SENATE BILL NO. 120 "An Act relating to the state's sovereign immunity for certain actions regarding injury, illness, or death of state-employed seamen and to workers' compensation coverage for those seamen; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken pointed out this bill was introduced by request of the Governor and, "requires the Alaska Marine Highway System (AMHS) crew members work-related injuries or illnesses to be covered under the State Workers' Compensation Act. Currently this coverage is provided through the federal jurisdiction of the Jones Act." SUSAN COX, Chief, Assistant Attorney General, Civil Division, Department of Law testified this bill would assert the State's sovereign immunity in cased involving injuries, illness or death of employees of the State who are seamen. She informed that, for litigation purposes these workers are currently covered by traditional maritime remedies of maintenance and care, unearned wages as well as the Jones Act. This legislation, she stated, would instead provide workers' compensation coverage to effectively provide a uniform system of remedy for State employees who are injured on the job. Ms. Cox noted this would be accomplished by amending AS 09.52.50, the statute that waives the State's sovereign immunity to be sued in court. She told of a 1990 Alaska Supreme Court decision on State of Alaska versus Robert Brown involving the Department of Public Safety, which determined that the State's workers' compensation law could not be applied as the exclusive remedy for seamen because the State had unconditionally waived it's immunity to be sued and was therefore subject to federal maritime remedies in the Jones Act. However, she pointed out this decision also ruled that if the State desired to withdraw its consent to sue, it could do so and provide workers' compensation by amendment the aforementioned statute. She informed that this approach was utilized by other states, including Texas and North Carolina, and has been addressed at the federal level as well. Ms. Cox pointed out this legislation would not impact privately employed seamen, only those employed by the State. Ms. Cox further noted this legislation would not only affect AMHS employees, as the Department of Public Safety, the Department of Fish and Game and other departments also employ some workers who qualify as seamen. However, she stated that most seamen employed by the State work in the AMHS. Ms. Cox stated that between 1983 and 1991, the AMHS ferry employees were covered by workers' compensation as a result of collective bargaining agreements with three unions. She detailed the agreements, which provided workers' compensation coverage in lieu of traditional maritime remedies and Jones Act litigation. In 1991, she informed, the Alaska Supreme Court ruled that arrangement, as a result of collective bargaining, was not enforceable and that the unions could not waive their individual members' rights under federal law. She stated that the only option to substitute workers' compensation for State-employed seamen would therefore be through legislation. Ms. Cox expected this change would save the State money reporting that currently seaman injured or ill on a vessel, regardless of whether the injury or illness was caused by work, is entitled to certain no-fault remedies. She listed these remedies as including payment of wages until the conclusion of the voyage without reduction to sick leave accounts; payment of the approximately $45 daily stipend, also called maintenance, until recovery and resumption of work; and continued payment of maintenance to augment sick leave payments until work is resumed. She compared this to workers' compensation practices whereby most illnesses are not covered unless occupational diseases, concluding that this legislation would result in the use of sick leave for payment of wages during most illnesses incurred by seamen. Ms. Cox pointed out that workers' compensation would treat seamen with injuries "more favorably" in that workers would collect workers' compensation insurance rather than the $45 per day maintenance payment. She reported the insurance payments are closer to the amount of the employee's regular wages and no deductions would be taken from the employee's leave account. Therefore, she stated that workers' compensation is more beneficial for injured employees who do not intend to sue the State for damages than other no fault remedies provided under maritime law. Ms. Cox qualified that the range of possible damages allowed under the Jones Act is greater for those employees who do sue the State for damages due to work-related injuries. However, she stressed that the employee must prove fault or negligence on the part of the employer and are subject to affirmative defenses, such as comparative negligence. She furthered that the employee must hire an attorney and pay a contingent fee. She noted that both sides in a litigation matter incur expenses and she expected that the absence of litigation provided in the workers' compensation program would also save the State money. Ms. Cox stated that State-employed seamen have benefits that many privately employed seamen do not, including sick leave, annual leave, health insurance, disability benefits, etc. Ms. Cox concluded that the effective date of this legislation provides that the changes would affect new injuries or illnesses occurring after July 1, 2003. She noted the three-year statute of limitations for bringing claims or lawsuits under the Jones Act and therefore, litigation would continue for a few years. Senator Bunde asked the amount of claims and the cost of litigation of the current system versus the anticipated financial impact of a change to workers' compensation coverage. BRAD THOMPSON, Director, Division of Risk Management, Department of Administration, informed that the Division administers the self- insurance program for the State agencies and operations, including workers' compensation coverage for State employees as well as the first $1 million coverage for claims of State-employed seamen covered under the federal maritime laws. Mr. Thompson directed attention to the fiscal note, which indicates significant cost saving would occur in the future. He emphasized that the savings amount is not specified due to the "method of funding the risk management program." He explained the program is funded on a "cash flow basis…for the claims expected to be paid in the next fiscal period," noting that the outstanding claims are "far greater than the sums that we put into the appropriation for that next fiscal period." He stated that were the program funded in the annual manner in which private insurance operates, the premium rates would be reduced with enactment of this legislation. Mr. Thompson referenced a collection of spreadsheets with an accompanying analysis [copies on file.] He stressed this data reflects only claims resulting in an expense to the State from illnesses and injuries. He detailed the analysis as follows. An analysis of AMHS crew claims costs compared to those provided under the Alaska Workers Comp Act (AWCA) for all other state employees. The enclosed Excel workbook contains detailed breakouts of the actual incurred loss (cost to date plus anticipated expense) by each individual AMHS vessel for the past six fiscal years. To objectively analyze the AMHS employee's injury experience to the state's overall employee injury rate, both frequency (number of claims) and severity (loss cost) are averaged and compared on a per 100 FTE (full time equivalent) basis. Additional analysis was performed between AMHS and the five state agencies with the highest workers' compensation loss experience - to provide comparison to similar physically demanding jobs. AMHS shows a five year average loss rate of 41 claims per 100 FTE's in comparison the state overall workers' compensation injury rate of 8, with the highest five agencies showing average loss experience of 10 claims per 100 FTE's. On a cost per 100 FTE's analysis; AMHS actual claims experience during the last five years shows an average cost of $197,065 compared to the top five state agencies averaged cost of $64,145 during the same period. The most significant difference is the award for the non- economic damages, not provided under workers compensation remedies and that life illnesses that are alleged to manifest during a voyage are covered under the Jones Act. Mr. Thompson reported that this legislation would result in an approximate savings of $850,000 in future years. Senator Bunde asked whether a comparison was made against the period of time when the employees were covered under workers' compensation insurance in accordance with the bargaining unit agreements. Mr. Thompson replied that because the information is co-mingled with claims submitted by other Department of Transportation and Public Facilities employees, such a comparison has not been undertaken. Senator Hoffman asked why this change to workers' compensation coverage was not implemented in the past given the predicted significant savings. Ms. Cox responded the matter has been considered for several years, although it has been "in need of a sponsor". She furthered that although the 1990 Alaska Supreme Court decision "suggested" this change is allowable, uncertainty over the federal constitutionality was not settled until recently. SFC 03 # 44, Side B 09:49 AM Senator Taylor asked what information the fiscal note is based upon. He asked whether evidence of a savings exists and when this savings would be realized. Mr. Thompson referenced the spreadsheets showing a five-year historical average comparison of the rate of claims and cost per claims of MHS employees to other State employees, which demonstrates. He qualified that the duties performed by MHS employees is different than other Department of Transportation and Public Facilities employees and the employees of the four other comparison agencies, but pointed out that Department of Labor and Workforce Development statistics indicate similar numbers of Occupational Safety and Health Administration (OSHA) reports of non-fatal injuries. Senator Taylor asked if State policy requires MHS employees file notification of injuries regardless of whether costs are incurred. Mr. Thompson replied that recently enacted regulations require such reporting, although this process is under implementation. Therefore, he noted the data does not reflect the incidents that had no expense. Ms. Cox added that federal and international law requires reporting of all work-related injuries, in part, to accurately track safety issues. She noted the higher incidences of claims for MHS employees because illnesses and non-work related injuries are reported as well. Senator Taylor understood the difficulty in comparing apples to oranges. Ms. Cox agreed and stated that many incidences do not result in a claim. Senator Taylor commented on the State workers' compensation system and opined that it is inadequate in protecting workers injured on the job. Co-Chair Wilken noted a response would come later. Co-Chair Wilken ordered the bill HELD in Committee.