 430 paints with too broad of brush, and it will catch within its feet unattended victims, unattended situations. He addressed the issue of people who are driving who think they have insurance and they don't. To tell all of those people that they will not be able to recover for pain and suffering can, in some situations, be a tragic thing to tell them. Mr. Winner noted that it was mentioned earlier that the taking of pain and suffering away is simply a little slice of the recovery - and in some situations that is true. In other situations, depending on the individual, their pain and suffering recovery could be all they are entitled to. They could have very serious pain and suffering, but if they don't have a job, or if they are an elderly person, or it could be a child who is injured and they could be in a wheelchair, their principle recovery would be noneconomic damages. They may not be entitled to medical damages, for example, if they are Native receiving free medical care and their only probable recovery is pain and suffering. To take that away is not taking away just a little slice. It's taking away their recovery in a situation where they are not at fault and possibly not at fault because they innocently thought they had insurance, but they did not. CHAIRMAN GREEN said the committee will likely fix that regarding a person innocently not knowing that they were not insured. He then asked Mr. Winner if he believes that driving is a right or a privilege. MR. WINNER replied that he could not say off the top of his head. He said as he understands it there is a superior court decision that addresses that question in the context of child support payments. He said he believes that the decision was that it's (indisc.). There isn't a constitutional connection to (indisc.). It's not an absolute (indisc.). He said he doesn't think the answer to that question is a simple one. CHAIRMAN GREEN said the reason he asked that question is because there is a responsibility that people should abide by if they are going to take a killing machine on the highway. He said, "An honest mistake is one thing, but a deliberate violation of the law is another." MR. WINNER agreed with Chairman Green and said the punishment should be tailored to the crime. He said, "If what you have is a fairly minor transgression, a transgression nonetheless, and you're basically imposing what amounts to a financial capital punishment to certain classes of people; that's a fairly harsh result." Number 2013 REPRESENTATIVE PORTER made a motion to amend HB 430, page 2, line 3, adding the word "knowingly" between "was" and "not" so that the section would read: "(2) the owner or operator of a vehicle involved in the accident and the vehicle or operator was knowingly not insured as required by AS 28.22.011." CHAIRMAN GREEN asked if there is an objection to the amendment. There being no objection, it was so ordered. REPRESENTATIVE ROKEBERG made a motion to move HB 430, as amended, out of committee, with individual recommendations and the attached fiscal note. CHAIRMAN GREEN asked if there is an objection. REPRESENTATIVE BERKOWITZ objected. CHAIRMAN GREEN asked for a roll call vote. Representatives Bunde, James, Porter, Rokeberg, and Green voted in favor of moving CSHB 430(JUD). Representative Berkowitz voted against it. Therefore, CSHB 430(JUD) was moved from the House Judiciary Standing Committee by a vote of 5-1.
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