SENATE JUDICIARY COMMITTEE April 12, 1995 1:40 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator Lyda Green, Vice-Chairman Senator Mike Miller MEMBERS ABSENT Senator Al Adams Senator Johnny Ellis COMMITTEE CALENDAR ALASKA MENTAL HEALTH TRUST AUTHORITY BOARD OF TRUSTEES CONFIRMATION HEARINGS: Kay Burrows, Tom Hawkins, John Malone, Nelson Page, John Pugh, Evelyn Tucker, Phil Younker, Jr. VIOLENT CRIMES COMPENSATION BOARD CONFIRMATION HEARING: Alison A. Lauber, M.D. SENATE BILL NO. 105 "An Act relating to a requirement that a parent, guardian, or custodian consent before a minor receives an abortion; establishing a judicial bypass procedure by which a minor may petition a court for authorization to consent to an abortion without consent of a parent, guardian, or custodian; amending the definition of `abortion'; and amending Alaska Rules of Civil Procedure 40, 53, and 79; Alaska Rules of Appellate Procedure 204, 210, 212, 213, 508, and 512.5; and Alaska Administrative Rule 9." CS FOR SENATE BILL NO. 95(L&C) "An Act relating to automobile liability insurance for uninsured or underinsured motor vehicles; and providing for an effective date." CS FOR HOUSE BILL NO. 115(JUD) am "An Act relating to settlement and payment of claims for overtime compensation claims and to liquidated damages and attorney fees for overtime compensation claims." PREVIOUS SENATE COMMITTEE ACTION SB 105 - See Health, Education & Social Services minutes dated 3/20/95 and 3/22/95 and Judiciary minutes dated 4/10/95. SB 95 - See Labor and Commerce minutes dated 2/28/95, 3/21/95, and 3/28/95. HB 115 - No previous Senate action. WITNESS REGISTER John F. Malone P.O. Box 1032 Bethel, AK 99559 Kay Burrows 2711 W. 84th Ave. Anchorage, AK 99502 Tom Hawkins 1820 East 24th Ave. Anchorage, AK 99508 Nelson Page 810 "N" Street Anchorage, AK 99501 Phil Younker, Jr. Phil A. Younker & Associates, Ltd. 121 Spruce Avenue Fairbanks, AK 99709-4150 John Pugh 1011 D Street Juneau, Alaska 99801 Evelyn Tucker Anchorage, AK Jean Pechianault Kodiak Alliance for the Mentally Ill Kodiak, Alaska POSITION STATEMENT: Commented on Mental Health Authority App't. Frances Kater Kodiak, Alaska POSITION STATEMENT: Commented on Mental Health Authority Henrietta Nugen Advisory Council on Alcohol and Drug Abuse Mat-Su POSITION STATEMENT: Commented on Mental Health Authority Nancy Odem Anchorage, AK POSITION STATEMENT: Supports CSSB 105 (JUD) Peggy Seeley Anchorage, AK POSITION STATEMENT: Supports CSSB 105 (JUD) Pam Neal, President Alaska State Chamber of Commerce 217 Second St. Juneau, AK 99801 POSITION STATEMENT: Supports CSHB 115 (JUD)am C.J. Zane 9826 Atka Circle Eagle River, AK 99577 POSITION STATEMENT: Supports CSHB 115 (JUD)am Sherman Ernouf Legislative Aide Alaska State Legislature Juneau, Alaska 99811-1182 POSITION STATEMENT: Testified on CSSB 95 (L&C) Dennis Brown Alaska Independent Insurance Agents and Brokers POSITION STATEMENT: Commented on CSSB 95 (L&C) Don Koch, Chief Marketing Surveillance Division of Insurance Dept. of Commerce & Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 POSITION STATEMENT: Commented on CSSB 95 (L&C) ACTION NARRATIVE TAPE 95-21, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR announced a quorum was not present to call the meeting to order, but testimony on the confirmation hearings and scheduled bills would be taken. The first order of business was the confirmation of Alison Lauber, M.D., to the Violent Crimes Compensation Board. DR. LAUBER gave a brief introductory statement to committee members. She is a family practice physician, and the director of the Bethel Family Clinic. In her experience as a physician since 1979, she has been involved in many rape and domestic violence cases and would like to serve on the board to see that victims of violent crimes get adequately compensated, especially for counseling and family support services. There being no questions for Dr. Lauber, SENATOR TAYLOR commended Dr. Lauber for her willingness to serve on the board, and thanked her for her statement. Number 067 ALASKA MENTAL HEALTH AUTHORITY BOARD OF TRUSTEESΒΆ JOHN MALONE, a Bethel resident since 1967, stated he has been involved with mental health issues since the middle 1960's, and the settlement issue since its inception. SENATOR TAYLOR asked Mr. Malone what his attitude is toward the management of the trust properties. MR. MALONE replied it is a fiduciary issue; management should be focussed in the best and first interest of the beneficiaries. Number 090 SENATOR GREEN asked Mr. Malone what his idea of the role of the Authority is. MR. MALONE stated the primary, or eventual, role of the Authority is going to be help the state to facilitate a more comprehensive program of delivery services, similar to what Congress had intended with the establishment of the Trust in 1956. That is a process the trustees are presently reviewing to devise a workplan. The most significant role will be to assist the administration and the Legislature and to deliver an integrated and comprehensive program. Number 120 KAY BURROWS stated she is a 19 year resident who has worked in health care services most of that time, on behalf of all four beneficiary groups. She is looking forward to the fiduciary responsibility of the trust properties and developing a comprehensive integrated program of services. Her specific interest is in more effective and efficient use of resources for the beneficiary group and state. SENATOR GREEN asked what meaningful impacts Ms. Burrows foresees the Authority having on establishing an income stream and programs. MS. BURROWS responded the Authority has just begun to address those issues, but she hopes there will be less duplication of service delivery and use of all trust properties and resources to do things differently on behalf of the beneficiaries; to use seed money to try new approaches. SENATOR GREEN asked if Ms. Burrows had a firm date. MS. BURROWS answered she does not; the Authority has just begun to understand what the trust properties are and what kind of planning needs to be done. SENATOR TAYLOR asked Ms. Burrows if she understood Mr. Malone's comment about the fiduciary responsibilities of the board members. MS. BURROWS replied she did, and added the board had that discussion over the last weekend and is clearly committed to that. SENATOR TAYLOR referred to Ms. Burrows statement about using the words "for the benefit of the beneficiaries and the state" in the management policies the Authority might adopt for the property. He noted the Authority's role is to manage those properties for the benefit of those beneficiaries and not the State of Alaska. MS. BURROWS clarified when she used the term "state" she was referring to the beneficiaries of the State of Alaska. Number 187 TOM HAWKINS, a 23 year resident with a background in public and private sector natural resource management, stated he brings land and money management experience to the Authority. He stated he is learning about the variety of program responsibilities that the comprehensive integrated mental health plan entails. He commented how a society deals with their mental health beneficiaries makes a strong statement about the quality of that society, therefore he is pleased to have the opportunity to serve on the Authority Board. SENATOR GREEN noted each member brings different qualifications to the Authority. She asked Mr. Hawkins if he believes those qualifications are complementary to each other. MR. HAWKINS replied affirmatively, and added the group is compatible, respects each others' particular expertise, and will benefit from each others' perspectives. SENATOR GREEN questioned whether Mr. Hawkins feels the Authority will be getting the assistance it needs from the Department of Natural Resources (DNR) and the Administration. MR. HAWKINS replied he feels positively about interactions with DNR; it has staff in a Mental Health Trust unit which has actually doubled its income in the few short months of operation. He added a variety of departments have given short presentations to the Authority, and all seem dedicated to helping the Authority meet its needs, and in soliciting advice from the Authority in what they see as a challenging task. Number 245 SENATOR GREEN asked whether Mr. Hawkins feels the Authority will be directing requests, etc. to DNR, or vice versa. MR. HAWKINS stated DNR is more familiar with the land portfolio and the trust, but has been very solicitous of the Authority's views. As DNR has discussed rights-of-way, fair market value, and timber sales, it has been very interested in the philosophies of the Trust Authority. He assumes over the next few months the Authority will devise a policy for DNR to operate within. During the first meeting, the focus was on various levels of decisions DNR might make, which will require Authority approval and/or notification. He believed DNR recognizes the rules of the road will be set by the Authority. SENATOR GREEN stated that is an important posture to maintain. Number 272 SENATOR TAYLOR conjectured the broad policy calls made by the Authority would come over time, however he expressed concern about the need for immediate review of ongoing access problems created by the checkerboard pattern of land. MR. HAWKINS replied the backlog is a concern of the Authority as well as DNR, and at the last session, temporary employees were being sought by DNR to reduce that backlog. There has been a land freeze for a decade, and although most of the problems are small, they have magnified as they incubated for a decade. Everyone is mindful of the need to resolve those problems quickly. Number 300 NELSON PAGE, an attorney who has served on the Mental Health Board for four years while the settlement issue was being negotiated, stated the Authority discussed many of the policy issues raised by the committee. The Authority discussed goals for the Trust and adopted a policy to preserve and enhance the corpus of the Trust to ensure it is there for the beneficiaries in perpetuity. He interprets that to mean inflation proofing the cash corpus of the Trust. He noted opportunities provided by the checkerboard pattern of land exist to enhance the economic value of those lands over time. The Authority also adopted a goal that will attempt to maximize the funds available on a long term, sustained basis for the beneficiaries of the Trust. He added the Authority will do what it can, but that will not take the place of legislative funding for mental health programs. Number 332 SENATOR GREEN expressed concern about staff having more control than the boards they work for since the board only meets periodically. She asked Mr. Page if the Authority has taken steps to ensure that staff will work as assistants and not policy makers. MR. PAGE replied that he could not say steps have been taken yet, but the appointees to the Authority all have specialized backgrounds and are independent advisors. SENATOR TAYLOR stated he has full faith the board will provide strong and independent advice. He looks forward to board review of the operating budgets for mental health programs statewide, and advising the Legislature on critical and controversial subjects. such as Harborview, API, and cost-efficiency. He added he hopes the board will provide innovative solutions and retain its independence. Number 374 EVELYN TUCKER, an Athabascan and Aleut Native, discussed her interest in mental health issues. She originally became involved because of her concern about the high rate of suicides in rural villages many years ago. She looked into the Mental Health Trust to see if there were resources that could be directed to deal with the suicide problem. She then applied for a seat on the Mental Health Board and served two terms as chair. She noted she sees all appointees as having consistent views with committee members regarding the emphasis on the fiduciary responsibilities being for the benefit of beneficiaries. She appreciated Senator Green's concern about staff taking over the policy making duties of a board. Number 404 JOHN PUGH, a 25 year Alaska resident, stated he came to Alaska as a psychiatric social worker in the Air Force and served for four and one-half years in both inpatient and outpatient services. He continued a long career in health and social services, working at McLaughlin Youth Center for five years and in various positions at the Dept. of Health and Social Services (DHSS). He stated he has a strong background in delivery services and a strong commitment to delivering quality services throughout Alaska for individuals who need mental health services. He served on the AHFC board several years ago and brings some background in the management of large sums of money to the Authority. He is presently working with Phil Younkers developing the RSA with the Permanent Fund Corporation for the management of the $200 million cash Trust. They plan to transfer those funds on July 1, to coincide with the fiscal year. He stated the fiduciary responsibility of the Authority needs to focus on handling the Trust as a beneficiary one, meaning that both land and cash management strategies need to be designed to maximize the trust for the beneficiaries. He complimented the director of DNR's Mental Health Lands Unit for his expertise and assistance. Number 453 SENATOR GREEN questioned how much time Mr. Pugh sees the process taking. MR. PUGH answered the Authority has met twice this month, and plans to continue that schedule for the short term to get up and running. He stated the Authority has no staff at this time, and has to establish policies and procedures, as well as policy. The Authority has requested that the top two staff positions be exempt, and is working with the Division of Personnel to classify all other positions. The Authority will hire all personnel. Number 484 SENATOR TAYLOR commented on Mr. Pugh's academic and life experience with mental health management as Commissioner for two years, and deputy commissioner, and a lengthy involvement politically. He asked Mr. Pugh how he would respond to a situation in which the Authority's policy decisions and direction might differ from the Administration's, and whether he could continue to act in the best interest of the Trust from the fiduciary perspective. MR. PUGH responded the statute is clear about the Authority's responsibilities, and it is incumbent on board members to reiterate that to the Governor and people within the bureaucracy. He added that as commissioner, he felt he had constitutional, statutory responsibilities that superseded his responsibility to the Governor. Number 506 SENATOR GREEN discussed a worse-case scenario Mr. Pugh might find himself in with DNR in which there is no cooperation with DNR. MR. PUGH replied the Authority is statutorily required to contract with DNR for land management. The statute contains certain restrictions in conjunction with DNR's statutes. If the working relationship becomes a problem, the Authority would have to request a new management scheme through legislative action. Number 527 SENATOR TAYLOR thanked Mr. Pugh for his offer to serve as a board member. He stated it has been his experience in working with Mr. Pugh that he has always been candid, honest, and a consummate professional. Number 531 JEAN PECHIANAULT, president of the Kodiak Alliance for the Mentally Ill, consumer representative to the Alaska Alliance for the Mentally Ill Board of Directors, and newly appointed member of the Mental Health Consumers of Alaska, testified. She stated the Kodiak Alliance and several affiliates oppose the appointment of John Malone to the Alaska Mental Health Trust Authority Board of Trustees. They are very concerned Mr. Malone will not represent the beneficiaries of the Trust and put his own interests first. They feel strongly that the Executive Committee, with Mr. Malone as president, did not represent the great majority of the affiliates of the Alliance. There has also been discussion about the Trust's ability to act independently. She concurred with Mr. Page's statement about the Trust not being a substitute for legislative funding of mental health programs. She noted proposed cuts of up to 45 percent of mental health funds are under discussion by the Legislature. SENATOR TAYLOR thanked Ms. Pechianault for her testimony and promised to review the budget cuts to mental health funds. Number 564 FRANCES KATER testified from Kodiak. She spent several years as part of a coalition representing the beneficiaries to help further the settlement. One of the principles behind the coalition was to ensure that trust land or assets used for the direct benefit of the beneficiaries when possible. She hoped the Authority would adopt such a policy if it is not required in the settlement. SENATOR TAYLOR stated he believes that option is in the settlement. He thanked Ms. Kater for her assistance. Number 579 HENRIETTA NUGEN commented she is a newly appointed member of the Advisory Council on Alcohol and Drug Abuse and looks forward to working with the Trustees. Number 589 PHIL YOUNKER, JR., an appointee, specified his background has been in assisting families of disabled individuals with estate planning. After seeing problems faced by these families in both funding crises and in dealing with the state, he decided to apply for the appointment. He wants to work on investment issues to help families. SENATOR TAYLOR thanked all appointees and other participants for their statements. TAPE 95-21, Side B SB 105 PARENTAL CONSENT BEFORE MINOR'S ABORTION SENATOR TAYLOR announced that David Wilson had prepared written testimony for the committee which would be distributed to committee members. NANCY ODEM testified from Anchorage. She stated Justice James C. McReynolds, in the case Pierce vs. Society of Sisters, summarized that the child is not the mere creature of the state, and recognized the important role played by parents in a child's life. The court has recognized their rights and high duty to protect and guide their children. By virtue of ignorance, inexperience and immaturity and credulity, children are vulnerable. Unprotected children are at risk for accidental harm, as well as intentional harm from those would take advantage of their vulnerability. Without an effective parental consent law, Alaska's children are terribly vulnerable. The abortion industry relies on the indiscretions of children for financial gain. Abortion can have devastating physical and psychological impacts. She urged the committee's support of SB 105. Number 540 PEGGY SEELEY testified from Anchorage in support of SB 105. She stated a minor must have parental consent for any other medical procedure. Abortion can result in serious injury or death to the mother. Many of these injuries or deaths go unreported because of the nature of the abortion industry. Parents have the best interests of their daughters at heart and no one is more truly concerned about their physical and emotional wellbeing. Many studies reveal that abortions significantly increase the young woman's suicide potential, and such teens are 10 times as likely to commit suicide within six months of an abortion. Teenagers are not adults, legally, emotionally, or psychologically, and need parental guidance for perhaps the most crucial decision they will ever make. Number 507 There being no one else to testify, SENATOR TAYLOR stated the committee has received significant testimony and written testimony from Anchorage and the matter has been given sufficient time. His personal belief is that this issue involves children and should require parental consent as for any medical procedure. SENATOR MILLER moved CSSB 105 (JUD) be discharged from committee with individual recommendations. There being no objection, the motion carried. HB 115 DAMAGES & ATTY FEES FOR UNPAID WAGES PAM NEAL, President of the Alaska State Chamber of Commerce, testified in support of CSHB 115 (JUD)am. Employers in violation of the minimum wage and overtime compensation law is automatically liable for liquidated damages regardless of the circumstances, under current law. The federal Fair Labor Standards Act allows the Court to waive liquidated damages in whole or in part, if it can be shown the employer acted reasonably and in good faith. The Alaska Supreme Court's interpretation of Alaska's Wage and Hour Act prevents the Court and the commissioner of the Department of Labor from applying the same standard of fairness. Under the provisions proposed in CSHB 115(JUD)am, employees will still be fully protected under the law, and the courts and the commissioner will be allowed to consider the circumstances of the case when determining the awarding of liquidated damages. C.J. ZANE, Holland American Lines, testified in support of CSHB 115 (JUD)am. He has been working on this bill for a number of years with the state and Chamber of Commerce. Many employers statewide, i.e. Carrs, Tesoro Petroleum, Westmark Hotel, Sheraton, Providence Hospital, have worked on this bill and made it a legislative priority. Last year a bill passed the House that was more favorable to employers. The bill did not pass the Senate. After extensive good faith negotiations and compromise with Commissioner Tom Cashen, this new bill was created and is an honest and true compromise, and restores balance to this area of the law. Number 443 SENATOR TAYLOR noted there are no proposed amendments to the bill in the Senate Judiciary Committee at this time. He asked Mr. Zane for his assurance that should the legislation be amended after it leaves the committee, he will participate with the chair to have the bill returned to the committee. MR. ZANE replied the position of his clients, Holland American Lines, Westmark Hotels, and Gray Line of Alaska is that they have forged a very good compromise and they don't want to see amendments more, or less, favorable to employers. He agreed to work with the chair, as everyone will be best served with the measure as is. SENATOR TAYLOR announced he would hold the bill until a quorum was present to move the bill. SB 95 INSURANCE AGAINST UNINSURED DRIVERS  SHERMAN ERNOUF, legislative aide to the Senate Labor and Commerce Committee, testified on the Labor and Commerce committee substitute. It reduces the maximum mandatory offer of uninsured/underinsured motorist coverage to $500,000 per person and $1,000,000 per incident. Uninsured/underinsured motorist coverage protects the vehicle owner against being injured in an accident with an at-fault motorist who has no bodily injury liability insurance. UI motorist coverage applies only if the uninsured motorist is legally liable for the resulting injury. Uninsured motorist coverage puts the injured insured in the same position as he/she would be in if the motorist responsible for the accident had bodily injury liability insurance. The injured driver who cannot be compensated for an injury by a negligent party who has no insurance, can turn to his/her own insurance company for compensation. In effect, the injured driver's company must take the place of the at-fault motorist who has no liability insurance. Three years ago the Alaska Legislature passed legislation which required Alaskan insurers to make a mandatory offer of uninsured/underinsured motorist coverage of $1 million per person, and $2 million per accident. This mandatory offer has increased the cost of liability insurance for all policy holders. CSSB 95 (L&C) seeks to assure the Alaskan consumer competitive automotive insurance premiums by encouraging a competitive marketplace. The bill would encourage a competitive market by requiring insurance companies to offer a lower mandatory offer allowing smaller companies to enter the market if the cost of reinsurance drops. Number 392 SENATOR TAYLOR noted two major issues that have surfaced since the bill was originally filed. He asked Mr. Ernouf to summarize the two district court cases that resulted in two different judgements. MR. ERNOUF deferred the question to Don Koch of the Division of Insurance. He stated CSSB 95 (L&C) was a consensus approach to the offer problem. The two court cases pertain to the triggering mechanism problem. SENATOR TAYLOR commented the offer issue is non-controversial; but the underinsured insurance dilemma needs to be addressed. He stated the uninsured motorist issue was addressed with SR 22 since a driver must establish and prove that he/she is insured before his/her license is returned. He asked Mr. Ernouf for the definition of "underinsured." MR. ERNOUF responded that definition is what caused the dilemma with the two court cases, since the triggering mechanism by which the court will decide which part of underinsurance has to be paid is unclear. He added that issue has gone around full circle in the Labor and Commerce Committee. SENATOR TAYLOR asserted it requires the Legislature to establish a policy call. Number 345 DENNIS BROWN, President of the Alaska Independent Insurance Agents and Brokers, (AIIAB) gave the following testimony in opposition to CSSB 95 (L&C). The AIIAB opposes mandatory offers of uninsured motorists and underinsured motorists based on two issues: availability of markets; and possible escalation of the auto premium. Traditionally, uninsured and underinsured motorist premiums have not played a large part of the overall insurance dollars spent on the coverage, that coverage being a fraction of the auto insurance cost. In the past few years the cost of the uninsured motorist has risen at a faster rate than what AIIAB has seen in other classifications, such as automobile liability insurance. With passage of CSSB 95 (L&C), AIIAB would anticipate a further acceleration of the auto insurance premiums in the state, possibly bringing it to the highest level in the country. The AIIAB has learned by experience in California and New Jersey that this creates both political problems for the Legislatures, as well as problems for the insurance-purchasing public. The companies that left those states would not hesitate to leave Alaska. Second, the bill is confusing, not only for the industry, but for the consumer. When an insured buys auto liability coverage there are two factors that are considered: cost and protection. If the buyer has little or no assets, cost is the driving factor. If the consumer has assets, while cost plays a part, protection is a mandatory factor. In the purchase of uninsured/underinsured motorist coverage, the primary factor will most likely be cost which will only drive insurance rates higher. As premiums rise, more will drop out of the insurance mechanism putting further pressure on those who remain insured. AIIAB urges returning to the system of buying uninsured/underinsured motorist coverage up to the limit that is purchased for the third party liability coverage with recovery limited to those limits, with offsets provided by the responsible motorist. Number 320 SENATOR TAYLOR questioned the statement, "with recovery limited to that which was chosen by the responsible motorist." MR. BROWN replied, "The AIIAB would urge that if the purchaser of the uninsured motorist coverage had third party liability coverage, that is coverage that is attributed to somebody that he or she runs into, that the corresponding uninsured motorist coverage that they have purchased would equal that. If they were involved in an accident and the responsible party, especially the underinsured motorist, had a policy of $50,000, that there would be a total of $300,000 applicable to that loss, with the first $50,000 paid by the responsible party, and the balance paid by the underinsured motorist coverage provided to the policyholder." SENATOR TAYLOR asked for further clarification of Mr. Brown's two statements. MR. BROWN replied, "We would urge we go back to a system of buying uninsured motorist and underinsured motorist coverage up to the limit that is purchased for the third party coverage and recovery limited to those limits with offsets provided by the responsible motorist." He explained the uninsured motorist limits purchased by the policyholder would equal the third party liability coverage amount. SENATOR TAYLOR asserted it should be the purchaser's choice to choose the amount of liability coverage on oneself and on the amount he/she wished to purchase in case he/she was struck by an uninsured motorist. He asked Mr. Brown if he believes the amounts of each policy should be the same. MR. BROWN replied the AIIAB's position is that the purchaser would have an option to buy an amount of uninsured/underinsured motorist coverage equal to the amount in the liability policy. SENATOR TAYLOR asked if the purchaser would have to choose the same amount of coverage for both policies. MR. BROWN answered, "No, we are not saying that, but the problem that we have is when you purchase uninsured motorist or underinsured motorist limits, greater than what you are willing to buy for liability insurance for yourself, that is the problem we are having." Number 260 SENATOR TAYLOR asked why that would be a problem as it would only trigger in the event an individual hit someone with a lesser amount of coverage, or no coverage at all. MR. BROWN stated, "In an ideal world, it would be great, but in the world of practicality, as we see it, as an association, is that it is going to drive the auto rates completely out of sight. There has to be an outward pressure, or an outward movement of premiums that one has to buy to buy a family auto policy." SENATOR TAYLOR discussed the following scenario. "Mr. Brown, unless I'm misunderstanding you, what you are saying is that whenever two people have been responsible drivers and have purchased insurance, and each purchased insurance for amounts they decided was a fair risk that they should take, and that they should spend that amount of money to buy the insurance, then unfortunately, these two responsible drivers have run into one another. What you are basically saying is the insurance industry should only have to pay off on one policy, and that is the cheapest policy. Otherwise it will drive rates right through the ceiling, right?" MR. BROWN reiterated the AIIAB's position is that the whole problem is over the underinsured motorist coverage. AIIAB's goal is to have the insured be allowed to purchase that protection for uninsured motorists equal to his/her liability limit. He stated, "If a person bought $500,000 worth of underinsured motorist coverage and had third party liability coverage for $500,000, and that person was involved in an accident with an individual who carried a $100,000 policy limit, and the claim was worth $500,000, there would be recovery from the individual for $100,000, and the person would have the opportunity to collect from his/her underinsured motorist coverage for the other $400,000. That is what the AIIAB would like to achieve, instead of stacking the underinsured motorist limits over the policy of the driver responsible for the accident." Number 231 SENATOR TAYLOR said, "Let's say I have the $300,000 underinsured policy, and you have the $100,000 policy, and you run into me and cause $400,000 worth of damage. I have the right to sue you because you had a liability policy good for $100,000. So I get to sue you and your company confesses policy limits. They kick in $100,000. I've been paid by you all I can get out of your policy. Now, I, being a responsible motorist, had gone and purchased underinsured motorist coverage of $300,000. I've got $400,000 worth of damages. There are two scenarios that can now occur. One scenario is that my policy that I purchased face value, that said $300,000, is only good for $200,000 because you want to add the $100,000 I got from the other guy. In other words, you want me, on my policy, to be subrogated to the third party who was liable. So I can recover a maximum total of $300,000, and you say that somehow this is something I paid for. No, I paid for $300,000 of underinsured from your company. Your policy of $100,000 you paid for yourself, that is outside of the contract I have with you. The second scenario is, as you call, stacking, and stacking says I go after the bad guy that ran into me. I get $100,000 from him and since I still have $300,000 of stipulated damages, over and above that, I then turn to my own carrier, and of course I'll have to file suit because they will never voluntarily come in and give that money to me. I'll have to bring a suit in court against my own insurance company for that $300,000 of underinsured coverage that I had purchased in good faith in the first place. Under one district court judge, he says you can't stack, and under the other district court judge, he says you can. Isn't that the problem we got?" MR. BROWN stated he would agree. SENATOR TAYLOR commented, according to Mr. Brown, those two people who had paid a fair, actuarially-justified, Commissioner of Insurance-reviewed premium will cause devastating impacts to the industry if we make those two companies meet their contractual requirements. MR. BROWN clarified the AIIAB's position is that it would drive the auto premium rates upward. Whether the carriers are willing or unwilling to do this is a matter for the insurance industry to decide. The AIIAB's membership consists of people at the point of contact, they sell the product to the consumer and know whether markets exist and what drives the costs. The uninsured motorist rates have doubled over the past few years. The AIIAB is questioning at what point does the consumer pay enough before the marginal ones drop out. SENATOR TAYLOR replied he understands the consumer aspect of the problem, and he does not want to do anything that will encourage the insurance industry to bill the consumer at higher rates. He asked if his actuaries have been selling insurance based upon the fact that only half of the claims would have to be paid off. "Your policy wouldn't get touched as long as you could tap the other guy's policy, so you'd get that premium for free, and also get an offset every time that you had an opportunity to push the coverage off onto Brand X company instead of having to pay under your underinsured motorist provision that you sold your own customer. MR. BROWN disagreed, and noted that all rates are loss-driven. The amount paid out in the form of losses, is directly reflected in the rates charged. If they are going to pay more out in losses under the underinsured motorist section, obviously that rate will increase. Number 140 SENATOR TAYLOR stated if there was a captive population of 100 people on an island, with mandatory insurance, purchased from two companies by equal numbers, one company would never have to pay off on a policy in a given year, depending on who ran into who. When premiums are determined by losses, insurance companies are counting on not having to pay off a percentage of the time based upon the manner in which you interpreted the policy prior to the case. Number 120 MR. BROWN answered he is not testifying on behalf of the insurance industry. The AIIAB's clients are paid by the consumer, and he is testifying on the impact to the consumer. SENATOR TAYLOR asked if the income of AIIAB's members is derived as a percentage of premiums sold to the customer. MR. BROWN answered affirmatively. SENATOR TAYLOR asked if insurance companies have a contractual agreement with AIIAB and refer to AIIAB as their agent. MR. BROWN disclosed in some instances they do. SENATOR TAYLOR said that is why he considered Mr. Brown to be an agent speaking on behalf of those companies when selling a policy. He pointed out the Legislature needs to make a policy call on whether it is good or bad policy to have consumers remain ignorant of what the word "underinsured" means. The lay person believes he should collect the amount of his underinsured policy necessary to pay damages less the amount paid by the underinsured's policy. If that causes premiums to increase, so be it. Number 060 DON KOCH, Division of Insurance, explained CSSB 95 (L&C) began as a repeal of the excess offer legislation that was enacted several years ago. The Division testified to the Labor and Commerce Committee that some room for compromise was necessary, because it believed the mandatory limit in Alaska is the highest in the nation. In view of the Tumbleson decision, the Division felt the issues brought forth in that case needed to be addressed. The Division understood, when the excess offer legislation passed, that underinsured motorist coverage was intended to be excess, so that in the $400,000 example, the $100,000 would be available from the other party, and the full $300,000 would be available as excess insurance. SENATOR TAYLOR asked if the Division interpreted the word "excess" to refer to stacked coverage when the bill passed. MR. KOCH replied affirmatively. SENATOR TAYLOR asked if anyone in the industry would have thought otherwise. MR. KOCH described the disagreement as to what triggered the stacking in the Tumbleson case. His interpretation of the Tumbleson decision is that the coverage is treated as excess, but is only triggered if the other motorist is uninsured. Effectively the case says that uninsured motorist coverage before underinsured motorist coverage is triggered. TAPE 95-22, Side A SENATOR TAYLOR asked if the lay person would think to ask when underinsured coverage is triggered, when purchasing insurance. MR. KOCH felt they would not, and that most producers would not have the time to explain the whole process. Agents have expressed concern about E and O exposure for not adequately explaining the procedure, therefore other alternatives are made more difficult. He pointed out that to the degree the public fails to insure under the mandatory automobile law, there will be more exposure in the uninsured and underinsured area, as more losses arise from it. The automobile insurance premium contains a part that is mandatory: the $50,000; $100,000; and $25,000 liability purchase. The uninsured/ underinsured coverages are mandatory offers but are not required. An insured may elect to waive that insurance. Higher offers of underinsured motorist coverage are increasing in cost, and insurance companies have been able to justify those increases with division actuaries, and it is likely the costs will continue to rise. But that coverage is still an option for the consumer, therefore it should not affect all auto insurance consumers, only those that choose to bear that cost. SENATOR TAYLOR reiterated the Legislature needs to set a policy since the two court decisions are conflicting as to what standard to use. He believed the federal court would adopt the policy once enacted by the Legislature. MR. KOCH implied the proposed Senate Judiciary committee substitute would address both the Tumbleson issue and the mandatory offer limit. SENATOR TAYLOR pointed out that if all drivers had good liability coverage, excess coverage would be unnecessary. MR. KOCH replied that would depend on the amount of liability coverage purchased by consumers, since minimum limits are often inadequate. SENATOR TAYLOR thought it is bizarre that a person who has excess coverage would be paid the full amount if he/she had an accident with an uninsured motorist, but would only collect the offset amount after suing his/her own insurance company if the accident was with an underinsured motorist. MR. KOCH stated some believe a person should only be able to buy for his/her own protection, the amount purchased for third party protection. He disagrees as such a policy would discourage consumers from taking responsibility in protecting themselves as well as others. Number 141 SENATOR TAYLOR felt Mr. Brown alluded to the fact that people should only be allowed to purchase equal amounts of liability insurance and excess coverage. MR. KOCH agreed, and clarified the idea is that an individual should only be able to purchase for their own protection, the amount he/she purchases for the third party's protection. That opinion prevails in many states, although several states are moving toward higher mandatory offers of uninsured/underinsured coverage. SENATOR TAYLOR asked Mr. Koch about the no-fault insurance movement in Alaska, which turned out to be uninsured/underinsured motorist coverage. MR. KOCH replied an individual could purchase uninsured/underinsured motorist coverage prior to that time, but only up the limit of one's third party limits. At that time it was only triggered by uninsured motorists. A few companies voluntarily offered underinsured motorist coverage but there appeared to be no marketing effort for it. SENATOR DONLEY clarified that underinsured motorist coverage was offered with the adoption of mandatory auto insurance in 1984. MR. KOCH explained it was never made distinct coverage. In 1990, legislation clarified that those coverages were to be offered as excess coverage. During that time period, many states were enacting no-fault laws with the initial focus for responsibility to oneself, and contained thresholds from the tort system. Alaska chose a new departure. In fairness to insurance agents, MR. KOCH stated this concept is difficult to sell because it is a departure. SENATOR TAYLOR commented to prevent insurance agents' E and O exposure from expanding under the two court decisions the Legislature must make a policy decision one way or the other. MR. KOCH agreed, and reiterated the proposed Judiciary committee substitute appears to have a clear expression of intent. SENATOR TAYLOR announced CSSB 95(L&C) would be held over until next Wednesday.