SB 147-WORKERS' COMP EMPLOYER LIABILITY  2:15:40 PM CHAIR ELLIS announced SB 147 to be up for consideration. SENATOR FRENCH, sponsor of SB 147, stated this bill makes a tiny change to the workers' compensation statutes and said that workers' compensation is basically a no-fault insurance policy that says if you're hurt at work, you get payment for your injuries. He read the sponsor statement: Workers' compensation laws represent a simple bargain between employers and employees. By purchasing a worker's comp policy, an employer gains immunity from lawsuits that arise out of workplace injuries. This part of the workers' comp bargain is referred to as 'exclusiveness of remedy,' meaning that the employer who buys the policy knows that there won't be expensive and time consuming court cases arising out of workplace accidents. Injured workers get worker's comp benefits and nothing more. By entering into the bargain the employee gives up the right to sue for damages. In exchange for giving up the possibility of a large court award, the employee gets a relatively swift and fair, though smaller, compensation benefit for his or her injuries. Both sides also agree to a 'no fault' provision, meaning that there is no inquiry into who was at fault in the events giving rise to the accident. Revisions to the workers' comp statutes in 2004 added a clause to the workers' comp laws that undermine this bargain, and works to the detriment of workers injured by third parties who do not purchase workers' comp policies. Under the 2004 changes, employers who are merely 'potentially liable' for buying a workers' comp policy, but who do not actually purchase a policy, can still get the benefit of the 'exclusiveness of remedy' provisions in workers' comp. This legal imbalance is having real world consequences, most notably at large worksites where a project owner is supervising many subcontractors. Because the project owner is 'potentially liable' for purchasing workers' comp policies to cover all the work that takes place at the work site, the project owner enjoys immunity from lawsuits that result from its own negligence. Severe injuries take place at some of these large construction projects. When these injuries are caused by the negligence of the owner, the injured worker is left with only workers' comp benefits, which, as the attached letter shows, do not fully cover the damages inflicted by the injury. Removing the phrase 'or potentially liable' from the statute restores the bargain to its proper form. If an employer wants immunity, he or she must buy a policy. An employer who gets immunity without buying a policy is getting something for nothing. Basic fairness should not allow such a situation to continue. Please join me in supporting a small change to the law that will result in big changes to the lives of working people. 2:21:38 PM SENATOR STEVENS said he thought he was missing something and asked what the employee loses if he is already covered under workers' compensation. SENATOR FRENCH replied that he loses the ability to sue for more damages than a lawsuit allows - like future loss of income or pain and suffering for instance. Workers' compensation has fairly strict remedies that while being certain are smaller. 2:22:22 PM SENATOR BUNDE asked if this law will benefit the people who sell workers' compensation more than the injured worker. SENATOR FRENCH answered that is right. He added, "In those instances where the general does the responsible thing and pays money for a policy, yes, he or she will enjoy that coverage." SENATOR BUNDE asked how often a general contractor is potentially liable for not purchasing workers' compensation. 2:23:55 PM PAUL LISANKIE, Director, Division of Workers' Compensation, Department of Labor and Workforce Development (DOLWD), answered that he couldn't say. When the bill passed in 2004, he understood the intention was that general contractors and project owners would have some type of insurance policy that would pick up this potential contingent liability. He didn't know if that had started to happen or not. SENATOR BUNDE asked if Linda Hall, Director, Division of Insurance, would be a resource the committee would want to contact on who is buying insurance. CHAIR ELLIS replied they could do that for the next meeting. 2:25:37 PM SENATOR HOFFMAN asked why the change was made in 2004. MR. LISANKIE replied that his notes weren't complete on those discussions. 2:26:30 PM SUSAN ORLANSKY, Feldman & Orlansky & Sanders, said her firm represents a wide variety of clients in litigation including both injured employees and companies that are sued for negligence at a job site. She underscored Senator French's perspective that SB 147 is a simple fix for a couple of problems that were created by the 2004 language that added the words "or potentially liable" to AS 23.30.055. There are three good reasons for this fix; first undoing those words will promote job safety. She explained that right now general contractors and project owners who are the entities with the greatest oversight over the project have no incentive to be concerned about safety. They are technically liable to pay workers' compensation benefits to any worker on the job site; so the general contractor and project owner are now totally exempt from any risk of tort liability no matter how unsafe their own practices may be. "In reality, what is unfair about it is they don't ever have to pay workers' compensation benefits to the employees of the subcontractors," she said. The law already requires and has required for decades that each subcontractor carry its own workers' compensation insurance for its own employees. General contractors and owners can enforce this through they have master subcontracts which require subs to show a certificate of having purchased workers' compensation insurance for their employees before they ever begin any work on the project. This means the general contractor and project owner have assumed a potential liability, but it's never a realistic one. This leads to the second reason for SB 147. The 2004 law added a protection from tort liability for employers who actually don't secure worker's compensation insurance and don't pay workers' compensation benefits by designing a system where employers and employees each made a tradeoff. It introduced a new benefit for large employers and project owners and a new disadvantage for employees of subcontractors with no corresponding tradeoff. SB 147 would restore the basic workers' compensation principal so that those who pay workers' compensation benefits are exempt from tort suit and those that don't pay are not. 2:30:01 PM Third, she said the 2004 changes resulted in some very illogical and unfair situations where two employees injured in exactly the same way get very different kinds of compensation and it has nothing to do with who actually pays the workers' compensation benefit. Right now little subcontracting companies may be liable in tort to employees of larger general subcontractors but not vice versa. "It's not fair and it's not logical." She said SB 147 would remedy the unfairness. She has a client who is employed by Tesoro; he was injured at a Tesoro refinery. His own employer paid him workers' compensation benefits. Tesoro didn't do anything for him, but under the 2004 law, it is exempt from having to pay tort damages. SENATOR BUNDE asked how two employees could receive different amounts of money. In the Tesoro case the injured employee would be compensated by workers' compensation, but if both subcontractor and Tesoro have workers' compensation, the employee is not going to get any additional money. 2:31:54 PM MS. ORLANSKY answered if you have two different subcontractors and one mid-level subcontractor and it's the employee of the mid-level contractor who acts negligently, the employee of the subcontractor directly under that person is only going to get workers' compensation benefits under the law the way it's set up, but the employee of the other subcontractor who is not a subcontractor under a contractor is entitled to sue and recover in court. Those damages could be many, many times different. Court damages can be 10 times as high as workers' compensation benefits, which are designed to be sort of minimal - some guaranteed recovery paid relatively quickly. It's a good system when nothing else is available, but the common law has also developed a tort system which is more complicated for employees to choose go that route, but it can also end up compensating them much more generously. 2:33:06 PM KIP KNUDSON, Government Relations Manager, Tesoro Alaska, said the current law is good for labor and commerce and the proposed changes are probably a step backwards for both. He said Tesoro has a core value of safety for its workers; but he said it is a constant battle to keep employees safe. He remarked, "Some people have said that employers have no motivation to keep their employees safe; I gotta tell you, these guys aren't grown on trees; we want to keep them as safe as possible. And we want them to come and go every day in the same condition." He said that workers' safety is a duty that requires significant resource and effort on everyone's part. He said that all Alaskan workers should be covered by a workers' compensation policy and that all businesses benefit from safe employees and reduced legal expenses. MR. KNUDSON said the 2004 change freed up resources and efforts on projects to allow better coordination of safety programs between employers and contractors with the resulting benefit of safer workers. He opined that exclusive liability motivates project owners to make sure that everybody that is on a project site has a workers' compensation policy in place. 2:38:14 PM He illustrated his point with a picture of five different people that might be on a worksite - the project owner, an employee, a project contractor employee, a project subcontractor employee, someone that is a contract employee, but not working on the project and a visitor who just happens to be there - all being injured simultaneous in the same event. In the first scenario the project owner is at fault. Pre-2004 the picture showed the remedy for the employee of the project owner would be workers' compensation and everyone else had both (workers' compensation and tort claim) available. If the same thing happened today, workers' compensation was available to all of them. However, if the project subcontractor for some reason allows a sub on site without a workers' compensation policy in place, that employee is still allowed to sue the project owner. (If the policy is not in place one does not get the benefit of the exclusive remedy.) He also did scenario 3 that showed the situation Senator French was discussing. If the project contractor is in place, his employees can only make use of workers' compensation and everyone else can sue the project contractor. Today, the imbalance is where the project contractor and all his subs can avail themselves of workers' compensation, but the project owner employee could potentially sue down. His only response was that it is the project owner's responsibility to make sure that everyone has workers' compensation on the project site - the reason the remedy flows back to him. SENATOR BUNDE said he appreciated fairness and asked if before the 2004 change one could have a workers' compensation claim and a tort claim in three of his situations where people are working on site. MR. KNUTSON replied that Senator French talked about a bargain between an employer and an employee, but whenever he took a job he didn't understand it that way. This is public policy that has been set. The goal of the 2004 law change (on slide 2) is to have all contractors working on a project treated equally during an injury. There is a no fault provision. SENATOR BUNDE said he would like to invite Linda Hall to explain if there is double coverage if the contractor and the sub both have workers' compensation coverage. It doesn't necessarily get the worker any more money. 2:43:14 PM SENATOR FRENCH wrapped up that the basic unfairness on slide 2, situation 2, is that the project owner is getting a workers' compensation remedy without actually having bought a policy. So, essentially he has less desire to have a safe workplace. 2:44:17 PM SENATOR STEVENS asked what he thought about Senator Bunde's question about multiple carriers. SENATOR FRENCH replied that Linda Hall would be the best person to answer that; he guessed that a project owner would pay less for a workers' compensation policy where every single subcontractor was also carrying a policy because he is then only covering those instances where he is at fault - the time when a drunken truck driver employed by a Collins Construction worker drives over an Alasco employee. That contractor is protected from tort liability because of a workers' compensation policy that the subcontractor has paid for. He said: That's the imbalance. If the situation were reversed, if the drunken subcontractor runs over a project employee, the project employee is going to sue the pants off of those folks, because of the outrageousness of the conduct and the fact that the liability only and the protection only runs downhill. CHAIR ELLIS thanked him and said SB 147 would be held for further work. There being no further business to come before the committee, he adjourned the meeting at 2:47:36 PM.