HOUSE JUDICIARY STANDING COMMITTEE March 24, 2000 1:24 p.m. MEMBERS PRESENT Representative Norman Rokeberg Representative Jeannette James Representative Lisa Murkowski Representative Eric Croft Representative Beth Kerttula MEMBERS ABSENT Representative Pete Kott, Chairman Representative Joe Green COMMITTEE CALENDAR HOUSE BILL NO. 207 "An Act relating to the registration of persons who perform home inspections; and providing for an effective date." - MOVED CSHB 207(JUD) OUT OF COMMITTEE HOUSE BILL NO. 211 "An Act relating to liability for providing managed care services, to regulation of managed care insurance plans, and to patient rights and prohibited practices under health insurance; and providing for an effective date." - HEARD AND HELD HOUSE JOINT RESOLUTION NO. 5 Proposing amendments to the Constitution of the State of Alaska creating a highway fund and a harbor fund. - BILL HEARING POSTPONED TO 3/31 PREVIOUS ACTION BILL: HB 207 SHORT TITLE: LICENSE HOME INSPECTORS Jrn-Date Jrn-Page Action 4/21/99 900 (H) READ THE FIRST TIME - REFERRAL(S) 4/21/99 900 (H) L&C, JUD, FIN 10/21/99 (H) L&C AT 10:00 AM ANCHORAGE LIO 10/21/99 (H) MINUTE(L&C) 2/18/00 (H) L&C AT 3:15 PM CAPITOL 17 2/18/00 (H) Heard & Held 2/18/00 (H) MINUTE(L&C) 3/03/00 (H) L&C AT 3:15 PM CAPITOL 17 3/03/00 (H) Heard & Held 3/03/00 (H) MINUTE(L&C) 3/08/00 (H) L&C AT 3:15 PM CAPITOL 17 3/08/00 (H) Moved CSHB 207(L&C) Out of Committee 3/08/00 (H) MINUTE(L&C) 3/15/00 2486 (H) L&C RPT CS(L&C) NT 1DP 3NR 3/15/00 2486 (H) DP: ROKEBERG; NR: HARRIS, BRICE, HALCRO 3/15/00 2486 (H) FISCAL NOTE (DCED) 3/24/00 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 211 SHORT TITLE: HEALTH CARE INSURANCE Jrn-Date Jrn-Page Action 4/22/99 914 (H) READ THE FIRST TIME - REFERRAL(S) 4/22/99 914 (H) L&C, JUD, FIN 5/10/99 (H) L&C AT 3:15 PM CAPITOL 17 5/10/99 (H) HEARD AND HELD 5/10/99 (H) MINUTE(L&C) 10/22/99 (H) L&C AT 10:00 AM ANCHORAGE LIO 10/22/99 (H) MINUTE(L&C) 2/04/00 (H) L&C AT 3:15 PM CAPITOL 17 2/04/00 (H) -- Meeting Canceled -- 2/16/00 (H) L&C AT 3:15 PM CAPITOL 17 2/16/00 (H) Heard & Held 2/16/00 (H) MINUTE(L&C) 2/16/00 (H) MINUTE(L&C) 3/03/00 (H) L&C AT 3:15 PM CAPITOL 17 3/03/00 (H) Moved CSHB 211(L&C) Out of Committee 3/03/00 (H) MINUTE(L&C) 3/08/00 2446 (H) L&C RPT CS(L&C) NT 1DP 2DNP 3NR 3/08/00 2446 (H) DP: ROKEBERG; DNP: CISSNA, BRICE; 3/08/00 2446 (H) NR: MURKOWSKI, HARRIS, HALCRO 3/08/00 2446 (H) ZERO FISCAL NOTE (DCED) 3/08/00 2446 (H) REFERRED TO JUDICIARY 3/24/00 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER BILL BRADY, Agent, RE/MAX Properties; Legislative Chair, Anchorage Board of Realtors; and President, State Association of Realtors P.O. Box 110101 Anchorage, Alaska 99511 POSITION STATEMENT: Testified in support of HB 207, Version Q; emphasized the importance of establishing the board, but expressed concern about exempting engineers. ROBERT CARL, President Active (ph) Inspections, Incorporated P.O. Box 3654 Palmer, Alaska 99645 POSITION STATEMENT: Testified on HB 207, Version Q, that a good job was done in rewriting the bill; said he is not as against the bill as he was previously. BARBARA GABIER, Program Coordinator Division of Occupational Licensing Department of Community & Economic Development P.O. Box 110806 Juneau, Alaska 99811-0806 POSITION STATEMENT: Answered question regarding the licensing fee relating to HB 207. VINCE MEURLOTT Building Consultants 596 Arvita Court Fairbanks, Alaska 99712 POSITION STATEMENT: Testified on HB 207 on behalf of Building Consultants; had just received Version Q, which he believes is a little better than the last version, but he still disagrees with some provisions. DAVE FEEKEN 100 Trading Bay Drive, Number 6 Kenai, Alaska 99611 POSITION STATEMENT: On behalf of the 400 members of the Alaska Association of Realtors, testified in support of HB 207, Version Q, except for one concern about the legal action section. DAVID R. OWENS, Building Inspector Owens Inspection Services P.O. Box 3589 Palmer, Alaska 99645 POSITION STATEMENT: Testified in opposition to HB 207 but hadn't read Version Q; said the bill isn't fair to all inspectors in Alaska; emphasized the importance of having a definite standard in place first. BRUNO REHBEIN, Home Inspector PMB 683 3705 Arctic Boulevard Anchorage, Alaska 99503 POSITION STATEMENT: Testified on HB 207; expressed concerns with earlier versions and with exemptions of some inspectors, but believes Version Q is an improvement; suggested that the bill will make home inspections more invasive and costly, but believes that some kind of licensure for home inspectors is a good idea. CHARLES JEANNET, Registered Engineer and Inspector 599 Arvita Court Fairbanks, Alaska 99712 POSITION STATEMENT: Testifying on HB 207, Version Q, said he has a bit of a problem with initiating standards for inspections on existing homes when there aren't yet codes pertaining to those homes in outlying areas; applauds exemption of engineers; and doesn't know if it should be the seller who determines whether old reports should be discarded. RON JOHNSON 610 Attla Way, Number 6 Kenai, Alaska 99611 POSITION STATEMENT: Testifying on HB 207, Version Q, suggested letting regulations determine the types of insurance required, as a protection for the public; pointed out supreme court decision overturning one-year provision; said a party to a transaction should include the lender, and engineers should not be exempt. MARK LEWIS, Registered Civil Engineer and President of the Alaska Association of Home Inspectors P.O. Box 211021 Anchorage, Alaska 99521 POSITION STATEMENT: Testified on HB 207; expressed several concerns and said he preferred Version B to Version Q; emphasized that engineers should not be exempt. WILLIAM BRUU, ICBO Inspector and Home Inspector 165 East Parks Highway Wasilla, Alaska 99654 POSITION STATEMENT: Testified on HB 207, Version Q, on his own behalf as president of his firm; asked whether the bill limits his right as an ICBO inspector to file a lien on new construction; suggested redrafting the legal actions section on page 6; discussed other issues. On behalf of another inspector, suggested limiting the life of the report to 90 days or less, or to the person who contracts for the service. SHARON MACKLIN, Lobbyist for the Alaska Professional Design Council 315 Fifth Street, Apartment 8 Juneau, Alaska 99801 POSITION STATEMENT: Testified in support of HB 207, Version Q. JOHN BITNEY, Legislative Liaison Alaska Housing Finance Corporation P.O. box 101020 Anchorage, Alaska 99510-1020 POSITION STATEMENT: Testified in support of HB 207. CATHERINE REARDON, Director Division of Occupational Licensing Department of Community & Economic Development PO Box 110806 Juneau, Alaska 99811-0806 POSITION STATEMENT: Testified on HB 207. ACTION NARRATIVE TAPE 00-37, SIDE A Number 0001 REPRESENTATIVE JEANNETTE JAMES called the House Judiciary Standing Committee meeting to order at 1:24 p.m. Members present at the call to order were Representatives James, Rokeberg, Murkowski and Kerttula. Representative Croft arrived as the meeting was in progress. HB 207 - LICENSE HOME INSPECTORS REPRESENTATIVE JAMES announced that the first order of business would be HOUSE BILL NO. 207, "An Act relating to the registration of persons who perform home inspections; and providing for an effective date." She advised members that there was a new proposed committee substitute (CS), Version Q. Number 0056 REPRESENTATIVE MURKOWSKI made a motion to adopt the proposed CS, Version Q [1-LS0132\Q, Lauterbach, 3/24/00], as a work draft. There being no objection, it was so ordered. Number 0082 REPRESENTATIVE ROKEBERG, speaking as the sponsor of HB 207, explained that Version Q goes back to an earlier rendition of the bill. There had been objections by registered architects and engineers to some of the language in CSHB 207(L&C), which came out of the House Labor and Commerce (L&C) Standing Committee. Therefore, he had decided to remove that language. To his belief, the problem has been ameliorated in large part, although not universally. He had redrafted the bill to include the full board and creation of a commission for home inspectors. REPRESENTATIVE ROKEBERG informed fellow members that home inspection is an integral part of all residential real estate transactions in Alaska. However, this bill only speaks to those residences defined as four-plexes or less. For perhaps 90 or 95 percent of the resales of existing homes, home inspectors work with clients as part of the real estate transaction. However, anybody can be a home inspector in Alaska. Representative Rokeberg said he has worked with a large group of people in the state, particularly in the Anchorage area, over the last year and a half to create an appropriate amount of regulatory control over this activity in Alaska, so that consumers are protected, have a means of filing grievances, and have a forum for redress for any problems that come up in these transactions. REPRESENTATIVE ROKEBERG reported that additionally, home inspectors in the state were, in their contracts, using provisions that expressly exculpated themselves from liability, leaving that liability only to the value of a contract. This bill specifically prohibits that as a matter of public policy. He believes the liability should be greater than merely the $250-350 in fees charged by the home inspector. If, in fact, there has been a breach or omission in a particular inspection, then liability should run to the home inspector. Number 0329 REPRESENTATIVE ROKEBERG explained that in working this fine balance between areas such as Juneau - where home inspections are predominantly performed by "engineering people" - and the Fairbanks area - where engineers predominate in a number of home inspections - it was believed best to exempt engineering professionals from the constraints of the licensing activities of this bill; he mentioned the establishment of the board, the regulations to be developed and the continuing education provisions that apply to home inspectors. The argument for that, he noted, is that architects and engineers are trained professionals. REPRESENTATIVE ROKEBERG pointed out that this is a controversial issue. Some in the real estate business, in particular, believe an engineering degree doesn't necessarily correlate with expertise to be a home inspector. Although most of the engineers doing this activity are civil engineers, the State of Alaska just has a designation of "professional engineer" in statute; there is, however, a differentiation among six different engineering disciplines in regulation. Noting the drafting difficulties with that, Representative Rokeberg explained: We endeavored to draft the bill to only stipulate that a civil engineer could do this, but we found that it was extremely difficult. There is language in here that tries to narrow that focus in terms of the exemption. Also exempted are real estate appraisers, to the activities ... allowed under their chapter in the statute, as well as things like ... pest exterminators and so forth; we have a request for that addition. REPRESENTATIVE ROKEBERG acknowledged that this is a balancing act, to a degree, in trying to achieve the long-range goal of establishing a licensing board. In his four years as chairman of the House L&C Committee, he said this is the first new board or commission that he has been involved in establishing. He explained that he had felt the need for public protection is so great that it overweighs the philosophical argument regarding establishing new government regulations or control; he said these people are involved in a major portion of the state economy, over 2 billion dollars' worth of domestic product. Number 0520 REPRESENTATIVE ROKEBERG directed attention to page 6, starting on line 8, relating to [proposed] AS 08.57.810, legal actions against a home inspector. This provision in effect limits the person who can bring a cause of action against a home inspector to a seller, an owner of a property or a prospective buyer of the inspected property. Representative Rokeberg conveyed his intention, as sponsor, to also limit the validity of the report that is issued to one year. He noted that these important issues also have generated some controversy within the industry. REPRESENTATIVE ROKEBERG explained what happens in a real estate transaction. The home inspector, usually at the request of a prospective buyer, will inspect a home. The home inspection report, then, is usually given to the agent of the buyer, who uses that in speaking with the seller and/or the seller's agent in trying to fix problems revealed in the report. Representative Rokeberg told members: What happens is you start having a report that's been issued and purchased by one party being passed around to as many as four different parties, then gets passed around to, potentially, a real estate appraiser trying to put a value on the home or to the lender; in many instances, the lenders will request these reports. So, all of a sudden, we have a report that's being circulated to a large number of people. And what's been happening is that these reports have cropped up a year - or two years, three years - later that may have an influence on a real estate transaction, and under our current statutes have some ability to be enforced under our current statute of limitation under contracts, which is three years, and our statute of repose, which is ten [years] in the State of Alaska. So, therefore, to try to cut down this proliferation of paperwork ... and the liabilities to the home inspector, the bill has a one-year limitation. And the rationale behind that is this: When a report and inspection is done, it's a snapshot of the property or the premises at a point in time. Any number of things can happen to a property after that inspection, particularly in a climate such as Alaska's. The roof, the foundations, particularly, ... other elements or components of a building can be substantially changed by the weather and activities that happen in our northern climate. Therefore, Madame Chair, it was my opinion that the public need to restrict the liability that could arise out of the report; [it] should be limited because we've taken away the protection that was ostensible in the contract language to try to limit the liability of inspectors to the $350 report fee. So, in trying to balance this whole activity, we felt it would be in the public interest to have that. You'll note, on the same page, in subsection (b) of that section, ... that if there is an omission from the report, that that omission is not given the same statutory protection of one year, however. It's only if there is a misleading or inaccurate element of the report that the one-year provision comes into play. And if that, in fact, is a misleading or inaccurate report, it should come up immediately in the course of the closing of the real estate transaction - most typically, a seller defending the veracity of his property, and the fact that a seller would ask for a reinspection or a revision to [the] report, and dispute that report; he certainly has a right to. ... It is very important to keep in mind: this body, the legislature, several years ago - to its great, I think, betterment to the real estate community and the consumers of this state, and the home buyers of this state - have mandated a disclosure document be part of every real estate transaction, ... in closing, in ... Alaska. ... All sellers of homes in the state ... have a duty, statutorily, to fill out and provide a buyer a disclosure report of any problems that may be occurring around ... the home. And what happens now is that once a buyer orders a home inspection report and they give the seller the report, the seller now is dutybound to take the elements of that report and revise his disclosure statement in the strictest interpretation of the law. And that is true. ... Now, whether people are doing that, I'm not so sure. ... But what happens if, in fact, the seller disputes that report? And that's that issue, ... and that's the particular thing ... that's in play, but it's in play immediately. So, ... the resolution of any dispute about the veracity of the report and its accuracy can be, I think, ameliorated within the one-year period. So that's the reason that's in there. Number 0690 REPRESENTATIVE ROKEBERG mentioned that people doing this now can apply, during the transition period, to become home inspectors. He stated: We have provisions in here for associate home inspectors that don't have the full training and background, if they work under the supervision of the home inspectors, so the industry can grow and flourish, and additional jobs can be created in here - the same with the engineering components. I think we've made this bill as easy as possible in the transitional provisions. And also, there's additional language here that was requested by Alaska Housing Finance Corporation (AHFC) that utilizes the existing home inspectors or so-called ICBO inspectors, which are integrated underneath this board. ... These inspectors are those that exist in the rural areas of the state and inspect all homes that are financed by Alaska Housing Authority in the rural areas of the state that may be new construction. And it does, in the exemption section, exclude all building officials within a municipality or political subdivision that has a building authority for home inspections themselves. ... For example, in Anchorage the city building official has primacy in looking after the home inspections for new construction, as well as those people that work for him are exempt from being licensed under the statute. Number 0993 REPRESENTATIVE MURKOWSKI noted that there had been a couple of iterations in the House L&C Committee, of which she is a member. She asked whether this proposed CS [Version Q] is similar to what they had heard in that committee. REPRESENTATIVE ROKEBERG said yes, with the exception of the changes in the liability section and some fine-tuning on the exemption section, "as related to the specificity about engineers acting within their registration, and the appraisers." He added: There was some broader language, which is intended to do the same thing. This requires the engineer/architect to affix their seal and/or their signature, which we found out subsequently were ... actually legally the same thing. You don't have to seal a document if you sign it. It has the weight of you being a professional engineer. So, that became somewhat of a redundancy. ... What we're doing here is ... saying that if you're an architect or engineer, you're engaging in home inspections, that you have to sign the report. So your liability runs to your professional registration. ... But it still allows them to do that without being licensed. There's a couple of elements in here that ... have been changed to give a certain benefit .... There's one change from -- the one iteration in Labor and Commerce says that if you are to advertise yourself as a licensed home inspector, you have to be a licensed home inspector. You can't be an engineer or architect. So, that gives the licensed home inspector a slight advantage by saying, "I'm a licensed home inspector," where the engineer and architect that are doing home inspections can't do that, but they can say that they're an architect or engineer, which ... shouldn't be a negative. So, we're trying to do a balance here to keep everybody happy. And it was kind of interesting in putting this whole thing together. I first had two work sessions in my office in Anchorage over a period of a year where I brought all the home inspectors together in the Mat-Su and Anchorage area, or those that were interested in it. And a number of these folks ... were engineers. And, as a result, ... they've created a chapter of the American Association of Home Inspectors. There's about 16 states have taken up this legislation and passed it now, and this is one element of it. ... Number 1165 REPRESENTATIVE ROKEBERG noted that in several iterations of the bill prior to CSHB 207(L&C), there was E&O [errors and omissions] insurance. He believes that was deleted in the last version because of concern about setting a precedent. Perhaps with the exception of doctors, to which Ms. Reardon could possibly speak, he doesn't think any statute, board or commission in state law mandates E&O insurance. Therefore, the desire is to not start that precedent, even though testimony indicates most people engaged in this activity do, as a rule, have E&O insurance. Representative Rokeberg added, "In taking their exculpatory language away from their contract, I think militates towards them, as a matter of practice, having E&O insurance, which is available, incidentally, for this ...." Number 1209 REPRESENTATIVE KERTTULA requested clarification about what Representative Rokeberg was saying about the legal action section on page 6. She specifically asked whether there originally was a limitation of $350 liability for the report in subsection (a). REPRESENTATIVE ROKEBERG replied, "That's what they're doing in their contracts with the ... homeowner or buyer, whoever retains them as a client. They would put provisions in their contract limiting their liability to that dollar amount, or the fee." REPRESENTATIVE KERTTULA commented, "So, then, this one is actually broadening out ... if it's a statement." REPRESENTATIVE ROKEBERG affirmed that, adding that there also is a very specific provision on the bottom of page 7, line 31. He read from subsection (b) beginning on line 31, which stated: Contractual provisions that purport to limit the liability of a home inspector to the cost of the home inspection report are contrary to public policy and void. Number 1323 REPRESENTATIVE JAMES asked whether there were further questions of the sponsor; there was no response. She noted that several people had signed up to testify, both locally and on teleconference. Number 1340 BILL BRADY, Agent, RE/MAX Properties; Legislative Chair, Anchorage Board of Realtors; and President, State Association of Realtors, testified via teleconference from Anchorage. He noted that David Feeken, legislative chair from the state association, would testify from Kenai. Mr. Brady informed members that the Anchorage Board of Realtors' legislative committee is in favor of this bill, which they consider consumer protection legislation. He thanked Representative Rokeberg for the change from Version T [CSHB 207(L&C)] to Version Q, especially regarding the establishment of a board, which he believes to be highly important because the board could start regulating the industry and coming forth with regulations and legislation on that. MR. BRADY urged passage of this bill as soon as possible. However, he expressed concern about exempting engineers, which he doesn't believe to be in consumers' best interests. He explained his reasoning. Engineers focus on a discipline. If a petroleum engineer or a mining engineer, for example, retires and wants to supplement his or her income by becoming a home inspector, Mr. Brady doesn't believe that person would be qualified. He also mentioned mandating continuing education to people in the field. MR. BRADY suggested that perhaps the board, when it organizes, could "grandfather in" current engineers with some length of service in home inspections. However, he doesn't believe all engineers should be exempt in the future. Mr. Brady restated support for the bill, suggesting that the board could work on the areas of concern and come to some conclusion. He thanked Representative Rokeberg and his committee for working with the industry and the home inspectors to bring this "consumer protection bill" forward. Number 1553 REPRESENTATIVE JAMES referred to Mr. Brady's example of mining or petroleum engineers. She asked whether he believes that those engineers don't have the experience or the education. She conveyed her understanding that the [engineering education] is fairly generic until the specialization stage is reached. She said it seems that those people would have the ability, even though they might not have the experience. MR. BRADY replied that he would have to defer to engineers and home inspectors, as well as to Representative Rokeberg. He then restated that structural, mining and petroleum engineers focus on those particular areas. He doesn't know if the general background knowledge is great enough to do home inspections, a specific job that just "popped up" in the last four or five years. REPRESENTATIVE JAMES thanked Mr. Brady and noted that Representative Croft had joined the meeting [during Mr. Brady's earlier testimony]. Number 1648 ROBERT CARL, President, Active (ph) Inspections, Incorporated testified via teleconference from the Mat-Su LIO (Legislative Information Office). The way the bill is rewritten, he told members, he isn't as much against it as previously, but he has questions. He could see getting rid of the provision holding liability to the cost of the inspection. Noting that his own contract had a provision regarding binding arbitration through the Better Business Bureau, he asked if that still will be allowed. REPRESENTATIVE ROKEBERG answered, "The bill is silent on that, and I think it would be allowed." MR. CARL said he doesn't see the cost of the license in the bill. As he reads it, it is possible to get three different licenses: one for new construction, one for real estate and one combination license. Noting that earlier versions had contained $250,000 in E&0 insurance, he asked if that had been deleted. REPRESENTATIVE ROKEBERG affirmed that. MR. CARL indicated one of his previous concerns was that inspectors were being mandated to have the deepest pockets. He restated that he is much more pleased with the bill now. Number 1752 REPRESENTATIVE ROKEBERG responded that the licensing fees will be set by the commission or board [to be] established, but also they are set by statute in the sense that all boards and commissions have to be self-supporting. He believes that the estimate from the Division of Occupational Licensing was in the $350 range; the amount has varied in different fiscal notes for different iterations of the bill. Representative Rokeberg added, "I don't expect that there'll be much of a differentiation unless the board decided to license the associates at a lesser level or something, if at all, ... in terms of fee." MR. CARL asked whether that would be for all three licenses or for each one. REPRESENTATIVE ROKEBERG replied, "I think so, but that could be determined by the board." He added that it is over a two-year period. He requested clarification about the amount from the Division of Occupational Licensing. Number 1830 BARBARA GABIER, Program Coordinator, Division of Occupational Licensing, Department of Community & Economic Development, came forward. She reported that she had a copy of a previous fiscal note relating to a bill version that included a board. In that version, based upon 100 licensees, the amount was approximately $800 for a two-year period, which would be around $400 a year. REPRESENTATIVE ROKEBERG commented, "That was the high-side estimate." REPRESENTATIVE JAMES confirmed with Mr. Carl that he had heard Ms. Gabier's response. She then pointed out that determination of the amount would be based on the cost of the application, which would be determined by regulation. Number 1862 VINCE MEURLOTT, Building Consultants, testified via teleconference from Fairbanks, indicating he had just received Version Q. Mr. Meurlott expressed appreciation for the work done on this bill; he believes the new version is a little better than the last one but still disagrees with some provisions. This still raises the cost of government without sufficient benefits to the average citizen, to his belief, and administering this program will require more time, effort and money than it would first appear to require. He isn't sure that 50 licensed inspectors will pay into this. MR. MEURLOTT pointed out that the previous fiscal note didn't include funding for enforcement costs, which appear to be exactly what Representative Rokeberg and others are really looking for; he believes that tracking this down will be a little more expensive than it might appear on paper. He informed members that he is a registered engineer. He agreed that most people in Fairbanks have engineers do their inspections, as he believes is the case in Juneau. MR. MEURLOTT contrasted what happens in the Lower 48 versus Alaska. In the Lower 48, private home inspectors are almost inspecting housing stock constructed under the watchful eye of a jurisdiction that enforces the codes; the construction is usually safe, sound and sanitary from the beginning. Furthermore, inspectors primarily ascertain whether homes have been properly maintained, and that appliances and GFIs [ground-fault indicators] function properly. Checklists include termites, carpenter ants and maintenance of finishes, and inspectors almost act like insurance agents to warranty the appliances. MR. MEURLOTT pointed out that in Alaska, however, there is a great value in having engineers do the job. For structural areas, many "nonengineer types" cannot calculate a [required] beam or joist, or evaluate soil conditions. Furthermore, most of the training available to the construction community "here" has been only with regard to thermal and energy efficiency. Even the contractors don't really get structural training that they can hang on to. Mr. Meurlott said he routinely finds poorly constructed roofs, for example, that a nonengineer could not properly evaluate, "because I've come behind them several times." MR. MEURLOTT also expressed some concern about the changes regarding disclosures. He doesn't personally feel too bad about the reports being circulated years later. Although a report is a snapshot at a particular time, it still helps somebody three years down the road to recognize that a problem may still exist or that a correction has been made. Therefore, he believes that the added disclosure language is not that favorable. Number 2081 MR. MEURLOTT expressed confusion because the title of the bill appears to limit it to housing under AHFC. REPRESENTATIVE ROKEBERG clarified that the bill is for "the ICBO [International Conference of Building Officials]-type Alaska Housing Finance" and all home inspectors who are not licensed or registered engineers or architects that undertake to do home inspections. "So this gentleman would be exempt from being licensed," he said of Mr. Meurlott. "He could continue doing his activities, but he'd be exempt from his license." Number 2153 DAVE FEEKEN testified via teleconference from Kenai on behalf of the 400 members of the Alaska Association of Realtors, indicating his organization had worked closely with the sponsor on this legislation over the last couple of years. Mr. Feeken expressed "total support" for passage of HB 207 but pointed out one concern regarding the legal actions section. He mentioned that a couple of issues discussed that morning "in our meeting" related to the definition of a seller, owner or prospective buyer on page 6, lines 12 and 13. It is becoming a national trend to obtain this inspection prior to when the property actually is on the market because it in the seller's best interest, from a negotiating standpoint, to give some idea of what will be on the report. His organization has concerns because there isn't a prospective buyer when some of these inspections are coming forward. Number 2207 MR. FEEKEN turned attention to subsection (b), regarding omissions. He asked whether his understanding is correct that the one-year [provision] doesn't apply to that. REPRESENTATIVE ROKEBERG agreed that is how it is drafted now. MR. FEEKEN referred to Representative Rokeberg's mention that there is mandatory property disclosure on the part of the seller. He informed members that if there is an existing report, the seller is generally including that in the property disclosure statement, as the engineer from Fairbanks had indicated. Mr. Feeken said he understands the intention there of clarifying that the report is a snapshot of that property, that day, at that point, and understands the desire to not be liable for changes in the property's condition two or three years later. However, the reality of the business is that the old reports are ending up as part of the mandatory property disclosure statement. MR. FEEKEN concluded by saying he thinks this licensing bill is going in the right direction and may be ahead of a national requirement that would be imposed by the FHA [Federal Housing Administration], which has attempted this three times in the last three years. Mr. Feeken noted that he had served on the legislative committee of the national association of realtors for about ten years. He surmised that this type of legislation will become mandatory at the state level; otherwise, states will lose the ability to have FHA loans, which in Alaska may be 90 percent or more of the loans, as the FHA is the underwriter on most Alaska housing loans. Number 2290 DAVID R. OWENS, Building Inspector, Owens Inspection Services (Palmer), testified via teleconference from Anchorage, noting that he has been a building inspector since 1983; ten of his years as a building inspector were with the Municipality of Anchorage. Mr. Owens informed members that he is opposed to this bill; he acknowledged that he wasn't addressing the latest version, which he had just received, and indicated some of his concerns may have been addressed. MR. OWENS explained that he doesn't believe the bill is fair to all inspectors in this business because it just regulates a small part of the inspectors. Furthermore, there is no definite standard in Alaska to inspect to; he believes it is very important to have that first. Mr. Owens suggested this needs to go back to the drawing board, to come out with a basic, simple bill that works. He said that he supposes just looking at existing houses would be okay because there is some need in that area. However, it is really unfair that "the commercial inspectors, the guys that do rebar, concrete work, structural steel" don't have to have any requirements or E&O insurance. Number 2358 BRUNO REHBEIN, Home Inspector, testified via teleconference from the Mat-Su LIO, noting that he has a home inspection service "in the valley"; although he has only done that for a year and a half, he has been involved in building homes for over 20 years. Pointing out that he had just received Version Q, Mr. Rehbein said he believes the changes improve the bill. He had been concerned about "the engineering concerns of the previous testimony," as well as the fact that commercial inspectors aren't involved in this licensing or the requirements. MR. REHBEIN surmised that if this goes through, housing inspections would become more invasive, with increased scrutiny, documentation and costs. Other than that, however, he thinks it is basically a good idea to have some kind of licensure for home inspectors, except that he is also a little concerned about exempting building officials and municipal inspectors. He asked, "If I go into Anchorage and do a home inspection on an existing home that was previously done by a municipality, where's my knowledge on what they require, and where's their knowledge on what the state requires?" Number 2435 CHARLES JEANNET, Registered Engineer and Inspector, testified via teleconference from Fairbanks. He first inquired about the reference to AHFC in the title. REPRESENTATIVE ROKEBERG answered that it is the way legislation is drafted under the drafting manual under the single-subject rule in the state constitution. The title in essence puts the public on notice. The first portion of the title has to do with licensure of home inspectors, and the second portion [has to do with AHFC]. TAPE 00-37, SIDE B Number 0001 REPRESENTATIVE ROKEBERG explained that the title "goes away" after passage of a bill. MR. JEANNET informed members that in general he concurs with the comments made by Mr. Owens in that he has a bit of problem with trying to initiate standards for inspections on existing homes when there aren't yet codes pertaining to those homes in outlying areas. In that one regard, the cart is in front of the horse. Many properties have been constructed without any reference to codes or inspections; by establishing some sort of standard of practice and "siccing a bunch of inspectors on those homes," he sees this as escalating the costs for the sellers of those homes. MR. JEANNET turned attention to the exemption of engineers. He told members that he applauds the efforts "to take the engineers out from under this bill." He believes that engineers should know whether or not they are qualified to do an inspection and will act accordingly. They also have an existing board and code of ethics to which they are answerable. If an engineer is practicing in a manner contrary to his or her area of expertise, that existing board can deal with that. MR. JEANNET told members that this bill appears to fly in the face of the current state disclosure laws. For instance, if a seller doesn't agree with a previous engineer's report or inspection report, he believes that the seller can, in essence, tear up that report; if that buyer goes away, then a new buyer could go along without that former report being disclosed. In fact, it may even be illegal to disclose that former report, which Mr. Jeannet sees as a problem. He asked whether he is reading that correctly. Number 0118 REPRESENTATIVE ROKEBERG answered that he wouldn't agree with Mr. Jeannet's interpretation. He elaborated: If a seller is aware that there is a problem with this home, it has nothing to do with this report. If they became aware of it by the report, that's one form of communication. It's the report itself that doesn't survive. It's not the knowledge. The knowledge ... is [an] evidentiary fact. So the two may be connected as a communication but not connected in fact. MR. JEANNET replied that as he sees it, however, it is left up to the opinion of the seller as to whether that former report or the deficiencies noted in it are legitimate. That is where he believes the problem is. If a problem had been noted by a former inspector, then he doesn't think it should be left up to the seller to determine whether that needs to be addressed. REPRESENTATIVE ROKEBERG responded that the state law says that the seller has to fill out the disclosure form, which has nothing to do with the home inspection report. Those are two separate documents. Number 0160 MR. JEANNET pointed out a real-life example that had occurred within the last 30 days in Fairbanks. He had been asked to look at a home that another inspector had looked at only two or three weeks previously. He was told by the real estate agent that the former report was null and void, the buyer had gone by the wayside, there was a new buyer, and Mr. Jeannet didn't even need to look at that former report. However, Mr. Jeannet had insisted upon looking at the report. As it turned out, some issues were brought out in that report because of snow and other conditions present at the time when the other inspector had looked at the home; the inspector had been able to observe some things that later, when the snow had been removed and conditions were different, Mr. Jeannet wouldn't have been able to see. MR. JEANNET emphasized that in that instance, the disclosure statements had already been filled out, prior to even listing the home. His only tip-off had been the comments [in the report] from that previous engineer who had looked at the place. Under this bill, in contrast, Mr. Jeannet wouldn't have been able to demand to look at the previous report, and he believes that perhaps the seller would have been prohibited from providing it to him. REPRESENTATIVE ROKEBERG disagreed. He said that if the seller becomes aware, under the state real estate disclosure statute, that there is any deficiency, then he must modify the disclosure report. "And if he's not, he's subject to the problem, not the home inspector or you," Representative Rokeberg added. MR. JEANNET specified that he would rather have an engineer tell him that there isn't a problem, rather than having the seller say, "I have no problems." REPRESENTATIVE ROKEBERG responded: He can show you the report. The fact pattern you've described has almost nothing to do with this bill. ... We're talking about the validity of the grounds to sue somebody. That doesn't mean the report doesn't still exist ... or the seller became aware of a defect. If the seller's aware of a defect, ... the disclosure law is what applies, not this bill. So I'm not sure how ... the fact pattern you described to the committee would be affected by this bill. Number 0267 MR. JEANNET explained that he had brought it up because in Representative Rokeberg's introduction of the bill before the committee, he had mentioned three- and four-year-old reports that may come somehow cloud the issue of old deficiencies regarding the property, and that may somehow inappropriately hinder the sale. Mr. Jeannet restated that he doesn't know if it should be the seller who makes the call as to whether those old reports should be discarded. Number 0300 RON JOHNSON testified via teleconference from Kenai, specifying that he was speaking primarily on his own behalf, although he formerly was a member of the real estate commission. Referring to page 5, line 1, Mr. Johnson questioned what the type of insurance requirement of the home inspector has to do with any member of the public being covered or protected. He suggested eliminating that and letting regulations determine what types of insurance are required. He believes it needs to be addressed as a protection for the public, rather than property damage, liability and injury; he cannot see the logic behind that. He also asked what the liability insurance does for him, as a member of the public. REPRESENTATIVE ROKEBERG replied, "If the inspector damages you or does something wrong by his activities, then he's got liability insurance. Or he damages your property perhaps." Number 0360 MR. JOHNSON said he would accept Representative Rokeberg's interpretation. He then turned attention to page 6, line 8. He told members that it seems that a party to a transaction would include the lender. A lender makes the loan based upon the home inspector's report; if that report proves to be incorrect or has omissions, and if the purchaser "walks and leaves the lender holding the bag," then it seems that the lender is a party to the transaction who should be included. MR. JOHNSON brought members' attention to page 6, line 14, paragraph (2), which said, "within one year after the date of the written report." He recalled that the supreme court in 1994 had a decision against the real estate commission relative to the one- year date; he suggested that somebody may want to research that decision. Mr. Johnson concluded by saying he doesn't believe that engineers should be exempt. Number 0432 REPRESENTATIVE ROKEBERG requested clarification about the one-year provision. MR. JOHNSON answered that the real estate commission had a ruling relative to "the surety fund discovery of damage." The real estate commission was challenged in the superior court, then in the supreme court, where the one-year portion of that was overturned. In response to Representative Rokeberg's question as to whether that was related to the condition of the property, Mr. Johnson explained that the reasoning behind the decision was that "if you found the flaw, you had one year to act on it, or two years from the transaction, and the supreme court said, 'No, there should be two years in either case.'" Mr. Johnson suggested looking at that decision and weighing it against the language in this bill in order to avoid getting into that supreme court argument relative to this law [HB 207] in the future. REPRESENTATIVE ROKEBERG stated the intention of making the report only good for a year, not the cause of action. "That's the distinction we're trying to make," he added. MR. JOHNSON said he can see that there is a good reason for the report being good for a year. However, it seems that because of the similarity, that supreme court case might be used against this legislation. Number 0522 MARK LEWIS, Registered Civil Engineer and President of the Alaska Association of Home Inspectors, testified via teleconference from Anchorage, specifying that his organization is the Alaska chapter of the American Society of Home Inspectors that Representative Rokeberg had mentioned in his opening remarks. Mr. Lewis said he had worked with Representative Rokeberg on this for a while. He had reviewed Version B [1-LS0132\B, Lauterbach, 3/16/00] earlier that week but had just received Version Q. MR. LEWIS specified that in representing the local association of home inspectors, there are a couple of concerns. First, if engineers are exempt, the license fee will increase; a side issue is that most houses don't need a complete engineering evaluation, although there are definitely exceptions to that. In his personal opinion, which he believes is shared by a number of people, the purpose of a home inspection is simply to identify whether there are major concerns, and then to recommend further evaluation, as necessary, depending on whether the type of problem is structural, plumbing-related and so forth. MR. LEWIS next referred members to page 5, line 25, which read [beginning on line 24], "In addition to other relief, the court may impose a civil penalty of not more than $250 for each violation." Mr. Lewis said this law parallels in some sense the engineering statutes; he suggested increasing the penalty to make it more consistent because these are not $50 or $100 items but potentially are $50,000, $100,000 or $300,000 issues. The penalty for noncompliance with the law, to his belief, should be increased because $250 is not that much. Number 0637 MR. LEWIS informed members that some big issues relate to page 6 regarding legal actions against a home inspector. The wording has changed in paragraph (a)(1) from Version B, provided earlier that week, to Version Q. He favors the language in Version B, which said, "by the person who contracted and paid for the report", rather than Version Q, which says, "by a person who was a seller, owner, or prospective buyer of the inspected property at the time the inspection was performed". MR. LEWIS explained that although perhaps the latter is a little more clear, he has a problem with being liable to somebody he hadn't talked to. He believes liability should be limited to the person who paid for the report, not to anybody in the transaction, because he isn't doing an inspection and writing a report for everybody else; he is writing it for a specific client, and his fiduciary responsibility is to that individual or those individuals, not to everybody else in the process, especially other potential buyers. Mr. Lewis pointed out that the phrase "prospective buyer" is unclear because a property may have multiple prospective buyers. One who happens to be looking for houses at the same time that the inspection report was done could argue that he or she was a prospective buyer at the time but perhaps just didn't know about it. He believes that should be addressed. MR. LEWIS turned attention to subsection (b) on page 6, brand-new that week, which read: (b) A person may not bring an action against an individual licensed or registered under this chapter based on omissions in a written home inspection report prepared by the inspector unless the action is brought by a person who was a seller, owner, or prospective buyer of the inspected property at the time the inspection was performed. As a representative of the inspectors locally, Mr. Lewis said he is fully against that. It is unlimited. Furthermore, he is frustrated because this goes against the approach that he thought had been worked out through discussions with Representative Rokeberg regarding what is reasonable in the whole are of legal actions against the home inspector. Number 0787 MR. LEWIS highlighted a further difference between Version B and Version Q, relating to AS 08.57.090, found on page 4 in both versions. Version Q says "licensed home inspector" or "licensed home inspectors" in various subsections, whereas Version B had said "home inspector" or "home inspectors." Mr. Lewis asked what the difference is. Noting that he wears two hats [home inspector and civil engineer], he said he believes it is easy to confuse a home inspection with an engineering evaluation. He thinks those are two different things, which engineers need to keep in mind; if they want to do home inspections, he proposed that they not be called home inspectors. MR. LEWIS told members that the argument he keeps hearing in testimony is that a licensed, registered engineer will "hopefully" know what he or she is doing, and "should" know that, and that an existing board can deal with problems. Speaking with what he terms a "slightly hostile position" because of all the changes, Mr. Lewis said this is just joint regulation of one product provided to the public with two different boards, and there is no set of standards that the engineering board has developed; it is all up to engineers. Mr. Lewis restated his original position, which he said he has held all along: engineers should not be exempt from this law, nor should the board that regulates engineers also regulate home inspections. He doesn't believe the product is the same. "If you're so good at home inspection and you're an engineer, then it would not be that hard to get licensed," he added. Number 0918 MR. LEWIS asked whether an engineer who signs a report is liable under the AELS [architects, engineers and land surveyors] laws under Chapter 48 [of Title 8] of the Alaska Statutes. Noting that the argument he has heard for exemption of engineers and architects is based on qualifications, he asked how that makes them exempt from liability insurance. He doesn't believe there is an answer, he said, because AELS laws in Chapter 48 don't require insurance, whereas this law [HB 207] does. There would be home inspectors covered [under HB 207], whereas an engineer may not have insurance. Mr. Lewis reiterated that engineers should not be exempt, for a number of reasons. He thinks in some ways this [bill] goes against protecting the public and the home buyer, which is what it was originally intended to do. Noting that he had other issues, Mr. Lewis nonetheless said he would stop there. Number 1035 WILLIAM BRUU, ICBO Inspector and Home Inspector, testified via teleconference from the Mat-Su LIO, representing himself as president of his firm. Referring to page 6, lines 2-7, he asked whether that can be interpreted as limiting his right as an ICBO inspector to file a lien on new construction for services rendered to the property that haven't been paid for. REPRESENTATIVE ROKEBERG said he would review the bill regarding that. REPRESENTATIVE JAMES asked whether Julia Coster, Assistant Attorney General with the Department of Law, who had been online earlier, had heard that question. [She was then told by the teleconference moderator that Ms. Coster had had to leave.] Number 1096 MR. BRUU next referred members to page 6, line 8, regarding legal actions against the home inspector. He suggested redrafting those two paragraphs so that the definition of the limits of the home inspector's liability is addressed in one section and the life of the report is addressed in a second section. REPRESENTATIVE JAMES asked whether anyone had answers for Mr. Bruu; none were offered. MR. BRUU noted that he himself had used the lien laws in the past to take and ensure payment for his services for inspections on new construction only; it doesn't apply to existing construction. He added that if ICBO inspectors are going to be licensed under the bill, there is a need to make sure that their capability to ensure payment is not limited. REPRESENTATIVE JAMES commented, "I'm not sure we can specifically eliminate that opportunity." Number 1172 REPRESENTATIVE ROKEBERG stated that this says one must be licensed to be able to do the lien. An engineer doing home inspections may not be able to do it. He suggested, therefore, that engineers who don't want to be included might want to rethink that position. MR. BRUU surmised that it will probably end up being tested in court. He pointed out that one other inspector, who no longer was at the Mat-Su LIO, had conveyed the following suggestion: On the liability, the life of the report should be limited to 90 days or less, or to the person who contracts for the service. Number 1265 SHARON MACKLIN, Lobbyist for the Alaska Professional Design Council, came forward to testify, noting that the Alaska Professional Design Council is a trade association of architects, engineers, land surveyors and landscape architects. She stated: We are in support of the bill. We've worked very closely with Representative Rokeberg and his staff on this bill, and feel that it addresses our concerns that are primarily on page 8 [Version Q], the exemption for licensed architects and engineers. MS. MACKLIN agreed that Juneau is a community that doesn't have home inspectors, and where many engineers do home inspections; she has heard that it is true in Fairbanks as well, "although it sounds like there are some ICBO-licensed or certified home inspectors there." She restated support for the legislation. Number 1324 REPRESENTATIVE CROFT asked whether those categories should be exempt from the entire bill or just the licensing requirement, assuming they are qualified because of being engineers or architects. For example, should they also be exempt from the insurance or inspection report requirements? MS. MACKLIN answered that the issue of [E&O] insurance was brought up in one bill version, requiring architects or engineers who do home inspections to carry, to her recollection, $250,000 [of insurance]. She said she couldn't remember exactly why that was deleted, but discussions with engineers who do home inspections now have revealed that they carry E&O insurance for everything and would be covered under their existing insurance. REPRESENTATIVE CROFT pointed out that the exemption on page 8 is only an exemption from licensure. It doesn't affect the requirement of the form of the report, or the content. He requested confirmation. MS. MACKLIN said she didn't know. REPRESENTATIVE ROKEBERG offered his opinion that if one isn't under the licensure, one's standard of practice is not regulated. REPRESENTATIVE CROFT noted that the report section says, "before performing a home inspection, a licensee shall provide." Alluding to engineers and architects, he stated, "So, they're not a licensee, so they're not under it." Number 1398 REPRESENTATIVE ROKEBERG stated that he wants to make sure that those engineers and architects who are performing home inspections don't get any of the benefits or restrictions contained in this bill. They are exempt from this bill. Furthermore, engineers and architects cannot advertise themselves as licensed home inspectors. MS. MACKLIN responded, "And we are comfortable with that." REPRESENTATIVE ROKEBERG added that he doesn't believe that the one- year report limitation would apply to them, either. He then asked, "Ms. Macklin, if we were not to exempt the engineers and architects, would your clients support this bill?" MS. MACKLIN said no. Number 1463 REPRESENTATIVE JAMES remarked that she feels a little uncomfortable setting up a bureaucracy of home inspectors that don't have to have engineering qualifications or any real qualifications except for some testing or classes, and then putting engineers out in another area by themselves. She herself makes quite comfortable with engineers making these reports, she added. REPRESENTATIVE KERTTULA pointed out that engineers would also be exempt from getting any compensation for breach of contract unless they also had the home inspector license. REPRESENTATIVE ROKEBERG replied that they should be licensed, but of their own volition. REPRESENTATIVE KERTTULA indicated she wants to be clear that the engineers are comfortable with that. REPRESENTATIVE JAMES commented that from her perspective, it appears to create a conflict in that engineers are currently doing [home inspections] and would be unhappy if they weren't exempt from this proposed law. She asked: Does that mean they aren't going to do it anymore? Or, if they are going to do it, they're not going to be following the rules? Or they're not going to be able to have any of the benefits? ... It doesn't seem to me like it ... meets the proper intentions of what we're hoping to fix. Number 1580 REPRESENTATIVE ROKEBERG answered that one key issue and conflict within the bill is trying to reconcile those who are in the business, those who receive the service, and those who are architects and engineers. Engineers and architects, who already are regulated under the [AELS] board, don't wish to be regulated in this manner. If they wish to be licensed under this chapter, they can do so, but they are exempt at their own request, by and large. It happens that a couple of small benefits in the bill accrue to those who are licensed and pay their fees. Representative Rokeberg said he agree with the realtors and would like to see [architects and engineers] licensed under the bill, but the political realities are not there. Number 1690 REPRESENTATIVE CROFT emphasized the distinction between exemption from a licensure provision and exemption from other provisions. For the former, it makes sense that engineers and architects would be exempt from being under a different board with a whole set of bureaucracy. For the latter, he isn't so concerned about the insurance part, if it is true that they cover their own insurance. However, on page 6 [beginning on line 20], "Inspection report required", it talks about the notice that must be provided, and [on page 7] it has the "Prohibited acts" section. Those are, in his opinion, the heart of the consumer protection aspect, making sure that the report says certain things and that certain things aren't done, including acts relating to a conflict of interest. Although understanding completely why there wouldn't be a whole new test, licensure and all that [for architects and engineers], Representative Croft said he doesn't understand why the exemptions apply to some of the standards of the report. REPRESENTATIVE JAMES agreed with the need for assurance that the people doing this are qualified. She also agreed with the need for a board of approval so that the public has someplace to go to complain about someone's license, for example. As for engineers, she feels that they are qualified by virtue of "their education and their application," and that their own license - which is superior to what this would be - would inhibit them, under their own board, from doing something they are not qualified to do. Besides, it seems this is one thing they would be qualified to do. However, Representative James indicated, even if engineers are exempt from having the [home inspector's] license, they ought not to be exempt otherwise for consistency and efficiency. Number 1869 REPRESENTATIVE ROKEBERG said he understands exactly what Representative James is saying, but it had created a huge dilemma in terms of legislative drafting and implementation. He explained: What we would do is we'd set up the board as we've done in this bill, but then we'd have to turn around and take the engineering chapter and modify that again, and then direct that other board to set these standards up, and these standards of practices up, I think. And ... that's the way it would have to be to work correctly, to keep the exemption in. In other words, ... we'd have a bunch of nonengineers telling the engineers how to do their business. And that's the political and the practical dilemma when you draft like that. MS. MACKLIN responded to Representative Croft's comments regarding protection of the public. She said there is some language in the "board of registration for architects and engineers law" that revolves around conflict of interest and whom a person gets paid by; a few things seem to overlap, but she hasn't had time to review it in-depth. She suggested that might be something to look at. Number 1961 REPRESENTATIVE JAMES asked what Ms. Macklin believes that the engineers and architects, who are exempt under the bill, will do when they do inspections. Will they do their own reporting? Will it have any connection whatsoever with what others are doing? MS. MACKLIN answered that she hadn't talked to any engineers who do home inspections about that specifically. However, she assumes that if new forms come out for home inspections that are required by this board of registration for home inspectors, then the design professionals who are doing home inspections would want to utilize the same forms and comply. Number 2035 REPRESENTATIVE MURKOWSKI echoed the concern that this allows two different standards to be out there for home inspectors, depending on whether the person is a licensed home inspector or an architect- engineer. In response to Representative Rokeberg's statement that this is difficult to draft, she suggested that although the licensure requirement is exempt, the bill could still have provisions so that an architect doing home inspections would be required to comply with a particular provision such as the reporting. REPRESENTATIVE ROKEBERG disagreed. He asked who would enforce it. An architect or engineer cannot be put under the auspices of the home inspectors' board if they are exempt, he said. And if the expectation is regulation by the engineering and architectural board, then the legislature would be "intruding into their chapter and telling them what to do." He added, "We would have to modify their section of the law and mandate, to their board, that they should change their regulatory scheme in which to enforce it." Number 2193 REPRESENTATIVE CROFT noted that the bill contains some important disclosure restrictions. He suggested the possibility of saying that [engineers and architects] are bound by the form of the report and the prohibited acts, and that any violation would be referred to the engineers' and architects' own board for action. REPRESENTATIVE ROKEBERG stated that as a matter of public policy, this legislation is being drafted as an incentive for engineers and architects to become licensed home inspectors. "They don't want to be home inspector licensees, but I would like them to be, and, therefore, there is an intention here," he added. "Also, I think we've heard testimony that the cost of licensure will go up without those people that are conducting this business [if] they don't join the group that's to be regulated as home inspectors." Number 2313 REPRESENTATIVE JAMES replied that she had thought the purpose of the bill was to make some rules and regulations regarding how these inspection reports would be done, and that the board would provide the public somewhere to go in the event that the [inspectors] don't do it that way. That is the reason for the licensing. She asked whether she had missed something. REPRESENTATIVE ROKEBERG answered, "No, that's what it does." She asked John Bitney for his comments. Number 2358 JOHN BITNEY, Legislative Liaison, Alaska Housing Finance Corporation (AHFC), came forward, noting that AHFC is addressed in Sections 4 and 5 of the bill. He explained that state law since 1992 has required that in order for AHFC to purchase the mortgage on a home newly constructed after 1992, [the home] has to have a home inspection in order to qualify. Section 4 references the ICBO and other options. Regardless of whether the inspection is done by the ICBO, the "International Association of Electrical," or an engineer-architect, Mr. Bitney said, there is a specific five-step process in the statute. That will continue, and there will be "a required form, if you will, in the documents, when we purchase a loan." MR. BITNEY explained that AHFC is asking, with this legislation, that if a program is going to be put in place - which AHFC supports doing - then the statute would reflect that these people can do that inspection; then, after the transition period is completed, the other types of inspection [ends mid-speech because of tape change; however, Mr. Bitney had sent a letter dated March 22, 2000, which stated in part: "AHFC would like HB 207 to allow licensed home inspectors to approve home[s] for mortgages that can be purchased by the corporation. Sections 4 and 5 of the draft would make this change to current law."] TAPE 00-38, SIDE A MR. BITNEY expressed concern that someone doing a home inspection without a license but who "had an ICBO" would be in conflict with the statute as envisioned here. Mr. Bitney informed the committee that AHFC supports HB 207 because it will improve consumer protection. Currently, the incentive to have an inspection comes from the buyer - in order to obtain a report on the condition of the home - or is tied to some sort of requirement regarding the financing. Number 0063 MR. BITNEY explained that when something goes wrong, there is no clear delineation for the purchaser regarding who is responsible for a problem. He has looked at homes in the Interior, as recently as last week, in which an out-of-state buyer has assumed that Alaska is similar to states where the building inspector is almost a Mafia don in terms of authority on the construction process of a home. This is not the case in Alaska, however, as people find out when something goes wrong on the home. Therefore, it becomes a question of who is responsible. The AHFC does not believe it has liability due to the reports. However, the reference in statute regarding the AHFC's recognition of the ICBO certificate leads people to want AHFC to step up to the plate and call these certificate agencies, on a national level, to force them to come forward, or to get the builder to come forward. Mr. Bitney stated that AHFC is supporting HB 207 because it levels the playing field to some degree and provides a much clearer delineation for the home buyer when something does go wrong. Number 0286 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Community & Economic Development, turned attention to whether the report requirements should apply to engineers while still exempting them from the licensure law. If the committee decides to do that, Ms. Reardon said, it is better, from her perspective, to give the AELS board the responsibility for determining whether an engineer had [performed properly], rather than having the home inspector board first decide whether the engineer had violated something and then referring it to the engineering board. MS. REARDON explained her rationale. She agrees that with two boards applying the same statute, there would be the potential to end up with two standards. Therefore, it would be best to have the board governing the license - rather than another board - making the decision; otherwise, there might be a two-step disciplinary process. If the desire is to have each board govern "its own," then the clearer the language can be made on page 6 regarding what has to be in the report, the better; "the less room for subjective interpretation, the better," she added. REPRESENTATIVE ROKEBERG commented that Ms. Reardon had encapsulated some of the frustrations in putting this bill together. He believes that one board cannot be intruded upon by creating another board and having cross-regulations. That is not a workable situation, and therefore there is an intention to provide an incentive to those people on one board to become dual members. Number 0535 REPRESENTATIVE CROFT noted that his wife is an architect. He said it seems [architects] could be required to get a license and to meet the standards of this, but perhaps they would be waived in as prequalified and therefore wouldn't have to take a test. If an individual wants to be an architect or engineer, and also wants to be a home inspector, the individual would have to obtain the [home inspector] license; then the individual would be waived in, based on the assumption that he or she is doing a good job. REPRESENTATIVE JAMES commented that if she herself were an architect or engineer who had to pay $800 every two years for a license, along with others who don't have nearly the education, she would feel kind of out of place. REPRESENTATIVE KERTTULA noted that she had worked with occupational licensing at the Office of the Attorney General. She agreed with Ms. Reardon that one would not want to have one board referring back to another, nor would one want to mix up the two professions. She believes that everyone wants protections in place regarding what the report entails. Representative Kerttula said there needs to be those requirements going back to the architects and engineers so that everyone knows what the report is going to be. However, she isn't sure how to accomplish it. REPRESENTATIVE JAMES remarked that it seems there are several processes here. First is the delineation of what is included in a home inspection report in order to qualify for the financing requirement of the house. She added, "These are the qualifications. And these are the folks that can do it. And in order to be licensed as this inspector, this is what you have to do, and when you get to be that, you have to follow these rules." Number 0698 REPRESENTATIVE ROKEBERG noted that some prior versions of HB 207 had included a checklist regarding what should be in the report. Substantial testimony was taken, however, regarding not being too specific because of the need for flexibility about what should be included in the report. He indicated that it was agreed that the board, by regulation, would establish a report while recognizing certain flexibilities. Therefore, he did not believe this should be stipulated in statute. REPRESENTATIVE ROKEBERG next responded to Representative Kerttula's comments. He said the marketplace will start differentiating among the architect, engineer, home inspector and licensed home inspector. He is relying on the marketplace to make those distinctions; it would require a certain amount of time to sort itself out. Furthermore, with the home inspector board in place, there will be discussions between the two boards and thus changes would take place on a natural basis over the years. REPRESENTATIVE JAMES asked if one could have this lesser education as a home inspector and charge less for a home inspection than a licensed engineer performing a home inspection would charge. She further asked whether people would, then, turn to home inspectors and forego including engineers. REPRESENTATIVE ROKEBERG explained that currently the marketplace is in equilibrium regarding the charges for the scope of work between the engineer home inspector and the nonengineer home inspector. The market has basically set those prices. He pointed out that an engineer has to make a more detailed inspection of the foundation, roof members or component parts; in order to do so, the engineer actually raises his/her fee schedule. The home inspector cannot do that and "almost, in essence, has to refer to a structural engineer," which happens now. However, Representative Rokeberg said, there was significant testimony that although an engineer may be trained at a university, he/she is not trained as a home inspector. REPRESENTATIVE ROKEBERG suggested that probably some of the best home inspectors are engineers with 20 years' background in construction, and who know the business. Moreover, some very competent home inspectors are not engineers but have been in construction and other allied areas for years. He remarked, "We all know that the college of hard knocks is the best master's degree you can probably get." Representative Rokeberg said that Mr. Lewis, an engineer and a home inspector, therefore wants to include engineers in this because he believes they need better education - which is not received as an engineer - in performing home inspections. Number 1028 REPRESENTATIVE CROFT referred to the section on page 6 regarding legal actions against home inspectors. He indicated his belief that the desire is not allow a suit to be brought based on a report that is over one year old. Therefore, he offered Amendment 1: Page 6, line 10, Delete "statements made in" and "unless" Page 6, line 11, Delete "the action is brought" Insert "that is more than one year old" Page 6 Delete lines 12-19 REPRESENTATIVE ROKEBERG objected. He clarified that he didn't object to Representative Croft's concept. However, he would like to limit those who can bring an action to the seller, owner and prospective buyer as well as whoever purchased the report. REPRESENTATIVE JAMES asked if Representative Rokeberg would be willing to separate the amendment into two parts. REPRESENTATIVE ROKEBERG said he wasn't sure that it could be divided. Number 1193 REPRESENTATIVE CROFT offered to change Amendment 1 so that the first two changes would remain the same, but the last change would only delete lines 14-19. After some discussion, Representative Croft returned to the initial iteration of Amendment 1. REPRESENTATIVE JAMES pointed out that initially that provision, AS 08.57.810, says "A person may not". She suggested that the language could be changed to read, "Only a person who was a seller, owner or perspective buyer ... may bring an action ... and cannot be based on a written home inspection report that is more than one year old." Number 1328 REPRESENTATIVE ROKEBERG withdrew his objection to Amendment 1. Therefore, there being no objection, Amendment 1 was adopted. REPRESENTATIVE JAMES suggested that in order to get this satisfactorily drafted, the committee should list the points desired and place a conceptual amendment before the committee. Asking whether it captures the intent, she stated: If we want to have the ideas are that the inspection report cannot be more than a year old and that the person who brings the action ... cannot be anyone other than a seller, an owner, a prospective buyer or the purchaser of the report. REPRESENTATIVE ROKEBERG said that would [satisfy] what he is looking for. REPRESENTATIVE CROFT said he would like to discuss the idea. Number 1403 REPRESENTATIVE ROKEBERG made a motion to adopt Representative James' aforementioned suggestion as a conceptual amendment. REPRESENTATIVE MURKOWSKI commented that everything has to be a conceptual amendment. REPRESENTATIVE CROFT surmised that there is agreement on the point that the report [must not be more than] a year old; now the discussion is regarding who can [bring action]. REPRESENTATIVE JAMES said she believes if those points can be agreed upon conceptually, then the drafter can replace the entire section with the language [of the conceptual amendment]. REPRESENTATIVE CROFT mentioned that problems arise when one attempts to predict all of the possible factual situations. He stressed that there may be people affected by this other than those mentioned. REPRESENTATIVE ROKEBERG said that may be true. Upon review of other parties that he wanted to "cut off," he expressed the need to "cut off" the successive home buyer. Representative Rokeberg emphasized the need for [one who can bring suit] to be a party to the transaction at the time of the report. REPRESENTATIVE JAMES suggested that if [the report] is determined to be incorrect at a later time, certainly the lender is a party to the transaction and thus should be included. This language does not include the lender, however. Number 1537 REPRESENTATIVE MURKOWSKI suggested the following language, "a party to the transaction at the time the inspection was performed," which would seem to include everyone of concern. REPRESENTATIVE ROKEBERG answered that would work for him. Number 1551 REPRESENTATIVE KERTTULA expressed concern that someone who really wasn't a party at the immediate time still could really get taken in by the report, if it were somehow incorrect. REPRESENTATIVE ROKEBERG interjected that there is a restriction in the bill such that the report cannot br circulated without the permission of whoever paid for it. He pointed out that circulation of these reports too soon is one problem in the industry. REPRESENTATIVE KERTTULA related her understanding, then, that the person whom action is brought against is the person who circulated the report. She agreed that may have been solved. Number 1598 REPRESENTATIVE CROFT referred to page 7, lines 16-22. He said there could be a situation in which a month later, and with the permission of the person that did the report, the report is shown to a subsequent client, who would not be a party to the transaction that made the report. He indicated that use of the language "affected party" would be appropriate language. REPRESENTATIVE ROKEBERG pointed out that an affected party could be someone who wasn't part of the first deal and becomes privy to the court later and indirectly. He specified that he wanted to "cut off" those people. REPRESENTATIVE CROFT emphasized, "Well, they could get it under your own bill .... There's a procedure to disclose this to people that were not party to the original [report]." REPRESENTATIVE ROKEBERG replied that such could happen with consent, which he believes is acceptable. REPRESENTATIVE JAMES surmised, then, that the consent would have to be given by the person who paid for the report. REPRESENTATIVE ROKEBERG affirmed that and said that is already in the legislation. Number 1693 REPRESENTATIVE CROFT suggested language could be inserted in AS 08.57.810 saying, "a person may not bring an action based on a report that is more than one year old or that was unlawfully disclosed". REPRESENTATIVE ROKEBERG indicated agreement with that language. REPRESENTATIVE JAMES informed the committee of a message from Mark Lewis regarding the need to insert the word "original" in order to refer to the original purchaser of the report. Mr. Lewis also had suggested that "home inspection" be redefined in the bill. Number 1765 REPRESENTATIVE CROFT turned to the amendment before the committee that would eliminate subsection (a) from AS 08.57.810. The amendment would read as follows: A person may not bring an action against individual licensed or registered under this chapter based on a written home inspection report prepared by the inspector that is more than one year old or unlawfully disclosed. REPRESENTATIVE JAMES clarified that the language on page 6, lines 12-19, would be deleted. REPRESENTATIVE ROKEBERG announced that he didn't object to that amendment. [There being no objection, it was so ordered and the language read by Representative Croft (under Number 1765) was adopted. It was later suggested that this amendment overrode Amendment 1, adopted earlier.] Number 1818 REPRESENTATIVE ROKEBERG referred to page 5, line 25, which imposes a civil penalty of not more than $250; he said that seems to be a pecuniary amount. Therefore, he asked if Ms. Reardon could recommend an amount. MS. REARDON said she assumes that this amount is for each violation and as such could build up to be more than $250. She said she didn't have an opinion on this. Number 1873 REPRESENTATIVE ROKEBERG moved that the penalty amount be changed to $500. There being no objection, it was so ordered. Number 1885 REPRESENTATIVE KERTTULA moved to report CSHB 207 [version 1- LS0132\Q, Lauterbach, 3/24/00], as amended, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered and CSHB 207(JUD) was reported from the House Judiciary Standing Committee. HB 211 - HEALTH CARE INSURANCE Number 1904 REPRESENTATIVE JAMES announced that she would bring up HOUSE BILL NO. 211, "An Act relating to liability for providing managed care services, to regulation of managed care insurance plans, and to patient rights and prohibited practices under health insurance; and providing for an effective date." [HB 211 was held.] ADJOURNMENT There being no further business before the committee, the House Judiciary Standing Committee meeting was adjourned at 3:30 p.m.