Legislature(1999 - 2000)
04/15/2000 04:43 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
April 15, 2000
4:43 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Lisa Murkowski
Representative Eric Croft
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 375
"An Act relating to abuse of inhalants."
- MOVED CSHB 375(JUD) OUT OF COMMITTEE WITH A ZERO FISCAL
NOTE
HOUSE BILL NO. 413
"An Act relating to intensive family preservation services; and
providing for an effective date."
- MOVED HB 413 OUT OF COMMITTEE
CS FOR SENATE BILL NO. 177(L&C)
"An Act relating to insurance trade practices; and providing for
an effective date."
- MOVED HCS CSSB 177(JUD) OUT OF COMMITTEE
CS FOR SENATE BILL NO. 26(FIN)
"An Act relating to hindering prosecution and to providing false
information or reports to a peace officer."
- MOVED CSSB 26(FIN) OUT OF COMMITTEE
CS FOR SENATE BILL NO. 286(JUD)
"An Act relating to the duties and powers of the attorney
general."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 300
"An Act relating to the establishment and enforcement of medical
support orders for children; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 375
SHORT TITLE: INHALANT ABUSE
Jrn-Date Jrn-Page Action
2/16/00 2209 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2209 (H) HES, JUD, FIN
4/11/00 (H) HES AT 3:00 PM CAPITOL 106
4/11/00 (H) Bill Postponed
4/13/00 (H) HES AT 3:00 PM CAPITOL 106
4/13/00 (H) Moved CSHB 375(HES) Out of Committee
4/13/00 (H) MINUTE(HES)
4/15/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 413
SHORT TITLE: INTENSIVE FAMILY PRESERVATION SERVICES
Jrn-Date Jrn-Page Action
2/16/00 2221 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2222 (H) HES, JUD, FIN
4/06/00 (H) HES AT 3:00 PM CAPITOL 106
4/06/00 (H) Scheduled But Not Heard
4/13/00 (H) HES AT 3:00 PM CAPITOL 106
4/13/00 (H) Heard & Held
4/13/00 (H) MINUTE(HES)
4/14/00 (H) HES AT 3:00 PM CAPITOL 106
4/14/00 (H) Moved Out of Committee
4/14/00 (H) MINUTE(HES)
4/15/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: SB 177
SHORT TITLE: INSURANCE TRADE PRACTICES & ACTS
Jrn-Date Jrn-Page Action
5/16/99 1517 (S) READ THE FIRST TIME - REFERRAL(S)
5/16/99 1517 (S) L&C
1/18/00 (S) L&C AT 1:30 PM BELTZ 211
1/18/00 (S) Heard & Held
1/18/00 (S) MINUTE(L&C)
2/29/00 (S) L&C AT 1:30 PM BELTZ 211
2/29/00 (S) Moved CS(L&C) Out of Committee
2/29/00 (S) MINUTE(L&C)
3/01/00 (S) RLS AT 11:30 AM FAHRENKAMP 203
3/01/00 (S) MINUTE(RLS)
3/01/00 2476 (S) L&C RPT CS 1DP 3NR 1AM SAME TITLE
3/01/00 2476 (S) NR: MACKIE, TIM KELLY, HOFFMAN;
3/01/00 2476 (S) DP: DONLEY; AM: LEMAN
3/01/00 2476 (S) ZERO FISCAL NOTE (DCED)
3/22/00 2692 (S) RLS TO CALENDAR AND 1 AM 03/22/00
3/22/00 2693 (S) READ THE SECOND TIME
3/22/00 2693 (S) L&C CS ADOPTED UNAN CONSENT
3/22/00 2693 (S) ADVANCED TO THIRD READING
UNAN CONSENT
3/22/00 2693 (S) READ THE THIRD TIME CSSB 177(L&C)
3/22/00 2693 (S) PASSED Y19 N1
3/22/00 2694 (S) EFFECTIVE DATE(S) SAME AS PASSAGE
3/22/00 2697 (S) TRANSMITTED TO (H)
3/23/00 2661 (H) READ THE FIRST TIME - REFERRALS
3/23/00 2662 (H) L&C, JUD, FIN
4/10/00 (H) L&C AT 3:15 PM CAPITOL 17
4/10/00 (H) Heard & Held
4/10/00 (H) MINUTE(L&C)
4/12/00 (H) L&C AT 3:15 PM CAPITOL 17
4/12/00 (H) Moved HCS CSSB 177(L&C)
Out of Committee
4/12/00 (H) MINUTE(L&C)
4/14/00 (H) JUD AT 1:00 PM CAPITOL 120
4/14/00 (H) Heard & Held
4/14/00 (H) MINUTE(JUD)
4/14/00 3133 (H) L&C RPT HCS(L&C) 2DP 1DNP 3NR
4/14/00 3134 (H) DP: BRICE, SANDERS; DNP: HALCRO;
4/14/00 3134 (H) NR: HARRIS, CISSNA, ROKEBERG
4/14/00 3134 (H) SENATE ZERO FISCAL NOTE (DCED) 3/1/00
4/14/00 3134 (H) REFERRED TO JUDICIARY
4/15/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: SB 26
SHORT TITLE: FALSE REPORT TO POLICE/HINDER PROSECUTION
Jrn-Date Jrn-Page Action
1/15/99 20 (S) PREFILED 1/15/99
1/19/99 20 (S) READ THE FIRST TIME - REFERRAL(S)
1/19/99 20 (S) JUD, FIN
3/08/99 (S) JUD AT 1:30 PM
3/08/99 (S) HEARD AND HELD
3/08/99 (S) MINUTE(JUD)
3/15/99 546 (S) COSPONSOR(S): DONLEY
3/27/00 (S) JUD AT 1:30 PM BELTZ 211
3/27/00 (S) Moved CS(Jud) Out of Committee
3/30/00 2794 (S) JUD RPT CS 3DP NEW TITLE
3/30/00 2794 (S) DP: TAYLOR, TORGERSON, HALFORD
3/30/00 2794 (S) INDETERMINATE FISCAL NOTE (COURT)
3/31/00 2811 (S) ZERO FISCAL NOTE (DPS)
4/04/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
4/04/00 (S) Heard & Held
4/04/00 (S) MINUTE(FIN)
4/04/00 2853 (S) FISCAL NOTE (LAW)
4/04/00 2853 (S) INDETERMINATE FISCAL NOTE (COR)
4/11/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
4/11/00 (S) Moved CS(Fin) Out of Committee
4/04/00 (S) MINUTE(FIN)
4/11/00 (S) RLS AT 12:15 PM FAHRENKAMP 203
4/11/00 (S) MINUTE(RLS)
4/11/00 2975 (S) FIN RPT CS 6DP 3NR NEW TITLE
4/11/00 2975 (S) DP: TORGERSON, PARNELL, PHILLIPS,
4/11/00 2975 (S) GREEN, LEMAN, WILKEN; NR: PETE KELLY,
4/11/00 2975 (S) DONLEY, ADAMS
4/11/00 2975 (S) ZERO FISCAL NOTE (LAW)
4/12/00 3025 (S) FISCAL NOTE (ADM)
4/12/00 3025 (S) ZERO FISCAL NOTE (DPS)
4/12/00 3025 (S) PREVIOUS INDETERMINATE FN (COURT)
4/12/00 3025 (S) INDETERMINATE FISCAL NOTE (COR)
4/13/00 3058 (S) RLS TO CALENDAR AND 1 OR 04/13/00
4/13/00 3060 (S) READ THE SECOND TIME
4/13/00 3060 (S) FIN CS ADOPTED UNAN CONSENT
4/13/00 3061 (S) ADVANCED TO THIRD READING
UNAN CONSENT
4/13/00 3061 (S) READ THE THIRD TIME CSSB 26(FIN)
4/13/00 3061 (S) PASSED Y20 N-
4/13/00 3069 (S) TRANSMITTED TO (H)
4/14/00 3127 (H) READ THE FIRST TIME - REFERRALS
4/14/00 3127 (H) JUD, FIN
4/15/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE MARY KAPSNER
Alaska State Legislature
Capitol Building, Room 424
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of HB 375.
ROBERT BUTTCANE, Juvenile Probation Officer
Youth Corrections
Division of Family and Youth Services
Department of Health and Social Services
P.O. Box 110630
Juneau, Alaska 99811
POSITION STATEMENT: Testified on HB 375; expressed appreciation
for the bill, but conveyed concerns about Section 1 and
criminalizing addictive behavior.
BLAIR McCUNE, Deputy Director
Public Defender Agency
Department of Administration
900 West 5th Avenue, Suite 200
Anchorage, Alaska 99501-2090
POSITION STATEMENT: Testified on HB 375; indicated Amendments 1
and 2 took care of his concerns, but said the intent of causing
intoxication seems sufficient without including inebriation,
excitement, stupefaction and dulling of the nervous system.
REPRESENTATIVE SHARON CISSNA
Alaska State Legislature
Capitol Building, Room 420
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of HB 413.
MICHAEL LESSMEIER, Attorney at Law
Lessmeier & Winters, and Lobbyist
for State Farm Insurance Company
431 North Franklin Street, Number 400
Juneau, Alaska 99801
POSITION STATEMENT: On behalf of State Farm Insurance Company,
testified in opposition to SB 177; provided proposed amendment.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Answered questions with regard to SB 177.
SENATOR DAVE DONLEY
Alaska State Legislature
Capitol Building, Room 508
Juneau, Alaska 99801
POSITION STATEMENT: Testified as the sponsor of SB 177.
MICHAEL PAULEY, Staff
to Senator Loren Leman
Alaska State Legislature
Capitol Building, Room 115
Juneau, Alaska 99801
POSITION STATEMENT: Presented SB 26 on behalf of the sponsor.
ACTION NARRATIVE
TAPE 00-63, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting to order at 4:43 p.m. Members present at the call to
order were Representatives Kott and Croft. Representatives
Green, Rokeberg, James, Murkowski and Kerttula arrived shortly
thereafter.
HB 375 - INHALANT ABUSE
CHAIRMAN KOTT announced that the first order of business would be
HOUSE BILL NO. 375, "An Act relating to abuse of inhalants."
[Officially before the committee was CSHB 375(HES), Version I (1-
LS1323\I). Furthermore, written amendments were to Version I.
However, members' packets contained not that version but a work
draft, Version H (1-LS1323\H, Luckhaupt, 3/28/00), provided by
the sponsor, which had been moved out, unamended, by the House
Health, Education & Social Services Committee on 4/13/00. The
two versions, therefore, should have been identical in content.]
Number 0025
REPRESENTATIVE MARY KAPSNER, Alaska State Legislature, sponsor of
HB 375, explained that this legislation gives people across the
state a tool to "leverage" abusers of inhalants into treatment.
She pointed out that [abuse of inhalants] is a class B
misdemeanor in this version of the bill. She informed members
that the bill has broad-based support from providers across the
state.
CHAIRMAN KOTT asked whether federal funding had been received for
a facility.
REPRESENTATIVE KAPSNER affirmed that. Only two facilities exist
in the nation, she noted, and this will be the third. The
facility is scheduled to be built in Bethel, it should be ready
to open in 2001.
Number 0097
CHAIRMAN KOTT called an at-ease at 4:45 p.m.
[End of this tape because of technical difficulties]
TAPE 00-64, SIDE A
CHAIRMAN KOTT called the meeting back to order at 4:48 p.m.,
noting that there was now a quorum present.
Number 0005
ROBERT BUTTCANE, Juvenile Probation Officer, Youth Corrections,
Division of Family and Youth Services (DFYS), Department of
Health and Social Services, came forward to testify. He
expressed appreciation to the sponsor for putting this issue
forward. Inhalant abuse in one of the most damaging and costly
substance abuse issues facing the state. However, the department
has concerns about the bill, relating specifically to Section 1
and criminalizing addictive behavior. Although a motivator to
get people involved in treatment, criminalizing this act within
the delinquency system could lead to placing young people who are
abusing inhalants into detention facilities.
MR. BUTTCANE pointed out that detention facilities are
overcrowded. Bethel, for example, has an eight-bed facility;
however, the capacity has averaged, over the last year and a
half, anywhere from 14 to 17 or 18 youths. Even one additional
person, especially someone with issues relating to inhalant
abuse, would be extremely problematic for the department. Noting
that the other sections of the bill would amend the involuntary
commitment provisions of Title 47, Mr. Buttcane concluded:
We think that it is appropriate ... to amend that
section, as indicated in the bill, by adding inhalants
because there are some instances where it's been
confusing whether or not the courts were able to make
an involuntary commitment when an inhalant abuse has
occurred. So those amendments would be appropriate to
that involuntary commitment statute.
Number 0174
REPRESENTATIVE JAMES made a motion to adopt Version H [1-
LS1323\H, Luckhaupt, 3/28/00] as a work draft. There being no
objection, it was so ordered.
REPRESENTATIVE JAMES stated her understanding that Mr. Buttcane's
concern about Section 1 is that abuse of inhalants is a class B
misdemeanor. However, Section 1 goes on to say that a court
shall suspend the imposition of sentence, place the defendant on
probation, and require the defendant to successfully complete an
inhalant abuse treatment program. "So it doesn't seem to me like
they're going to have to go into these places," she commented.
MR. BUTTCANE said that provision would apply to the criminal
system. The delinquency system would not have that provision in
front of it. Under the delinquency system, a juvenile who is a
danger to himself/herself or others may be detained; given that
inhalant abuse could, indeed, be the premise upon which the court
finds that a youth is dangerous to himself/herself or others,
that would be the justification for detention. Although written
so that it is directed toward the criminal system, the bill would
have an impact on the delinquency system. "We are concerned that
that would increase the pressures on our detention populations,"
he concluded.
Number 0199
REPRESENTATIVE JAMES replied that she understands the concern
when there is a problem with a place to put these children.
However, if children are a danger to themselves, what is Mr.
Buttcane's suggestion?
MR. BUTTCANE answered that the other provision of the bill, which
would amend the involuntary commitment statute to include
inhalants, would be an answer; that would provide the court
system with opportunities to identify young people who are a
danger to themselves because of the use of inhalants, and to
compel them into a treatment program. "That, to us, makes more
sense than to criminalize an issue which is essentially a
substance issue," he explained. "We do not now criminalize
alcohol abuse. And criminalizing inhalant abuse would be
problematic for our delinquency system."
Number 0367
REPRESENTATIVE ROKEBERG mentioned possession of alcohol for a
minor. He asked whether that is a violation now.
MR. BUTTCANE specified that possession of alcohol by a minor is a
violation subject to a $100 fine. It is a matter handled by the
district court, not the delinquency system.
REPRESENTATIVE ROKEBERG said he is looking at a middle ground
here because he is concerned. Even with the suspended imposition
of sentence, there would have to be at least an indeterminate
fiscal note and, therefore, a referral to the House Finance
Committee.
MR. BUTTCANE pointed out that the Department of Corrections had
submitted an indeterminate fiscal note [dated 4/10/00].
Furthermore, the Department of Health & Social Services was
waiting to submit a fiscal note, depending on whether or not the
House Judiciary Standing Committee retains the criminalization
piece relating to inhalants; if that stays in the bill and the
bill moves forward, that department will have to place a fiscal
note on this bill.
Number 0465
REPRESENTATIVE KAPSNER informed members that a violation is
something that "treatment people" throughout the state are very
much in favor of, for the same reasons indicated by Mr. Buttcane.
She then stated:
That alternative is fine with me. Under the version
that left the House [Health & Social Services
Committee], the chairman of that committee was most
comfortable ... with the infraction being a
misdemeanor, because he thought the heavier the
"hammer," the more inclined the young person or a
person would be to go to treatment.
REPRESENTATIVE ROKEBERG asked whether there is "an inhalant
factor in contributing," or if that is stretching.
Number 0530
REPRESENTATIVE CROFT asked Mr. Buttcane whether there would be a
zero fiscal note from his department if this were made a
violation like [offenses regarding] alcohol.
MR. BUTTCANE affirmed that.
Number 0554
REPRESENTATIVE CROFT made a motion to adopt conceptual Amendment
1: In Section 1 [subsection (d)], to substitute "violation"
where it is a misdemeanor, with the same structure with regard to
the fine as that relating to alcohol.
REPRESENTATIVE ROKEBERG asked whether it is okay with the bill
sponsor. [An affirmation is audible on tape.]
REPRESENTATIVE JAMES asked whether the rest of the sentence is
necessary [page 1, line 15, through page 2, line 2].
CHAIRMAN KOTT said there is no need to place the defendant on
probation, but suggested the committee would want to require the
defendant to successfully complete the abuse treatment program.
REPRESENTATIVE JAMES agreed, saying it would be up to the "and"
on the next page [page 2, line 2].
Number 0609
MR. BUTTCANE [providing the reasoning behind what would become
Amendment 2] informed members that when this bill was in the
House Health, Education & Social Services Committee, the Public
Defender Agency had pointed out a worthy consideration. Section
1, page 1, line 6, says, "if the person smells or inhales any
substance". However, that phrase could include espresso coffee,
perfume or tobacco, for example. The language on page 5, line 3,
"hazardous volatile material or substance", might be more
appropriately placed on page 1, line 6, in order to better limit
inhalant abuse to relate specifically to those things that are
hazardous, volatile materials or substances, rather than things
like perfume that give some excitation.
REPRESENTATIVE KAPSNER informed members that a written copy of
the amendment [Amendment 2] was forthcoming.
Number 0693
CHAIRMAN KOTT returned attention to conceptual Amendment 1. He
indicated it would begin on page 1, line 15, which would read,
"Abuse of inhalants is a violation." The imposition of sentence
provision would be replaced to conform the violation to the same
category relating to a violation for alcohol abuse, with a $100
fine, to his belief. It would still require the defendant to
complete the abuse program. There being no objection, Chairman
Kott announced that Amendment 1 was adopted.
Number 0775
CHAIRMAN KOTT turned attention to Amendment 2, a written
amendment labeled 1-LS1323\I.1, Luckhaupt, 4/15/00, which read:
Page 1, line 6:
Delete "substance"
Insert "inhalant"
Page 1, line 13, following "section,":
Insert "(1)"
Page 1, line 14, following "AS 04.21.080":
Insert ";
(2) "inhalant" has the meaning given in AS
47.37.270(10)."
CHAIRMAN KOTT said he believes that Amendment 2, in its entirety,
is appropriate. He asked whether Gerald Luckhaupt, the
legislative drafter, had any comments; none were offered.
Number 0952
REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 2.
There being no objection, it was so ordered.
[REPRESENTATIVE ROKEBERG made and withdrew a motion to move the
bill from committee.]
Number 0990
BLAIR McCUNE, Deputy Director, Public Defender Agency, Department
of Administration, testified via teleconference from Anchorage,
noting that he didn't know what amendments had just been adopted.
He said his main concerns related to page 1, line 6.
CHAIRMAN KOTT reported that the amendments had taken care of
that.
MR. McCUNE said he believes that the intent of causing
intoxication seems to be sufficient without including
inebriation, excitement, stupefaction and dulling of the nervous
system. He added that the agency is still concerned about
criminalizing behavior.
CHAIRMAN KOTT responded to the latter concern, indicating the
amendments had taken care of that, as well. It is now a
violation with language similar to the statute dealing with
alcohol abuse.
MR. McCUNE said that takes care of his concerns.
Number 1038
REPRESENTATIVE ROKEBERG made a motion to move CSHB 375, as
amended, from committee with individual recommendations and the
attached indeterminate fiscal notes.
REPRESENTATIVE CROFT proposed having a zero fiscal note for the
Department of Corrections because [inhalant abuse] is now a
violation and DFYS' problem has been solved.
CHAIRMAN KOTT concurred.
REPRESENTATIVE ROKEBERG amended his motion to include a zero
fiscal note from the committee. There being no objection, CSHB
375(JUD) was moved from the House Judiciary Standing Committee.
HB 413 - INTENSIVE FAMILY PRESERVATION SERVICES
CHAIRMAN KOTT announced that the next order of business would be
HOUSE BILL NO. 413, "An Act relating to intensive family
preservation services; and providing for an effective date."
Number 1115
REPRESENTATIVE SHARON CISSNA, Alaska State Legislature, sponsor,
explained the bill as follows:
This bill provides for a program that gives intensive
intervention. And perhaps a family whose child is
about to be removed has been offered intervention in
previous stages. However, in this model, the family
... is about to lose their child to state custody. And
that is the point at which this program intervenes. ...
It is imminent that the child will leave. ...
This program was developed in 1974 by the Washington
program called "Homebuilders." ... In that state, they
have been intervening at this point. ... When the
family is in crisis, ... about 80 percent of the ...
children and families who've been served have been able
to stay in their homes. And in that time, there has
never been one death of a child who has remained in
their home as a result of this program.
The family is offered the intensive service. The
intensive service must be of a very high quality. It
has features such as 24-hour-a-day availability of the
same caseworker, for up to six weeks. It's intensive,
and it's short. ... The program must attain - and
that's one of the high qualities of this - ... at least
a 70 percent success rate with the families that are
served, and actually that winds up being ... lower than
the rates of approximately 15 of the states that I've
been able to study; they've all been closer to the 80
percent success rate. So 70 percent is on the low side
that we write into the statutes here, but the rate
should be higher than that.
There are approximately 30 states that have adopted
this model. And in the HES [House Health, Education
and Social Services] Committee, ... there were people
who testified from both the State of Washington, who
had worked in that program, and from the ... intensive
family preservation program in Michigan. Michigan has
approximately an 85 percent success rate. They've been
able to dramatically lower ... their costs ... in the
children in out-of-home placement. ...
That's really the long-term goal of this program, is to
bring the rolls down. This bill itself sets up a study
that will then propose a pilot project, and ... they
will also look for funding, federal and private. ...
Actually, one of the people who spoke in the HES
Committee suggested that they may be able to identify
some funding sources, as well. ... So the funding part
of it is what we're trying to do, so that it will not
be [general funds], and the pilot project will probably
be in one location, to achieve what's called
saturation. You want to make sure that the service
delivery is up to the need in that given area, so that
... you have success, and you can actually ...
demonstrate that you can bring the out-of-home
placements down.
Number 1338
REPRESENTATIVE CROFT said he had looked this over for judicial or
other policy choices, and he believes it is a wonderful program,
from what he knows about it in other states. The main problem
will be getting money to start it up. He wished Representative
Cissna luck in the House Finance Committee.
CHAIRMAN KOTT said he had looked it over, as well, and the only
section that deals with the courts is Section 2, briefly. He
asked whether anyone wished to testify, then closed public
testimony.
Number 1395
REPRESENTATIVE ROKEBERG made a motion to move HB 413 out of
committee with individual recommendations and the attached fiscal
note(s). There being no objection, HB 413 was moved from the
House Judiciary Standing Committee.
SB 177 - INSURANCE TRADE PRACTICES & ACTS
Number 1418
CHAIRMAN KOTT announced that the next order of business would be
CS FOR SENATE BILL NO. 177(L&C), "An Act relating to insurance
trade practices; and providing for an effective date." He
reminded members that Senator Donley, sponsor, had presented the
opening statement at the previous day's hearing but that no
further testimony was taken. [Before the committee was HCS CSSB
177(L&C).]
Number 1442
MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and
Lobbyist for State Farm Insurance Company ("State Farm"), came
forward to testify in opposition to this bill on behalf of State
Farm. Noting that he had listened to the testimony when this
bill was presented the previous day, he said the impression given
was that this is fairly noncontroversial legislation. However,
he respectfully disagrees and would characterize this as anti-
consumer legislation. Any legislation that interferes with the
ability of an insurer to address claims of fraud, claims of
exaggeration or false claims is ultimately bad for policy
holders, which is one of the primary concerns with this
legislation.
MR. LESSMEIER emphasized that passing legislation that increases
costs to insurance companies results in increased costs to policy
holders; he therefore requested careful review of this bill.
Furthermore, he believes that much of the information advanced
about this legislation is inaccurate. With regard to yesterday's
testimony that the majority of states allow a finding of a trade
violation for a single act, he doesn't believe that to be the
case. He directed attention to the Division of Insurance's
attachment, submitted to the House Labor & Commerce Committee,
which illustrates that some states allow a director to find a
violation of a single act if it is willful or flagrant. However,
this legislation just says there needs to be a single act. By
his count, only four or five states [submitted on that
attachment] allow a director to find a violation based on a
single act that is not willful or flagrant; he believes that is
important, and there is a reason for that. One reason is that
the National Association of Insurance Commissioners (NAIC) model
Act would allow the finding of a violation only if it is a
willful single violation.
Number 1620
MR. LESSMEIER informed members of another important concern. He
referred to the mention [at an earlier hearing] of the Bongen
case [State Farm Fire and Casualty Company v. Bongen], an Alaska
Supreme Court case that relates to the proximate cause section of
HCS CSSB 177(L&C). The reference to the Bongen case had
indicated it somehow took away something in existing Alaska law.
Again, Mr. Lessmeier said, that is not so. He encouraged members
to review that case. He stated:
What our supreme court said in the Bongen case is,
first of all, that most courts addressing the validity
of exclusionary language actually or functionally
identical to that found in the policy they were
interpreting have held that the exclusion is
enforceable. The court went on to say, "We favor the
majority rule," and said, quote, "We can discern no
sound policy reason for preventing the enforcement of
the earth movement exclusion to which the parties in
this case agreed," unquote. And, finally, the court
said, "The only precedent from other jurisdictions
which would find coverage in spite of the exclusionary
language is from California and Washington." And the
California rule was derived from a statute; the
Washington rule just adopted the California rule.
So the impression that we are ... correcting something
that the supreme court changed is just not an accurate
impression. What the supreme court did, in the Bongen
case, is it followed the majority rule, and it followed
the Alaska law that says that we're [going to] apply
contract language in an insurance policy if it is clear
and unambiguous. And that rule has been with us in
this state forever. And this bill would change that.
MR. LESSMEIER informed members that [State Farm's] real concern
with HCS CSSB 177(L&C) is that it changes the process: the
Director of [the Division of] Insurance, who may be a political
appointee with no knowledge of insurance or the legal system, is
given authority, on the basis of a single act, to address
situations such as the settlement process that occurs between an
insured and an insurer. If this director is able to assess fines
and penalties on the basis of a single act, the present balance
that exists in the law is changed.
MR. LESSMEIER said he interprets that to mean that if the insurer
is wrong, the insurer has committed a trade practice violation
and it doesn't matter what the reasons are; it doesn't matter if
there was a reasonable basis in fact in the first-party situation
or in law. That sends a message to insurers that cases involving
fraud or exaggeration should not be fought because if such a case
is fought and lost, the insurer has violated the Act and the
director may sanction the insurer for that. That is bad for the
policy holders. Furthermore, it is unnecessary.
Number 1806
MR. LESSMEIER noted that his letter to Senator Mackie dated
February 29, 2000, should be in the bill packet. The letter
illustrates the nature of the problem. For example, State Farm
handled 45,000 claims in Alaska in 1998. According to the
[Division of Insurance's] statistics for State Farm, the division
received 52 complaints for 1997 and 43 complaints for 1998. He
pointed out that it is not known how many of those complaints are
valid. He suggested that such statistics do not indicate a
problem. The number of complaints received by the division don't
indicate a serious problem with oversight by the division of the
trade practices of insurers. Furthermore, remedies already exist
in law to address such situations, and those remedies have proven
quite effective.
MR. LESSMEIER acknowledged that Senator Donley has made changes
in this legislation and has worked with [State Farm] in order to
try to meet some of the concerns; however, there are some
important concerns that he hasn't been willing to address in this
bill. The first is found in Section 5, paragraph (7). He
pointed out that in HCS CSSB 177(L&C) there are subparagraphs (A)
and (B); subparagraph (B) deals with third-party claimants and
says there is a basis for an insurer to defend if an insurer
offers an amount that has a reasonable basis in law and fact.
Although the third-party claimant recovers substantially more,
there would not be a trade practice violation, which makes sense.
MR. LESSMEIER told members that if there is a good faith exercise
of judgment based on law and fact, that shouldn't be second-
guessed. He noted that Senator Donley didn't agree to that
provision with regard to first-party insurers. Therefore, if
this passes and is enacted into law, there would be a situation
in which the insurer would automatically violate this Act if the
insurer loses. It wouldn't matter that there is a legitimate
basis in law and fact for not making a payment.
MR. LESSMEIER suggested that the committee review a proposed
amendment that Representative Rokeberg had drafted, which would
allow a director of insurance to "fine and insure on the basis of
a single act, if the act caused loss or harm or was willful."
Mr. Lessmeier recommended that the "or willful" be changed to
"and willful" because someone can always argue that there is loss
or harm. Mr. Lessmeier also recommended deletion of the change
to the existing law contained in the new provision in Section 7,
dealing with denial of causation. He said the supreme court has
addressed that issue, and there is no reason to change that.
MR. LESSMEIER noted that with insurance it is always easy to look
at an individual case. He informed the committee that the
director of [the Division of] Insurance was asked for examples of
what he cannot do under the existing law. The only examples
provided were three or four health insurance cases. Mr.
Lessmeier emphasized that there is a collective effect when
action is taken based on individual instances. Insurance is
great if one can afford it, but if an insurer's ability to fight
fraud or claims that are questionable is taken away, then a
disincentive to look closely at such claims is created. Whenever
a fraudulent or questionable claim is paid, everyone pays. The
challenge for the industry is to keep products affordable and
available.
Number 2085
REPRESENTATIVE ROKEBERG noted that he had two amendments, labeled
M.1 and M.2. Amendment M.1 [1-LS0902\M.1, Ford, 4/14/00] read:
Page 4, line 7, following "loss":
Insert "or harm"
Page 4, lines 9 - 10:
Delete "whether the violation was a single act or
a trade practice"
Insert "the promptness and completeness of remedial action"
Page 4, following line 10:
Insert a new bill section to read:
"* Sec. 9. AS 21.36.320 is amended by adding a new
subsection to read:
(h) If the violation of this chapter is
a single act, the director may not impose a
penalty unless the violation results in loss
or harm or is intentional."
Renumber the following bill section accordingly.
Amendment M.2 [1-LS0902\M.2, Ford, 4/14/00] read:
Page 2, line 29, through page 3, line 6:
Delete all material and insert:
"(7) compel an insured or third-party
claimant regarding a claim in which liability
is not at issue to litigate for recovery of
an amount due under an insurance policy by
offering an amount that does not have a
reasonable basis in law and fact [INSUREDS TO
LITIGATE FOR RECOVERY OF AMOUNTS DUE UNDER
INSURANCE POLICIES BY OFFERING SUBSTANTIALLY
LESS THAN THE AMOUNTS ULTIMATELY RECOVERED IN
ACTIONS BROUGHT BY THOSE INSUREDS];"
MR. LESSMEIER referred to amendment M.2. He said with the
amendment to Section 5, paragraph (7), he was proposing,
regarding an insured or third-party claimant, that as long as
there is a reasonable basis in fact and law for the position
taken by the insurer, the insurer shouldn't be found guilty of a
trade practice violation.
REPRESENTATIVE ROKEBERG asked if Mr. Lessmeier had seen amendment
M.1.
Number 2168
MR. LESSMEIER said he believes he saw it in a different version.
He encouraged the committee, in Section 7, to [insert the
following language on page 4, following line 10]: "if the
violation is a single act, the director may not impose a fine
unless the violation causes loss or harm and is willful." He
said this language would follow the NAIC model Act. He believes
that far more states have adopted that as a standard than what
has been represented, as a single violation that may be based in
law and fact.
REPRESENTATIVE ROKEBERG asked if that was included in amendment
M.1.
REPRESENTATIVE MURKOWSKI indicated that Mr. Lessmeier is
referring to [subsection (h)] of amendment M.1. She understood
Mr. Lessmeier to suggest that the second "or" in subsection (h)
of amendment M.2 be changed to "and".
REPRESENTATIVE ROKEBERG referred to amendment M.2 and commented
that he is not sure he has a clear understanding. He understood
Senator Donley to have an objection to amendment M.2 because he
believes it to be key to the entire bill. He asked if [amendment
M.2 addresses] when there is a settlement offer in a case and
there is an accusation on the part of the insured, that the
insurance company has low-balled the settlement offer.
Number 2260
MR. LESSMEIER clarified that it could happen in any situation -
if, for example, the insurer believes there is no coverage and
has a reasonable basis in law or fact for that, and therefore
doesn't offer any money for a claim, and later it is determined
that there is coverage. Under this bill, as written, there would
be a violation of the trade practices Act no matter the
legitimacy of the basis in law or fact for the insurers position.
He recognized that perhaps in hindsight one could say an
interpretation is incorrect. However, the feeling is that with a
reasonable basis in law or fact, it shouldn't be a trade practice
violation.
MR. LESSMEIER, in further response to Representative Rokeberg,
affirmed that [such a case] would always go to court for
resolution regardless of what is done here, because the division
is not set up to get involved in factual disputes. One
suggestion made to the sponsor was to change the language so that
the insurer had to have an objectively reasonable basis in law
and fact that is documented in the insurer's file. Therefore, if
the director felt that the insurer was acting unreasonably, the
director could review what was in the file and make that
determination, and there would be something to document that
decision-making process. Mr. Lessmeier said it shouldn't be
strict liability such that if the insurer is wrong but acting in
good faith and having a reasonable basis in law and fact, the
insurer would automatically be subject to a fine and penalty.
Number 2354
REPRESENTATIVE ROKEBERG said, "The major change here with this
legislation is that in existing statute if there's a pattern of
violations, that constitutes the grounds on which the Director of
[the Division of] Insurance could make an investigation and find
that there's the elite trade practices." He said he understood,
then, that this would essentially create the same rights in the
instance of a single incident rather than a pattern. Therefore,
the director's power is expanded.
MR. LESSMEIER agreed.
REPRESENTATIVE ROKEBERG referred to amendment M.2, which he
understood Senator Donley to believe is a step back. He said he
further understood that Mr. Lessmeier didn't like the language on
page 2, line 29, because it changes it from a pattern to one
incident.
MR. LESSMEIER agreed.
REPRESENTATIVE ROKEBERG related his understanding that Mr.
Lessmeier is disputing the handling of that single violation.
MR. LESSMEIER agreed and explained that changing that specific
provision from a trade practice to a single incident results in
the insurer violating this Act, regardless of whether the insurer
was acting in good faith.
REPRESENTATIVE ROKEBERG surmised that this [provision] speaks to
a pattern of low-balling in the offer of a settlement.
MR. LESSMEIER affirmed that it is one [situation] to which this
speaks. This led to the suggestion to require the insurer to
document objective evidence in the file, which the director then
could review.
REPRESENTATIVE ROKEBERG suggested that the [insurer] could "cook"
the file.
MR. LESSMEIER replied that he felt it would be difficult to do
that after the fact. He added, "Presently, while there [are]
some requirements that you have an adequate file, that specific
element is not required in all instances."
Number 2480
REPRESENTATIVE ROKEBERG surmised, then, that those documents
would be dated.
MR. LESSMEIER replied, "Certainly."
REPRESENTATIVE ROKEBERG also surmised that those documents could
prove the basis of fact for [the insurer] regarding the lower
amount.
MR. LESSMEIER said it would either prove or disprove it.
TAPE 00-64, SIDE B
Number 0001
REPRESENTATIVE ROKEBERG asked Mr. Lessmeier about the issue of
proximate cause and wondered if that is the Section 7 language.
MR. LESSMEIER affirmed that.
REPRESENTATIVE ROKEBERG indicated that in the House Labor &
Commerce Standing Committee [which he chairs] he was under the
impression that they could begrudgingly accept it. He asked
whether Mr. Lessmeier's testimony has changed.
MR. LESSMEIER explained that it is a part of the bill that they
do not like; he noted that Representative Rokeberg had
characterized it accurately.
Number 0122
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development, emphasized that the bill is not
aimed at an innocent mistake by an insurance company. If a
mistake rises to the level of devastating an insurance policy
holder or his/her family through a single action by an insurance
company, that is something that the Division of Insurance
believes should be subject to investigation and administrative
action by them. This is especially the case because SB 177 would
clarify that no private cause of action is allowed under the
state's unfair claims settlement practice statute, AS 21.36.125.
If the Division of Insurance does not have the authority to
enforce, then no one does.
MR. LOHR referred to amendment M.1 [text provided above],
indicating his belief that it will effectively gut the single-act
authority. It is difficult to draw a profile of a typical
single-act violation, he told members, because it is a rare
occurrence; therefore, it is not the kind of thing that the
Division of Insurance is going to run out and try to elicit. He
noted that they [single-act violations] do not occur that often,
but when they do occur, the harm to the family can be
substantial. A profile of a single-act violator would probably
be a company located outside of the state that does little
business or is only occasionally doing business in Alaska. It
may refuse to solve a serious claims handling problem, for
instance, because there may be an economic incentive to do the
wrong thing.
MR. LOHR said the single-act enforcement authority provided to
the division could solve this problem, or at least nip it in the
bud. He doesn't believe that there is a risk of excessive
enforcement. Although the Division of Insurance has political
appointees, they may lack extensive experience in the insurance
industry. Typically, it works to the benefit of the industry
because those political appointees may be approachable on issues.
MR. LOHR emphasized that the division cannot afford to pursue
single acts unless those are very serious, certainly in this
budget climate. In any case, a hearing officer would overturn
any overzealous enforcement effort during the due process
hearing. Anyone accused of a violation that carries a penalty -
including, if enacted, this single-act authority - would have the
right to a due process hearing. As a fail-safe measure, of
course, superior court is available to review the division's
decisions and overturn any that are unfair.
MR. LOHR assured the committee that if the Division of Insurance
were foolish enough to try to act on a single innocent mistake,
it would be overturned by the courts if it got that far. A more
typical pattern would be, in the case of a serious violation,
that first the division would look to restitution by the
consumer. Second, it would require a plan for avoiding a similar
occurrence by the insurance company in the future. If the
company were unwilling to come under compliance or failed to
follow through on implementing its plan to avoid future serious
mistakes, then a fine may be appropriate, which is what this
authority would provide. He believes that the bill will improve
the quality of claims handling by insurance companies in Alaska.
It will benefit policy holders, insurance companies and the
public.
Number 0294
REPRESENTATIVE MURKOWSKI indicated she has heard concern that SB
177 gives the director of the Division of Insurance a fair amount
of discretion. She wondered how much authority the director
currently has in looking at these things and saying, "Well, there
truly was a reasonable basis in fact for this offer; it was not
just a low-ball offer just to make a low-ball offer and try to
get away with it." Representative Murkowski said she does not
know enough about what the statutes say at this point, but she
was just wondering if they need to put some parameters around the
director's authority to give some people satisfaction.
MR. LOHR conveyed his understanding that the division's latitude
with respect to enforcement is currently quite broad, and SB 177
would add a new category but would not broaden that discretion.
He does believe that currently the requirement to trigger the
unfair claims statute is a general business practice, and the
division's regulations have defined that to mean "1 percent or
more of claims mishandled within a year by a company." He said
that Mr. Lessmeier had indicated State Farm is nowhere near that
[level], nor is any company. In fact, if all of the violations
received by the division were assumed to be valid - which they
certainly are not - that would not amount to 1 percent of the
claims handling of the largest companies such as State Farm;
therefore, that 1 percent standard is effectively moot and
inapplicable to any real situation in Alaska.
MR. LOHR continued. He said the second standard in regulation is
multiple violations - at least two - of the same standard without
an adequate explanation; he indicated that the Division of
Insurance had proposed that regulations say there would be a
minimum of three [violations]. As to whether to pursue a case or
not, the Division of Insurance has wide discretion and has used
that discretion to not pursue cases in any sort of frivolous or
cavalier manner. They are not getting turned down within the
hearing process by the Division of Insurance, and they are not
getting turned down, to his knowledge, by the superior court. He
would expect that to be the pattern if SB 177 were enacted.
Number 0426
REPRESENTATIVE ROKEBERG asked what power the director of the
Division of Insurance has currently if there is a single
incident. He also asked Mr. Lohr whether his hands are tied
entirely.
MR. LOHR indicated that, effectively, that is the case under this
statute, but elsewhere in Title 21 there is single-act authority.
If an agent or broker were tapping a trust fund, for example, the
division would not need to wait for that to become a general
pattern, thankfully, and they do have a very effective
enforcement arm within the division.
REPRESENTATIVE ROKEBERG requested confirmation that if [the
division] gets a complaint from a consumer under the terms of the
policy, [the division] cannot pursue it other than make
inquiries.
MR. LOHR clarified that they have consumer protection specialists
who work with that customer, to try to ensure that the company
has applied the law, the regulations, and [the company's] own
policy language in a proper fashion. If the division detects a
mistake, often they can assist that customer in getting it
remedied. But in terms of administrative action toward that
company for a single act, no matter how serious, they have no
authority to act.
Number 0507
REPRESENTATIVE ROKEBERG requested confirmation that [the
division] can look after the consumer complaint, but cannot bring
any heat on the company for an single act.
MR. LOHR said that is correct. Recently they have had a couple
of cases where the Employee Retirement and Income Security Act
(ERISA) preempted them from having any authority at all, but,
because of consumer questions, they have gotten involved and used
informal cooperation with the company to resolve those in a
manner favorable to the customer.
REPRESENTATIVE CROFT inquired whether it is mainly in the area of
claim settlement practices that [the division] does not have the
single-act authority.
MR. LOHR affirmed that.
REPRESENTATIVE CROFT referred to paragraph (9) on page 3 [HCS
CSSB 177(L&C)], where it read, "attempt to settle a claim on the
basis of an application that has been altered without the consent
of the insured." He asked, "A single act of that and you don't
have authority to discipline the insurer?"
MR. LOHR replied that it is current statute, and it currently
requires multiple acts without a valid explanation or 1 percent
of total claims handled under the regulations adopted under the
current statute.
REPRESENTATIVE CROFT referred to Mr. Lessmeier's testimony with
regard to paragraph (7), page 2, [HCS CSSB 177(L&C)]. He pointed
out that the current standard is a pattern or practice that is
substantially low. A single instance of low-balling would not be
appropriate for punishment, but a pattern or practice might. He
recommended changing paragraph (7), subparagraph (a), by putting
the pattern or practice back in "for the primary insured low-
balling part, and then the (B) would still remain 'a reasonable
basis in law and fact'." He asked whether changing paragraph
(7), subparagraph (a), would bring it back to the current
standard.
MR. LOHR said he believes that is correct and recommends an
approach like that, because he would hate to see the current
standard for pattern or practice weakened. He added that he
believes Mr. Lessmeier's amendment would weaken the standard for
a pattern or practice.
REPRESENTATIVE ROKEBERG indicated that the whole issue has him a
little troubled, because they are going to create a single-act
violation, but what about the multiple-act violation? It would
seem that it would be raised to a higher level. He wondered
whether the loss of distinction is good or bad.
Number 0662
SENATOR DAVE DONLEY, Alaska State Legislature, sponsor of SB 177,
suggested it might be a way out of the "box." He agreed with Mr.
Lohr about maintaining the status quo for multiple acts when
there is a pattern of a company offering less than what it later
loses in court; he mentioned isolating that and saying that, for
those types of incidents, there needs to be a pattern, but then
going with Mr. Lessmeier's suggestion for the language that
currently appears on page 3, line 3 [HCS CSSB 177(L&C)], to be
changed to apply to both a first party and a third party, which
would be okay as long as they could maintain the existing
standard for multiple acts. Senator Donley emphasized that he
does not want his bill used to weaken existing standards.
MR. LOHR said he thinks that approach is a sound one.
REPRESENTATIVE ROKEBERG indicated that it is the only thing that
has been troubling him.
Number 0803
MR. LESSMEIER asserted that [the legislators] are unnecessarily
complicating this. He strongly believes that if there is a
reasonable basis in law and fact, particularly if it is
documented in the insurer's file, there should not be a second-
guessing of that judgment. If it is treated one way in the
individual sense and another way in the multiple sense, the
question, then, is what standard to apply in the multiple sense.
And why apply a different standard? He wondered why they cannot
come up with a single objective standard that allows the exercise
of good-faith judgment in both senses. Mr. Lessmeier said he
thinks they all want to address the situation of low-balling, or
the situation where someone is not making a good-faith settlement
effort, but if they do not create an objective standard to
implement that, they are in never-never land. The objective
standard for them is a defense and should be something that
benefits the director of the Division of Insurance in terms of
administering evenhanded enforcement, which ultimately would
benefit the consumer.
REPRESENTATIVE JAMES indicated her understanding that it is
needed in a singular case when it is egregious. She wondered if
that is what they are getting to.
MR. LESSMEIER said no, he thinks they are proposing that the
language "reasonable basis in law and fact" be used in the single
instance.
REPRESENTATIVE ROKEBERG added, "And then leave the existing
language as status quo."
MR. LESSMEIER suggested it would be better to adopt "reasonable
basis in law and fact" for both standards. He referred to
Representative James' comment, saying that if they are getting to
an egregious situation, he thinks they have the authority to deal
with that if there is no basis in law or fact.
Number 0969
REPRESENTATIVE ROKEBERG asked if Mr. Lessmeier had any
recommendations with regard to Section 7, the term "dominant
cause," that would help him feel better about the language.
MR. LESSMEIER informed the committee that the supreme court has
only recently issued another opinion in this area; it was a case
in which his law firm was involved. The supreme court made it
very clear that the only way an insurer can use the Bongen
exclusion is if there is very clear language that if a loss is
caused by a combination of an excluded risk and a covered risk,
there is no coverage; that is the only time they can use that
exclusion. He restated that this tinkering with a complicated
area of the law is truly unnecessary and will create new
complexities and lots of additional litigation.
Number 1082
REPRESENTATIVE ROKEBERG wondered if [Section 7] would preclude
the ability to draft a clear Bongen exclusion in a contract.
MR. LESSMEIER indicated it would change the law in that regard,
because they would have to redraft an exclusion that has already
been before the supreme court, to change it in light of this
statutory revision. They will be litigating complex factual
patterns as to what is dominant and what is not. There is a
history of litigation that goes for years and years until there
is reasonable predictability. He said [State Farm] can live with
the language, but it is not a wise thing to do.
REPRESENTATIVE ROKEBERG asked whether adding language so that an
insurer could provide for an exclusion, if it is clearly set
forth in the contract, would help any.
MR. LESSMEIER said he does not believe so, because it is already
the law. What adopting a contract like that, they would be
saying, "You can write a contract, it can be crystal clear, but
we've taken your ability away to contract in this area." He
pointed out that the statute will always govern, and the law
already says that if an exclusion is going to be given effect, it
has to be crystal clear. In fact, Mr. Bongen had testified that
he read the exclusion, and once he read it, he realized that
there was no coverage; it was crystal clear to him. Mr.
Lessmeier said he is not sure what can be done to change it
[Section 7] other than delete it, because right now, if it is an
exclusion, it essentially has to be a substantial factor of the
loss in order for it to be applied. Now they are going to
"dominant cause," changing that standard injects a whole new
complexity into that area; again, it is not a healthy thing.
Number 1227
REPRESENTATIVE GREEN asked Mr. Lessmeier whether, in his
association with State Farm, has found this to be a major
problem. He further asked whether there has been litigation in
his company with regard to low-balling.
MR. LESSMEIER replied that he does not see that. Particularly in
the first-party context, there is tremendous incentive for an
insurer not to engage in that kind of conduct. He gave an
example of a denial of claims for first-party cases; it involved
about a $17 million punitive damage award against Aetna for that
sort of conduct. Mr. Lessmeier said it is important that the
committee understand that in the first-party context, the insurer
has to be very careful not to pay a claim, and the reason is that
there are special duties owed to the insurer as a result of a
contract. They can set aside these statutes; there is a duty of
good faith, and an insurance company can be sued for bad faith.
Therefore, there is tremendous incentive not to fight claims
unless there is a reasonable and objective basis to fight them.
Insurers that deny first-party claims have to do it very
carefully, and had better have a good basis for doing it.
MR. LESSMEIER noted that the bad-faith cases involve huge
expenses of time and money to defend, even if they are
successfully defended. The question is why this is really
necessary. He pointed out that there are many existing remedies
under the law. He understood Senator Donley when his initial
concern was that the $500 case is not economically justifiable to
be taken to court, he said, and the insurance company knows that,
and they offer $400 so that they will save $100. The company
which does that is doing it at its own peril under existing law
because of the potential for punitive damages. If it is a
question of judgment, the law should not penalize the insurer.
Number 1436
REPRESENTATIVE CROFT said he was confused by that last example.
He noted that the example is taking $500 claims - knowing that
there is no incentive to litigate - and taking half of them
across thousands of claims. He asked: If he is one of those
affected people [mentioned in the example], is he going to sue
for $500 and get a substantial punitive damage award? He added
that the punitive damage is capped at some multiple of the
damage.
MR. LESSMEIER said that is not correct.
REPRESENTATIVE CROFT disagreed.
MR. LESSMEIER explained that there are alternatives for conduct
like that which [bring] the maximum cap to much higher than a
multiple of compensatory damages.
REPRESENTATIVE CROFT commented that the committee [regarding
another bill] had sat there and written it, and it is just a
different multiple.
MR. LESSMEIER answered that the formula in that instance has to
do with the economic benefit to be gained, and it applies across
the board. He suggested that the dispute can be resolved very
easily by reviewing the statutes, and the cap goes up to a
maximum of $7 million, he believes.
Number 1473
REPRESENTATIVE CROFT acknowledged that it is a multiple of those
and an economic benefit. However, he posed a scenario in which
he is going to litigate a $500 claim because he wants to prove
something to the rest of the world. He asked whether it really
makes more sense to rely on people who have been bilked $100 -
and then to multiply that 1,000 times - and to litigate that, all
the way through, against a big insurance company; or does it make
more sense to have Mr. Lohr, as director of the Division of
Insurance, find those and stop them. Representative Croft asked
which is a more efficient and rational system for stopping that
conduct.
MR. LESSMEIER suggested it is probably a combination of both, so
long as they are reasonable. First, attorneys are standing in
line to take class action cases exactly as Representative Croft
has described. Second, that balance must be created but not
changed all the way; and SB 177 as written changes the balance
all the way because it says that if an insurer loses, the Act has
been violated. He suggested that isn't what Representative Croft
wants to say.
Number 1599
SENATOR DONLEY noted that a statement was made that there is no
need to deal with the proximate cause issue; however, he believes
there is a big need to deal with that. He commented that the
wish to discuss the need is not his idea but came from the
Division of Insurance even before Mr. Lohr was appointed
director; the previous director felt the issue was important too.
Therefore, he observed, this issue has gone through two levels of
leadership, and both directors thought it was very important for
Alaskan consumers. He said it is interesting that this very
issue has been recently re-litigated by the West Virginia Supreme
Court, pointing out in the Murray case that there is a split in
jurisdictions on this subject. He indicated that the California
case, Mr. Lessmeier's cited case identified as occurring in a
Pacific Coast state, a Georgia case, and a West Virginia case all
go along with the type of definition proposed by SB 177. He
noted that four or five other jurisdictions use a different
proposal.
Number 1706
SENATOR DONLEY said what Mr. Lessmeier was talking about was that
although the consumer knows what he/she is getting, because
insurance companies write it specifically, the consumer has no
negotiating power whatsoever because these are contracts of
adhesion. The insurance company writes its contract and says,
"Now, you buy it or don't buy it." He recognized that there is
an anticipated danger here of rewriting contracts to take
advantage of this case in order to make sure that, if there are
multiple causes, they can be excluded. However, the much-
superior public policy is to say that if something is excluded
and it is a dominant cause, not just one of several causes, that
should be excluded.
SENATOR DONLEY said he thinks that should be the law in Alaska,
and even the Alaska Supreme Court had pointed out that there is a
lack of statutory guidance on this subject. People buy fire or
flood insurance thinking that if there is a flood or a fire, then
they have coverage; yet, perhaps because there is another,
unexpected cause in there, all of a sudden they do not have
coverage. He thinks that is the better public policy, and that
is what the court is asking the legislature to tell the insurance
companies. That is what SB 177 does, to his belief.
Number 1785
REPRESENTATIVE KERTTULA mentioned the memorandum dated March 9,
2000, written to Mr. Lohr from Dale Whitney. She said it caught
her eye because it says that in a major earthquake, a majority of
homeowners in the state would have no coverage. This would be
true even for an insured who had suffered an earthquake loss in
which a covered peril contributed, when the earthquake was the
real cause of the loss. Surmising that what isn't covered is
earthquake loss, she asked whether that is the way it works.
MR. LOHR said that would be the case. However, the memorandum is
in error with respect to the specific example chosen because the
insurance services office that writes typical policy language -
"boilerplate, if you will" - does not exclude fire coverage if an
earthquake is involved. Therefore, the earthquake example is a
bad one.
REPRESENTATIVE KERTTULA said that had not sounded right to her
either.
Number 1865
REPRESENTATIVE CROFT commented that he lives in the Chester Creek
Valley where, because it will occasionally flood, he cannot get
flood insurance; however, he can get earthquake insurance because
the valley is fairly stable. Chester Creek could flood his house
or basement, which is not covered, and he is also fairly near the
water. If there were an earthquake, it could cause a tidal wave
or flood up the creek. He asked what his insurance situation
would be since he has earthquake insurance but has an exclusion
for a flood.
MR. LOHR replied that he had learned his lesson, frankly, in
terms of hypotheticals; he will only use hypotheticals from court
cases where the facts are set out as the basis for discussion.
Number 1930
REPRESENTATIVE CROFT asked Senator Donley whether that type of
thing is what the committee is worried about here.
SENATOR DONLEY replied in the affirmative. He indicated it is a
situation where Representative Croft, as a consumer, buys a
certain class of insurance, for example, but does not buy another
class of insurance or cannot get it. Senator Donley posed a
situation where something happens, caused by both [earthquake and
fire, for example]. He remarked that under new case law in
Alaska, the consumer has no coverage. However, the better public
policy call here is that the nonexcluded risk - the dominant
cause rather than a cause - should be covered, and if the causes
are equal, he thinks that the consumer should be covered. He
added that if the cause is dominant and the consumer did not pay
for it, then no, the consumer should not get coverage. He
suggested it is easy to write a policy to say that if a cause is
dominant, the consumer does not get coverage.
REPRESENTATIVE CROFT surmised, then, that he would be able to
argue that the dominant cause in his own case was the earthquake,
which caused the [flood] that was secondary to the earthquake.
Number 1980
SENATOR DONLEY said that is right if the West Virginia standard
is used.
REPRESENTATIVE ROKEBERG noted that one suggestion from Mr.
Lessmeier was the reasonable basis in fact, documented in the
insurer's file. He asked whether Mr. Lohr had an opinion on
that.
MR. LOHR said he had not seen that language but has had it
described to him over the telephone. He had considered it
carefully with the Office of the Attorney General and, frankly,
had a bit of difficulty understanding it. He explained that the
same question had arisen as to how reliable the document filed in
the company's possession would be, and whether that is best
public policy. If the notion is that the director shall consider
the documents, that would be a very good suggestion; he mentioned
that a mandatory factor for consideration in deciding whether to
bring an action would be to look at all of the documents.
MR. LOHR indicated that he is not sure a nudge is needed to do
that because the division would do it anyway, and the division
quite routinely has full authority to get at the documents.
However, if the legislature wants to make sure that the division
considers the documents, that is reasonable in terms of having
the entire decision turn on that basis. It creates an incentive
in terms of the file contents.
Number 2128
SENATOR DONLEY reminded the committee that Representative
Rokeberg had a draft amendment [M.1], part of which he and the
director believe is fine. He said he didn't have an actual copy
of the draft amendment but the middle section is fine. However,
he doesn't like the bottom or top portions.
REPRESENTATIVE ROKEBERG explained that Senator Donley did not
like the part on the bottom of amendment M.1 that says, "If the
violation of this chapter is a single act, the director may not
impose a penalty unless the violation results in loss or harm or
is intentional." He asked Senator Donley why he found that
objectionable.
Number 2170
SENATOR DONLEY explained that he wants the director to be able to
take action to protect other people. If something is done and it
is obviously a violation of the Act - even if there is no harm -
the division should be able to issue a directive or seek
corrective action so that future people are not harmed.
Therefore, he does not think requiring a harm to occur beforehand
is necessarily the best public policy if the public is to be
protected.
REPRESENTATIVE ROKEBERG suggested the harm would have already
occurred and resulted in a grievance. Just the act of saying
that an insurance coverage contract is not being fulfilled and a
consumer is being harmed [should not be enough to trigger a
directive].
Number 2240
MR. LOHR said the language, in his opinion, is infinitely better
than with "and," which he thinks would gut SB 177. The "or"
language does not have the same effect of rendering meaningless
the entire single-act authority.
REPRESENTATIVE ROKEBERG commented that Mr. Lessmeier had
recommended "willful" rather than "intentional." He asked which
is the higher standard. Or does it make any difference?
REPRESENTATIVE KERTTULA replied that "intentional" is the higher
standard.
REPRESENTATIVE ROKEBERG asked whether someone had looked at the
phrase "results in loss or harm or intentional."
MR.LOHR said the division will live with any standard adopted, of
course, because that is the job of bureaucrats.
REPRESENTATIVE ROKEBERG asked whether Mr. Lohr finds that
[language] objectionable.
MR. LOHR replied that he prefers the approach that Senator Donley
has outlined. The division will still use single-act authority
where necessary under that standard, if it is enacted.
Number 2357
REPRESENTATIVE ROKEBERG said he would "correct the one thing" and
not delete the single-act authority on "the page 4, line 4 one."
SENATOR DONLEY restated that he didn't have a copy of the
amendment.
Number 2383
REPRESENTATIVE KERTTULA requested an example of an instance where
there is no harm. She asked whether they are talking about a
situation where there has been a violation but the company
recognizes it, so that in the long run there is no harm.
MR. LOHR answered that he frankly cannot imagine an example where
no harm would occur. The examples the division has chosen to
focus on regarding enforcement priorities would be those where
harm or loss is a central factor to the consumer. He added, "We
try to seek restitution first, seek prevention second, and then
seek a fine if necessary to compel proper conduct by the
company."
SENATOR DONLEY said he could think of examples. For instance,
there could be a pre-authorized claim but a refusal to pay. Six
months could go by without the bill being paid, but then they
agree to pay the bill. Perhaps there is no actual harm that
occurs to the consumer. He acknowledged that there are stories
in which significant harm does occur to families. He returned to
the scenario in which there is no harm because the family has
enough of its own money to pay the bill.
TAPE 00-65, SIDE A
Number 0001
SENATOR DONLEY told members he still believes the director ought
to be able to step in and say that [waiting] a year was wrong.
"You recognized it and correct[ed] it, but we don't want you
doing this anymore," he added.
REPRESENTATIVE KERTTULA responded that it would boil down to
whether that is a harm. She conveyed her understanding that
Senator Donley was saying maybe there is no harm there; however,
she thinks there probably is one.
Number 0037
REPRESENTATIVE MURKOWSKI asked why Senator Donley objects to the
first part of Representative Rokeberg's amendment, then, which
inserts "or harm". She pointed out that it is not "and harm".
SENATOR DONLEY said he guesses that he doesn't have a problem
with that, nor a problem with the change on page 4, lines 9 and
10.
Number 0070
REPRESENTATIVE ROKEBERG specified that he would not delete line 4
of amendment M.1, however. Line 4 of amendment M.1, relating to
page 4, lines 9-10, of the bill, read:
Delete "whether the violation was a single act or a
trade practice"
Line 5 of amendment M.1 read:
Insert "the promptness and completeness of remedial action"
REPRESENTATIVE ROKEBERG continued, indicating he would have line
5 [of amendment M.1], say the following instead:
Insert after "violation" "the prompt[ness] and
completeness of remedial action"
REPRESENTATIVE CROFT requested confirmation that Representative
Rokeberg was keeping "or."
REPRESENTATIVE ROKEBERG affirmed that. He restated that on
amendment M.1 he wouldn't delete line 4, because that makes a
distinction between whether it is a single [incident] or a trade
practice.
Number 0201
REPRESENTATIVE CROFT made a motion to adopt amendment M.1 [text
provided above] as Amendment 1.
REPRESENTATIVE ROKEBERG objected for the purpose of amending
Amendment 1. He made a motion to delete line 4 of the amendment
[set forth previously] and on line 5 [of the amendment], after
"Insert", to say "after the word 'violation'". Therefore, line 9
of page 4 of the bill would read, "factors including the
seriousness of the violation, the promptness and completeness of
remedial action," and it would leave the phrase, "whether the
violation was a single act or a trade practice". He indicated
the remainder of the amendment would be as written.
REPRESENTATIVE CROFT noted that it would leave it as "or". He
said that is fine as an amendment to Amendment 1.
Number 0277
CHAIRMAN KOTT asked whether there was any objection to the
adoption of the amendment to Amendment 1. There being none, it
was so ordered. He asked whether there was any objection to
Amendment 1 [as amended]. There being no objection, Amendment 1
was adopted.
Number 0450
REPRESENTATIVE CROFT offered Amendment 2. He specified that he
wasn't using proposed written amendment M.2 [1-LS0902\M.2, Ford,
4/14/00]. He referred members to page 2 of the bill, paragraph
(7), as well as to the language offered in writing by Mr.
Lessmeier earlier, which read:
Proposed language for CSSB 177 Sec. 5(7)
(7) compel an insured or third-party claimant in a
case where liability is clear to litigate for recovery
of an amount due under an insurance policy by offering
an amount that does not have an objectively reasonable
basis in fact and law that is documented in the
insurer's file.
REPRESENTATIVE CROFT explained that Amendment 2 would keep, as
(7)(A), the current standard but insert the phrase, "a pattern or
practice of compelling". He specified that is on page 2, lines
29-30. Right now, paragraph (7) says one cannot compel insureds
to litigate for recovery of amounts due under insurance policies
by offering substantially less than the amounts ultimately
recovered in actions brought by the insured. He suggested
keeping that; however, in order to keep that effective, given
that the entire bill has been changed to say "an act," it must
say there "a pattern or practice of". Therefore, (7)(A) would be
"a pattern or practice of compelling" and then the current
language of (7), not as amended by the bill but as the current
statute reads.
REPRESENTATIVE CROFT continued with Amendment 2. He said (7)(B)
would be the language provided by Mr. Lessmeier, set forth above.
He commented, "So that would be the single-act standard, under
the reasonable basis in fact or law, but we would ... not be
going backwards, if you will, because we're still keeping the ...
pattern or practice."
CHAIRMAN KOTT asked whether there was any objection to the
adoption of Amendment 2. There being no objection, it was so
ordered.
Number 0476
REPRESENTATIVE JAMES made a motion to move SB 177 [HCS CSSB
177(L&C)], as amended, out of committee with individual
recommendations and the attached fiscal note(s). There being no
objection, HCS CSSB 177(JUD) was moved from the House Judiciary
Standing Committee.
SB 26 - FALSE REPORT TO POLICE/HINDER PROSECUTION
CHAIRMAN KOTT announced that the next order of business would be
CS FOR SENATE BILL NO. 26(FIN), "An Act relating to hindering
prosecution and to providing false information or reports to a
peace officer."
Number 0561
MICHAEL PAULEY, Staff to Senator Loren Leman, Alaska State
Legislature, presented the bill on behalf of the sponsor.
Because the sponsor statement was in members' packets and time
was short, he asked whether reciting of the sponsor statement
could be suspended.
CHAIRMAN KOTT granted that request.
REPRESENTATIVE ROKEBERG asked what SB 26 does.
CHAIRMAN KOTT replied, "You lie, you lose."
Number 0603
REPRESENTATIVE JAMES made a motion to move CSSB 26(FIN) out of
committee with individual recommendations and the attached zero
fiscal note. There being no objection, CSSB 26(FIN) was moved
from the House Judiciary Standing Committee.
ADJOURNMENT
Number 621
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 6:31 p.m.
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