Legislature(2009 - 2010)BUTROVICH 205
04/05/2010 11:00 AM Senate JUDICIARY
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SB 303-WORKERS' COMPENSATION AND CONTRACTORS CHAIR FRENCH announced the consideration of SB 303. 11:14:42 AM SENATOR JOE PASKVAN, sponsor of SB 303, said this bill is designed to establish responsibility and accountability. It advances conservative principles and fundamental capitalism by requiring owners, general contractors and others on a construction project to comply with the basic principle that is, "If you break it you pay for it." He added that it's important to understand that in Alaska under the concept of general law known as apportionment, an owner or general contractor who is 25 percent at fault is only liable for 25 percent of the injury. It's not the case that someone who is 1 percent at fault would be 100 percent responsible. SENATOR PASKVAN reminded the committee that this nation was formed on the concept that the government and its citizens should be responsible and accountable for their wrongful conduct. This was a basic and fundamental principle to the founding of this country and likewise, the core concept in Alaska was that the government may be responsible for wrongdoing to individual citizens. However, that changed in 2004 with the creation of a privileged class that was immune from their wrongful conduct. SB 303 seeks to remove immunity. 11:17:37 AM SENATOR PASKVAN noted that an argument that has been advanced says that SB 303 will promote double dipping, but that is patently not true. AS 23.30.015(g), which deals with the workers' compensation system when third parties are at fault, has since statehood said that if the employee recovers damages from the third party, that employee shall reimburse the employer for what they paid to the workers' compensation insurance carrier. Thus, there is no potential whatsoever for double dipping, he said. SENATOR PASKVAN said there has been a question about whether the worker's compensation remedy is adequate, but he would point out that the workers' compensation system was never designed to be a full remedy system. Within the true definition of employer/employee, it has always been designed to be a partial remedy that would be applied irrespective of fault. The idea was to protect workers who were doing the work every day for their employers. For example, if an unmarried 25-year-old worker with no children were to be killed on a construction site through the fault of someone else and not necessarily the employer, the exclusive remedy now is reasonable funeral benefits. It's bad social policy, he said, if there is immunity from killing someone because of fault and the only responsibility is to the workers' compensation policy, which is paid by the employer and not necessarily the person at fault. The workers' compensation system provides for no future lost wages and no general damages to the children or spouse of a worker who had a crippling injury or was killed. The workers' compensation system simply doesn't compensate for that loss. 11:21:00 AM SENATOR PASKVAN recapped that SB 303 addresses the notion that responsibility and accountability attach when wrongful conduct exists and that the exclusive remedy provision falls within the true definition of the employer/employee relationship. SB 303 removes the immunity that currently protects a privileged class from the consequences of their wrongful conduct. This will promote the betterment of Alaska as a matter of social policy, he concluded. SENATOR WIELECHOWSKI asked, "If an employer under current law is criminally negligent and…a subcontractor's employee is killed or injured, would they be covered under existing law?" SENATOR PASKVAN replied the general contractor is immune even under the high moral standard of criminal negligence. 11:23:08 AM SENATOR WIELECHOWSKI asked if there would be any recourse for that injured, maimed or killed employee. SENATOR PASKVAN replied their sole remedy would be workers' compensation coverage. He continued to say: Under the current law the definition of employer and the exclusive remedy provisions of the law are very expansive, so they include the entire vertical chain within the definition of employer in order to be part of the exclusivity protections that are given to what one considers the direct employer. So the general contractor in your example would be immune because they come within the exclusive remedy provisions of the workers' comp statutes. SENATOR WIELECHOWSKI asked if SB 303 would fix that. SENATOR PASKVAN answered yes. SENATOR WIELECHOWSKI asked if under this bill a worker who was injured or killed because of the criminal negligence of the general contractor could get their worker's compensation award and then sue the general contractor. SENATOR PASKVAN replied that's correct. SENATOR WIELECHOWSKI asked if there is an apportionment because that's where the double-dipping argument would come up. SENATOR PASKVAN replied if you were to assume that the general contractor was 100 percent at fault, then the general contractor would pay the injured worker 100 percent of the damages. Workers' compensation would then be reimbursed so that there would be no double recovery. It is expressly set forth in the statute that irrespective of fault, medical expenses, potential retraining, and a partial compensation of past wages will be reimbursed to the workers' compensation insurer out of the recovery from the 100 percent fault of the general contractor. Irrespective of fault the employee recovers under workers' compensation, but the question that remains is whether those that are at fault would have a responsibility and accountability to the injured worker. SB 303 says that those at fault should have a responsibility to the injured worker. 11:26:15 AM SENATOR COGHILL asked if there is still a tort liability to an employer contractor who is under the exclusive liability. SENATOR PASKVAN replied not if it's within the definition of a true employee/employer relationship. SENATOR COGHILL asked if the criminal liability would fall under the exclusive exemption. SENATOR PASKVAN said that's correct. SENATOR COGHILL observed that the concept "if you break it you fix it" doesn't apply. He asked what the recovery would be if the employer contractor is under the exclusive liability and somebody is damaged with a lifelong injury because workers' compensation would become the sole remedy. SENATOR PASKVAN explained that before the workers' compensation system was developed about 100 years ago the injured employee could sue the employer if the employer's fault caused the injury. It wasn't until the Industrial Revolution that a concept started to develop in America that the employer's business product should bear the cost of the workers who were injured in the course and scope of their employment and that the employee should be compensated irrespective of fault. To balance the raw capitalism with responsibility and accountability and the idea that workers should be protected irrespective of fault, a workers' compensation system was developed. That very good system has been maintained in the U.S. for about 100 years and in Alaska until 2004. 11:29:11 AM SENATOR COGHILL said he's having a hard time understanding that workers' compensation becomes the universal remedy if the contractor has a subcontractor or an employee and there's a problem. He's wondering if this creates the employer/employee/subcontractor relationship that would be in this exclusive liability class under workers' compensation while the project owner is singled out as the "deep pockets" and has to bear a tort liability for the actions of those within the exclusive liability class regardless of the case. He asked for help understanding that relationship. SENATOR PASKVAN explained that outside of the direct employee/employer relationship, everybody that is above the subcontractor would be responsible for only their percentage of the fault. SENATOR COGHILL asked if that's within the workers' compensation apportionment or a tort apportionment. SENATOR PASKVAN replied a liability/tort apportionment of fault above the employer/employee remains the exclusive remedy of workers' compensation. For example, if anyone had an employee within that direct employer/employee relationship, workers' compensation is the only remedy that the injured employee can have against the employer. Regardless of whether it's a general contractor, a project owner, or a project manager, all of those within the vertical chain above would be responsible and accountable only for their apportioned fault. SENATOR COGHILL asked if under that scenario there is still a tort liability issue. He noted that the sponsor has appealed to his sense of fairness, but it seems as though the employer and the subcontractor live in the exclusive liability area and only have a responsibility to the workers' compensation system. Anybody outside of that including the manager, project manager, or the project owner can be apportioned a cost if there is a responsibility. He asked if that apportioned cost would be assigned as a result of a lawsuit. If that's the case, he said his understanding is that it would go into the workers' compensation payment - hence the double dipping discussion. 11:32:58 AM SENATOR PASKVAN said SB 303 would impose responsibility on a project owner or general contractor under a tort system only if fault were proven. The project owner, for example, would have no responsibility for payment of the workers' compensation premium that is the responsibility of the subcontractor. The only risk that a project owner has is if they were at fault. Then if there was an allocation or percentage of fault, the project owner would only have risk for their allocated portion of 100 percent. SENATOR COGHILL summarized that the exclusive liability of the workers' compensation system is not adequate for certain failures, but because of the employer/employee relationship, even if it's a subcontractor, they live under those rules. He added that it sounds like there's a desire to take the project owners outside of that because they may have a negligence that may be greater than what could be claimed under the exclusive liability. CHAIR FRENCH asked Senator Paskvan if he had practiced in this area of law and if so, did he represent both sides. SENATOR PASKVAN answered yes he's practiced for 30 years and for the first 10 years he did both plaintiff work and defense work. He said he has represented many general contractors doing corporate work and has represented contractors that have been involved in construction projects. It was those business owners that would ask him to recover for the family of an injured or deceased employee. In so doing the workers' compensation policy would get paid back so it wouldn't be a black mark on the subcontractor's workers' compensation policy and it wouldn't be the subcontractor that bore the price of injury or death that was caused by somebody else. 11:36:40 AM CHAIR FRENCH commented that he was on the losing end of what was a vigorously fought battle when the 100 years of settled law was changed in 2004. He asked if SB 303 restores Alaska state law to the pre 2004 state of fairness. SENATOR PASKVAN said yes; the intent of SB 303 is to return Alaska to the system that was created in statute in 1959. CHAIR FRENCH asked the members to hold further questions for the sponsor until they'd heard from witnesses who may provide a contrasting point of view. 11:37:50 AM KIP KNUDSON, External Affairs Manager, Tesoro Alaska, asked the committee to set SB 303 aside because they were having the wrong debate about the wrong issue. He said he specifically heard the sponsor claim that workers' compensation is not sufficient and that the majority of workers injured or killed are under the exclusive remedy provision of the workers' compensation arrangement. He continued to say that the discussion about making a project owner pay their fair share is "noise on the side." He said he believes that the 2004 reform created an appreciable safety benefit for the Alaska workplace and certainly for Tesoro Alaska. MR. KNUDSON reminded the members that the last time the Senate Judiciary Committee discussed a bill similar to SB 303 there was a case before the Supreme Court that discussed whether the 2004 change violated equal protection. The decision in that case was that no violation occurs. Now the discussion centers on who pays when somebody is injured or hurt, he said. MR. KNUDSON said his perspective of the 2004 change is that it created a safety benefit, specifically by tearing down high legal barriers that were erected pre 2004 between project owners and contractors. These barriers were anything but conducive to a safe workplace. 11:39:44 AM MR. KNUDSON offered his belief that there is confusion about the allocation of fault and control of the workplace that existed prior to 2004 and he would like Mr. Clarkson to clarify those key concepts. KEVIN CLARKSON, private attorney, Anchorage, said he has practiced in this area for quite some time and Tesoro asked him to testify on this bill. Mr. Knudson specifically asked him to address the underlying purpose of the workers' compensation law in the pre 2004 context, that being that the employee was to be relieved of the need to prove the employer's liability. He explained that employees were to be given a certain remedy if they were hurt while on the worksite. In exchange the employer was supposed to get exclusive liability in the workers' compensation system, but that's not what occurred. MR. CLARKSON said he respectfully disagrees with the sponsor's assertion that the old system was a "you break it you pay for it" system. In reality what would happen is the project owner would contract with a contractor or subcontractor and require indemnification for anything that might happen that resulted in injury to their employees while on the worksite. The result was that the contractor or subcontractor - who were supposed to have exclusive liability - would double pay. They would pay for the workers' compensation and they would also pay for the third- party tort liability because of the indemnity agreement they made with the project owner. 11:42:42 AM MR. CLARKSON said that from his perspective the benefit of the 2004 change is that it created an ability for the project owner and the contractors to cooperate more fully to promote safety on the worksite. Before 2004 if an owner like BP contracted with a drilling contractor like Rowan Drilling to bring their rig and employees onto the BP worksite to drill for oil and one of those employees got hurt, Rowan would pay the workers' compensation for its employee and the employee would sue PB for the third party liability claiming that BP controlled the worksite and thus had responsibility for making sure that the worksite was safe. This is in spite of the fact the worksite for the employee was Rowan Drilling's rig. But if BP had put even one employee on the drilling rig or if it had contractually maintained any safety oversight, BP would suddenly have a third-party liability for everything that took place on Rowan's drilling rig that resulted in the injury of the employee. The only way that BP could remove itself from that risk was to remove itself from any involvement in the safety aspects of the operation of the drilling rig. MR. CLARKSON said that giving the project owner exclusive liability protection and the responsibility to see that workers' compensation is provided creates an environment in which the project owner and the contractor can cooperate and collaborate to increase safety on the worksite. Under the old system litigation became more complicated because of fault allocation. For example, a project owner like Tesoro who owns a refinery in Kenai could have somebody who is simply driving an asphalt truck for a company that is contracted to deliver asphalt to a Tesoro customer come on the worksite, climb onto their employer's asphalt truck, fall off and get injured, and Tesoro would be sued because the event occurred on their site. Tesoro would then have to look for anybody or everybody to allocate fault to and join those entities to the case. He related that he had been involved in a case where that scenario occurred. The worker died as a result of falling off his employer's tanker when it was on the Tesoro refinery. To avoid liability Tesoro had to join a series of other companies and entities to allocate fault. This made the case more complicated and costly. MR. CLARKSON recapped that the pre 2004 system was not one of "if you break it you pay for it." Employers actually paid for the workers' compensation and for the third-party liability, whereas the current law creates an environment where safety can be enhanced through cooperation. 11:45:23 AM KEVIN DOUGHERTY, Attorney, Alaska Laborers, said he supports SB 303 as a means to get the workers' compensation law back on track. He said he has represented Alaska Laborers since 1981 and he served on Governor Hickel's workers' compensation committee in 1990. He said he would make three points. First, the workers' compensation law that was enacted in Alaska in 1915 was built on traditional values and it was fair to widows and injured workers. That changed in 2004 when the loophole was created. Fortunately, SB 303 would close that loophole and restore that long-standing law. Second, the bill would promote safety. He related that in the '80s and '90s major strides were made in the oil and construction industries with respect to safety, and injuries decreased. There really didn't need to be a loophole in the law to somehow promote safety, he said. Third, it's always good public policy to ensure that statutes are honest and straight forward. To that end, the definition of employer should only include employers and not some other legal fiction. MR. DOUGHERTY recapped that he supports SB 303 because it would create an even playing field for everyone in the construction industry and it would make the statutes straight forward and honest. Alaskans would be well served by this, he concluded. 11:48:11 AM JERRY LEE, representing himself, related that he was hurt in November 2005 while working for a subcontractor who was working for a general contractor. The job entailed building a scaffolding for the general contractor who was supposed to secure, tarp, and heat it before he and others used that scaffolding. Following a terrible accident, he found out that the general contractor hadn't properly secured the scaffolding. Mr. Lee explained that he was on the third level when the wind came up and blew the scaffolding over. Then the wall he and others were working on collapsed and he was crushed. He lost the use of a lower leg, has ongoing problems with his back, and is 30 percent disabled. He received worker's compensation and his medical expenses are being paid currently. At the time of the accident he was paid $42/hour and now he works for $10/hour. "This needs to be changed," he said. CHAIR FRENCH thanked him for taking the time to testify and said it's always good to hear from people who have had real experience under legal concepts that can sometimes seem abstract. MR. LEE added that this was his first accident in a 25-year construction career and he'll never be able to work in field again. 11:51:08 AM BRAD THOMPSON, Director, Risk Management, Department of Administration, said the 2004 amendment to the workers' compensation statutes extended the statutory definition of employer to both the contractor and the project owner. He noted he is speaking from the perspective that the project owner is generally the state. Pre 2004 the employee could have remedy from workers' compensation through the subcontractor. If the subcontractor was uninsured, the contractor had to pay but weren't shielded from tort liability even though they paid the worker's compensation benefit. Post 2004 both the general contractor and impliedly the subcontractor are responsible for workers' compensation. In fact, AS 23.30.045(d) obligates the state before it awards a contract to see a certificate of insurance from the general contractor showing that they have workers' compensation. It also obligates the state to pay in the event that the contractor or subcontractor is uninsured. CHAIR FRENCH asked if there's anything in the law that requires that to happen on jobs where BP, Exxon, or anybody other than the state is the project owner. MR. THOMPSON replied he doesn't believe that there is a requirement for private enterprise to protect itself that way, but it is common business practice to make sure that an independent contractor is insured. That's a qualifier of their capability of performance, he said. 11:54:46 AM MR. THOMPSON continued to explain that when the state sees the certificate of insurance, the state is noticed as a certificate holder should that coverage lapse or not be paid. If the premium isn't paid the coverage lapses, but the employees don't necessarily know that. When the state is the project owner it would receive a notice of cancellation and would have the ability to take project funds to continue coverage. Clearly the state is a good project owner with respect to maintaining certainty that there is workers' compensation for the general contractor and their employees, he said. Should there somehow be a lapse, the state is the statutory employer and would retain the obligation to pay the benefit should there be an unpaid remedy under the Workers' Compensation Act to the contractor's employee or impliedly the subcontractor's employee. That wouldn't change under SB 303. MR. THOMPSON continued: When '04 was enacted, we didn't put a fiscal note in. It did provide…a second way of us to be obligated to pay the remedy of workers' comp. The first time was if they were uninsured. And this is now undoing that protection so we're back to where we were before. Our practice will be the same - we make certain there is coverage for the general. There's often concern about a sub. Is he a sub? Is he an employee? … That's a separate matter to address…. But the State of Alaska and other municipalities are…careful before awarding a contract and in maintaining the contract coverage to make certain that the people working on those jobs are receiving the benefit of workers' comp. We would lose the protection of exclusive remedy if [SB] 303 is enacted. SENATOR WIELECHOWSKI asked, "If the state were criminally negligent, under current law then the state's not liable, correct?" MR. THOMPSON replied AS 45.45.900 precludes you from having an indemnity that protects you from your own sole negligence. Depending on the facts, criminal negligence likely is sole negligence. He explained that when the state lets contracts, the terms and conditions include hold harmless and indemnity provisions and the additional requirement of additional insured status. The state pays for that extra protection on all its projects and that extra cost is added to the project budget to protect that comparative allocation, he said. 11:57:09 AM CHAIR FRENCH closed public testimony and announced he would hold SB 303 until the next hearing.