SB 17-CRIME COUNTERFEIT/NONFUNCTIONING AIRBAG  1:40:44 PM VICE-CHAIR KIEHL reconvened the meeting and announced the consideration of SENATE BILL NO. 17 "An Act establishing the crime of airbag fraud." 1:41:11 PM CHAIR CLAMAN, speaking as sponsor, introduced SB 17, as paraphrased below: In Alaska today, there is no law to prohibit the installation or reinstallation of airbags that do not meet federal safety standards. While legitimate manufacturers design airbags to protect us from serious injuries, counterfeit or nonfunctioning airbags are known to either improperly deploy or fail to deploy at all, potentially resulting in serious injuries. The primary purpose of this legislation is to support federal efforts to stop the importation of counterfeit or nonfunctioning airbags through the Federal Unfair Trade Practices Act. It will allow federal authorities to seize these products at Alaska's border. 1:41:48 PM CHAIR CLAMAN continued the introduction of SB 17: Automotive manufacturers do not make new airbags that you might find in a car straight from the factory. Instead, automotive manufacturers source them from a handful of "tier one suppliers," which include Joyson Safety Systems, Robert Bosch, or Nihon. There are nine of these suppliers internationally, and they are all regulated by federal laws, such as the Federal Motor Vehicle Safety Act. In contrast, counterfeit and nonfunctioning airbags are often manufactured at a fraction of the price overseas and sent to the United States to be installed in cars by unscrupulous mechanics to slash their costs. Just last week, a man in North Carolina was found guilty of importing over 2,500 counterfeit airbags from the United Kingdom. These nonfunctioning and counterfeit airbags are defined as "replacement" airbags, and they are often filled with junk, such as t-shirts, newspapers, or sawdust. They are extremely dangerous in the event of a crash. By establishing airbag fraud as a crime, SB 17 prohibits dangerous actors from knowingly selling, installing, or manufacturing these dangerous and improper devices. Passage of this legislation will help keep counterfeit airbags out of Alaska. 1:43:03 PM CHAIR CLAMAN continued the introduction of SB 17: Over 30 states have passed similar legislation. The Michigan Penal Code takes a severe approach to this crime, punishing airbag fraud as a felony punishable by four years of imprisonment or a fine of $10,000. In comparison, SB 17 classifies the installation or sale of a counterfeit or nonfunctioning airbag as a class A misdemeanor and a class C felony if serious injury or death occurs. Of the states that have passed laws, and we have reviewed the majority of those, most of the states punish the crime as a misdemeanor only. It was interesting that Michigan, which is the heart of automobile manufacturing in the country, makes it a felony. This reflects the independent values of each state. The key is to fight the importation more than anything else. 1:44:03 PM CHAIR CLAMAN continued the introduction of SB 17: The bill contains exceptions to the crime under four different circumstances. The first exception applies to cars used solely for police work, as many police vehicles must remove rear airbags to install the standard barriers located between the driver and passenger. The second exception applies to a person who sells a vehicle without knowing that it contains a counterfeit or nonfunctioning airbag. The third exception applies to a person who transfers a vehicle to an insurance company when that vehicle has been declared a total loss. The fourth exception is for an insurance company that disposes of a vehicle as authorized by law or regulation. These exceptions for transactions involving insurance companies apply to totaled cars that may contain nonfunctioning airbags and are typically sold or disposed of for junk or for parts. We want to emphasize that SB 17 does not create a duty to inspect a used car's airbags before it is sold. The time and effort to examine each airbag in a used vehicle is unrealistic and extremely onerous. Inspecting an airbag is a highly technical practice that can often result in damage to the airbag. Such a requirement would likely add significant labor costs for used car dealers, increase costs for individual private sellers trying to sell their vehicles, and ultimately result in higher prices for consumers, significantly changing the used car market. The Coalition Against Insurance Fraud supports SB 17 and believes in protecting consumers and the idea that consumers should be able to trust their airbags. The Automotive Anti-Counterfeiting Council (A2C2) and a broad coalition of auto manufacturers also support SB 17. 1:45:50 PM CHAIR CLAMAN announced that Mr. Craig Orlan of Honda Motor Company has been working on this legislation in coordination with A2C2 and the automobile manufacturing group. He stated that Mr. Orlan specifically represents Honda, but his views align with those of manufacturers generally. He said Mr. Orlan is available to answer questions and provide testimony. CHAIR CLAMAN said that, to date, he is not aware of any fraudulent airbag installations in Alaska. He stated that no evidence exists of fraudulent or nonfunctioning airbag installations occurring in Alaska. He explained that the intent of SB 17 is not to prosecute anyone for installation but to prevent such activity from occurring. He emphasized that it has not happened yet and that Alaska wants to keep it that way. 1:46:42 PM VICE-CHAIR KIEHL invited the bill sponsor's staff, Ms. Dennis, to present the sectional analysis. 1:46:51 PM CARLY DENNIS, Staff, Senator Matt Claman, Alaska State Legislature, Juneau, Alaska, presented the sectional analysis for SB 17: [Original punctuation provided.] Senate Bill 17  Sectional Analysis Version A  Section 1  AS 28.35.248. Airbag fraud Establishes and defines airbag fraud as knowingly selling, offering for sale, installing, reinstalling, or manufacturing a counterfeit or nonfunctioning airbag or device that is intended to conceal a counterfeit or nonfunctioning airbag, or intentionally selling, leasing or trading a vehicle that the person knows has a counterfeit or nonfunctioning airbag. Establishes airbag fraud as a class A misdemeanor or a class C felony if death or serious physical injury to another person occurs as a result of the counterfeit or nonfunctioning airbag. Establishes that the liability of any party in a civil action is not precluded. Provides that this legislation does not create a duty to inspect a vehicle for a counterfeit or nonfunctioning airbag before its sale. This section excludes a person installing, reinstalling, or replacing an airbag on a vehicle used solely for police work; an owner or employee of a motor vehicle dealership or the owner of a vehicle who does not have knowledge that the vehicle's airbag is counterfeit or nonfunctioning; a person who transfers a vehicle title to an insurance company to satisfy an insurance claim; or an insurance company that sells or otherwise disposes of a vehicle as authorized by law or regulation. 1:48:18 PM SENATOR TOBIN referred to page 2, line 6 of the bill. She observed that SB 17 proposes to exempt a person from the crime of airbag fraud if the vehicle is sold to an insurance company. She asked why the bill does not have a comparable provision for the donation of a vehicle to a nonprofit organization. 1:48:57 PM CHAIR CLAMAN replied that it is his understanding that such donations are unrelated to insurance transactions involving totaled vehicles. He explained that under existing law and regulation, an owner may transfer a totaled vehicle to an insurance company as part of a claim settlement. In contrast, a vehicle that is not running and has not been in an accident perhaps one that has sat unused in a backyard for several years and was never insuredfalls outside that process. He said those vehicles do not need a specific exemption because donating one is essentially the same as a private sale. The only difference is that the vehicle is given rather than sold. He stated that the focus is on whether the person transferring the vehicle is aware of a non-functioning airbag. If the person knows of such a defect and fails to disclose it, that would be an issue. 1:50:05 PM SENATOR TOBIN clarified that her concern relates to the absence of applicability language. She said that if SB 17 were enacted, a person who currently owns a vehicle known to have a nonfunctioning airbag, or a vehicle previously involved in an accident that an insurance company might consider totaled, could be prohibited from donating that vehicle once the law takes effect. She explained that her concern centers around individuals who currently own vehicles that fall under these categories, who might be unable to donate them should SB 17 be enacted. 1:50:39 PM CHAIR CLAMAN replied that he would check that out with Legislative Legal Services. He stated that the key is that this legislation concerns criminal prosecution, and unless there is proof of knowledge of the nonfunctioning airbag, no criminal liability would exist. 1:51:19 PM SENATOR TOBIN stated that she owns a vehicle that would fall under this category. She said the airbag does not function and she has considered donating the vehicle to a local veteran group that operates off of Merrill Field. She said this legislation has caused her to consider what actions might be permitted if SB 17 were enacted. 1:51:40 PM CHAIR CLAMAN replied that he is happy to talk more about that. 1:51:44 PM VICE-CHAIR KIEHL requested that the aide for the bill sponsor walk the committee through a discussion on how the bill's definition of "nonfunctioning" applies to vehicles that are sold or given away when the owner discloses that the airbag does not work. 1:52:15 PM MS. DENNIS replied that the definition section on page 2, beginning on lines 25 and 28, specifies that "counterfeit" and "nonfunctioning" airbags refer to replacement airbags. She explained that an airbag that deployed in a crash but was never removed from the vehicle, would not be considered counterfeit or nonfunctioning under the bill. 1:52:50 PM SENATOR MYERS asked how SB 17 applies to airbags that were original equipment but no longer function. He described several hypothetical scenarios: a vehicle involved in a crash where the airbags were never replaced; airbags under recall that were not changed out; and an owner who transfers title of an old vehicle even though the owner knows the airbags do not work. He asked how SB 17 would address those scenarios. 1:53:30 PM MS. DENNIS replied that SB 17 does not apply to those scenarios because the bill is specific to replacement airbags. She emphasized that if the airbag is original equipment, regardless of any issues, the owner would not be liable under this legislation. 1:53:56 PM SENATOR MYERS asked whether SB 17 could prevent the use of replacement airbags that are functional but not approved by the original manufacturer. He recalled that nine airbag manufacturers exist. He presented a scenario in which a competitor's airbag, a company other than the one under contract with a given vehicle company, is installed in the vehicle. It fits properly but is not officially approved by the original automaker. He wondered what affect the proposed legislation would have on this airbag scenario. 1:54:44 PM CHAIR CLAMAN expressed his understanding that the question would be whether the replacement airbag meets applicable federal regulations, which depend on the specific details of the airbag itself. He stated that, although he did not know the answer, his general understanding is that federal regulations require any replacement airbag, regardless of the manufacturer, to be compatible with the vehicle in a manner consistent with federal laws. He noted that, based on prior discussions, Honda uses airbags from all nine manufacturers in different vehicles. He said it is not the case that each automaker contracts exclusively with a single airbag manufacturer. Instead, there is a competitive market in which airbag manufacturers routinely submit bids and proposals, while vehicle manufacturers seek the best suppliers. He deferred the question to Mr. Orlan for further clarification. 1:55:57 PM SENATOR KIEHL directed the question to Mr. Orlan. 1:56:13 PM CRAIG ORLAN, Director, State and Local Government Affairs, American Honda Motor Company, Alexandria, Virginia, stated that a robust market exists for airbags. He said nothing in SB 17 would prohibit a new manufacturer or a replacement airbag company from producing airbags, provided the products meet federal safety standards. He explained that, at present, there is no legitimate aftermarket for airbags because they are expensive, produced in relatively low volumes, and considered a high-margin part. He emphasized that the proposed legislation would not prevent a new company from entering the market and offering an aftermarket airbag that complies with federal requirements. 1:56:59 PM SENATOR STEVENS inquired about the criminal elements of SB 17, asking who would be subject to prosecution for an offense involving the sale of a vehicle with a counterfeit or nonfunctioning airbag. He questioned whether criminal liability would fall on the vehicle owner who sold it, the mechanic who installed the airbag, or the airbag manufacturer. 1:57:20 PM CHAIR CLAMAN replied that a person who sells a vehicle with a nonfunctioning airbag would not be liable if unaware of the defect. He stated that liability would apply only if it could be proven that the person had knowledge of the issue, emphasizing that evidence of such knowledge would be required to establish liability. CHAIR CLAMAN explained that under SB 17, three primary parties could be liable for an offense: • The manufacturer, though, that circumstance is unlikely to occur in Alaska. • The seller or installer of the airbag. • A person who sells a vehicle knowing it contains a nonfunctioning airbag. 1:58:19 PM MR. ORLAN stated that the purpose of this type of legislation is to prevent counterfeit and nonfunctioning airbags from entering vehicles in the first place. He explained that this will allow federal, state, and local law enforcement agencies to coordinate efforts to seize such products at the border. Under current law, federal authorities may only seize counterfeit parts if they violate federal trademark or hazardous materials laws, and only a small percentage of counterfeit airbags meet those criteria. He said this legislation would close that gap by enabling law enforcement to intercept the products before they enter the market. MR. ORLAN said this legislation puts pressure on E-commerce retailers to de-list website products that are in violation of state law. It also allows enforcement efforts to target repair shops suspected of installing counterfeit or nonfunctioning airbags. He noted that similar state laws have already been used successfully, citing a recent case in Florida where such legislation was leveraged to obtain records from installers. As a result, law enforcement identified approximately 200 consumers who were unaware their vehicles contained these defective airbags, and the airbags were replaced before causing any harm. He emphasized that the core purpose of the legislation is to prevent installation of these products and to ensure their removal once discovered. 1:59:45 PM SENATOR STEVENS referred to the incidents involving 200 cases of airbag fraud in Florida, asking whether each of those incidents would result in separate charges. 2:00:17 PM CHAIR CLAMAN replied that if, in Alaska, an individual installed 200 nonfunctioning airbags, that installer could potentially face 200 charges. He explained that if one of those vehicles were involved in an accident in which the airbag failed to deploy and a passenger sustained serious physical injury, the installer could also face a felony charge. He stated that if only one such accident occurred resulting in serious injury, there would be one corresponding felony charge. 2:01:03 PM VICE-CHAIR KIEHL asked whether the importation of a few hundred counterfeit or nonfunctioning airbags would result in a single charge or multiple charges. He restated his question, noting that installing 200 airbags might result in 200 charges, but asked how the law would treat the act of importing 200 counterfeit or nonfunctioning airbags. CHAIR CLAMAN replied that he was uncertain, explaining that the intent of the legislation is to give federal authorities the ability to seize such products at the border. He said that determination would fall more under federal jurisdiction, and he did not know the precise answer. CHAIR CLAMAN reasoned that, under Alaska law, if counterfeit or nonfunctioning airbags made it past the border and into an installer's shop but none had yet been installed, he was uncertain but suggested that state authorities might treat that as a single offense. On the other hand, if the airbags had not yet been installed in any vehicles, it remains unclear whether that would constitute a criminal act under the proposed legislation. 2:02:22 PM SENATOR TOBIN said she grew up with a Ford F-150 pickup truck in rural Alaska and, as a child, accidentally deployed one of its airbags. She asked whether, under the proposed legislation, it would be legal to sell a vehicle whose airbag had deployed but had never been replaced. CHAIR CLAMAN replied that, assuming the deployed airbag was the original airbag and not a replacement, the sale of that vehicle would not be affected by SB 17. 2:03:22 PM SENATOR TOBIN sought clarification, asking whether it would be illegal under the proposed legislation to sell that Ford F-150 if it had a replacement airbag installed. CHAIR CLAMAN replied yes. 2:03:30 PM SENATOR TOBIN raised the issue of limited parts availability in rural Alaska. She said that life in rural communities often involves limited access to vehicles and that, in some cases, airbags may have deployed or been replaced. She noted that rural residents who perform vehicle repairs may not know where to obtain a manufacturer-approved replacement airbag. She expressed concern that the proposed legislation could result in severe penalties for those living in rural areas. 2:04:11 PM CHAIR CLAMAN said that raises an interesting question. He expressed his belief that the Legislature passed a motor vehicle Dealer law in 2018. He said the manufacturer is responsible for the cost of a warranty replacement or airbag recall. He explained that the manufacturer has an obligation to ensure the work is completed in the rural location or to ship the vehicle if necessary. He said if a person discloses knowledge of a nonfunctioning airbag, that disclosure should not result in criminal liability. He said he would look further into the matter. 2:06:12 PM VICE-CHAIR KIEHL referred to the word "reinstalls" on page 1, line 6 of the bill. He asked about the distinction between "reinstalls" and "installs," noting that his impression is that any time something is put inwhether for the first time or againit would be considered an installation. He asked what the bill intends to address by including the term "reinstall." 2:06:42 PM CHAIR CLAMAN replied that the intent is to remove any doubt that both "installing" and "reinstalling" a nonfunctioning airbag would constitute a criminal act. For example, suppose an airbag were removed from a vehicle in a junkyard and no one knew that the airbag was nonfunctioning. Later, the airbag was reinstalled in another car. The reinstallation of that nonfunctioning airbag might be thought of as different than the installation of a new part that happened to be fraudulent. He expressed his belief that the term is included out of an abundance of caution. 2:07:49 PM VICE-CHAIR KIEHL referred to a paragraph in SB 17, which states that the proposed legislation would not apply to an insurance company that sells or otherwise disposes of a vehicle as authorized by law or regulation. He observed that when an insurance company disposes of a vehicle with a salvage title, the buyer has reason to beware. Under those circumstances, the presence of a nonfunctioning airbag is somewhat less concerning. He asked whether there are situations in which an insurance company may dispose of a vehicle without issuing a salvage title. CHAIR CLAMAN replied that a representative from State Farm could better answer that question and will be available to testify at the next hearing of the bill. VICE-CHAIR KIEHL said he looks forward to that discussion. 2:08:53 PM At ease. 2:09:25 PM [VICE-CHAIR KIEHL returned the gavel to Chair Claman.] 2:09:26 PM CHAIR CLAMAN reconvened the meeting and announced invited testimony on SB 17. 2:09:45 PM MR. ORLAN reintroduced himself, stating he is an employee of the American Honda Motor Company. He expressed appreciation for the opportunity to speak in support of SB 17 and commended the bill sponsor for doing a great job. He said the legislation has passed in 38 states with the support of automakers, dealers, repair professionals, insurers, law enforcement, consumer groups and other stakeholders. He emphasized that the intent of the bill is not to prohibit the transfer of vehicles with deployed airbags or vehicles that are under recall. MR. ORLAN provided background on SB 17, explaining that the legislation has been developed over the past 11 years. During that time, approximately 30 to 40 arrests have occurred in states that enacted similar laws. He said those cases involve a small number of bad actors who knowingly and intentionally installed counterfeit or nonfunctioning airbags in vehicles. He reiterated that in one Florida case, an installer placed between 200 and 300 of these airbags in vehicles. He stated that the primary purpose of the law is to give law enforcement the leverage needed to obtain records from installers and ensure that the defective airbags are removed from vehicles. 2:11:15 PM CHAIR CLAMAN held SB 17 in committee.