Legislature(2013 - 2014)BARNES 124
04/11/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB346 | |
| SB129 | |
| SB159 | |
| SB145 | |
| SB58 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 346 | TELECONFERENCED | |
| + | SB 138 | TELECONFERENCED | |
| + | SB 129 | TELECONFERENCED | |
| += | SB 159 | TELECONFERENCED | |
| + | SB 145 | TELECONFERENCED | |
| + | SB 58 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 58-CANCEL INS. ON CERTAIN ABANDONED PROPERTY
4:13:10 PM
CHAIR OLSON announced that the final order of business would be
SENATE BILL NO. 58, "An Act allowing an insurer to cancel an
insurance policy if property becomes entirely abandoned and the
abandonment increases the hazard insured against."
4:13:20 PM
ALIDA BUS, Staff, Senator Dennis Egan, Alaska State Legislature,
stated that SB 58 clarifies that insurance can be cancelled when
a property owner abandons the property, and thereby increases a
hazard covered by the insurance. He referred to AS 21.36.210,
which 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. This is the reason the sponsor wants to clarify the
entire abandonment cancellation of insurance.
MS. BUS said that 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.
MS. BUS related that SB 58 clarifies that insurance on property
that has been entirely abandoned can be cancelled in Alaska, as
it can in all other states.
4:14:59 PM
REPRESENTATIVE JOSEPHSON asked how this statute defines
abandonment.
MS. BUS answered that "entire abandonment" means the property is
no longer occupied by the insured as defined by the policy and
does not have contents of substantial utility. Thus, if it is a
property that is owned by a "snowbird," the fact that they spend
their winters south is probably reflected in the policy.
CHAIR OLSON suggested it might be listed as seasonal use.
MS. BUS agreed.
4:15:50 PM
REPRESENTATIVE HERRON wondered if it creates a conundrum if the
person is paying the insurance how it could be considered
abandoned.
MS. BUS clarified that the question is to identify what it means
to be abandoned. She suggested that perhaps the pipes are
overflowing or the property doesn't contain any moveable
contents.
CHAIR OLSON further suggested that perhaps no one is watching
the property.
REPRESENTATIVE HERRON pointed out that the customer is paying
premiums for the insurance. He wondered if this bill would
allow the insurance company to cancel the policy even if the
premiums are being paid.
MS. BUS offered her belief that the situation for the property
would have to be so bad that the insurance would still want to
cancel it. She acknowledged that if the insurance company
receives premiums it would not be in their interest to collect
the premiums. Otherwise, the insurance company could just
choose not to renew the policy, she said.
4:17:38 PM
SHELDON WINTERS, Lobbyist and Counsel, State Farm Insurance,
explained how the bill came about. He related that insurance
policies are written and the premiums are underwritten based on
certain assumptions and requirements. A homeowner's policy
assumes that the home will primarily be "more or less"
maintained and occupied. He recognized this will differ from
person to person, noting some people don't perform much
maintenance and others are very attentive. However, within that
wide range, homeowners are placed in the same risk pool, which
provides the key to answering Representative Herron's question.
As long as the risk is acceptable and the homeowner has "more or
less" been occupying the property, the homeowners are in the
same risk pool. Throughout the country there has not been any
dispute that when property becomes abandoned, those risks become
so great that they weren't contemplated in the insurance policy
and the property should not be in the same risk pool that
everyone participates in. For example, Ms. Bus alluded to
evidence of vandalism or abandonment of a home in Fairbanks in
winter, which likely means the pipes will freeze and a flood or
fire results.
MR. WINTER pointed out that the problem is that the Alaska
statutes are not completely clear that insurance can be canceled
in those instances. He referred to page 1, which lists five
reasons for canceling insurance prior to the renewal period. He
read as follows:
(4) discovery of a grossly negligent act or omission
by the insured that substantially increase the hazards
insured against;
(5) physical changes in the insured property that
result in the property becoming uninsurable;
MR. WINTER offered his belief that this language is pretty broad
and vague. He said this statute is not much different than many
other states. Some other states simply allow insurance
companies to cancel insurance if the hazard increases. Others
are more specific and indicate that companies can cancel
insurance if the property becomes abandoned or vacant; however,
a definition for abandoned or vacant is not given. He
emphasized that in all states when the property has become
abandoned, State Farm Insurance, who provide insurance in all
states, has never had a problem with the divisions of insurance
by canceling. He said that the question was raised in Alaska
when the state reviewed its policy for consistency in language
and reviewed Alaska's statutes with the Division of Insurance
(DOI) and whether existing statutes would allow for cancellation
of insurance on abandoned property. The division responded that
Alaska's statutes were not completely clear and taking a strict
view that the answer would be no. The company felt that a
situation could arise in which someone walks out and abandons
the property and State Farm couldn't cancel the insurance.
4:22:04 PM
MR. WINTERS said the reason this is so important during the
midterm of the policy is that the premium has been paid and
[once canceled] will be returned to the consumer; however, the
insurance company wants to remove the at-risk property from the
risk pool since something drastic could happen.
MR. WINTERS offered to point out practical protections in the
statute, but emphasized two things. First, the insurance agent
is in business to sell insurance, which is their product. It
doesn't make sense that they would cancel insurance since the
insurance premium has been paid and return the premium unless
something drastic has happened. Second, the local agent
probably provides the customers their auto insurance and life
insurance. Therefore, the agent will not want to lose these
policyholders as customers. From a practical standpoint, the
agent will try to reach out and figure out what is happening and
if the home is truly abandoned. Secondly, the policy term is
for one year and at the end of the period can choose to not
renew the policy and not rely on the aforementioned statutory
cancellation policy. For example, if a situation arises in the
10th or 11th month of the policy and it becomes clear the
property has been abandoned, the insurance company could choose
to not renew the policy. He clarified that what is under
discussion is an eight or nine-month period of time in which
something really drastic has happened and the insurance company
wants to cancel the policy and remove the house out of the risk
pool. Turning to the proposed bill, SB 58, State Farm Insurance
worked with the DOI, the industry, and stakeholders, including
the realtors who wanted some "sideboards" on this.
MR. WINTERS suggested this bill was likely the most restrictive
in the country. Basically, this bill would require entire
abandonment. First, to be considered abandoned the property
cannot be occupied by the insured as defined in the policy.
This language was inserted to address the seasonal home or
recreational home. He clarified that a person with a cabin
policy is assumed to not be occupying it most of the time.
Thus, the insurance company will not cancel the policy because
the cabin is not being occupied. Additionally, it cannot have
contents of substantial utility. He emphasized that he was not
aware of any other state statute that includes both of these
requirements to meet the test of determining whether the
property is abandoned. This language was put in to basically
identify that not only is it not occupied, but the furniture has
been removed, and nothing exists that could be utilized by the
typical homeowner. At that point the insurance company must
provide a 30-day written cancellation notice, as required by
existing statute. Additionally, the statutes require that the
insurer must provide written notice to any lender of record.
Even if the aforementioned notices occur, the owner, agent, or
real estate agent, or personal representative can inform the
insurance company that a mistake has been made and the property
is not abandoned property, that reasonable maintenance and
monitoring is underway to assure that the property is not
abandoned. Finally, he could not think of any situation in
which a property could be improperly canceled. He has not heard
anyone voice concern; however, he assured members that the DOI
has oversight over all of this and if "some rogue" reason
existed the division could step in. He thanked the sponsor for
this effort, which has taken several years and the concept has
gone through four or five legislative committees. In closing,
he said the company would like to see the bill move along.
4:27:14 PM
REPRESENTATIVE JOSEPHSON remarked that the bill seemed to be
written tightly. He asked how State Farm Insurance treats
policies in the event someone has died and their heirs are in
the process of selling the property.
MR. WINTERS answered that the agent almost assuredly would know
what has been happening and would talk to the personal
representative.
4:28:09 PM
REPRESENTATIVE SADDLER referred to page 2, line 6, which read,
"entire abandonment of the property that increases a hazard
insured against; ...." He asked whether he could think of any
type of entire abandonment that would not increase a hazard
insured against. He suggested that homeowner's coverage covers
almost everything. He wondered what it might not cover.
MR. WINTERS answered that he was right; however, the intent was
to make this as restrictive as possible to satisfy everyone.
This bill includes the provisions listed.
4:29:15 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on SB 58.
REPRESENTATIVE HERRON moved to report SB 58 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, SB 58 was reported from the
House Labor and Commerce Standing Committee.