HOUSE JUDICIARY STANDING COMMITTEE March 3, 2000 1:20 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Norman Rokeberg Representative Lisa Murkowski Representative Eric Croft Representative Beth Kerttula MEMBERS ABSENT Representative Joe Green Representative Jeannette James COMMITTEE CALENDAR HOUSE BILL NO. 368 "An Act relating to release of persons before trial and before sentencing or service of sentence; relating to custodians of persons released, to security posted on behalf of persons released, and to the offense of violation of conditions of release; amending Rule 41(f), Alaska Rules of Criminal Procedure; and providing for an effective date." - MOVED CSHB 368(JUD) OUT OF COMMITTEE HOUSE BILL NO. 337 "An Act relating to claims against permanent fund dividends to pay certain amounts owed to state agencies and to fees for processing claims against and assignments of permanent fund dividends; and providing for an effective date." - MOVED CSHB 337(JUD) OUT OF COMMITTEE HOUSE BILL NO. 284 "An Act relating to uninsured and underinsured motor vehicle insurance." - HEARD AND HELD HOUSE BILL NO. 310 "An Act relating to the Alaska Insurance Guaranty Association; and amending Rule 24, Alaska Rules of Civil Procedure." - MOVED CSHB 310(L&C) OUT OF COMMITTEE HOUSE BILL NO. 378 "An Act eliminating certain taxes under AS 21.09 on premiums from the sale of workers' compensation insurance; relating to the establishment, assessment, collection, and accounting for service fees for state administration of workers' compensation and worker safety programs; establishing civil penalties and sanctions for late payment or nonpayment of the service fee; and providing for an effective date." - BILL HEARING POSTPONED TO 3/6/00 PREVIOUS ACTION BILL: HB 368 SHORT TITLE: RELEASE OF CRIMINAL DEFENDANT Jrn-Date Jrn-Page Action 2/11/00 2181 (H) READ THE FIRST TIME - REFERRALS 2/11/00 2181 (H) JUD, FIN 2/11/00 2182 (H) FISCAL NOTE (ADM) 2/11/00 2182 (H) INDETERMINATE FISCAL NOTE (COR) 2/11/00 2182 (H) ZERO FISCAL NOTE (LAW) 2/11/00 2182 (H) GOVERNOR'S TRANSMITTAL LETTER 2/25/00 (H) JUD AT 1:00 PM CAPITOL 120 2/25/00 (H) Heard & Held 2/25/00 (H) MINUTE(JUD) 3/03/00 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 337 SHORT TITLE: CLAIMS AGAINST PERM FUND DIVIDENDS Jrn-Date Jrn-Page Action 2/04/00 2094 (H) READ THE FIRST TIME - REFERRALS 2/04/00 2094 (H) STA, JUD, FIN 2/04/00 2094 (H) FISCAL NOTE (LABOR) 2/04/00 2094 (H) GOVERNOR'S TRANSMITTAL LETTER 2/22/00 (H) STA AT 8:00 AM CAPITOL 102 2/22/00 (H) Moved CSHB 337(STA) Out of Committee 2/22/00 (H) MINUTE(STA) 2/23/00 2273 (H) STA RPT CS(STA) NT 2DP 2DNP 1NR 1AM 2/23/00 2274 (H) DP: JAMES, HUDSON; DNP: WHITAKER, 2/23/00 2274 (H) OGAN; NR: SMALLEY; AM: GREEN 2/23/00 2274 (H) FISCAL NOTE (LABOR) 2/4/00 2/23/00 2274 (H) ZERO FISCAL NOTE (REV) 3/01/00 (H) JUD AT 1:00 PM CAPITOL 120 3/01/00 (H) Scheduled But Not Heard 3/03/00 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 284 SHORT TITLE: UNINSURED MOTOR VEHICLE INSURANCE Jrn-Date Jrn-Page Action 1/12/00 1906 (H) READ THE FIRST TIME - REFERRALS 1/12/00 1907 (H) L&C, JUD 2/18/00 (H) L&C AT 3:15 PM CAPITOL 17 2/18/00 (H) Scheduled But Not Heard 2/21/00 (H) L&C AT 3:15 PM CAPITOL 17 2/21/00 (H) Moved CSHB 284(L&C) Out of Committee 2/21/00 (H) MINUTE(L&C) 2/23/00 2269 (H) L&C RPT CS(L&C) 1DP 5NR 2/23/00 2270 (H) DP: HARRIS; NR: MURKOWSKI, CISSNA, 2/23/00 2270 (H) BRICE, SANDERS, ROKEBERG 2/23/00 2270 (H) ZERO FISCAL NOTE (DCED) 3/03/00 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 310 SHORT TITLE: ALASKA INSURANCE GUARANTY ASSOCIATION Jrn-Date Jrn-Page Action 1/21/00 1973 (H) READ THE FIRST TIME - REFERRALS 1/21/00 1973 (H) L&C, JUD 2/21/00 (H) L&C AT 3:15 PM CAPITOL 17 2/21/00 (H) Moved CSHB 310(L&C) Out of Committee 2/21/00 (H) MINUTE(L&C) 2/23/00 2270 (H) L&C RPT CS(L&C) NT 1DP 3NR 2/23/00 2270 (H) DP: ROKEBERG; NR: MURKOWSKI, 2/23/00 2270 (H) HARRIS, CISSNA 2/23/00 2270 (H) ZERO FISCAL NOTE (DCED) 3/03/00 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER ANNE CARPENETI, Assistant Attorney General Legal Services Section - Juneau Criminal Division Department of Law  PO Box 110300 Juneau, Alaska 99811-0300 POSITION STATEMENT: Reviewed the changes encompassed in CSHB 368, Version G.    KEVIN SHORES, Assistant Attorney General Human Services Division Department of Law  PO Box 110300 Juneau, Alaska 99811-0300  POSITION STATEMENT: Reviewed possible amendments to CSHB 337(STA). RON HULL, Deputy Director Employment Security Division Department of Labor & Workforce Development  PO Box 25509 Juneau, Alaska 99802-5509 POSITION STATEMENT: Answered questions regarding CSHB 337(STA) and the division's current practices.    DWIGHT PERKINS, Deputy Commissioner Department of Labor & Workforce Development PO Box 21149 Juneau, Alaska 99802-1149 POSITION STATEMENT: Testified on CSHB 337(STA). PAT HARMAN, Staff to Representative Pete Kott Alaska State Legislature Capitol Building, Room 120 Juneau, Alaska 99801 POSITION STATEMENT: On behalf of sponsor, explained CSHB 284(L&C) and answered questions. JOHN GEORGE, Lobbyist for the National Association of Independent Insurers (NAII) 3328 Fritz Cove Road Juneau, Alaska 99801 POSITION STATEMENT: On behalf of NAII, testified that CSHB 284(L&C) is acceptable but urged consideration of adding an effective date. MICHAEL LESSMEIER, Attorney at Law Lessmeier & Winters, and Lobbyist for State Farm Insurance Company 431 North Franklin Street, Number 400 Juneau, Alaska 99801 POSITION STATEMENT: On behalf of State Farm Insurance Company, testified on CSHB 284(L&C) and discussed reasons for having an effective date of 1/1/01 and a broad term like "disinterested"; testified on CSHB 310(L&C) and discussed the Alaska Insurance Guaranty Association. BOB LOHR, Director Division of Insurance Department of Community & Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 POSITION STATEMENT: Testified on CSHB 248(L&C) regarding the suggestion for an effective date. MICHAEL COHN, Attorney at Law Phillip Paul Weidner and Associates 330 L Street, Suite 200 Anchorage, Alaska 99501 POSITION STATEMENT: Testified as the person whose letter inspired the introduction of HB 248; expressed concerns with new language in CSHB 248(L&C). DANE HAVARD, President Northern Adjusters, Inc.; and Fund Manager for Alaska Insurance Guaranty Association 1401 Rudakof Circle Anchorage, Alaska 99508 POSITION STATEMENT: On behalf of Northern Adjusters, Inc., suggested eliminating or defining the word "disinterested" in CSHB 248(L&C); as fund manager for the Alaska Insurance Guaranty Association, testified on HB 310 and answered questions regarding operations of the Alaska Insurance Guaranty Association. TOM ANDRITSCH, Chairman Alaska Insurance Guaranty Association Umialik Insurance Company 4300 Boniface Parkway, Suite 201 Anchorage, Alaska 99504 POSITION STATEMENT: Testified on HB 310; reviewed the history of this issue. BOB LOHR, Director Division of Insurance Department of Community & Economic Development PO Box 110805 Juneau, Alaska 99811-0805 POSITION STATEMENT: Testified in support of CSHB 310(L&C). ACTION NARRATIVE TAPE 00-26, SIDE A Number 0001 CHAIRMAN PETE KOTT called the House Judiciary Standing Committee meeting to order at 1:20 p.m. Members present at the call to order were Representatives Kott, Rokeberg, Croft and Kerttula. Representative Murkowski arrived as the meeting was in progress. HB 368 - RELEASE OF CRIMINAL DEFENDANT CHAIRMAN KOTT announced that the first order of business would be HOUSE BILL NO. 368, "An Act relating to release of persons before trial and before sentencing or service of sentence; relating to custodians of persons released, to security posted on behalf of persons released, and to the offense of violation of conditions of release; amending Rule 41(f), Alaska Rules of Criminal Procedure; and providing for an effective date." CHAIRMAN KOTT noted that a committee substitute (CS) had been drafted due to some of the comments made by Anne Carpeneti, Assistant Attorney General, Department of Law. Number 0097 REPRESENTATIVE ROKEBERG made a motion that the committee adopt the proposed CSHB 368, Version G [1-GH2027\G, Luckhaupt, 3/2/00]. There being no objection, it was so ordered and Version G was before the committee. ANNE CARPENETI, Assistant Attorney General, Legal Services Section - Juneau, Criminal Division, Department of Law, came before the committee in order to review the changes that the proposed CS encompassed. She pointed out that on page 2, line 29, the sentence was basically flip flopped in order to be more grammatically correct. On page 4, lines 13-15, the performance bond provision was cleaned up with the elimination of the 10 percent posting requirement. She noted that the 10 percent posting requirement is rarely done because it is not very practical. The courts are in a better position to set an amount and require it to be deposited. If the person does not abide by the conditions, then the amount is forfeited. Number 0199 REPRESENTATIVE CROFT related his understanding, then, that under the previous language the bond would be set at $1 million and the 10 percent requirement would then amount to $100,000. He understands that now, under the CS, the court would set the bond amount at $100,000. MS. CARPENETI said, "I would think so." However, she noted that the amounts are usually much smaller. She then returned to the review of the changes in the CS. The court system had suggested that the immediate effective date be removed, which she believes makes sense because it is difficult for the courts to amend their rules under an immediate effective date. Therefore, without an immediate effective date the general statutory date would be in place and thus the bill would take effect 90 days after the governor's signature. On page 1, line 2, the phrase, "relating to when service of sentence shall begin" was inserted to reflect that portion of the bill which allows a court to order a defendant to begin service at a later date. CHAIRMAN KOTT referred to page 3, line 29, and requested that Ms. Carpeneti explain how the courts inform the custodian. Is that done verbally or in writing or a combination of the two? MS. CARPENETI said that she assumes that [the custodian would be informed] both verbally and in writing. However, she did not believe it would hurt to say that specifically. Number 0394 CHAIRMAN KOTT made a motion that the committee adopt the following conceptual amendment: Page 3, line 30, after "custodian" Insert ", verbally and in writing," REPRESENTATIVE KERTTULA said that she did not object. However, she believes that normally during the bail hearings there is a transfer sheet which provides the conditions of release. She believes that it would suffice to provide a copy of that to the custodian in order to avoid taking time to create a separate formal letter to the custodian. Requiring something extra could cause a delay. REPRESENTATIVE ROKEBERG suggested that a form listing the various conditions could be created and there could be a spot at the bottom of the form to allow for other conditions to be listed. CHAIRMAN KOTT announced that there being no objection, the conceptual amendment was adopted. REPRESENTATIVE ROKEBERG commented that he appreciates the conceptual amendment as it places some "teeth" in the custodian's duties. CHAIRMAN KOTT said that he could not recall what the committee discussed in regard to allowing a third party custodian to be responsible for more than one person. MS. CARPENETI said that point was brought forward by Lauree Hugonin, Director, Alaska Network on Domestic Violence and Sexual Assault. Although the department does not oppose that suggestion, it is not preferred in HB 368 due to some problems with drafting. She recalled that Ms. Hugonin also had suggested that a person who has been held in contempt for failure to perform custodial duties should not be appointed again. However, there were questions regarding how long such a prohibition would be in effect and thus the department had recommended that that suggestion not be included. Number 0650 REPRESENTATIVE ROKEBERG made a motion that CSHB 368 [version 1- GH2027\G, Luckhaupt, 3/2/00] as amended be reported out of committee with individual recommendations and the attached zero fiscal note. There being no objection, it was so ordered and CSHB 368(JUD) was reported from committee. HB 337 - CLAIMS AGAINST PERM FUND DIVIDENDS CHAIRMAN KOTT announced that the next order of business would be HOUSE BILL NO. 337, "An Act relating to claims against permanent fund dividends to pay certain amounts owed to state agencies and to fees for processing claims against and assignments of permanent fund dividends; and providing for an effective date." [Before the committee was CSHB 337(STA).] Number 0736 KEVIN SHORES, Assistant Attorney General, Human Services Division, Department of Law, informed the committee that the amendments before the committee are technical amendments. These amendments are offered to the committee because the first bill offered to the House State Affairs Committee was intended to address all state agencies. In the House State Affairs Committee the bill was changed and limited to the Department of Labor and Workforce Development (DOLWD) and thus the committee has CSHB 337(STA) before it today. [The amendments are subsequently treated as one amendment, labeled Amendment 1.] Amendment 1 read as follows: Page 2, line 5, following "payment": Delete "for" Insert "of" Page 2, line 14: Delete "for payment" Insert "under AS 23.20" Page 2, line 18: Delete "for payment" Insert "under AS 23.20" Page 2, line 19, following "hearing": Insert "under AS 23.20" Page 2, line 20 following "and": Insert "the Department of Labor and Workforce Development has" Page 2, line 20 following "allowed": Insert "the individual" Page 2, line 21: Delete "the Department of Labor and Workforce Development to" Page 2, line 22: Delete "hold" Page 2, line 23: Delete "for payment" Insert "under AS 23.20" Page 2, line 26: Delete "for payment" Insert "under AS 23.20" Page 2, line 30, following "(b)": Delete all material and insert "The" Page 2, line 31 through page 3, line 1: Delete ", before submitting a claim for payment under this section," Page 3, line 1, following "the individual": Insert ", if a dividend is claimed under (a) of this section" Page 3, line 4: Delete "for payment" Insert "under AS 23.20" Page 3, line 6: Delete "for payment" Insert "under AS 23.20" Page 3, line 16: Delete "for payment" Insert "under AS 23.20" Page 3, line 30, following "may": Insert "only" Page 3, line 31 through page 4, line 1: Delete all material and insert: "costs and other amounts that (1) are owed the department under other provisions of state law under which the claim under AS 23.20 is being made; and (2) have been established by court judgment or administrative order." [End of Amendment 1] MR. SHORES pointed out that limiting the bill to the Department of Labor and Workforce Development results in three main areas of amendment in the bill. He explained, "The first main areas of amendments are on the first page of the amendments. They repeat themselves. Where it says 'for payment' we would be inserting, 'under AS 23.20'." He further explained that the claim for payment in the old version of the statute was going to be a generic term for what happened in the agency. However, under the amendment it refers specifically back to the statute under which DOLWD is allowed to pursue fraudulently obtained unemployment or overpayment of unemployment. He noted that Mr. Hull, DOLWD, can answer questions the committee may have concerning DOLWD's specific hearing procedures under those statutes. Therefore, that amendment clarifies in statute that the first hearing is on the merits of the claim. That [hearing] is before DOLWD or the court. MR. SHORES turned to the second main area of amendments, on page 2, line 30; that changes the language to an active voice in order to mirror existing language in other statutes in this area. He noted that the meaning is not changed. He continued with the last area that is amended, which falls near the end of the statute. He referred to page 3, line 30, where the word "only" is inserted following the word "may". The word "only" was inserted in order to clarify that DOLWD will pursue only those statutory claims specified in AS 23.20. Two sentences are added by that amendment. He explained, "Specifically, the aim of that amendment is to make sure that its required that before the claim is given to PFD [the Permanent Fund Dividend Corporation] for attachment, that its been reduced to judgment by an administrative agency in a hearing process or by a court." In the House State Affairs Committee, some committee members expressed the need to make sure it was clear that there is a due process and a full due process for an underlying claim before moving to the fast-track procedure to collect on a claim. Number 1103 REPRESENTATIVE KERTTULA inquired as to the reasoning behind taking the other agencies out of HB 337. MR. SHORES informed the committee that some concerns had been raised by Representatives Ogan and James, who were more comfortable and familiar with the due process hearings and procedures that DOLWD has. REPRESENTATIVE KERTTULA asked what would happen if a person who has consistently made his/her payments misses one or two payments. She noted that under the request for hearing it seems that something such as that does not have a right to be taken into consideration. Therefore, she asked, what actually is taken into consideration during a hearing? And can a scenario similar the one described be taken into consideration? MR. SHORES answered that there is latitude to consider that. He clarified that HB 337 creates another hearing process on top of the hearing process that would happen in DOLWD or the court. For example, if a person's judgment was reduced and the person paid part of those judgments, DOLWD would have to notify that person that it was contemplating taking the permanent fund dividend. Then the person would have the right to have another hearing on whether the person had part of the judgment and whether the amount was correct. Therefore, there are two levels of due process in HB 337. Mr. Shores clarified that the second hearing would be limited to whether or not there was a mistake. The second hearing is not intended to allow litigation of what was already litigated in court or the agency. He pointed out that on page 3, subsection (c)(1) that is fleshed out more. REPRESENTATIVE KERTTULA posed a situation in which someone has not made a payment by the first hearing. She asked if there is an opportunity for that person to show that he/she has made past payments and thus request leniency. MR. SHORES clarified that the first hearing addresses whether the individual owes money or not. That [hearing] would be held in DOLWD's administrative process. If the individual went through the department's layers of administrative appeal and went to superior court, that would revolve around whether that individual owes the money or not. With regard to whether an individual making a payment agreement and whether or not the department would continue to accept the payments or proceed [with garnishment of] the PFD, Mr. Shores deferred to Mr. Hull. Number 1315 REPRESENTATIVE MURKOWSKI turned to the notice process, which indicates that the individual must have a statement that DOLWD has notified the individual. Where is it defined what is adequate notice? Would a certified letter be adequate notice? Does [the department] have to establish that the individual has received notice? Is it sufficient that a letter just goes out? MR. SHORES specified that the first notice [on the hearing] would be in regard to the underlying claim. He pointed out that Chapter 23 has specific notice requirements of certified mail and how notice of a claim is given. The second notice on the hearing would be in regard to whether the individual's permanent fund may be forfeited. In this statute there is no specific means of notice, whether it is certified mail or a personal process server. Mr. Shores imagined that DOLWD would probably [promulgate] its own regulations with regard to notice; however, he deferred to Mr. Hull. REPRESENTATIVE MURKOWSKI commented that she believes the notification would probably be something that [the committee] would want to ensure proof of service versus just sending out a letter. Number 1437 RON HULL, Deputy Director, Employment Security Division (ESD), Department of Labor & Workforce Development, informed the committee that one of ESD's major responsibilities is to administer the Unemployment Insurance Program. Administering the Unemployment Insurance Program involves the collection of taxes from Alaska's employers and paying out benefits to Alaskans who are temporarily out of work. Inherent in that responsibility is the protection of the trust fund, which means the detection, prevention and/or collection of improperly paid benefits. MR. HULL informed members that the primary method of collection of overpaid benefits is withholding payment for subsequent eligible weeks in order to offset the overpayment. When one reapplies for benefits, those benefits are taken in order to offset the claim. If that option is not available, the claimant is contacted by mail or phone in order to negotiate a payment schedule. The claimant is allowed to repay the debt without the department asking for more than the claimant can afford. If the claimant is making the payment, the division will not exercise [garnishment] of the PFD. He noted that often, the claimant will voluntarily assign the PFD in order to eliminate the bill. Generally, no collections actions are taken if the claimant meets his/her repayment agreements, which can run for 90 days before a series of letters are sent out saying that the PFD can be taken and inquiring as to the problem. If the claimant has reasons such as the need to pay bills, the division will hold it. MR. HULL turned to those individuals who refuse to pay anything. For those individuals, their PFD is attached by obtaining a judgment through small claims action or through a criminal prosecution judgment. That is costly in both time and resources. This legislation would speed the recovery of overpaid unemployment insurance (UI) benefits that are a debt to the state. For the most part, overpaid unemployment insurance benefits are owed by individuals who have exhibited some reluctance to repay that debt. Mr. Hull pointed out that there is a statutory penalty, 50 percent of the amount illegally obtained, on the overpayment of benefits as it pertains to fraudulent acts. Those monies cannot be obtained through the offset of unemployment insurance benefits. MR. HULL explained that furthermore, the collection rate in this area is dismal. Some states do not make any disbursements such as state tax refunds or lottery winnings without first deducting debt to the state. Mr. Hull pointed out that the fraud penalty money is not returned to the trust fund, but goes directly to the general fund. As of December 1999 the uncollected penalty balance was over $3 million. The fraud balance is about $5 million and the non-fraud balance amounts to about $1.5 million. In addition to restoring improperly paid benefits to the trust fund, the division anticipates recovery of approximately $750,000 of the balance in the first year after the passage of the bill. The $750,000 will be deposited in the general fund as will probably $400,000 each year thereafter. Number 1630 MR. HULL stated, in response to Representative Murkowski's question regarding notification, that when the issue is first detected fact finding is performed. He explained that initially, an employer will send the division a prima facie document, which documents the rate of pay of an employee and the number of weeks an employee has worked. That would evidence whether the division should continue the investigation. When that is returned and there seems to be some improperly paid benefits, the division writes a letter to the claimant asking if there is something the division does not understand or if the employer has made a mistake. The division waits 30 days for a response to that letter and depending upon the response, there are a number of tracks that occur depending upon whether it was a mistake or fraud. MR. HULL noted that if the amount is over a certain amount, then, based on workload, that is taken to criminal court. When the division feels there is enough evidence to proceed, a notice or determination is performed which includes the appeal rights; that is forwarded to the individual. When the overpay amount is set, a separate determination of liability is sent and again the appeal rights are explained on that document. In each case, the claimant has 30 days to respond. He pointed out that if the case is non-fraud and the claimant disagrees with the division's findings, there is an administrative appeal hearing. Mr. Hull noted that when he was a chief investigator, he lost more cases at [the division's] appeal tribunal than in court. REPRESENTATIVE MURKOWSKI asked whether the notification for the hearing process within the division is by certified mail. MR. HULL answered that in the past, certified mail has been used, which he believed amounted to $1.30 per letter. He noted that currently there are over 8,000 claimants. He informed the committee that the court has ruled that the division, through its permanent fund dividend and/or unemployment insurance files, has such a current mailing address that if there is no response, that is proof [that the claimant received the notice]. Therefore, the division has stopped using the return receipt requested. If the letter is not returned from the post office showing an address unknown, the courts have ruled that [the claimant] received the letter and the division has performed due process. REPRESENTATIVE MURKOWSKI related her understanding, then, that at the division level nothing confirms receipt of notice of the claim. If the individual fails to respond and the division decides to attach the PFD, a second notice could go out to the individual. Again, there would be no confirmation that the individual received the letter and the PFD could be seized. MR. HULL agreed that could happen; generally, however, if an individual has received his/her PFD, the address is good. Therefore, the division would only take special efforts if the envelope comes back from the post office saying it was not delivered. In which case, the division takes steps to try to find that individual. CHAIRMAN KOTT referred to the top of page 3 and related his understanding that the division is using the address provided in an individual's PFD application. Furthermore, if there is no return response, the division considers that the individual has received the letter and basically agrees with the terms of the notice. He further understood that there is no follow-up phone call, although the individual's telephone number is also on the PFD application. MR. HULL agreed that the division uses the address provided in an individual's PFD application and if there is no return response, the division considers that the individual has received the letter. He said that the division does call these individuals; however, each type of case is somewhat different. Mr. Hull informed the committee, "This really is fairly rare. ... The world comes to us for addresses because our addresses are so current." Number 1885 CHAIRMAN KOTT inquired as to the time an individual has to request a hearing per the notice received by the individual. MR. HULL answered that per the statute the individual has 30 days to respond to each document that lists the appeal rights. In further response to Chairman Kott, Mr. Hull said that the individual would have the opportunity to waive that right. He pointed out that if the individual can show that he/she did not receive the letter or could not respond because he/she was out of state, then the appeal can be reopened. REPRESENTATIVE MURKOWSKI surmised, then, that an individual does have an opportunity to prove that he/she did not receive the notice and there was a legitimate absence. However, the PFD would have been seized in the meantime and the individual would have to proceed with the process of getting the PFD back. MR. HULL said, "Given the worst-case scenario, if that occurred that we had taken it [the PFD] and then they could show that they had left the state for whatever reason and weren't there to receive that letter, then yes." REPRESENTATIVE MURKOWSKI expressed concern because the current language merely states that the individual has to be notified; there is no indication as to what constitutes adequate notice. She understood that under the [current] procedure [the division] considers it adequate notice if it is sent to the address on file and if nothing has been returned from the post office. Representative Murkowski said that she would like to see the notification requirements tightened up. If "we" are going to move towards allowing an expedited process for attachment of the PFD, "we" should ensure that all the due process notifications were performed. REPRESENTATIVE MURKOWSKI related her understanding that currently the division can attach the PFD, but only by going through the courts. She acknowledged that the current process is more costly and time-consuming. Furthermore, the current process probably "puts a lid on the number of garnishments that you [the division] actually goes forward with." She was glad to hear that the division encourages repayment agreements and that if someone is working with the division, the division will not move forward to attach or garnish [the PFD]. If the process is expedited, is it possible that there would be less incentive to enter into repayment agreements. Number 2060 MR. HULL commented that the division bends over backwards to be helpful. It wants its money back and is mandated by a federal statute [to recover the funds]. For individuals who are out of work, the division would stop collection. Mr. Hull said that the division does not want a reputation like the Internal Revenue Service (IRS). Frankly, without this [HB 337] the division collects 90 percent of its non-fraud overpayments. The division's biggest collection effort is with the fraudulent cases. CHAIRMAN KOTT reviewed the timeline. Individuals have until March 31 to submit PFD applications. From the applications, the division determines whether there is an opportunity to garnish part of the PFD. Chairman Kott said it seems that rather than wait until August or September to make that determination, which starts the 30 day process that could interfere with the individual receiving his/her PFD, the division would more than likely do that closer to the end of the application period. Therefore, the process would be taken care of before the garnishment would occur. MR. HULL pointed out that according the PFD statute, one cannot apply for the benefits before a certain date. He pointed out that a potential overpay is a six-month-old case when the division receives it. The division waits two quarters before the employers are even asked for data. He believes that the date that an agency can apply for benefits is probably after the closing period. Furthermore, there is a hierarchy in regard to who can take the benefit first, under which the division ranks number six [under HB 337]. REPRESENTATIVE KERTTULA commented that she hopes other agencies are paying attention to ESD's process, which she said seems fair. Number 2230 REPRESENTATIVE ROKEBERG inquired as to how the UI tax rates for the employer and employee are currently determined. MR. HULL responded that those are set by the trust fund balance. If the division did not collect anything, the tax rate would increase. He agreed that the rate is reset every year based on the balance. REPRESENTATIVE ROKEBERG surmised that if the division were able to collect more, rates to the employee and employer could be lowered. MR. HULL agreed. REPRESENTATIVE ROKEBERG asked how this would affect the aforementioned garnishment priority list. MR. HULL pointed out that the division is not on the garnishment priority list at all now. If this bill passes, the division would be sixth on the list. He referred to AS 43.23.065 and said: We are number six, "a debt owed by an eligible individual to an agency of the state." And ahead of us is child support, court-ordered restitution - and we do get some of those - defaulted scholarship loans, court- ordered fines, writs of execution, civil action, parent [or] legal guardian [of an unemancipated] minor, and then us - not us, but all state agencies. ... We can prosecute anything over -- with a judgment there, if they've got a PFD, then we can go after it; sometimes, they don't apply for it. REPRESENTATIVE ROKEBERG acknowledged that and commented that perhaps [the individual] has a larger amount. MR. HULL said that is possible. He noted that most often the larger amounts are the fraudulent claims. In further response, he informed the committee that there have been claims of $25,000- $30,000 when an individual has obtained the identification of a number of real individuals and then has applied for a number of checks at the same time. REPRESENTATIVE ROKEBERG noted that HB 337 did not receive a referral to the House Labor & Commerce Committee [which he chairs.] He commented that he was astounded by the high level and asked what the highest benefit is that is being paid out. MR. HULL specified that it would not be one individual going after one claim, although there have been cases when an individual has exhausted his/her claim. He identified part of the problem as the fact that the audit does not occur until two quarters have passed. He noted that $5,000 and $6,000 cases are common. In further response to Representative Rokeberg, Mr. Hull said the highest benefit is $248 per week and $24 per dependent, up to three dependents. In further response, he affirmed that the weekly amount can be for 26 weeks. Number 2391 REPRESENTATIVE ROKEBERG requested that Mr. Hull review the amendment and the criticism and lack of comfort held by the House State Affairs Committee. MR. HULL clarified that the debate in the House State Affairs Committee was regarding due process, which he'd mentioned earlier. In further response, he agreed that [the amendment] is merely drafting and not an attempt to correct what the House State Affairs Committee did. CHAIRMAN KOTT related his understanding that HB 337, as introduced, was broader. The bill was narrowed in the House State Affairs Committee and the aforementioned amendment [offers clarification] to the committee substitute (CS) that was reported out of that committee. Number 2436 DWIGHT PERKINS, Deputy Commissioner, Department of Labor & Workforce Development, informed the committee that originally HB 337 was going to be aimed at DOLWD. However, after further development it appeared that this may be something for all state agencies to use. As Representative James stated in the House State Affairs Committee, the department has a fair and equitable system with regard to the collection of the money due to the state. He further pointed out that Representative James said that at this point, she felt uncomfortable writing the legislation to apply to all departments. Therefore, the a House State Affairs Committee [committee substitute resulted]; these [Amendment 1] are technical amendments to ensure that the bill is limited to DOLWD only. Mr. Perkins also pointed out that this [HB 337] would be a revenue generator through the penalties that will go directly to the general fund; these [penalties] are in excess of $400,000 per year. REPRESENTATIVE ROKEBERG expressed hope that the excess money would not be siphoned off elsewhere. TAPE 00-26, SIDE B CHAIRMAN KOTT asked to how many cases would fall within the scope of this bill if it were to pass. MR. HULL said, "Certainly, less than the cases we have." He reiterated that this bill will not be used to "hammer" those individuals who are paying. This bill will be used to address those individuals who are not paying and who are not going to pay. CHAIRMAN KOTT asked if Mr. Hull could draw any conclusions with regard to the number of people this would address. MR. HULL replied that currently there is eight years' worth of data, which equates to about 8,200 individuals. He estimated that on a yearly basis there are probably around 2,000 claims, half of which will be fraud. Half of those fraudulent [individuals] will flee the state so quickly that the money cannot be obtained, and thus much of the debt leaves the state. He estimated that [the department] would consider using this bill for probably a quarter of the claimants identified as receiving improperly paid benefits, if those claimants are not making payments. He further estimated that [of those claimants receiving improperly paid benefits] 80 percent would be fraudulent claims. Mr. Hull said, "We collect fraud 40 to 45 percent of all the fraud that's established. And I said earlier, we're collecting about 90 percent of the non-fraud without this ability to attach the PFD." Number 0083 CHAIRMAN KOTT clarified that the point of his question was to gauge the cost to the department in both personnel time and actual money, if the department were required to send that notification via certified mail. He estimated that $1 per [claim] is added, as a minimum, plus whatever time is spent to evaluate and track that. MR. HULL pointed out that with certified mail whoever answers the door signs for the letter, which may not be the addressee, and then [the service of notice] would not be legal. There were problems with certified mail when it was used exclusively. REPRESENTATIVE MURKOWSKI returned to the issue of the garnishment priority list, which the division would be number six [under this bill]. She understood that currently state agencies are listed on that priority list. Therefore, she asked if unemployment insurance would have a higher priority over another state agencies if this legislation were passed. MR. HULL replied no. This legislation would merely lump the division in with other state agencies at the number-six position on the garnishment priority list. REPRESENTATIVE MURKOWSKI asked if the division is already on the garnishment priority list as a state agency. MR. HULL replied no. He explained that AS 43.23.065(6) in part says "a debt owed by an eligible individual to an agency of the state". The division cannot collect this debt under paragraph (6) because this bill has not passed. However, the division can collect the debt under court-ordered fines, for example. REPRESENTATIVE MURKOWSKI asked: If the division would receive a higher priority with a court order than under HB 337, why wouldn't the division ensure receipt of the debt by obtaining a court order? MR. HULL clarified that a court order cannot be obtained unless there is a criminal case. He agreed with Representative Murkowski that a small claims judgment could be obtained, which would create a priority that is higher than the priority created under HB 337. He further agreed that the people that the division is attempting to collect from are people that others are attempting to collect from as well. Mr. Hull noted that such cases are very time-consuming and thus are only undertaken with high-dollar value cases. REPRESENTATIVE MURKOWSKI surmised that the division would review the individual's circumstances and determine how to proceed. MR. HULL said the division also reviews the individual's wages in order to determine if the money is present to go after. Number 0230 REPRESENTATIVE CROFT surmised that HB 337 would provide the division with another option. It would provide the division with a cheaper route, although the division would fall lower on the priority list versus the more expensive court route under which the division would have a higher priority. MR. HULL agreed. REPRESENTATIVE ROKEBERG recalled Mr. Hull's earlier testimony that approximately half of the recovered claims are fraudulent. He inquired as to the percentage of the claims paid out that are fraudulent. MR. HULL said, "Let me correct that. I shouldn't have said claims. Half of the established debt is fraud, not claims." REPRESENTATIVE ROKEBERG inquired as to the percentage that is owed annually because of fraudulent claims. MR. HULL said he was not sure he had that information. However, he informed the committee that about 7.5 percent of the claims paid out are improperly paid. REPRESENTATIVE ROKEBERG surmised that about half of that, 3-4 percent, [is owed annually because of fraudulent claims]. Number 0312 REPRESENTATIVE CROFT made a motion that the committee adopt Amendment 1 [text provided previously]. There being no objection, Amendment 1 was adopted. CHAIRMAN KOTT asked if anyone else wished to testify on HB 337. There being no one, the public testimony was closed. REPRESENTATIVE MURKOWSKI commented that she was not entirely comfortable with the notice requirement. She wondered what type of notice requirements the Child Support and Enforcement Division (CSED) has that allows that division to proceed with garnishments without a judgment. CHAIRMAN KOTT related his belief that CSED, the Alaska Commission on Post Secondary Education and the welfare [agencies] send notification via first-class mail. He believes that is the approach that all state agencies are now pursuing. MR. SHORES specified that this statute will fit into Title 43, which governs PFDs. The statute begins with the priorities discussed here [in HB 337]. There are three other agencies that currently use the option discussed for DOLWD under HB 337. The Department of Health & Human Services [uses this option] for the reimbursement of court-ordered treatment. The other two agencies that use this option are the Alaska Commission on Postsecondary Education and Public Assistance, which uses this for overpayments. Each statute, as is the case under HB 337, refers initially back to the statutory section under which they [the agency] claim the money and then provides for the secondary portion of the notice. Mr. Shores also pointed out that these agencies utilizing this option also provide notice at the last known address of the PFD. Therefore, requiring DOLWD to send notice via certified mail would be different and not required of the other agencies [utilizing this option]. REPRESENTATIVE CROFT asked whether those other agencies use first-class mail, not certified mail [for notification]. MR. SHORES clarified, "It doesn't require certified mail, it requires notice to the address provided in the individual's permanent fund dividend application. So, it requires first-class mail notice." He acknowledged that if the agencies wanted to use certified mail they could do so, although their statutes do not require use of certified mail. CHAIRMAN KOTT informed the committee that as a former member of the Alaska Commission on Postsecondary Education, he recalled that it used first-class mail. Number 0459 REPRESENTATIVE CROFT made a motion to report CSHB 337(STA), as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered and CSHB 337(JUD) was reported from committee. HB 284 - UNINSURED MOTOR VEHICLE INSURANCE CHAIRMAN KOTT announced that the next order of business would be HOUSE BILL NO. 284, "An Act relating to uninsured and underinsured motor vehicle insurance." Chairman Kott, sponsor of the bill, asked Pat Harman to present HB 284 to the committee. [Before the committee was CSHB 284(L&C). The written sponsor statement in packets referenced a letter from attorney Michael Cohn, dated September 21, 1999, also in packets, which explained the loophole addressed in the bill and an actual case that Mr. Cohn's law firm had handled.] Number 0535 PAT HARMAN, Staff to Representative Pete Kott, Alaska State Legislature, came forward on behalf of the sponsor. He explained that AS 28.20.445(f) currently has a glitch that permits insurance companies to deny coverage under their uninsured motorist provisions. Subsection (f) read: (f) If both the owner and operator of the uninsured vehicle are unknown, payment under the uninsured and underinsured motorists coverage shall be made only where direct physical contact between the insured and uninsured or underinsured motor vehicles has occurred. A vehicle that has left the scene of the accident with an insured vehicle is presumed to be uninsured if the person insured reports the accident to the appropriate authorities within 24 hours. MR. HARMAN illustrated by using three toy vehicles in a row: a semi truck stopped at an imaginary stoplight, followed by two race cars. He showed how Vehicle 3 could collide with Vehicle 2, propelling it into Vehicle 1, the truck. If Vehicle 3 had left the scene, Mr. Harman explained, the insured in Vehicle 1 may be denied coverage because Vehicle 3 had no direct contact with Vehicle 1. REPRESENTATIVE ROKEBERG pointed out that the fact pattern of the actual case [explained in Mr. Cohn's letter] was somewhat different, and the House Labor & Commerce Standing Committee hadn't seen this particular demonstration. Number 0634 MR. HARMAN referred to Mr. Cohn's letter and gave another demonstration using the toy vehicles. He then pointed out that the House Labor & Commerce Standing Committee version, CSHB 284(L&C), adds language that applies if the accident is witnessed by a disinterested person not occupying the insured's vehicle who can attest to the facts and to the involvement of a motor vehicle that left the scene. He again illustrated using the toy vehicles, then stated that there is a need for a disinterested person who is not riding in the vehicle of the insured; he indicated in that case, the insured could collect under his or her uninsured motorist insurance. CHAIRMAN KOTT suggested the illustration requires another car, then, from which some disinterested person passing the scene would see the accident. MR. HARMAN indicated the witness could be any bystander or other disinterested person. REPRESENTATIVE CROFT questioned whether a person in Vehicle 2 would truly be disinterested, for example. He agreed that a person on a street corner would more clearly be disinterested. Number 0736 MR. HARMAN advised members that a further issue remaining with the bill is a possible effective date. Currently the bill has no effective date. Michael Lessmeier has suggested an effective date of 1/1/01 to allow insurance companies to implement the changes at the next renewal of their clients' policies. However, Bob Lohr of the Division of Insurance, who was on teleconference, had sent an e-mail just before the committee convened [copy provided], which said there may be no need for an effective date. Mr. Harman suggested inviting those individual to testify about the issue. Number 0789 JOHN GEORGE, Lobbyist for the National Association of Independent Insurers (NAII), came forward and informed the committee that the NAII had also participated in working on this legislation. Although the NAII could certainly accept CSHB 284(L&C) in its present form, Mr. George urged the committee to consider amending it to add an effective date. He explained that traditionally, changes in benefits or coverage have occurred prospectively, without affecting existing policies. There may be a premium increase necessary, he noted, pointing out the need to run this through the actuaries and to possibly print some policy form amendments; he also noted that any rate or form changes have to be approved by the Division of Insurance. MR. GEORGE told members it makes sense to have some lead time so that insurance companies can react, and can provide and charge for the appropriate coverage. To his knowledge, there has always been an effective date such as the one proposed, giving six to nine months of development time so that can happen. Otherwise, there will be policies in force where the premium has already been charged but where the coverage will be broadened. Insurers, therefore, will pick up additional coverage that they haven't had an opportunity to price. Number 0867 CHAIRMAN KOTT, speaking as the sponsor, responded that certainly it isn't his own intent to increase premiums around the state. He asked, however, whether it is true that some companies do pay the claims like those used in the example. MR. GEORGE said he certainly has heard that that is the case. Although he cannot speak for all companies, he knows of at least one that claims it hasn't done so. [Claims adjusters] use judgment as to whether a claim is fraudulent or legitimate; if the claim is believed to be clearly legitimate, even though there was no contact, a company probably would honor that claim. Mr. George clarified that he doesn't know what the premium results would be [under this bill]; there may be no additional charge, or it may be slight. However, it would set a poor precedent to assume that there is no [premium increase] for this and to have that assumption continue for a future bill. Mr. George said he also believes it is appropriate to change policy endorsements or language to reflect the additional coverage, even though he agrees that probably if the law is changed, the additional coverage would apply regardless of whether the policy language is changed. Number 0940 CHAIRMAN KOTT asked Mr. George, "Absent the great number of major insurance companies that insure automobiles in this state, is that a reflection that most companies are, in fact, covering this under their policy, and this absolutely does not have any impact on them?" MR. GEORGE said he doesn't know and cannot comment on that. However, he is sure that there are companies which, using their judgment, are paying specific claims that technically might not be covered because they consider those legitimate. He restated that he doesn't have an answer. Number 1006 MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and Lobbyist for State Farm Insurance Company, came forward on behalf of State Farm. He told members that the existing law is not a glitch. The history of uninsured/underinsured motorist coverage in Alaska goes back to before 1983, when he became involved with working on these issues with the legislature. He explained: The system of insurance with respect to automobile insurance ... has evolved and changed over that period of time. It started out in 1983. There was a mandatory automobile insurance bill before the legislature, and ultimately that bill was passed, but it was passed in a form that recognized that not everybody was [going to] buy insurance, even though they were legally mandated to buy it. And so what was passed with it was a mandated offer of uninsured and underinsured motorist coverage, the idea being that you could guarantee yourself protection by buying ... a limited form of protection through uninsured and underinsured motorist coverage. And this provision here is a provision that was intended to, again, strike a balance, as we often do, to protect against fraudulent claims. And so this was not a glitch. It was in the law for a reason, and I think the responsible companies - in response to your question - would use this provision to deny coverage only where they had a reasonable belief that there was a fraudulent claim being made. So what you're doing with this ... is you now are broadening coverage, and you may broaden it to cover a situation where there is a suspicion of a fraudulent claim, but you're now going to have to pay that claim. And that's fine. That's a different balance that we are seeking to adopt, and we understand the reasons that you want to do that. All we're saying here today is, "Let's not make a retroactive change." What happens is every policy that's purchased ... is generally on a six-month- renewal basis. So, in order for us to make changes in a policy or price them if there is going to be an increase, we need six months from the time that the legislature ... makes its final decision. And that's all we ask for, and historically that's never been a problem with anybody. Number 1153 REPRESENTATIVE MURKOWSKI asked whether this bill is broadening it enough so that insurers will decide it is necessary to raise rates. MR. LESSMEIER said he doesn't know the answer, and he isn't an underwriter. However, it definitely is broadening it. He returned to the issue of the effective date and stated that without at least six months' time, it would be "retroactive." He isn't sure [State Farm] could make changes mid-policy for people, and he doesn't believe that is something the legislature wants to do or has done before. Number 1220 REPRESENTATIVE CROFT noted that some policies last a long time. He asked whether this won't be retroactive, in some senses, even with [an effective date of] 1/1/01. MR. LESSMEIER said no. These policies are usually on a six- month-renewal basis. The legislature theoretically is going to act, and he can't imagine that the Governor wouldn't sign the bill. Therefore, he indicated, the company will have adequate notice if the effective date is 1/1/01. Number 1281 BOB LOHR, Director, Division of Insurance, Department of Community & Economic Development (DCED), testified via teleconference from Anchorage, specifying that he would focus on the question of the effective date. First, he believes it is unlikely that a large number of accidents would fall into this category, although he doesn't have specific statistics on that. Just based on the way this arose and the length of time the statute has been in effect, however, this issue doesn't seem to have arisen very often. Second, if the legislature hypothetically had decided to change the law but the effective date had not yet arrived, and if there were one serious accident, Mr. Lohr said there would be a consumer protection issue for that individual or family. He stated: I don't believe anybody is proposing to try to make it retroactive. We simply heard that the concern was about the cost of notification of current policyholders, and we observed that the current policy language allows coverage to be broadened without the necessity of either reissuing the policy or, I believe, doing customer notification. So, from that point of view, it would not be necessary to incur additional expense to provide the broader coverage. MR. LOHR informed members that finally, he believes that the impact on rates is to be determined by actuaries; he noted that Sarah McNair-Grove of the Division of Insurance was available in the audience. Mr. Lohr returned to the question of the breadth of the impact; he noted that 56 insurers wrote private-passenger automobile physical damage coverage in Alaska in 1998, and 129 insurers wrote commercial auto physical damage coverage for the same year. Mr. Lohr said he believes accidents [related to the bill] are quite few, although he couldn't assert that this would have a "zero" rate of impact. He would want to see the numbers developed on that. He suggested there may be a middle ground where there is an advanced effective date, but only advanced so far as necessary to avoid retroactivity. Number 1440 MICHAEL COHN, Attorney at Law, Phillip Paul Weidner and Associates, testified via teleconference from Anchorage. He noted that in the case discussed in his own letter [which had inspired this legislation], his client's vehicle was struck by a second vehicle that crossed the center line; however, the [driver of] the other vehicle had claimed that a third vehicle, which had come from a side street, had caused the crossing of the center line and had then disappeared after causing the accident. Although something similar could happen to anybody in Alaska, he said, it apparently hasn't happened very frequently. MR. COHN referred to the new language in CSHB 248(L&C) requiring the witness to be a disinterested person not occupying the insured vehicle. He mentioned earlier remarks about the definition of "disinterested person" and whether that would also apply to the person in the second vehicle. Mr. Cohn noted that the new language excludes every person in the insured vehicle from testifying. He submitted that there shouldn't be an assumption necessarily that people are going to bring fraudulent claims. He suggested instead that people's testimony should be considered under the regular general rules that apply in arbitration, or in court, in determining the credibility of witnesses. MR. COHN referred to the language that requires direct physical contact. He said it appears that was written to ensure that there was actually an accident involving at least two motor vehicles. He pointed out, however, that physical evidence on the scene - such as skid marks from a vehicle that crossed the center line and then disappeared - can show that another vehicle was involved, even without direct physical contact or a "disinterested" witness to the actual accident. Mr. Cohn said his concern is with the narrowing in an effort to close this loophole. Number 1619 CHAIRMAN KOTT told Mr. Cohn the added language was somewhat of a compromise between himself and the industry. He asked whether this language would have helped his particular client. MR. COHN said yes. In that case, other witnesses on the scene who were not in their car had observed the other vehicle, although they didn't get the license plate [number]. He stated, however, that he is concerned about the next situation that may arise, if all the witnesses were in the insured's car, for example, or if a witness in another vehicle were determined not to be "disinterested." His concern is for the next accident, not the last one. Number 1720 REPRESENTATIVE MURKOWSKI stated: A few of us looked at this "disinterested person" issue and whether or not we needed to define "disinterested" and say that it can't be a family member, or ... you can't have had more than five beers with this person, ... and recognized that whether or not the person is truly disinterested is going to be ... an issue that the court is going to have to determine. They're going to have to weigh the evidence in front of them and make that determination as to whether it's disinterested. So I agree with you, Mr. Cohn. I had some concerns initially, just looking at that term, what exactly constitutes a "disinterested person." ... I'm probably more satisfied with where we are, just leaving it as it is, "disinterested person," and recognizing that that will be one of the factors that the judge is weighing when they're considering the testimony of the witness. MR. COHN pointed out that it won't be for a judge to decide, however, if the language remains as it is now, because it automatically excludes the testimony of any person who was in the vehicle with the insured. Number 1809 REPRESENTATIVE CROFT said he still isn't sure that the person in the middle car is disinterested. The problem is that the judge isn't weighing this. Furthermore, the judge could find such a person credible but not disinterested under the statutes; the person in the middle car would have an interest in pointing to liability of the "phantom" car, because the middle car, after all, ended up rear-ending the truck. REPRESENTATIVE ROKEBERG indicated, on the other hand, that the judge could find that a passenger in the second car - if there were one - may be a witness, because that person wouldn't have been the proximate cause of the accident, especially if that person isn't married to the driver, for example. REPRESENTATIVE CROFT pointed out that a person standing on the street corner could be related somehow or could for some reason not be a "disinterested person" under this, and yet that person could have relevant testimony that a jury or judge might find credible. He explained that normally, in a trial, that is all put into the "mix." Witnesses aren't disqualified for being people's relatives, for example; instead, they are put on the stand, they give testimony, and counsel brings out that relationship for the judge or jury to weigh along with everything else. REPRESENTATIVE CROFT suggested that if the word "disinterested" were removed, so that the language just said "witnessed by a person not occupying the insured vehicle," the judge would still be able to hear about the interest, which is bias that is always admissible. As it is now, however, the person couldn't testify as a witness, no matter how credible otherwise. Representative Croft acknowledged that Mr. Lessmeier's point is good that this is a balance in an area which is difficult to prove; therefore, it may need some sideboards, which exist [in this section]. Number 2157 REPRESENTATIVE ROKEBERG said he believes the issue here is what the public policy should be. In the past, the legislature has said the public policy should be to deny that [coverage] because the potential for fraud is greater than the public interest with higher premiums. Because of an unusual fact pattern here, he suggested there is a need to make sure that this type of an injustice doesn't happen again. He suggested the legislature needs to weigh the public policy in terms of increased costs to all of the ratepayers in the state, and yet open it up somewhat to make sure that the injured party can have some compensation without opening a floodgate. He said that is the idea of making a balance. REPRESENTATIVE CROFT responded that he thinks it is appropriate that it not be allowed solely on the evidence of the insured. However, he isn't sure that putting all the sideboards on the other witness makes sense. He questioned the need for "disinterested" or "not occupying the vehicle," but said maybe "disinterested" is the main one. He pointed out that proof in civil court requires a verifying witness, and the question here is how much to limit who that witness is. REPRESENTATIVE ROKEBERG surmised that the substantial majority of these cases would be for less than $10,000 if there is just property damage. He mentioned the need to take another look, however, if they are talking about personal injury or medical costs, which could skyrocket; he suggested that bifurcating this in terms of statutory structure to make that distinction would be difficult. He said the statute should be clear enough, on its face, so that administrative judgments and agreements can be made without litigation. He pointed out that the bill opens up an area that was prohibited before, which he believes is the balance. CHAIRMAN KOTT agreed it loosens it up quite a bit, but said it also requires a couple of restrictions: the witness cannot be occupying the vehicle for which the claim is made, and must be a disinterested party. Number 2411 REPRESENTATIVE MURKOWSKI indicated she has talked herself into accepting the "disinterested person" language. She pointed out that the statute doesn't say what a "disinterested person" is, and suggested a court could determine whether a person meets that standard. She cited an example. TAPE 00-27, SIDE A Number 0001 CHAIRMAN KOTT told the committee that trying to define "disinterested" was, clearly, one of the problems when looking at this [initially], and no concrete agreement or conclusion had been reached about that. He mentioned situations where a judge would have to decide whether a person is truly "disinterested." REPRESENTATIVE MURKOWSKI indicated that is the balancing that the judge or jury does with any witness, weighing credibility and giving weight to the evidence accordingly. REPRESENTATIVE ROKEBERG surmised that in Mr. Cohn's actual case, the people in the car that hit the [insured's] car would be disinterested and credible in the eyes of the court because there were corroborating witnesses. CHAIRMAN KOTT replied that hopefully the companies involved in insuring these individuals would make their own determinations as to whether a witness is interested or disinterested. The last resort is to go to court. REPRESENTATIVE ROKEBERG said that is a good point. If a company wants to pay off the claim because of this law, that might cut in half the court activity or disputes over claims like this. Rather than one case every 10 years, for example, there will be one every 20 years. "So, there's some value in your bill," he concluded. CHAIRMAN KOTT called an at-ease at 2:55 p.m., then called the meeting back to order immediately. Number 0290 DANE HAVARD, President, Northern Adjusters, Inc., testified briefly via teleconference from Anchorage, informing members that his company handles claims from a lot of insurance companies. Mentioning the discussion about letting the courts decide, Mr. Havard pointed out that the claims adjuster handling the claim must make a decision on this, and it needs to be as objective as possible. He explained: If we have to deal with the issue of "disinterested" and we determine ... that a person is somehow or other interested and they take that to court, then that subjects the insurance company, as well as the adjuster, to potential bad faith; and that's a rather big issue that would cause many adjusters ... to decide that it must be covered, even when it might not otherwise should be. ... That's a real problem that adjusters face in these kind of situations. So I would like to suggest perhaps the word "disinterested" be eliminated or very objectively defined. And I realize the problem with defining it, but ... I think you'll have, actually, ... considerable trouble if you do not define it. So I would like to suggest that we take that out. Number 0401 CHAIRMAN KOTT posed a situation where he is riding in a vehicle that is rear-ended by a car driven by his own daughter, whose car had been plowed into by a third vehicle, resulting in her car hitting his own. He asked Mr. Havard whether, in his experience, the daughter would be considered a disinterested or interested party. MR. HAVARD answered that it seems she might be an interested party if she is Chairman Kott's daughter. CHAIRMAN KOTT said that is his point. Number 0470 REPRESENTATIVE CROFT observed that the part about not occupying the insured's vehicle is easy to determine, but the "disinterested" gets into problems both ways, including problems with interpretation. For example, does the gas station owner at the corner who witnessed the accident have any interest in not having his corner known as a dangerous place? He pointed out that there are many arguments regarding this issue. CHAIRMAN KOTT continued with that line of thought, asking whether the gas station owner would be interested if he had just loaned his car to his employee, and that car had been the one plowed into. Number 0532 REPRESENTATIVE MURKOWSKI commented that she had talked herself into "disinterested" but could be talked out of it too. She said that sounds like the way the committee is going, and she doesn't have a problem with that. Noting that Mr. Lessmeier had indicated this really broadens things, she asked him whether it broadens it that much more by removing "disinterested." She said she doesn't believe it does but asked him to comment. CHAIRMAN KOTT invited Mr. Lessmeier back up, adding his own opinion that he isn't so sure it expands it that much. MR. LESSMEIER returned to the witness table and stated: Our concern is that you do broaden it up. And the reason that we came up with the language of "disinterested" is because we believe that the decision about whether to pay or not to pay should not always be an automatic decision just based on whether there's contact or not contact. We believe that what the adjuster ought to be doing ... is looking at the case and making a determination of whether there is fraud involved or not fraud involved, and only in instances where they believe there was no contact and fraud involved should this provision ever be used. And the thing that I think you ought to remember ... is that there is some benefit to having a term like "disinterested" that is broad enough to cover many different situations, because there will be incentive, then, for both sides to look at this language and make a determination, and hopefully the determination will be made to use this provision only when there is a legitimate and real issue of fraud. ... And that's the reason that we propose this language. If you take out this term, "disinterested," you will have created a situation where there really is very little way ... of making this determination. And then you will have opened a loophole. And we don't know how wide that loophole is, but in terms of this coverage, when you broaden this coverage, you increase the cost of this coverage. And I don't know if the members of this committee have seen the history that we have done of this coverage in this state. If you haven't, ... it's very dramatic. And if you look back, and you go back to 1984, the rate changes for State Farm for UM/UIM [uninsured motorist/underinsured motorist] since 1984, that coverage has increased 154.6 percent. And all coverages have declined by 1 percent during that period of time for ... automobile insurance coverage. ... What we have done with UM/UIM coverage is we have made changes after change after change, and that's why that coverage has ... gotten expensive. And you make this change and you're [going to] to broadening that coverage more. And so, what we did, when you came up with idea, is try to come up with a compromise that, in our judgment, was a fair compromise that didn't open a loophole that would be wide and still preserve what this is designed to preserve. And this is what we came up with. And I think it does satisfy -- certainly, it satisfied Mr. Cohn as of the last hearing that we had on this, and I thought it satisfied you, Mr. Chairman. So my recommendation would be that we go with this language. If we still have a problem after this, we can always come back and loosen it up some more. But give this at least an opportunity to work. Number 0789 CHAIRMAN KOTT noted that Mr. Havard had suggested that if the "disinterested" were left in, the adjuster would likely go along with the motorist who was harmed, thus avoiding further litigation, which would, in his own mind, adjust costs upwards for the consumer. MR. LESSMEIER said the concern is that there will be cases where there is a legitimate suspicion of fraud, but where there is an inability to deny the claim. He restated the need for balance and opening this coverage wider, but going no further than CSHB 284(L&C), as he believes going further would be bad for [State Farm's] policyholders and adjusters. Number 0860 CHAIRMAN KOTT asked what the current penalty is for fraudulent claims. MR. LESSMEIER said he doesn't know. He added that he doesn't know that he has seen anybody prosecuted for claims that are fraudulent. He said no matter how "disinterested" is defined, it won't cover every single situation. He reiterated that the intent is to broaden this but not go too far, and to create a balance. Number 0927 MR. COHN responded to Mr. Lessmeier by clarifying that at the last hearing, he hadn't necessarily agreed with the language of "disinterested person not occupying the insured vehicle." As he recalls, his suggestion in his letter was that there be corroborating evidence beyond just the testimony of the insured person who was driving the vehicle. MR. COHN restated concern that absolutely excluding people who had occupied the insured vehicle would be too restrictive. He believes there is little likelihood that this will open a floodgate of cases. Furthermore, fraud can occur even if there has been direct physical contact, because fraud is a potential problem in all cases. He suggested that this doesn't exclude fraud but just excludes people who have legitimate claims. Number 0991 REPRESENTATIVE ROKEBERG referred to earlier testimony and expressed his belief that removing the "disinterested" language would create a "private fiscal note" and a higher probability of fraudulent claims, without affecting the number of cases that this is intended to fix. REPRESENTATIVE CROFT pointed out that under the rule of this provision, the committee wouldn't have allowed Mr. Lessmeier to testify, as he is an interested person in this regard. He said it is appropriate to hear from him, however, because the committee can hear his testimony, know that he is an interested party, and put it all in the mix; the legislature does this with interested persons all the time. REPRESENTATIVE CROFT continued. He agreed that there ought to be some corroboration, not just the word of the insured, as happens in other areas where there is a worry about fraud or falsification. He said it seems to be a good piece of legislation as written, but possibly it would be better without the word "disinterested," while still barring [testimony from] a person - no matter how credible - who was occupying the insured's vehicle. Number 1182 CHAIRMAN KOTT asked if there was further discussion, then announced that HB 284 would be held over for further analysis and to address the effective date. HB 310 - ALASKA INSURANCE GUARANTY ASSOCIATION CHAIRMAN KOTT announced that the final order of business before the committee is HOUSE BILL NO. 310, "An Act relating to the Alaska Insurance Guaranty Association; and amending Rule 24, Alaska Rules of Civil Procedure." Chairman Kott called upon Representative Rokeberg to present the bill. [The bill was sponsored by the House Labor & Commerce Committee by request; that committee is chaired by Representative Rokeberg.] REPRESENTATIVE ROKEBERG, Alaska State Legislature, addressed the committee as the sponsor of HB 310. He said that Mr. George would be available to discuss the legislation. Number 1266 MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and Lobbyist for State Farm Insurance Company, informed the committee that he was speaking on behalf of State Farm. He noted that CSHB 310(L&C), Version LS1030\H, is before the committee for consideration. He said he believes this legislation is the product of a joint desire to bring the Alaska Insurance Guaranty Association laws into conformity with the model National Association of Insurance Commissioners (NAIC) Act. He noted that Tom Andritsch, Dane Havard and Don Thomas are available via teleconference. He reported that Mr. Thomas actually drafted the changes, which Mr. Lessmeier understood to be approved by the Division of Insurance and the Alaska Insurance Guaranty Association. MR. LESSMEIER explained that the Alaska Insurance Guaranty Association is a nonprofit "creature" of the Alaska statutes. The purpose of the Alaska Insurance Guaranty Association is to step in when an insurance company becomes insolvent and pay the claims that are made. He recalled that someone had likened the Alaska Insurance Guaranty Association to the Federal Deposit Insurance Corporation (FDIC). Mr. Lessmeier requested that Mr. Andritsch be allowed to briefly summarize how [this bill] came to be. Number 1428 TOM ANDRITSCH, Chairman, Alaska Insurance Guaranty Association, testified via teleconference from Port Townsend, Washington. He noted that he had been elected Chairman of the Alaska Insurance Guaranty Association last June. He also noted that he is basically the President of Umialik Insurance Company, an Alaskan domestic property and casualty insurance company; he has held that position since 1986. Prior to that he was with the Providence Washington Insurance Company in Alaska, from 1976 to 1986. MR. ANDRITSCH explained that the process which led to this legislation began in 1991 when the Chairman of the Alaska Insurance Guaranty Association and its attorney at the time, now Supreme Court Justice Bob Eastaugh, recommended changes to the Act to conform to the model Act of the NAIC and the NCIGF [The National Conference of Insurance Guaranty Funds]. The changes were recommended to the then-director of the Division of Insurance, Dave Walsh. Nothing progressed until 1996 when the Guaranty Association chairman advanced the issue again with the then Director of the Division of Insurance, Marianne Burke. MR. ANDRITSCH said the issue was then pursued by the following director of the division, and proposed changes were agreed upon with Ms. Burke and the chairman of the Guaranty Association. Mr. Andritsch informed the committee that he has recently met with the current director of the Division of Insurance, Bob Lohr. Both have agreed upon the language and the changes encompassed in the bill as it stands now. Basically, the intent is to make the statutes conform with other state statutes. Therefore, when Alaska deals with conflicts among other states with regard to insolvency, Alaska would be dealing with the same model Act. Mr. Andritsch offered to answer questions, but he deferred any questions regarding administration of the plan to Mr. Havard and Mr. Thomas. Number 1509 DANE HAVARD, President, Northern Adjusters, Inc.; and Fund Manager for Alaska Insurance Guaranty Association, testified via teleconference from Anchorage, offering to answer any questions with regard to the operations of the Alaska Insurance Guaranty Association. He informed the committee, "We have been the fund administrator for the Alaska Guaranty Association since 1984 and we have actually handled the claims since about 1978." REPRESENTATIVE KERTTULA referred to page 8, Section 9, subsection (b), of the House Labor & Commerce committee substitute (CS). She noted that the language in paragraph (1) is being eliminated, which is language referring to the notification of insolvency. She asked if there is a notice requirement in another part of the bill. MR. HAVARD explained that the language on page 8, lines 27 through page 9, line 3, is being deleted because in general [the notice requirement] is being handled under the liquidation statutes by the receiver of the insolvent carrier. As a practical matter, [the receivers of the insolvent carrier] have all the addresses for the insured and all the interested parties. That information is not kept by the Alaska Insurance Guaranty Association and would have to be obtained by [the receiver of the insolvent carrier] anyway. REPRESENTATIVE KERTTULA said her understanding, then, is that as a practical matter the notice is happening, and no deadlines will pass before the notice is given. MR. HAVARD said, "As far as I know from the liquidation statute." REPRESENTATIVE KERTTULA asked whether there is a chance that there would not be a notice before something happened, or whether that is taken care of through the liquidation statute. MR. HAVARD deferred to the Division of Insurance. Number 1604 BOB LOHR, Director, Division of Insurance, Department of Community & Economic Development, testified via teleconference from Anchorage. He informed the committee that the division supports CSHB 310(L&C). With regard to Representative Kerttula's question, Mr. Lohr explained that the statutory receiver is the director of the Division of Insurance. The receivership statute requires [the division] to give notice to all potential claimants in a timely manner. If that does not occur, the court can tell the division to do it properly. Mr. Lohr said he believes that statute is in the receivership area and is adequate to cover notice. REPRESENTATIVE MURKOWSKI pointed out that a provision allows the director to appoint two individuals as members of the [Board of Governors] in order to represent the public. She understood that there have not been public members in the past. She inquired as to why one would want public members on a board such as this. MR. LOHR said he believes having public members [on the board] is consistent with the NAIC model. He recognized that it is a fairly technical area which represents the interests of the companies that have a mandatory assessment to cover the costs and any distributions for the guaranty fund. However, he believes the nature of this organization supports having representatives of the public. REPRESENTATIVE MURKOWSKI asked whether the Alaska Insurance Guaranty Association is in agreement with this. MR. ANDRITSCH replied yes. REPRESENTATIVE MURKOWSKI clarified, in response to Chairman Kott, that she was referring to Section 6 on page 3. She then recognized that the language is discretionary due to the use of the word "may." Number 1774 REPRESENTATIVE ROKEBERG noted that there was a fairly lengthy discussion in the House Labor & Commerce Standing Committee with regard to barring the timeframe and actions. He recalled that [the discussion] was brought by the Department of Labor & Workforce Development, who upon further review told Representative Rokeberg their objections were misguided. Therefore, he said, the department agreed that it is not a problem. CHAIRMAN KOTT closed the public testimony. Number 1813 REPRESENTATIVE MURKOWSKI made a motion that the committee move CSHB 310(L&C) out of the House Judiciary Standing Committee with individual recommendations and a zero fiscal note. There being no objection, CSHB 310(L&C) was moved from the House Judiciary Standing Committee. ADJOURNMENT There being no further business before the committee, the House Judiciary Standing Committee meeting was adjourned at 3:24 p.m.