SB 323-WORKERS COMPENSATION AND CONTRACTORS  CHAIR SEEKINS informed members that a proposed committee substitute to SB 323, labeled version I, was before the committee. SENATOR THERRIAULT moved to adopt version I as the working document before the committee. CHAIR SEEKINS noted the only change made in version I was the definition of a project owner on page 2, which was suggested by Jack Miller. SENATOR OGAN expressed concern, on behalf of a former constituent, that it may be impossible to pursue the original employer of a subcontractor and that the State of Alaska, being the largest project owner in the state, could be liable for workers' compensation if someone doesn't do their homework. CHAIR SEEKINS asked what statute the constituent cited. SENATOR OGAN replied AS 23.30.045. CHAIR SEEKINS noted the only liability is for compensable damage. He then asked Mr. Miller to comment. MR. JACK MILLER, counsel to the Alaska State Chamber of Commerce [the Chamber], said he spoke with the risk manager for the State of Alaska who had input on this bill. He said the current law requires that if contractors and subcontractors don't secure workers' compensation coverage for their employees, the payment obligation is pushed "upstream" to the project owner to enhance protection for injured workers. At the same time, the statute requires all employers to have workers' compensation coverage, which includes contractors and subcontractors who contract on state projects. If that coverage has not been obtained, the state is authorized to withhold payment to secure that insurance. Therefore, the state, municipalities and private companies are fully protected through the standard indemnity provisions in private contracts. SENATOR OGAN said, from personal experience as a contractor and subcontractor, there are ways to get around that requirement. This will require due diligence on the part of a project owner. He expressed concern that a lot of folks work without workers' compensation coverage because it is expensive and this legislation will now transfer that liability to the project owner. He questioned whether this bill will motivate contractors and subcontractors to "skate" more because they will not be liable in the end. MR. MILLER told members: ...In fact there is no relief of liability of the subcontractor for the payment if for a short period of time or if for a longer period of time, the subcontractor can't actually secure the payments or illegally did not obtain workers' compensation insurance. The current law now imposes that payment liability on contractors and this bill simply runs that up the line to project owners. I can say that the State of Alaska, all the municipalities, the State Chamber of Commerce members and the members of the Associated Builders and Contractors of Alaska all fully support this law because it provides enhanced protection for injured workers and at the same time recognizes that receipt of workers' compensation benefits is the exclusive remedy for injured workers and they cannot pursue court remedies against parties involved in their project. 8:00 p.m. SENATOR OGAN said that the trial attorneys go after the "deep pockets" so although a subcontractor might be legally liable, the subcontractor may have no assets. MR. MILLER responded that in reality, the trial attorneys in fact assert tort claims against project owners after a contractor has paid workers' compensation benefits for an injured worker. He explained: This bill recognizes that workers' compensation benefits are reasonable compensation for work related injuries, and forecloses the possibility of tort claims against the deep pocket companies that - essentially project owners or the State of Alaska or municipalities in the State of Alaska. I think you also have to recognize that under current practice, the state, municipalities, and private companies all, through indemnity provisions - insurance provisions, impose the liability for both the workers' comp payments and the tort remedies back onto the contractor that has essentially paid the workers' compensation benefits to the contractor's employee so they have a double liability under current law. We're trying to work through this bill to prevent that. I think that this is a very good balance for the business community and it enhances protection for injured workers and it's fully supported by the business community, the State of Alaska and municipalities in Alaska CHAIR SEEKINS announced that a proposed amendment [Amendment 1], prepared by Representative Holm, had been distributed (labeled D.4) that addresses a concern expressed at an earlier hearing about sole proprietors. SENATOR OGAN declared a conflict of interest, as he is a sole proprietor. CHAIR SEEKINS offered to sponsor Amendment 1 and moved its adoption. He clarified that Amendment 1 says that a sole proprietor or a member of a partnership who agrees in writing with a project owner or contractor that neither have an obligation to secure workers' compensation, can opt out of having to purchase workers' compensation. SENATOR OGAN asked if a sole proprietor or partner will not need workers' compensation coverage as long as the project owner is indemnified and agrees. CHAIR SEEKINS said that is correct. SENATOR FRENCH objected to Amendment 1. SENATOR THERRIAULT asked if he subcontracted as a sole proprietor with a housing developer, he could, by written agreement, release the housing developer from having to carry workers' compensation on him. CHAIR SEEKINS said that the sole proprietor would be releasing the housing developer of any upstream claim so that the sole remedy for the sole proprietor, if he was injured, would be against himself. SENATOR THERRIAULT asked if the sole proprietor would have to obtain coverage for any employees he had. CHAIR SEEKINS said that is correct. It only exempts the sole proprietor himself, or the member of the partnership. SENATOR OGAN said during the many years he did not have workers' compensation, he would not have dreamed of suing someone else if he got injured. He believes if people are willing to take the risk and take responsibility, they should be able to opt out. CHAIR SEEKINS said that is what Amendment 1 accomplishes. SENATOR FRENCH clarified that the sole proprietor or partner has not given up his right to sue the project owner if injured through negligence of the project owner. CHAIR SEEKINS said he asked that the amendment be drafted so that the sole proprietor or partner would have no claim except against him or herself but he would make sure that is the case. SENATOR THERRIAULT asked if he was a sole proprietor and was injured because another employee dropped something on his head, he would have no right to get compensation. MR. TODD LARKIN, representing himself as a sole proprietor, said, in response to Senator French's statement, that regarding a tort against a project owner, the sole proprietor would fall under standard civil actions. The burden of proof would be on the sole proprietor. [Ms. Craver] said the standard is fairly high to bring a tort claim. CHAIR SEEKINS responded: Well, we're going to have to amend that because basically the instructions that we were trying to give to them was that the - if you're injured on that job and you were covered under workers' comp, workers' comp would cover you and that protects everyone up the line because your sole remedy is workers' comp. In this case we would want your sole remedy, if you choose not to carry workers' comp, to be against yourself and not to the project owner of the company. I'm going to clarify that with the drafter. MR. LARKIN said that was the original intent of the language. CHAIR SEEKINS offered to speak with Ms. Craver. He clarified the intent was that if a sole proprietor who chose not to carry workers' compensation, no one else would be required to carry it for that person and his or her sole remedy would be against him or herself. SENATOR THERRIAULT said employers carry workers' compensation to spare themselves tort claims. Therefore, if two parties agree there will be no workers' compensation coverage but the right to bring tort claims is held against the employer, there would be no reason for the employer to not just add the sole proprietor to his workers' compensation policy. CHAIR SEEKINS repeated that he would check with the drafter. MR. MILLER suggested that since HB 311 has already passed out of the House Labor and Commerce Committee, which specifically deals with this issue, the committee not adopt Amendment 1 and deal with this issue when HB 311 moves to the Senate. TAPE 04-41, SIDE B  CHAIR SEEKINS withdrew his motion to adopt Amendment 1. He then adjourned the meeting at 8:15 p.m.