Legislature(2005 - 2006)CAPITOL 17

04/03/2006 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HCS CSSB 298(L&C) Out of Committee
<Bill Hearing Postponed to 04/05/06>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
                    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,                                                               
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
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
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
[HB 480 was held over.]                                                                                                         
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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