HOUSE CS FOR CS FOR SENATE BILL NO. 177(JUD) An Act relating to insurance trade practices; and providing for an effective date. Co-Chair Therriault provided members with a proposed committee substitute, work draft #1-LS0902\Z, Ford, dated 4/24/00. [Copy on File]. SENATOR DAVE DONLEY discussed the proposed committee substitute, indicating that it would clarify the changes in Section 9, Page 4. Senator Donley noted that there had been concern that language would limit the director's powers in other areas. The language would clarify that the director's power were not being limited and that, additionally, Amendment #1 would address that concern. He interjected that Amendment #2 was not necessary and that he did not support it. BOB LOHR, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT, offered to answer questions of the Committee. Co-Chair Mulder MOVED to ADOPT the work draft, #1-LS0902\Z, Ford, dated 4/24/00, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. Representative Grussendorf expressed that even with the proposed changes made to the current draft, he continues to have concerns. Senator Donley commented that a positive change in the current version was that it would clarify that the language only applies to AS 21.36.125, the Fair Claims Practices Act. The enumeration of that statute clarifies that the limits on the director's powers on single acts do not apply to other parts of the insurance code. Representative J. Davies MOVED to ADOPT Amendment #1. Representative G. Davis OBJECTED for a comment by the Department. Mr. Lohr noted that the Division would support Amendment #1. Representative G. Davis WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment #1 was adopted. Mr. Lohr spoke to concerns voiced by Representative Grussendorf. He stated that the language in the "Z" version did not address the issue of intent. A way to accomplish the intent would be to have a process which works with the Department of Law. If there was a burden on the person accused to establish reasonable conduct and that they had the burden of going forward to show that their actions were not intentional, then the director would decide the conclusion. He suggested that would be a manageable approach. Representative G. Davis commented that Amendment #2 would accomplish the intent and would place the burden on the person accused of the single act violation. Co-Chair Mulder asked the difference of using "unintentional" or "or". He believed that it would have the same effect. Mr. Lohr believed that it would be a higher standard of proof. Representative G. Davis MOVED to ADOPT Amendment #2. Co- Chair Mulder OBJECTED. Representative G. Davis explained that the language of the amendment would put the burden of proof on the accused. Representative J. Davies did not believe that the amendment would accomplish what was intended. Co-Chair Therriault acknowledged that he too was confused by the amendment. Representative Foster commented that the burden of proof should be on the guilty. Mr. Lohr responded that in the criminal standard, the burden of proof would rest on the State given the case of a civil violation. It would not be placed on a person for a single violation; it would be different from the burden of proof and the burden of persuasion. When the burden is shifted, it would require that there was a statement that it was not intentional. Representative Foster believed it would be easier to hire a lawyer, otherwise a person would tend to incriminate himself. Mr. Lohr replied that for criminal conduct, that would be true, however, it is expected that there will be cooperation with industry. Representative Phillips pointed out that by including the language "and is intentional" could transfer it to a criminal act before a civil act. Mr. Lohr disagreed. He stated that it would make the standard of proof very similar to that of a criminal act, and that a single violation of Section 125 would not be a criminal sanction. Co-Chair Mulder questioned the language and use of the "unintentional" route. The burden of proof is on the person, guilty until proven otherwise. Mr. Lohr replied that there is no criminal conduct involved; there is resting no burden of proof what-so-ever. He recommended consideration of amending Amendment #2 to indicate that the only burden on a person accused of a violation, would be the burden of moving forward. He pointed out that they were not talking about a violation. Representative Foster mentioned fines that he had received from the Federal Aviation Agency (FAA). He noted that he would never admit that the burden of innocence rested on him. Representative J. Davies did not follow what Mr. Lohr was referring to. He noted that he did not know what the "burden of going forward" was used in reference too. Mr. Lohr explained that the "burden of persuasion" was an analogue to the burden of proof in criminal matters. The burden of proof beyond reasonable doubt is an extremely high standard for anyone to meet. A lower standard would be the burden of persuasion, which does establish who goes first to a hearing officer. The accused person has to explain first why it is that their conduct was not intentional. He did not see it as a difficult burden to meet. Senator Donley reiterated that he did not support Amendment He reminded members what Section #9 would provide the authority that the director needs to have to protect the individual consumers from single acts. He emphasized that there are lots of penalties for restitution. Senator Donley noted that the most important elements were being preserved and that the burden of proof creates a preponderance of evidence. For the main issues that consumers care about regarding single acts, the power already exists. In response to Representative Grussendorf, Mr. Lohr stated that the "or" takes the intent "off the table". It would provide a lower standard than proposed in Amendment #2. He added that "or" would place intent on the same level as loss or harm. He stated that under the amendment, intent is a higher standard than has to be met and would be preferable to the Department. A roll call vote was taken on the motion to adopt Amendment IN FAVOR: G. Davis, Grussendorf, Phillips OPPOSED: Williams, Austerman, Bunde, J. Davies, Foster, Therriault, Mulder Representative Moses was not present for the vote. The MOTION FAILED (3-7). Co-Chair Mulder MOVED to report HCS CS SB 177 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HCS CS SB 177 (FIN) was reported out of Committee with a "no recommendation" and with a zero fiscal note by the Department of Community & Economic Development dated 3/1/00.