Legislature(2003 - 2004)

03/11/2004 01:30 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         March 11, 2004                                                                                         
                           1:32 p.m.                                                                                            
TAPE(S) 04-22, 23                                                                                                             
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 409(FSH)                                                                                                  
"An Act relating  to the maximum length of  salmon seine vessels;                                                               
and providing for an effective date."                                                                                           
     BILL POSTPONED                                                                                                             
SENATE BILL NO. 319                                                                                                             
"An Act relating to claims  for personal injury or wrongful death                                                               
against  health care  providers; and  providing for  an effective                                                               
     MOVED SB 319 OUT OF COMMITTEE                                                                                              
SENATE BILL NO. 337                                                                                                             
"An Act relating to the powers  of the Alaska Energy Authority to                                                               
make grants and  loans and enter into contracts;  relating to the                                                               
bulk  fuel revolving  loan fund;  relating to  the Alaska  Energy                                                               
Authority's liability  for the provision of  technical assistance                                                               
to  rural utilities;  relating to  the Alaska  Energy Authority's                                                               
investment  of   the  power   development  fund;   repealing  the                                                               
electrical  service   extension  fund;   and  providing   for  an                                                               
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 344                                                                                                             
"An  Act  relating  to  the  Uniform  Probate  Code  and  trusts,                                                               
including  pleadings,  orders,   nonprobate  assets,  estates  of                                                               
decedents,  minors,  protected  persons,  incapacitated  persons,                                                               
guardians, conservators, trustees,  foreign trusts, principal and                                                               
income, and  transfer restrictions; relating to  corporate voting                                                               
trusts; and providing for an effective date."                                                                                   
     MOVED SB 344 OUT OF COMMITTEE                                                                                              
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 319                                                                                                                  
SHORT TITLE: CLAIMS AGAINST HEALTH CARE PROVIDERS                                                                               
SPONSOR(s): SENATOR(s) SEEKINS                                                                                                  
02/11/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/11/04       (S)       L&C, JUD                                                                                               
03/02/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
03/02/04       (S)       Heard & Held                                                                                           
03/02/04       (S)       MINUTE(L&C)                                                                                            
03/11/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
BILL: SB 337                                                                                                                  
SHORT TITLE: ENERGY PROGRAMS & FUNDS                                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/16/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (S)       L&C, FIN                                                                                               
03/11/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
BILL: SB 344                                                                                                                  
SHORT TITLE: TRUSTS/ESTATES/PROPERTY TRANSFERS                                                                                  
SPONSOR(s): SENATOR(s) SEEKINS                                                                                                  
02/16/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (S)       L&C, JUD                                                                                               
03/11/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
WITNESS REGISTER                                                                                                              
Mr. Don Roberts, Jr.                                                                                                            
Kodiak AK                                                                                                                       
POSITION STATEMENT: Opposes SB 319.                                                                                           
Ms. Meg Simonian                                                                                                                
Anchorage AK                                                                                                                    
POSITION STATEMENT: Opposes SB 319.                                                                                           
Mr. Mike Hogan, Executive Director                                                                                              
Alaska Physicians and Surgeons                                                                                                  
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supports SB 319.                                                                                          
Ms. Cindy Lentine                                                                                                               
Anchorage AK                                                                                                                    
POSITION STATEMENT: Opposes SB 319.                                                                                           
Ms. Brenda Arney                                                                                                                
Wasilla AK                                                                                                                      
POSITION STATEMENT: Opposes SB 319.                                                                                           
Ms. Denise Morris, President and CEO                                                                                            
Alaska Native Justice Center                                                                                                    
Anchorage AK                                                                                                                    
POSITION STATEMENT: Opposes SB 319.                                                                                           
Mr. William Cook, Atty.                                                                                                         
Eagle River AK                                                                                                                  
POSITION STATEMENT: Opposes SB 319.                                                                                           
Mr. Les Syren, Vice Chair                                                                                                       
Republican Party, District 31                                                                                                   
Anchorage AK                                                                                                                    
POSITION STATEMENT: Opposes SB 319.                                                                                           
Mr. Paul Dillon                                                                                                                 
Dillon and Findley                                                                                                              
350 N. Franklin                                                                                                                 
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Opposes SB 319.                                                                                           
Ms. Becky Gay, Project Manager                                                                                                  
Alaska Energy Authority (AEA)                                                                                                   
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supported SB 337.                                                                                         
Mr. Jim McMillan, Deputy Director                                                                                               
Credit and Business Development                                                                                                 
Alaska Industrial Development and Export Authority                                                                              
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supported SB 337.                                                                                         
Mr. Brian Hove                                                                                                                  
Staff to Senator Ralph Seekins                                                                                                  
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 344 for the sponsor.                                                                      
Ms. Beth Chapman, Atty.                                                                                                         
Faulkner Banfield                                                                                                               
One Sealaska Plaza, Suite 202                                                                                                   
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supports SB 344.                                                                                          
Mr. Steve Greer, Atty.                                                                                                          
No address provided                                                                                                             
POSITION STATEMENT: Supports SB 344.                                                                                          
Mr. Doug Blattmachr, President                                                                                                  
Alaska Trust Company                                                                                                            
POSITION STATEMENT: Supports SB 344.                                                                                          
ACTION NARRATIVE                                                                                                              
TAPE 04-22, SIDE A                                                                                                            
          SB 319-CLAIMS AGAINST HEALTH CARE PROVIDERS                                                                       
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting  to order  at 1:32  p.m. Present  were Senators                                                               
Gary  Stevens, Bettye  Davis, Ralph  Seekins,  Hollis French  and                                                               
Chair Con Bunde.  The first order of business to  come before the                                                               
committee was SB 319.                                                                                                           
MR. DON  ROBERTS, Kodiak  resident, said that  SB 319  should not                                                               
have seen the  light of day. He proclaimed that  the Alaska state                                                               
constitution says  all government originates with  the people and                                                               
is founded  upon their will,  only, and is instituted  solely for                                                               
the good  of the people  as a whole.  "I assure you  that neither                                                               
the Providence  Health Systems nor the  State Medical Association                                                               
speak for me or the people as  a whole." He was concerned that SB
319 deprived people of due process.                                                                                             
MS. MEG SIMONIAN, Anchorage attorney,  said she wanted to discuss                                                               
section  4 of  SB 319  that amends  AS 09.55.556.  Subsection (c)                                                               
overrules  two  Supreme  Court  cases  that  set  out  reasonable                                                               
patient  standards, which  say  basically that  a  doctor has  to                                                               
explain everything to  a patient that will allow them  to make an                                                               
informed decision  regarding treatment and procedures.  This bill                                                               
would restrict that  information to what the  medical experts who                                                               
testified in the cases decided  a reasonable patient should know.                                                               
The American  Medical Association's  code of ethics,  section 808                                                               
adopts the reasonable  person standard, not the  standard that is                                                               
included in this bill.                                                                                                          
     You would be removing Alaska  from a majority of states                                                                    
     that  have  set  standards that  the  American  Medical                                                                    
     Association  says are  appropriate in  these cases  and                                                                    
     putting it back many years....                                                                                             
MR.  MIKE  HOGAN,  Executive   Director,  Alaska  Physicians  and                                                               
Surgeons, supported SB 319.                                                                                                     
     Three  out of  four  doctors actually  admit that  this                                                                    
     liability  crisis has  changed  the  way they  practice                                                                    
     medicine. HHS estimates it adds  between 5 to 9 percent                                                                    
     to the overall healthcare costs in this country.                                                                           
The  question,  do  non-economic  damage caps  really  help  with                                                               
patient access  to physicians, is  addressed in  the legislation.                                                               
An HHS study found that  states with non-economic damage caps had                                                               
a  12 percent  increase in  the number  of physicians  per capita                                                               
versus states without the caps.  Premiums in states with caps are                                                               
found  to  be 17  percent  lower  than  in states  without  caps.                                                               
California  adopted non-economic  damage  caps and  from 1975  to                                                               
2001 its premium  rates increased by 182  percent. Nationally, in                                                               
that  same  time period,  rates  went  up  569 percent.  The  few                                                               
remaining  insurance companies  have been  told that  during that                                                               
same  time  period  rates  for  physicians  have  gone  up  1,593                                                               
percent.  Testimony   has  indicated  that  Alaska's   supply  of                                                               
physicians is already  at risk and any increase  in premium costs                                                               
could be devastating to medical care in Alaska.                                                                                 
MS.  CINDY LENTINE,  Anchorage resident,  said she  used to  be a                                                               
beautiful vibrant  woman, but  now she has  no hair,  no breasts,                                                               
her face  is round from  steroids and  her body is  tattooed from                                                               
radiation treatments. She  will probably not live  long enough to                                                               
see her grandchildren.                                                                                                          
     It  is all  because of  negligence  on the  part of  my                                                                    
     physician.  Let  me  tell  you  why  this  bill  is  so                                                                    
     dangerous. By  catering to the insurance  companies and                                                                    
     the  doctors,   you're  going   to  only   encourage  a                                                                    
     substandard level of professional [indisc.] Alaska.                                                                        
Convincing evidence from other states shows that lowering non-                                                                  
economic caps did  not lower the insurance  premiums for doctors.                                                               
Legitimate  malpractice  cases  would   not  be  brought  forward                                                               
because winning  will leave  the patient  clients worse  off than                                                               
     It renders medical  malpractice cases almost impossible                                                                    
     to  economically  pursue.  This  is a  scary  piece  of                                                                    
     legislation, because  it allows insurance  companies to                                                                    
     dictate  jury awards.  Yes, something  has  to be  done                                                                    
     about  medical  malpractice  insurance high  rates  for                                                                    
     doctors, but something also has  to be in place for the                                                                    
     victims. This  bill is not  a vehicle to  address these                                                                    
MS. BRENDA ARNEY, Wasilla resident,  related how in the summer of                                                               
2003 her  husband, Bob, was diagnosed  with a tumor on  his lung.                                                               
He had  surgery in  Anchorage and his  chances for  recovery were                                                               
quite good.  Pathologist reports  showed there  was no  threat of                                                               
cancer  and his  doctor told  him he  could start  exercising the                                                               
next day  on a  stationery bicycle. One  night staff  turned down                                                               
his monitors  and left for  a coffee  break and during  that time                                                               
Bob, while on  heavy pain medication, disconnected  his tubes and                                                               
catheter and  walked out of the  hospital making it to  a trailer                                                               
two blocks away before he needed help. Three days later he died.                                                                
     His death was caused by  negligence of the hospital and                                                                    
     healthcare  providers.  The  hospital  said  they  were                                                                    
     sorry  and  that  they  would   make  changes  in  some                                                                    
     policies and  they said  they would  erase some  of the                                                                    
     hospital  bills, but  they did  not bring  Bob back.  I                                                                    
     would  like a  jury to  know these  facts and  judge my                                                                    
     loss,  not the  Legislature, not  the hospital  and his                                                                    
     doctors and not an insurance company.                                                                                      
     Because Bob was retired, his  economic damage loss in a                                                                    
     medical malpractice  lawsuit would  be quite  small. My                                                                    
     pain and suffering  since my loss of  Bob really cannot                                                                    
     be valued by anyone but  myself. Bob's agony before his                                                                    
     death was  horrendous. I trust  the judgment of  a jury                                                                    
     of my  and Bob's peers  more than the  Legislature, the                                                                    
     insurance  companies and  doctors valuing  his life  at                                                                    
     $250,000. Bob was  my best friend, my soul  mate and he                                                                    
     was priceless to me....                                                                                                    
MS.  DENISE  MORRIS, President  and  CEO,  Alaska Native  Justice                                                               
Center, said she is concerned that  SB 319 would apply in federal                                                               
tort  claims  act cases  as  well  as state  medical  malpractice                                                               
cases.  It  will  apply in  cases  involving  federal  healthcare                                                               
providers.  The  IHS  facility  medical  providers  do  not  have                                                               
medical malpractice  insurance per se  and are covered  under the                                                               
federal  tort claims  act.  This means  that  a private  attorney                                                               
representing  a plaintiff  is rendering  a  defense against  U.S.                                                               
     If  this passes,  healthcare  providers  in the  United                                                                    
     States  will essentially  be  immune  from cases  where                                                                    
     malpractice  seriously harmed  the  retired or  elderly                                                                    
     Alaskans living  in a  rural or  subsistence lifestyle,                                                                    
     mothers who do  not work outside the  home and children                                                                    
     who do not have any  earned income. If someone from one                                                                    
     of these  groups is  seriously injured  by malpractice,                                                                    
     their damages  will primarily be non-economic.  If non-                                                                    
     economic damages  are capped  at $250,000, no  one will                                                                    
     be able to afford to  bring these cases and, therefore,                                                                    
     they will not be heard  and no remedy will be available                                                                    
     to these individuals that are injured.                                                                                     
     Many  citizens   do  not  realize  how   difficult  and                                                                    
     expensive it is currently  to bring a malpractice claim                                                                    
     against  a   healthcare  provider  for   negligence  or                                                                    
     recklessness  that causes  harm. Many  citizens do  not                                                                    
     realize  that we  in Alaska  already have  non-economic                                                                    
     damages, which were capped by  the Legislature in 1997.                                                                    
     In order  for an Alaskan  to bring a  malpractice claim                                                                    
     against a healthcare professional,  he or she must find                                                                    
     a  medical  expert  working  the   same  field  as  the                                                                    
     healthcare provider to prove  that the standard of care                                                                    
     was breached. Sometimes  cases require several experts.                                                                    
     It  is   practically  impossible  to   find  healthcare                                                                    
     providers  in  Alaska who  are  willing  to do  medical                                                                    
     malpractice  cases.   Therefore,  experts   are  almost                                                                    
     always hired from  outside the State of  Alaska and are                                                                    
     extremely expensive. As you can  imagine, it costs tens                                                                    
     of   thousands  of   dollars   in   costs,  alone,   to                                                                    
     investigate and  pursue a case  of malpractice.  It can                                                                    
     take in excess of $200,000  to actually go to the final                                                                    
     Secondly, these  cases rarely settle before  there is a                                                                    
     tremendous  amount of  time, effort,  work and  expense                                                                    
     that is incurred. I am  really concerned that if SB 319                                                                    
     is passed,  it will have a  tremendously adverse effect                                                                    
     on  Alaska   Natives  who  live  a   rural  subsistence                                                                    
     lifestyle, for  fishermen in the Bristol  Bay region...                                                                    
     in the  type of  industry where a  lot of  accidents do                                                                    
MR. WILLIAM  COOK said he is  an attorney in Eagle  River who has                                                               
had several  professional malpractice  cases, but  has not  had a                                                               
great  deal  of medical  negligence  experience.  He related  how                                                               
young people  in his congregation  volunteer their  time teaching                                                               
children and  they are totally innocent  of what is going  on. It                                                               
would   also  adversely   affect  retirees,   young  stay-at-home                                                               
mothers, home-schoolers and Natives.                                                                                            
MR. LES  SYREN, Vice Chair,  District 31, Republican  Party, said                                                               
he has a lot of healthcare providers  in his family. He is also a                                                               
plaintiff's  attorney,  but  as  a  Republican,  he  has  several                                                               
problems with this bill.                                                                                                        
     First,   it   seems   like   we're   institutionalizing                                                                    
     prejudgment of a case.... The  other thing that offends                                                                    
     me   as  a   Republican  is   this  idea   of  personal                                                                    
     responsibility....  If we're  giving special  treatment                                                                    
     to this one  group of people, not for  any reason other                                                                    
     than they won't be able  to get insurance supposedly or                                                                    
     their  assets might  be at  risk, something  like that,                                                                    
     that's  not  right.  That  just  offends  my  sense  of                                                                    
     personal responsibility....                                                                                                
He related several  cases involving malpractice - one  in which a                                                               
sponge  was left  in a  woman's stomach  and another  in which  a                                                               
woman had a  fibroid removed from her uterus  that unbeknownst to                                                               
her or her  doctor had a viable  fetus in it. "Let's  not put the                                                               
burden on the innocent victims."                                                                                                
MR. PAUL  DILLON, Dillon  & Findley, had  three areas  of concern                                                               
regarding  the effects  of this  bill on  individuals across  the                                                               
     I'm not going  to discuss that. It's  obvious that this                                                                    
     has  profound  effects  on  Alaskans  in  a  very  real                                                                    
     sense....  I'm  going  to  cover  whether  or  not  the                                                                    
     removal of  Continental and  Northwest create  a market                                                                    
     crisis for  doctors, which has  been alleged  here. I'm                                                                    
     going  to  talk  and  address  briefly  a  question  of                                                                    
     premium crisis  in the  context of  is there  a premium                                                                    
     crisis and, thirdly... I'm going  to address whether or                                                                    
     not there's any fixes out  there that this committee or                                                                    
     this  Legislature should  consider  as alternatives  to                                                                    
     the saddling  of Alaskans with  the effect of a  cap on                                                                    
CHAIR BUNDE asked him to limit his testimony to five minutes.                                                                   
MR. DILLON replied:                                                                                                             
     Whatever you want, sir.... I  have handed out... a list                                                                    
     of all of the various  malpractice that has occurred in                                                                    
     this state from  1990 forward as defined  by the Alaska                                                                    
     Medical  Board. This  is a  reporting that  is required                                                                    
     for  purposes  of  settlement   or  judgment....  In  a                                                                    
     nutshell  it defines  medical  malpractice  to a  large                                                                    
     degree  in  this state.  We,  therefore,  know who  the                                                                    
     victims  of   medical  malpractice  are  and   who  the                                                                    
     practitioners are  in the context  of what is  going on                                                                    
     in the real life situation of hospital medical care.                                                                       
     The  one party  that is  not present  is the  insurance                                                                    
     companies, themselves.  I have  also provided  you with                                                                    
     certain  pages  and   excerpts  from  the  65    annual                                                                    
     report...  I'd   like  to  go   over  those   with  you                                                                    
He  showed the  committee that  Norcal has  33.43 percent  of the                                                               
market and  Medical Insurance Exchange  of California  (MIEC) has                                                               
34.92 percent  and the  relative size  of the  companies. Between                                                               
the  two  of  them,  they  control  70  percent  of  the  market.                                                               
Northwest decided to  pull out of the Alaska  market after asking                                                               
for a 100 percent increase  in their premiums, which was declined                                                               
by the  Division of  Insurance. He didn't  know how  many doctors                                                               
were  affected by  this,  but he  knows they  then  tried to  get                                                               
insurance through  MIEC or Norcal.  If they didn't  get insurance                                                               
through them,  they had the  option of  going to a  surplus line,                                                               
which  is typically  used by  individuals who  are unable  to get                                                               
insurance  through the  normal market.  A third  way doctors  can                                                               
seek  insurance  is  the  direct   approach.  They  can  call  an                                                               
insurance company  directly whether the  company is in  the state                                                               
or not, but this doesn't happen often.                                                                                          
As  of 2002,  70  percent of  the market  was  controlled by  the                                                               
providers that are still here.  He didn't know what percentage of                                                               
physicians  and   surgeons  were  affected  by   the  removal  of                                                               
Northwest and  Norcal. He submitted  to the committee  that there                                                               
is  not a  crisis for  doctors to  get malpractice  insurance. In                                                               
1978, the  State of  Alaska created an  insurance company  of its                                                               
own. Through  the next  10 years  it was  tremendously successful                                                               
and kept premiums  down for physicians and, because  of its well-                                                               
run and effective  liability section, it held  claims and payouts                                                               
down.  "So, we  already  have  in the  context  of experience,  a                                                               
successful way to resolve our problems."                                                                                        
MR. DILLON said that a number  of his family members are doctors.                                                               
The last  time doctors  faced a premium  problem where  they felt                                                               
they  were paying  too much,  they came  to the  Legislature, who                                                               
adopted a  process that  protected them,  but also  protected the                                                               
rest of Alaska. [END OF TAPE]                                                                                                   
TAPE 04-22, SIDE B                                                                                                            
2:20 p.m.                                                                                                                       
MR. DILLON  said the purpose  of insurance is to  cover ourselves                                                               
in the  event of a  mistake. There has  never been an  attempt to                                                               
shift the burden of a mistake from doctors to victims.                                                                          
     That's what this  cap is doing, especially  in light of                                                                    
     the fact that you already have  a cap. Why are we doing                                                                    
     this? We have a cap that  exists in the context of what                                                                    
     we  are dealing  with every  day  in the  courts as  it                                                                    
     stands right now.                                                                                                          
CHAIR BUNDE asked him to summarize.                                                                                             
MR.  DILLON  responded  that  would  be  hard,  but  rather  than                                                               
summarize  he went  to the  question  of the  review process  for                                                               
premium  rates. The  Division of  Insurance reviews  the premiums                                                               
that  are  charged  to  physicians   and  judges  them  on  three                                                               
standards  - that  the  rate is  not excessive,  that  it is  not                                                               
inadequate (too  low) and that it  doesn't unfairly discriminate.                                                               
This means that the premium rates  for all companies are going to                                                               
be between  a range. The  more effective and  efficient companies                                                               
are going to  be on the lower  end and be able  to lower premiums                                                               
somewhat. The less  efficient are going to have  to charge higher                                                               
premiums, but  generally, all companies  are within  a marketable                                                               
     So,  you have  watchdogs  in place.  Just as  Northwest                                                                    
     came in and sought a  massive increase in their premium                                                                    
     base, which was  denied, I submit to  you that present-                                                                    
     day premiums,  while high, and  for all I  know sitting                                                                    
     here -  and I don't know  - let me be  very clear about                                                                    
     that -  whether that  constitutes such a  percentage of                                                                    
     the doctors' cost as to  make it an overwhelming burden                                                                    
     such that  it's going to  drive them from the  state. I                                                                    
     submit,  I don't  think  so,  personally.... That  cost                                                                    
     factor is certainly  less than 5 percent  on a national                                                                    
     average, but I  don't think that premium  cost is going                                                                    
     to drive doctors from the  state, especially when we're                                                                    
     not HMOs. These guys can  make as much money as they're                                                                    
     willing to go for in the context of what they do.                                                                          
SENATOR HOLLIS  FRENCH said a report  about physicians practicing                                                               
in Alaska showed  a trend over the past 17  years with respect to                                                               
our population. The number has  gone up pretty steadily over that                                                               
time. He  thought the appropriate year  to look at would  be 1997                                                               
when tort reform went into effect.  Up until that time the number                                                               
was  increasing, but  after that  time the  number increased,  as                                                               
Another plaintiff's  attorney pointed out  to him that  this bill                                                               
would put  victims of car crashes  in far better standing  in the                                                               
eyes of the  law than victims of negligence on  a doctor's table.                                                               
The point made was:                                                                                                             
     Why would you handle  those two people differently? Why                                                                    
     would you  allow a person in  a car crash to  press all                                                                    
     their  claims in  court and  cap the  rights of  person                                                                    
     damaged on  an operating table.  I think it is  hard to                                                                    
     draw a principle distinction between those two.                                                                            
SENATOR  SEEKINS  said  he  was   sure  the  Labor  and  Commerce                                                               
Committee had  looked as far into  the matter as it  could within                                                               
the  purposes of  the committee.  He moved  to pass  SB 319  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
SENATORS HOLLIS FRENCH AND BETTYE DAVIS objected.                                                                               
CHAIR BUNDE  asked for a  roll call vote. Senators  Gary Stevens,                                                               
Ralph  Seekins and  Chair Con  Bunde voted  yea; Senators  Bettye                                                               
Davis  and Hollis  French  voted nay;  and SB  319  moved out  of                                                               
                 SB 337-ENERGY PROGRAMS & FUNDS                                                                             
CHAIR CON BUNDE announced SB 337 to be up for consideration.                                                                    
MS.  BECKY GAY,  Project Manager,  Alaska Industrial  Development                                                               
and Export  Authority (AIDEA) and Alaska  Energy Authority (AEA),                                                               
said  Jim  McMillan,  Deputy  Director  of  Credit  and  Business                                                               
Development, Mike  Harper, Deputy  Director of Rural  Energy, and                                                               
Sarah  Fisher-Grove, Financial  Analyst,  would  help her  answer                                                               
MS. GAY said that SB 337 amends the AEA program.                                                                                
     The first  program affected is  the Power  Project Fund                                                                    
     loan program  (PPF). The PPF program  provides loans to                                                                    
     local  utilities,  local  governments  and  independent                                                                    
     power  producers  for  the development  or  upgrade  of                                                                    
     power projects.  SB 337 proposes to  amend this program                                                                    
     by  expanding  the  definition   of  power  project  to                                                                    
     include energy  efficiency projects. Under  the current                                                                    
     statutory  definition  of  eligible  project,  AEA  has                                                                    
     actually  denied   loan  applications   for  worthwhile                                                                    
     projects such  as lighting  retrofits. In  addition, SB
     337  proposes   to  repeal  the  loan   committee  that                                                                    
     approves  loans  from  this   fund.  AEA  will  instead                                                                    
     utilize  the same  credit approval  process that  AIDEA                                                                    
     has  successfully  utilized  for  its  credit  program,                                                                    
     which  includes  an appeals  process  to  the board  of                                                                    
     The next  program affected is  the Bulk  Fuel Revolving                                                                    
     Loan  Fund program.  This  program provides  short-term                                                                    
     loans to  assist small rural communities  in purchasing                                                                    
     annual  bulk fuel  supplies.  SB  337 authorizes  loans                                                                    
     from this fund to  other entities such as corporations,                                                                    
     cooperatives and joint ventures.  The Department of Law                                                                    
     recently interpreted  the current  statutorily eligible                                                                    
     borrowers to be only  communities and natural persons -                                                                    
     that  is  private  individuals. This  change  will  not                                                                    
     expand the  definition of eligible borrower  beyond the                                                                    
     long-standing interpretation and  practice that already                                                                    
     includes other entities such as corporations.                                                                              
     SB  337 also  provides that  AEA may  invest the  Power                                                                    
     Development  Fund  and  with  the  concurrence  of  the                                                                    
     Department of  Revenue, the Power Development  Fund has                                                                    
     been invested by AEA since  1993. This bill proposes to                                                                    
     affirm this long-standing  arrangement by providing AEA                                                                    
     the statutory  authority to invest  the fund.  Then AEA                                                                    
     would continue  to remit all  earnings of this  fund to                                                                    
     the general fund.                                                                                                          
     The  general  [indisc.]  of  AEA  are  proposed  to  be                                                                    
     amended  by clarifying  that AEA  has the  authority to                                                                    
     manage various programs and  projects by issuing grants                                                                    
     and interim contracts. By acting  as an agent for rural                                                                    
     communities,  AEA  manages  power projects,  bulk  fuel                                                                    
     projects   and   alternative   energy   projects.   The                                                                    
     Legislature   has  authorized   AEA  to   manage  these                                                                    
     projects through  the appropriate process  by providing                                                                    
     AEA authority to receive and  expend federal funds from                                                                    
     entities  such as  the Denali  Commission and  the U.S.                                                                    
     Department of Energy.                                                                                                      
     In  addition, SB  337  specifies  that AEA's  statutory                                                                    
     mandate  to provide  technical  assistance  may not  be                                                                    
     used  on  an  independent   basis  for  tort  liability                                                                    
     against  AEA.  AEA  will  continue  to  be  liable  for                                                                    
     negligence  if  it  fails to  use  reasonable  care  in                                                                    
     providing the technical assistance, however.                                                                               
     And  last, this  bill proposes  to repeal  the inactive                                                                    
     Electrical  Service Extension  Fund. That  concludes my                                                                    
     comments.... I  urge your favorable support  and action                                                                    
     on this bill.                                                                                                              
CHAIR  BUNDE asked  if there  is an  actual size  designation for                                                               
small rural communities in the bulk fuel program.                                                                               
MS. GAY  replied that small  rural communities have  a population                                                               
of 2,000 or less.                                                                                                               
CHAIR  BUNDE asked  if she  knew of  any small  rural communities                                                               
that are excluded.                                                                                                              
MR.   JIM  MCMILLAN,   Deputy  Director,   Credit  and   Business                                                               
Development, AIDEA, said  he didn't have that  information at his                                                               
fingertips, but he would get it for the committee.                                                                              
CHAIR BUNDE said that Bethel comes to mind.                                                                                     
MR. MCMILLAN  agreed with  Bethel, but didn't  want to  venture a                                                               
guess on others.                                                                                                                
SENATOR HOLLIS  FRENCH asked for  clarification of  the provision                                                               
that repeals the committee that approves loans from the fund.                                                                   
MR. MCMILLAN explained:                                                                                                         
     When  we assumed  the rural  energy  programs from  the                                                                    
     Department of Community  and Regional Affairs, Division                                                                    
     of Energy, in 1999, the  loan committee was part of the                                                                    
     statutory process at  that time - that  the Division of                                                                    
     Energy used  for approval of power  project fund loans.                                                                    
     We  [AEA]  elected  at  that time  not  to  change  the                                                                    
     process  and go  with  the  established statutory  loan                                                                    
     committee. We have  been doing that since  1999, but it                                                                    
     was always our intent to  try and meld the rural energy                                                                    
     programs and  the process for  approval into  the long-                                                                    
     standing process  that we have  used on the  other side                                                                    
     with   Alaska   Industrial   Development   and   Export                                                                    
     In the  internal loan committee, we  have the expertise                                                                    
     on  staff  and  an  appeal  process  to  the  board  of                                                                    
     directors.  So, what  this is  doing  is repealing  the                                                                    
     statutory  loan committee,  which is  comprised of  the                                                                    
     director  of OMB,  the executive  director  of AEA  and                                                                    
     three  public members  from various  judicial districts                                                                    
     appointed  by  the  governor  - in  moving  it  to  the                                                                    
     internal process similar to AIDEA.                                                                                         
CHAIR BUNDE asked if the  loan committee's duties are being moved                                                               
to  another already-existing  credit committee,  why is  there no                                                               
change in  the fiscal note. He  thought savings would be  seen at                                                               
least with per diem.                                                                                                            
MR. MCMILLAN  replied that is correct,  but for the past  year or                                                               
two,  all of  the  meetings have  been conducted  telephonically.                                                               
There  have been  no  requests for  payment of  per  diem by  the                                                               
committee members. The meetings last about an hour or less.                                                                     
CHAIR BUNDE said he was glad  he gave Mr. McMillan an opportunity                                                               
to brag  about the  committee's efficiency and  said that  SB 337                                                               
would be held for a later meeting.                                                                                              
            SB 344-TRUSTS/ESTATES/PROPERTY TRANSFERS                                                                        
CHAIR CON BUNDE announced SB 344 to be up for consideration.                                                                    
MR. BRIAN HOVE, staff to Senator Ralph Seekins, sponsor,                                                                        
explained the bill as follows:                                                                                                  
      A  vital   characteristic  of  any   highly  developed                                                                    
     economy  is the  ease  with  which financial  resources                                                                    
     flow  from  one  market  to  another.  The  magnet-like                                                                    
     attraction  between money  and the  market that  offers                                                                    
     the most  advantageous terms at a  particular moment in                                                                    
     time   is,  perhaps,   best  demonstrated   within  the                                                                    
     financial services industry itself.                                                                                        
     Over  the  years,  the  Alaskan  banking  industry  has                                                                    
     attracted  funds  to  our  state   as  a  result  of  a                                                                    
     particular niche  we have successfully developed  in an                                                                    
     obscure  corner  of the  industry  known  as trust  and                                                                    
     estate   services.  Much   of  this   success  can   be                                                                    
     attributed to the foresight  demonstrated by the Alaska                                                                    
     State Legislature.                                                                                                         
     Since 1997,  the Legislature has passed  numerous bills                                                                    
     effectively  making Alaska  a premier  jurisdiction for                                                                    
     this  financial  specialty.  Just   last  year,  SB  87                                                                    
     adopted a more recent  version of the Uniform Principal                                                                    
     and  Income  Act.  HB 212  updated  other  portions  of                                                                    
     Alaska's  trust laws.  Both were  signed into  law last                                                                    
     While  SB   344  may  not   be  as  far   reaching,  it                                                                    
     accomplishes  much the  same purpose.  It does  this by                                                                    
     making a  host of small technical  revisions to current                                                                    
     statutes.  It   updates  the  provisions   relating  to                                                                    
     virtual  representation, it  clarifies  when a  trustee                                                                    
     can be  relieved of liability  and it  adds provisions,                                                                    
     which other jurisdictions have already adopted.                                                                            
     Keeping  our trust  statutes current  has had  a direct                                                                    
     positive  impact  on  our  state's  economy.  Over  the                                                                    
     years, these  periodic revisions  have helped  to bring                                                                    
     hundreds of  millions of dollars  of trust  assets into                                                                    
     the  state and  added tens  of millions  of dollars  to                                                                    
     local  bank  deposits.  Furthermore, it  has  increased                                                                    
     business  activity  for  attorneys,  accountants,  life                                                                    
     insurance agents  and brokerage  firms. This,  in turn,                                                                    
     creates jobs.                                                                                                              
     Necessity,   ingenuity   and    routine   advances   in                                                                    
     technology  collaborate on  a daily  basis to  reinvent                                                                    
     the world of financial  products and services. To date,                                                                    
     Alaska  has successfully  staked  out a  place in  this                                                                    
     world through our contemporary set  of trust and estate                                                                    
     laws. SB  344 seeks  to preserve  our position  in what                                                                    
     amounts to  a highly fluid marketplace  unrestricted by                                                                    
     geographic boundaries. It seems  reasonable to keep the                                                                    
     money flowing in this direction.                                                                                           
CHAIR  BUNDE  said he  understands  that  current trust  laws  in                                                               
Alaska generate some  income for the state and asked  if he could                                                               
speculate how  fine-tuning the trust  would advance  the earnings                                                               
for the state.                                                                                                                  
MR. HOVE  replied that would be  difficult, but if we  don't keep                                                               
up with the Joneses in this  instance, we will be going backwards                                                               
and the money the state has attracted  so far will start to go in                                                               
the other direction.                                                                                                            
MS. BETH  CHAPMAN, Attorney,  Faulkner &  Banfield, said  she has                                                               
practiced in  the estate and  trust area  for the last  16 years.                                                               
She supported SB 344.                                                                                                           
     I believe  SB 344  is necessary  to ensure  that Alaska                                                                    
     remains the  standard bearer for trust  and estate law.                                                                    
     Since  1997,  when  the Legislature  passed  the  first                                                                    
     trust act, several other states  have tried to take the                                                                    
     business  from  Alaska  and   keep  that  business,  in                                                                    
     particular,  Delaware.   Many  of  these   changes  are                                                                    
     designed  to  ensure that  Alaska  is  the state  where                                                                    
     folks  will  want  to  put  their  trust  assets,  both                                                                    
     residents and non-residents.                                                                                               
     Several of the ways that the  law is improved is SB 344                                                                    
     makes  technical  amendments  to the  recently  enacted                                                                    
     Uniform Principal  and Income Act. It  also expands the                                                                    
     scope  of  a  doctrine called  virtual  representation.                                                                    
     What this  really does is  ensures that we are  able to                                                                    
     give  notice   to  classes   of  beneficiaries   in  an                                                                    
     efficient  manner, access  the courts  in an  efficient                                                                    
     and  cost effective  manner, to  ensure that  the trust                                                                    
     laws are fulfilled in that  the testator's trust is, in                                                                    
     fact, upheld in the courts.                                                                                                
     Also and,  probably what  I consider to  be one  of the                                                                    
     most  important  aspects  of the  bill,  is  section  4                                                                    
     dealing  with  the  limitation on  proceedings  against                                                                    
     trustees. Under current  law, we do not  have a statute                                                                    
     of limitations for causes of  actions against a trustee                                                                    
     until  a final  account  is rendered  on  the trust.  A                                                                    
     final account would normally not  be rendered until the                                                                    
     trust relationship has been  terminated. Alaska now has                                                                    
     trusts  that  can  last in  perpetuity.  Therefore,  we                                                                    
     could  have  a very  long  time  before any  proceeding                                                                    
     could be brought.  An example would be where  we have a                                                                    
     trust  that's been  in existence  for 15  years. Yearly                                                                    
     reports have  been given to  the beneficiaries,  but 14                                                                    
     years later, a beneficiary  decides that something that                                                                    
     occurred in  year one  is now a  problem. They  can now                                                                    
     seek and  bring a cause of  action in the court  and go                                                                    
     back  that many  years. They  are only  barred after  a                                                                    
     final account.  This would  change that  law so  that a                                                                    
     beneficiary  is required  to bring  a  cause of  action                                                                    
     within  a  period  of time  after  they  have  received                                                                    
     notice  that  would  give them  enough  information  to                                                                    
     recognize that there  was a cause of  action and, also,                                                                    
     that the trustee is required  to notify the beneficiary                                                                    
     of that  time limit.  So, it's  very protective  of the                                                                    
     beneficiaries, as well.  It's not just a  bar, but it's                                                                    
     also notification provision.                                                                                               
CHAIR BUNDE  asked if  it would be  an oversimplification  to say                                                               
that under  the current system  the statute of  limitations would                                                               
run until  the trust is cashed  out and in some  cases that might                                                               
not be in any foreseeable future.                                                                                               
MS. CHAPMAN replied that would not be an oversimplification and                                                                 
could happen if the trustee isn't changed prior to the time the                                                                 
trust is terminated.                                                                                                            
     We  believe  that  can  lead   to  costly  and  complex                                                                    
     litigation that should  be avoided if we  had a statute                                                                    
     of  limitations that  notified  beneficiaries of  their                                                                    
     The other part of the  bill that's important is that it                                                                    
     expands the  spendthrift protection for other  types of                                                                    
     trust   that  are   commonly  used.   Last  year,   the                                                                    
     Legislature adopted  a trust  bill that did  expand the                                                                    
     spendthrift protection  to certain types  of charitable                                                                    
     trusts. This would expand it  to include other types of                                                                    
     trusts  that are  recognized under  federal income  tax                                                                    
     law, most notably a  qualified personal residence trust                                                                    
     and what is known as a grantor retained annuity trust.                                                                     
CHAIR BUNDE asked her to define a spendthrift provision.                                                                        
MS. CHAPMAN explained:                                                                                                          
     A spendthrift provision is a  provision in a trust that                                                                    
     limits  the  creditor's  ability to  access  the  trust                                                                    
     assets until  they are  distributed to  the beneficiary                                                                    
     or to  the grantor. Alaska has  a spendthrift provision                                                                    
     that allows  an individual to  set up a trust  with his                                                                    
     or  her own  assets  and  retain certain  discretionary                                                                    
     rights  to  those  funds,  but   until  the  funds  are                                                                    
     actually distributed  by an independent  trustee, those                                                                    
     funds  cannot be  attached by  a creditor.  A qualified                                                                    
     personal residence trust is  generally used to transfer                                                                    
     a  home   from  an   older  generation  to   a  younger                                                                    
     generation and right  now, by placing it  into a trust,                                                                    
     it would have no  spendthrift protection until we amend                                                                    
     the law  that would  allow the individuals  to continue                                                                    
     to live  there and  until the  trust is  terminated and                                                                    
     those  assets are  distributed out,  which does  happen                                                                    
     generally after  a short period  of time,  those assets                                                                    
     would be protected from creditors.                                                                                         
     In essence, I believe  the Alaska Legislature has shown                                                                    
     foresight in  adopting the laws, has  helped the Alaska                                                                    
     economy by bringing  trust funds to the  state and that                                                                    
     SB 344 is another bill  that will continue the trend in                                                                    
     keeping Alaska  at the forefront  of states  with trust                                                                    
CHAIR BUNDE asked if she knew what revenue the current trust law                                                                
has brought to the state.                                                                                                       
MS. CHAPMAN replied that she didn't know.                                                                                       
SENATOR HOLLIS FRENCH asked:                                                                                                    
     Regarding  section (2)  pleadings and  the parties  who                                                                    
     are bound  by orders  and notice  regarding proceedings                                                                    
     involving  trusts  - as  I  look  at this  section,  it                                                                    
     strikes  me   that  you're  broadening  the   scope  of                                                                    
     proceedings that  might bind others  - that is  they no                                                                    
     longer have  to be formal proceedings.  They don't have                                                                    
     to  even  be  judicially supervised  settlements;  they                                                                    
     could be  non-judicial proceedings and  settlements and                                                                    
     is  that, at  first blush,  what is  happening in  this                                                                    
MS. CHAPMAN replied, "Yes, it is."                                                                                              
SENATOR FRENCH asked her to flesh out the folks who could be                                                                    
affected by a non-judicial settlement of a trust and start with                                                                 
section (c) and go on through.                                                                                                  
MS. CHAPMAN explained:                                                                                                          
     The individual  starting at section  (c) that  would be                                                                    
     bound  -  and  it's  important to  note  that  all  the                                                                    
     individuals who  we've bound can  only be bound  to the                                                                    
     extent that there  is no conflict of interest  - and we                                                                    
     are  required  by the  prior  section  of the  code  to                                                                    
     inform the  court -  and in a  non-judicial if  we were                                                                    
     going  to  enforce  a non-judicial  settlement  of  the                                                                    
     individuals we  are attempting to bind.  So, in section                                                                    
     (c),  a minor  for  example, can  be  bound by  another                                                                    
     person  so long  as  there  is substantially  identical                                                                    
     interest.  Similarly,  an  incapacitated  person  or  a                                                                    
     person  whose identity  or location  is unknown  or not                                                                    
SENATOR FRENCH asked what substantially identical interest boils                                                                
down to.                                                                                                                        
MS. CHAPMAN answered:                                                                                                           
     Somebody would have  substantially identical interests,                                                                    
     so  that whatever  they would  receive  from the  trust                                                                    
     would  not be  affected  by what  would  happen to  the                                                                    
     other person's interest. For  example, somebody who has                                                                    
     an interest  in the income,  but not in  the principal,                                                                    
     they  would  not  necessarily  have  the  substantially                                                                    
     identical interests.  If we affect the  principal, make                                                                    
     a  distribution,  we  would be  reducing  how  much  is                                                                    
     available  to pay  the income.  So, they  are interests                                                                    
     that would not be affected  by a ruling. So, the effect                                                                    
     would  be  the  same   to  the  interests.  It  doesn't                                                                    
     necessarily mean  the same amount, but  the same nature                                                                    
     of the  interest. Probably the  best example  is moving                                                                    
     on to  section (d) where  we talk about class.  It says                                                                    
     many times  we will have  a gift that will  indicate it                                                                    
     will be  to my spouse for  his or her life  and then to                                                                    
     my children after  the death of the spouse  and you may                                                                    
     have   children  who   at  the   time  the   trust  was                                                                    
     established are  alive, you may  have children  who are                                                                    
     not yet born.                                                                                                              
     Number (d)  indicates that if  we serve  obviously, the                                                                    
     people who are  alive, that that does  bind those after                                                                    
     born  children. So,  we don't  have to  go back  in and                                                                    
     relitigate the issue.  Similarly in (e), if  we have an                                                                    
     interest  that passes  to the  surviving spouse  and to                                                                    
     persons who are heirs of  the living person, that would                                                                    
     receive  it in  the  future for  the future  interests,                                                                    
     that so long  as we serve the living  people, that will                                                                    
     bind those who are not yet in existence.                                                                                   
     [Section](f) is  where we're talking about  a happening                                                                    
     of a  future event. That's  sort of  the key to  all of                                                                    
     these  new  additions  - the  (d)  through  (f).  We're                                                                    
     talking about  binding a class of  individuals who will                                                                    
     receive it in the future. So,  we may not even know who                                                                    
     all the  members of our  class are going to  be whether                                                                    
     some people  may have died,  some people may  have been                                                                    
     added to  the class. So,  in (e) what  we're discussing                                                                    
     is if we  have a class of individuals who  are going to                                                                    
     receive  it in  the future,  and then  we have  another                                                                    
     class after  that, we have perpetual  trusts, that will                                                                    
     say to my children, after  the death of the last child,                                                                    
     to  my  grandchildren,  after the  death  of  the  last                                                                    
     grandchild  on and  on and  on in  perpetuity. Once  we                                                                    
     bind the first  class, then it's going to  bind all the                                                                    
     other classes along  the way so that each  time we have                                                                    
     a new class coming into existence  we do not have to go                                                                    
     back to  court or a non-judicial  settlement to resolve                                                                    
     the issue.                                                                                                                 
     Most  of  the issues  where  we're  going to  see  this                                                                    
     statute  used is  issues involving  interpretation. The                                                                    
     courts  have  the  authority to  require  us  to  serve                                                                    
     anybody that the  court feels should be  served. So, at                                                                    
     any time, when  we disclose to the court  who we intend                                                                    
     to give  notice to  and what  provision we're  using of                                                                    
     this  law to  give substitute  notice, the  court could                                                                    
     say no, that's  not acceptable; you need to  go out and                                                                    
     serve. The court has the ultimate jurisdiction.                                                                            
CHAIR BUNDE asked if you can put things in an Alaskan trust and                                                                 
still have limited access to them.                                                                                              
MS. CHAPMAN replied that is correct.                                                                                            
CHAIR BUNDE asked if that had passed the muster of courts.                                                                      
MS. CHAPMAN replied that the statute  that was passed in 1997 has                                                               
not been looked at by a court, yet.                                                                                             
MR. STEVE  GREER, Atty., said he  has been involved in  the group                                                               
that has  worked on  this legislation  for years.  "It is  a very                                                               
good piece of legislation." He urged its passage.                                                                               
MR. BLATTMACHR,  President, Alaska  Trust, supported SB  344. "It                                                               
will be  beneficial for Alaska  residents and for  businesses and                                                               
for the State of Alaska."                                                                                                       
TAPE 04-23, SIDE A                                                                                                            
SENATOR BETTYE  DAVIS moved  to pass SB  344 from  committee with                                                               
individual recommendations.                                                                                                     
CHAIR BUNDE asked  for a roll call vote.  Senators Hollis French,                                                               
Ralph Seekins,  Bettye Davis and  Chair Con Bunde voted  yea; and                                                               
SB 344 moved  from committee. There being no  further business to                                                               
come before the committee, he adjourned the meeting at 3:00 p.m.                                                                

Document Name Date/Time Subjects