SB 177-INSURANCE TRADE PRACTICES & ACTS CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:40 p.m. and announced SB 177 to be up for consideration. He said there was some concern in dealings by third party claimants that needed to be clarified. Senator Donley was going to work with the insurance industry to see if they could put something together. SENATOR DONLEY said he had a proposed CS. In the last meeting there was testimony from some of the insurers saying that the Division of Insurance already had the authority to deal with these types of issues. The Attorney General's opinion (in their packets) supported the Director of the Division of Insurance that it doesn't have that authority now. This legislation would give them that authority. Whether there could be third party litigation is resolved in a new section 6 which makes it very clear that the changes would not create a private cause of action against an insurer by a third party claimant. A third question was regarding a fear of some in the industry that if you empowered the Division of Insurance to investigate individual acts, would they levy overzealous fines for individual acts that were violations of the trade practices. Section 8 deals with this by adding language that makes it clear that one of the factors the director would consider when deciding whether to levy a fine for a violation was whether or not the it was a single act or trade practice. SENATOR DONLEY moved to adopt the CS 1LS0902H/Ford 2/21/00. There were no objections and it was so ordered. SENATOR LEMAN asked regarding section 6 where it says these provisions do not create a private cause of action against an insurer by "a third party claimant". He said that everywhere else it says "by an insured or a third party claimant." He assumed this does not intend to protect against a creation of a private cause of action against an insurer by an insured. He asked if they intentionally left out "insured" and what was the reason. Number 367 SENATOR DONLEY replied that the only two sections of the Claims Practices Act they are amending to add third party claimants to are subsections 7 and 11. They currently only apply to first party insureds and not the third party. Section 6 specifies that in those two sections that change does not create a third party claimant action. Those are the only two changes they are making to the status quo. MR. MICHAEL LESSMEIER, State Farm Insurance, said he thought the CS made things worse, not better. It creates the very real possibility that what's being done by this legislature is to create a new private civil cause of action that was never intended by this act. The reason he feels so strongly is that it's not just the two provisions referenced by Senator Donley that are changed here. The other provisions are changed as well with a specific reference to an individual act. The Director already clearly has the power to address an individual act, but when you change the statutory scheme, you get one step closer to creating a new private civil cause of action - never the intent of anyone. He said he wanted to comment next on the letter he wrote to the Committee. In it he asked what the need for this legislation was and where does the director lack authority. In 1976 Governor Hammond introduced this act and it's very clear from a letter he wrote that he intended to allow the director the authority to address individual acts. The other thing that's clear is that he intended that this be regulatory in nature and that it not create a new private civil cause of action. Thirdly, he tried to point out that the director under the current statutory scheme clearly has the power to address individual acts. This is made clear in a number of different places in the statute. Most specifically, AS 21.36.150 which allows the director to investigate and take action when he believes an insurance business is engaging in "an unfair or deceptive act or practice." There would be no reason to distinguish an act from a practice if you couldn't do something about the individual act. There's a similar reference in AS 21.36.320. We have a scheme set up here with individual sets of requirements on the parts of insurers. There is also a very general power on behalf of the Director of the Division of Insurance to address and penalize individual acts. Fourth, there is a model National Association of Insurance Commissioner Act and Governor Hammond based his act on it. The model act contains some very important language in two respects. It clarifies that a director is allowed to act in individual situations, but it also says very clearly that nothing contained in this act is designed to create a new private civil cause of action. "If you're going to do anything with this legislation, please include that language." Insert it where Senator Donley's language is which would limit it to the two sections in question. This is because in the legal business, if you limit something to those two sections, by implication you're saying it's O.K. that it only applies to these two sections. Otherwise, he guaranteed that they would be in court litigating what the effect of these changes is. The other thing this act does which the model act never does is it attempts to change or create a relationship between an insurance company and a third party claimant. The insurance company has a contractual relationship with the insurers. The insurer may be defending the insured from a third party claimant and at the same time, this legislation creates duties and obligations to that third party claim. That is fundamentally inconsistent with the duties and obligations owed to the insured in many instances and is really unnecessary. It's also unnecessary because in 1997, this legislation passed comprehensive tort reform that basically penalized the party who does not take a responsible litigation stand. His final comment was regarding the policy change in the "dominant cause" change in section seven. Our Supreme Court addressed that issue recently in the Bongen v. Kodiak Electric Ass'n, 925 P.2d 1042 (1996) case. They looked at the policy issues that would justify making the very change that is proposed by this legislation and didn't think they should do that (not prohibit the enforcement of clear and specific policy language and we encourage you not to do that also). If there is need for language of this type, let the market system address it. This language could very well have a negative affect, because it actually encourages people not to buy the comprehensive insurance. As long as they can drag in another potential cause, even if there's an excluded cause, there's an argument for coverage. This has been the experience of some states. He believes they should allow the parties to simply contract. As long as the language is clear, let it be enforced. MR. LESSMEIER continued by noting that this bill also has some subtitles and complexities to it that are very significant. It does things that may not be readily apparent and things they believe are not in the best interests of Alaskan consumers. Number 969 SENATOR LEMAN said regarding his last point, if you decline earthquake coverage and there's an earthquake event which causes something that happens in your house that starts a fire and your house burns down. But you have fire insurance, so they should not deny the claim as the contingency insured against is the dominant cause, because the dominant is the loss - is your house burning down. The [indisc] occurs because an excluded risk (earthquake) is also in the chain of causes. MR. LESSMEIER answered that was exactly the situation. Say the earthquake was the substantial factor in causing the loss and then there was a fire. Then the earthquake is an excluded cause and the person chose not to purchase earthquake insurance. There would be coverage under this provision or you would at least be involved in a huge argument about what was the dominant cause. This is one of the concerns. These issues are very difficult to predict and very difficult to resolve. They create a whole Pandora's box for litigation about what is covered and what isn't. CHAIRMAN MACKIE wanted to understand that point a little better and asked if they are saying in this bill if there's an earthquake and it caused something to go wrong with the power system which caused the fire in your house and the house burns down; if the earthquake was the dominant cause and was excluded from your policy, right now you're out of luck. MR. LESSMEIER agreed that was right. CHAIRMAN MACKIE added that with this your house burned down and the insurance company would be required to replace the house. MR. LESSMEIER said that was correct. If the earthquake was the dominant cause and that can be established, with this bill the result wouldn't change, but you would be involved in an argument as to what was the dominant cause - the earthquake or the fire. Without this bill, if the earthquake was excluded and was a substantial factor in causing the loss, the loss would not be covered. CHAIRMAN MACKIE asked what was wrong with that picture. If you're sitting at home and there's an earthquake and your house crumbles, obviously you're not covered, because you didn't have earthquake insurance. MR. LESSMEIER said that was right. CHAIRMAN MACKIE said if you're sitting at home watching TV, your house shakes a little bit and then your house bursts into flames, you are covered from fire loss. He had a hard time with the family not being able to have their house replaced because it burned down in front of their eyes. MR. LESSMEIER responded if the cause is a substantial factor and is clearly excluded in the insurance contract, that exclusion would be enforced. If it's not clearly excluded, all you're doing is enforcing the contract between the parties. This bill changes the contract between the parties and says they cannot contract no matter how clear it is. The difficulty is that it may encourage someone not to get earthquake insurance which is a potential problem, because people may receive coverage for something they are not paying for. Number 1194 CHAIRMAN MACKIE asked if he was still concerned about the third party claimant lawsuits. MR. LESSMEIER said that concern does exist and language in section 6 reads that the provisions of (a) (7)or (11) of this section do not create a private cause of action against an insurer by a third party claimant. The difficulty with that language is what about the other sections and a private cause of action against an insurer period? The intent of this law when it was originally created was to be regulatory in nature. It wasn't intended to create a private cause of action against an insurer by a first party or a third party claimant. This now seems to indicate that part of it is intended to create a private cause of action. If you're going to pass this, he recommended that they take the NAIC model language and substitute that for section 6. He repeated, "Nothing herein shall be construed to create or imply a private cause of action for violation of this act." CHAIRMAN MACKIE asked Senator Donley if he had an opportunity to look at that language, because it appears that wasn't addressed and it was what he was trying to accomplish. He asked if by specifying the provisions of (a)(7) or (11), that throws in to question the other sections which currently are not of issue. MR. LESSMEIER said that was correct. Someone would argue that and they would have a good argument. CHAIRMAN MACKIE asked Senator Donley if he had a reason to craft things that way. SENATOR DONLEY replied that he did it because these are the only sections that they changed. He didn't want to change the status quo, and since what Mr. Lessmeier is suggesting is the status quo, he didn't have a problem with substituting that language for section 6. Number 1380 SENATOR KELLY asked if they make that substitution in section six, where would his objections remain. MR. LESSMEIER explained if the earthquake is clearly excluded under their policy right now and the earthquake is substantial factor in causing the loss, then there would be no coverage under current law. If we change the law and the earthquake is still excluded as a cause and is a substantial factor in causing the loss, but not the dominant factor, it is covered. CHAIRMAN MACKIE asked what happened if it was the dominant factor. MR. LESSMEIER answered if it was the dominant factor it would be excluded. When they pass this law, they take away the ability of an insurer to offer a coverage that is based on a substantial factor. Instead you force everyone to offer a coverage based on a dominant cause. This is significant in Alaska, because we are exposed in terms of earthquake claims and we want to have people purchase that insurance. That way everyone spreads in the risk. CHAIRMAN MACKIE asked for clarification if under the proposed language an earthquake happens and is determined to be a dominant cause of the reason your house burning down, is your house covered. SENATOR DONLEY answered that that depends on whether the court finds the earthquake to be the dominant cause or a secondary base. A determination must be made. Under existing law, if it's just substantial cause, they don't pay. This version, drafted by the Division of Insurance, requires that it be a dominant cause for them not to have to pay. SENATOR MACKIE asked if it's the dominant cause, do they have to pay. MR. LESSMEIER answered if it's the dominant cause, under this language, and it's excluded, the insurance companies do not have to pay. SENATOR MACKIE asked what the problem is. MR. LESSMEIER responded that the difficulty is if you pass this law, you take away the right of an insurance company to sell to an insured a product that may be more affordable; a product that maybe more will buy; a product that contains an exclusion that is none the less very clear, but applies if it is just a substantial factor in causing a loss which may be what people want. SENATOR MACKIE said that it increases their liability. MR. LESSMEIER responded that it increases liability and it increases cost. SENATOR LEMAN said he thought State Farm or any insurance company would say they wouldn't sell home insurance without earthquake coverage. MR. LESSMEIER informed them that State Farm had given back $12 million in the State of Alaska in 1997/98 because of claims experience. CHAIRMAN MACKIE asked if State Farm's premiums have gone down by $12 million. MR. LESSMEIER said no, that was actual money. State Farm Mutual is a mutual company. When their loss experience is better than they predict it will be, money is given back to the people who buy their insurance. CHAIRMAN MACKIE asked Mr. Lessmeier to work with Senator Donley on some of his issues. SENATOR DONLEY commented that Mr. Lessmeier had a different definition for causation, but the Department supports the definition that's in the legislation and he thought it was a better policy call. He could understand insurers wanting to offer a lower cost product, but as a regulated monopoly, it's important for the legislature to make sure the consumers are protected. The average consumer would have a very difficult time understanding why they have fire insurance when their house burns down, but they don't have coverage because the substantial (not the dominant) factor was an earthquake. He said the Director raised the other point that these are contracts of adhesion. It's very difficult to go to State Farm and say your contract says you exclude such and such. I want to pay you some more money and get something that makes it the dominant cause. They say no, your only choice here is to buy earthquake insurance instead. That's prohibited in many cases, but he would still like to insure his house if an earthquake created some cause of events that created a fire which burned his house down. He won't have that option, because they wouldn't offer that option and because they're a big company they won't negotiate with you one on one. They have what they offer and you either buy it or not. Number 1716 SENATOR HOFFMAN wanted to follow up on Senator Leman's point and asked if the insurance company looked at requiring earthquake insurance or would they still have the flexibility to do that. Also, there is the potential for premiums to rise. MR. LESSMEIER said this is an incredibly difficult issue which has been addressed in California and there has been an attempt to address it on a national scale. The difficulty is that you have a potential disaster that raises the real potential of wiping out an insurance company or several insurance companies. The question is if you have a major earthquake in California where they have just passed state legislation to create a fund requiring everyone to contribute to it, because a lot of people will not purchase it and some companies do not want to write it, because the risk is so huge. That's the problem with this kind of an issue. He didn't know how State Farm would solve this problem in Alaska. The concern is with cost. It's great to be able to offer people as broad a coverage as possible, but that always comes at a cost. Every time you raise the cost, there are certain people who can't afford it or won't afford it. You see that with uninsured motorists. The question is where do you strike the balance. They say the policy issues of this provision were before the Supreme Court which debated them. Their decision, and there was a really excellent well-written descent by Justice Matthews and a well- written opinion written by the other justices, which they could look at. SENATOR KELLY said that was probably not a good argument; he might be liable to create support for this legislation that he doesn't like. He asked if most State Farm home owners in the Anchorage area have earthquake insurance. MR. LESSMEIER said he didn't know, but would find out. SENATOR DONLEY ventured to say that most people don't have earthquake insurance because it's not a standard element of a policy. Number 1870 MR. LOHR, Director, Division of Insurance, commented that Mr. Lessmeier's statement that the specific need for the change to single act had not been established in previous testimony was not correct. He could give them three examples where he believed enforcement would have been appropriate based on a single example. The first issue was the rate disallowance after the expenses were incurred. The second issue was significant delay in payment of a large medical expense affected the credit of the policy holder. The third would take a reading in full. On November 19, 1999 an insurance company was notified that it had violated AK 21.36.125 (2) failure to acknowledge and act promptly upon communications regarding a claim arising an insurance policy as well as 3 AAC 26.050 which requires the completion of a claim investigation within 30 working days using due diligence. Investigation showed that the insurer took 71 days beyond the date on which all of the information was received in order to process the claim. The consumer was harmed and the claim review process found the charges to be medically unnecessary and denied the claim. Because of the serious day in knowing whether the claim would be accepted, the consumer continued to receive medical treatment. She was not informed the charges would not be covered until she incurred an additional $1,500 in charges. SENATOR KELLY asked what kind of claim that was. MR. LOHR answered that it was a health insurance claim. SENATOR KELLY asked if it was a group claim. MR. LOHR said he couldn't tell if it was group or individual, but he would check. CHAIRMAN MACKIE asked where the language was in the bill that would keep that from happening. MR. LOHR said if this single act had occurred, it would be an appropriate candidate for the Division to consider enforcement action. Under current statute, they believe they could not enforce based on that violation of statute and regulation (because it is not a general business practice or is not a pattern of violation). CHAIRMAN MACKIE asked if that was the discussion they had in the first meeting when Mr. Lohr told the committee why this bill was necessary. MR. L0HR said the second example involved a claim in excess of $183,000. This involved a life insurance company selling health insurance. The policy holder faced a medical claim between May 15, 1997 and June 28, 1997 amounting to more than $186,000. They were finally paid on December 11, 1997 - five or six months beyond the ending of the claim period. The plaintiff stated that the treatment had been precertified and the company purposely dragged its feet to avoid paying a large amount. The plaintiff was concerned that continued failure to pay would jeopardize his family's physical and financial well-being. They were concerned about potential lack of access to health care, loss of credit rating, or other costs incurred because of the companies' failure to timely pay the hospital. The company replied that their own nurse case reviewer never notified their own claim office of the certification. They paid outstanding claims totally $183,189 and several other smaller payments starting September 11 and ending January 27, 1998. Although the claims were eventually paid, the delays in handling them violated AS 21.36.125(2). That would not, in their opinion not constitute a fine because it is a single act, but it involves considerable customer harm. The third example was a life insurance company and coverage under an international student insurance program between October 30 - 31, 1998. The insured filed a claim on December 28 - two months later. Approximately six months later, about one quarter of the medical expenses were paid. The company denied the remainder as "no notification received." The Division made repeated attempts to contact the company with no response. Approximately two months later an additional fifty percent was paid by the company, but with no explanation of the outstanding amount. This international students account was turned over to a collection agency and repeated threatened with possible legal action, and levied financial charges on the pending payment. The company admitted the claims were not properly handled. On January 18, 2000, the company notified the Division that they had paid an additional amount and had refunded his policy deductible that had been incorrectly withheld. The delays in handling this matter violated that same section of statute sited previously. SENATOR KELLY asked if anyone there though they had no grounds to pursue that administratively. Number 2195 SENATOR DONLEY said the Attorney General's opinion in writing says they can't. CHAIRMAN MACKIE asked Mr. Lessmeier to explain why they should have been able to do it. MR. LESSMEIER responded that there are two statutory provisions that allow them to do it. There has never been any question that the Division has the power to investigate. The question then becomes do they have the power to act or to take administrative action if it is only a single act. Again, he referred the committee to AK 21.36.320 and AK 21.36.150. 320 says on the complaint of a person or on the motion of the director, the direction may conduct an investigation to determine whether a person is engaged in an unfair method of competition or deceptive act or practice prohibited by this chapter. 150 also contains the same reference to unfair or deceptive acts or practice. CHAIRMAN MACKIE asked where it says they can act on it. MR. LESSMEIER replied in 150 it says if the report charges a violation, they have to give notice of a hearing. SENATOR DONLEY asked what the problem was with making it clear. MR. LESSMEIER said that the problem they always had has to do with changing the regulatory scheme that is currently in effect and moving away from a regulatory scheme that is modeled after the NAIC model act towards something that changes that. The committee has agreed to address one of their biggest concerns on how this may be used to create a private civil cause of action. If the concern is to clarify the director's power to investigate and sanction individual acts, we need to be aware of a couple of things. The way the scheme is set up now, he clearly has that power, but the power is to be used selectively. There is a reason the procedure is a little more burdensome than the other procedure. It exists in two different places. The model act allows the director to act on individual situations and allows him to do so expressly based on a finding of a flagrant violation. That's what they prefer. CHAIRMAN MACKIE said if our Attorney General is telling the direction he can't act on it, he thought they were obligated to clarify it. TAPE 00-06, SIDE B Number 2280 MR. LESSMEIER said he was curious if in the almost 25 years this has been on the books, there has ever been a time when the court has said they couldn't act. SENATOR DONLEY proposed an amendment that might have to go some place other than section 6. He moved to delete section 6 and to add, "Nothing contained herein shall be construed to create or imply a private cause of action for the violation of this act." The intent is to include this bill and not the whole insurance code statute. There were no objections and it was so ordered. MR. LOHR said he would try to address section 7. Assistant Attorney General, Virginia Rusch, author of the opinion on section .150 is here also. It was the Division's view that the Bonden decision by the Supreme Court was both surprising and distressing. Since the court's action, the Division has seen a proliferation of more strident and inclusive exclusionary language policy revision with respect to multiple causation loses. Their increased use by insurers as a vehicle is for possibly trying to escape coverage. The Division's statutory duty is to review policy language to ensure that it is neither ambiguous nor misleading. However, even when the best drafters put together clear language, sometimes customers are left confused or surprised at the more limited nature of the coverage than what they had either understood or assumed at the time the coverage was provided. There needs to be a balance. He thought consumer protection needed to be balanced along with the abilities of the companies to earn a reasonable return on the investment and not face catastrophic losses. There are extensive regulatory provisions that address the financial health of insurance companies and they do their best to enforce those also, including providing early warning to any domestic company that might appear to be headed for trouble. If ever necessary, there are the backstop measures of the guarantee associations and the ultimate, receivership, which they hope would not have to be used in any case. Number 2159 MR. JOHN GEORGE, National Association of Independent Insurers, said he could add that current trade practice law was put into effect in 1976, the very year he became the Deputy Director of the Division of Insurance. He worked there for 12 years under the current law; and he couldn't think of a case where they were unable to investigate a single incident. He couldn't think of a case where they found someone was doing something on purpose and that they hadn't done it more than once. They found some trade practices more on agents and on brokers than insurance companies. The examples that Mr. Lohr gave regarding a health insurance claim, he asked how many claims a year would that health insurer handle - thousands. That was one example; if there's two examples there's no question it would be a trade practice. If you handle 5,000 claims and one of them was handled improperly, the Director can investigate that. The cure in Director Lohr's opinion is to penalize them, fine them, and make them sorry they did that for that one occurance. It doesn't help the guy that got his money late or get enough. CHAIRMAN MACKIE asked what would be the problem with including the language since there was disagreement between attorneys on this thing. MR. GEORGE replied if you find a single violation, you don't handle it as a trade practice subject to a $25,000 fine. SENATOR DONLEY said they don't fine a single practice like that. MR. GEORGE said there are plenty of remedies without treating it as a trade practice. CHAIRMAN MACKIE said his question is whether it's one or twenty. He asked why they would not protect the interests of one person by allowing the director to investigate that and take action on that person's behalf, because it might be the only claim he had in his life. MR. GEORGE said first there is no question they can already investigate. If it's investigated as a trade practice, you'd have to find more than one under a current law. If the offense has been committed by, for example, the company waiting over 120 days. You can't tell them to go back and cure it in 60 days. This doesn't get more money to the person that was aggrieved. It's a fine that goes into the general fund. An insurer handles thousands and thousands of claims and if you can only find one incident, it's a mistake. CHAIRMAN MACKIE said if it's a simple mistake that can be rectified, no one's going to get in too much trouble. But if it's a deliberate act, isn't that something that's worth investigating. MR. GEORGE said the Division still can and does that. CHAIRMAN MACKIE said new language would clarify that. MR. GEORGE said they didn't handle it as a trade practice. SENATOR KELLY said he didn't understand the language about trade practice. MR. GEORGE explained it's the penalties and what you do about it. SENATOR KELLY asked if they were talking about section 8 or 7. MR. GEORGE said, "Just in general." SENATOR KELLY said he was under the impression that whether the violation is a single act or a trade practice is determined by the amount of loss caused by the violation and the amount of benefit derived. It's up to the director whether or not it's regarded as a trade act or trade practice. SENATOR DONLEY said he thought Mr. Lessmeier and Mr. George were doing their jobs, but to represent to the committee at this point that it's clear they can take action on single actions, he could almost guarantee them that if the Division took an act on a single action and their client didn't agree with it, they would be in court with other attorneys arguing against their authority to take disciplinary actions based on single actions. Their representations to the legislature has no binding on what they do later on in a court action to defend themselves against the authority of this Department to take single action. Also, regarding Mr. George's comment about two examples being no question of a trade practice, he suggested if there were two examples and their clients felt it was in their best interests to fight any disciplinary action, they would be in court arguing that the two examples doesn't constitute a trade practice, also. Whether or not they would prevail is a question. The question should just be taken off the table and allow the Division to do what a majority of the states do. To bring up the red herring that they're going to get $100,000 fine for a single act is just really misrepresenting the situation to the committee. Regulators know it would never stand up to court scrutiny and it's not appropriate. It will be based on graduated fines based on the seriousness of offense. During the term that Mr. George was Director of the Division of Insurance the mission statement had no insurance protection for consumers component. It wasn't until 1987 or 88 that the mission statement was amended to specifically state one of their missions was to protect insurance consumers. MR. GEORGE said the Division can take action on individual acts that are not trade practice. They have been fixing things for years. The concern is that you don't want it to happen again. CHAIRMAN MACKIE asked about the person who didn't get any monetary relief. MR. GEORGE answered that any action the Director of the Division of Insurance takes is penalty against the insurer, but you don't collect the fine and give it to the aggrieved party. SENATOR KELLY said in the three examples the claim had been paid. So the question gets to be now what do they do. Number 1744 MR. LOHR noted that often when the Division brings an accusation against a company for a violation of Alaska statutes, that will lead to a hearing date and settlement discussions with the company. Those settlement discussions may occur after the consumer is made whole or partially whole. The initial goal is to address the individual consumer rights. As a follow up measure very often the Division would include remedial measures along with any administrative fine that might occur to try to reform future conduct. That capability in certain limited cases, certainly not for innocent mistakes, is something appropriate for the Division to have. CHAIRMAN MACKIE asked under either scenario of current or proposed law, the individual consumer would be made whole first. That is his main concern. MS. RUSCH, Assistant Attorney General, explained under current procedure the Division's consumer protection staff typically gets complaints where a consumer may be unhappy that the it took the insurers so long to pay their health claims. Staff would communicate with the insurer and try to get things settled. Most problems should be resolved right there. But if it was impossible to resolve the matter at that level, the next step would be to call the AG's office to see if there is a violation of statute. Under current statute, if it was a single act, she would have to advise the Division of AS 21.36.125. She found language in a Supreme Court case, State Farm v. Nicholson, 777Pacific2nd11/52. The Court said under that statute an insurance company only violates the chapter if it "engages in certain prescribed acts with such frequency as to indicate a practice." The Alaska Supreme Court has said a single act is not under a violation. So the Division could not bring an enforcement act if the insurer refused to resolve it on their own and they could not impose any penalty. With the words "single act" added, as proposed in this bill, the Division would have that enforcement power as well as what they currently have to work through their consumer protection division to resolve it. Another point, to answer their question, in the penalty provision in AS 21.36.320 there is currently language saying the director can order restitution as well as impose a penalty. She personally hasn't had any experience with that happening, but it appears to be a power the director has. If he can enforce for a single act, he can use that power also to order restitution. If he can't enforce a single act, he can't order restitution. SENATOR KELLY asked if restitution shouldn't be the province of the courts. Number 1540 MS. RUSCH answered that's not at all the kind of situation she imagined this operating in. She thought if in one of the delayed health claims, for example, or where the woman in the first example didn't get a rejection of payment of a certain type of treatment until after she had gone ahead with it for three months or it could be under a situation where failure to act on it in a timely way was found to be a violation; then a penalty would be appropriate. Instead of imposing a $1,000 penalty on the insurance company for its late treatment, the director might provide for some restitution be made to that claimant for the damage of the late decision. Not based on the decision of whether they should have paid it or not to begin with. Number 1457 MR. MIKE SCHNEIDER, Anchorage attorney, said insurance issues had been the focus of his practice for 25 years. He said clearly the hypothetical by Senator Mackie where the homeowner has his house burn down, has fire coverage, wakes up, finds he's in the streets, and wonders what happened; that is going to continue to be the outcome unless there is a legislative change like the one proposed here. The person in the hypothetical could be either democrat or republican, subsistence person or neurosurgeon. They would probably wonder why their elected representatives, given the opportunity, didn't do something to make reality conform to their reasonable expectations of coverage. And that's really all this bill does in that subsection. The choice today really is for the committee to decide whether it really wants to protect State Farm and All State or Alaskans of all types, all races, and all political affiliations from the kind of surprise that would be suffered by the individual in Senator Mackie's hypothetical. Insurance companies handle tens of thousands of claims, so the question of what it takes for an act to become a practice is like asking how many angels can dance on the head of a pin or how far is a long way. You get away from that imponderable if the Division is given the opportunity to do more than investigate. There seems to be the suggestion from those who oppose this bill that they are turning a junk yard dog lose on "our friends" at All State and State Farm. In the many years he has been in Alaska, he would view the Division of Insurance as overworked and underloved. They don't have the resources to put to bay the entities of the magnitude that we're talking about here. This is never going to be a fair fight no matter what they do with the bill. They are just giving Alaskan insurance consumers on a rare day some shot at a little hope that when they call the Division, something good might happen in their life. This would not be a sea level change in the way things work. It's a small incremental improvement in public policy and it gives the little guy about one shot in hell once in a while. He commended it to the committee as an improvement and asked them to look at his letter which describes a problem that is rampant, in his experience, where there is virtually no remedy and where something ought to be done. He concluded by pointing out that indeed nothing in this bill will cause a private cause of action. It seems clearly to be the wish of the legislature not to go in that direction. If they wished to see insurance consumers treated fairly, they need to give them some rights and some chance to be represented and some chance to step into the ring with the big guns like All State and State Farm. CHAIRMAN MACKIE said the committee was running out of time and asked if anyone was present from out of town who wanted to testify on the next bill. (None) He said he intended to bring it up at the next meeting on Thursday. Number 1143 MS. JAN BOUCH, Executive Director, Alaska Academy of Trial Lawyers, said she decided to testify as the family member who deals most frequently with insurance companies. She was not sure if this was a practice of the insurance company or not. She has two children in college, one in California and on in Colorado. Every single notice that she got back from the insurance company after a claim was filed said they needed verification of the student's enrollment. She knows that they have it on file, because she's the one who provides it at the beginning of every semester. She didn't know if that constituted a practice within that company or if other people had the same problem. She said she saved the claim forms showing the request over and over again. Additionally, she had to make the long distance phone call to the kids to ask them to get the information again. Another thing is that almost everyone she knows is asked to pay for the medical costs up front, because they aren't getting paid in a timely manner without getting harassed. Then she would hold the bills, where she wouldn't' get timely payment which involved interest and other expenses. She had just received a form for payment that was filed on July 1 for a dental bill that was paid two weeks ago. The harassment around that was they kept claiming he had another insurance company which he didn't. She spent innumerable amounts of time on the phone trying to get this issue clarified. She didn't report them anywhere; she just wanted it resolved because she was exhausted. She didn't know how to establish what's an internal practice v. what is reasonable. The consumer is expected to do their part of paying up front, file claims and documentation; they have to continually verify that information over and over again. She said she has proof of that happening if they need it. Number 892 SENATOR DONELY moved to pass CS to SB 177 (L&C) from committee with individual recommendations. SENATOR LEMAN objected saying he thought they were going to entertain amendments first. SENATOR DONLEY withdrew his motion. SENATOR LEMAN moved to delete section 7. Senator Donley objected. SENATOR LEMAN explained rather than do what Mr. Schneider is suggesting which will reduce the number of options available to the small normal average Alaskan consumer and he's concerned about it. Maybe he should get all-risk insurance for his house. Maybe he can get the coverage some other way. There will end up being a cost to it and he thought they should allow the market place to provide for that option. He thought this went in the wrong direction. SENATOR DONLEY responded that the only way that analysis would make any sense on the part of an educated consumer is if they reach the conclusion that if there happened to be an earthquake, that their house would catch on fire for some reason or a flood would occur because of the earthquake. It doesn't make any sense for a consumer to go through that analysis. Even if the house did catch on fire and an earthquake was the dominant cause, there wouldn't be coverage under this language. It's only if it's a substantial cause. He suggested that while dominant may be appropriate for excluding coverage, substantial is not. There could be other substantial causes which should clearly be covered. SENATOR LEMAN said take an earthquake which causes the power to go out and so the family in that house uses candles. They fall asleep and the candles cause the house to burn down. Arguably the earthquake caused them to change their lifestyle, but he thought that would be secondary. Senator Donley is saying under that circumstance it should be covered under fire insurance. SENATOR DONLEY responded under existing law it would be. The candles are the cause of the fire and that's covered by homeowners now as long as you didn't intentionally light the fire yourself. There was no further debate on the amendment and the secretary called the roll. SENATORS KELLY, DONLEY, and MACKIE voted yes; SENATORS HOFFMAN and LEMAN voted no and the amendment was adopted. SENATOR DONLEY moved to pass CSSB 177 (L&C) from committee with individual recommendations. There were no objections and it was so ordered.