SENATE LABOR AND COMMERCE COMMITTEE April 2, 1998 1:40 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Tim Kelly Senator Mike Miller Senator Lyman Hoffman MEMBERS ABSENT Senator Jerry Mackie, Vice Chairman COMMITTEE CALENDAR SENATE BILL NO. 283 "An Act relating to noneconomic damages resulting from an automobile accident." PASSED CSSB 283(L&C) OUT OF COMMITTEE SENATE BILL NO. 160 "An Act relating to registration, inspection, and testing relating to radiological equipment in dentists' offices." PASSED CSSB 160(L&C) OUT OF COMMITTEE SPONSOR SUBSTITUTE FOR SENATE BILL NO. 212 "An Act relating to automated teller machines and to night deposit facilities; and providing for an effective date." PASSED CSSB 212 (L&C) OUT OF COMMITTEE SPONSOR SUBSTITUTE FOR SENATE BILL NO. 202 "An Act relating to insurance; amending Rules 79 and 82, Alaska Rules of Civil Procedure; and providing for an effective date." PASSED CSSB 202 (L&C) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 283 - See Labor and Commerce minutes dated 2/19/98 and 2/24/98. SB 160 - See Labor and Commerce Committee minutes dated 3/5/98. SB 212 - See Labor and Commerce Committee minutes dated 3/3/98 and 3/5/98. SB 202 - See Labor and Commerce minutes dated 2/19/98. WITNESS REGISTER Ms. Annette Kreitzer, Staff Senate Labor and Commerce Committee State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Commented on SB 283, SB 160, and SB 212. Mr. Mike Schneider 880 N St., Ste 202 Anchorage, AK 99501 POSITION STATEMENT: Opposed SB 283. Dr. Peter Nakamura, Director Division of Public Health Department of Health and Social Services P.O. Box 110610 Juneau, AK 99811-0610 POSITION STATEMENT: Opposed SB 160. Ms. Catherine Reardon, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, AK 99811-0806 POSITION STATEMENT: Commented on SB 160. Dr. Ellenberg POSITION STATEMENT: Supported CSSB 160. Mr. Tim Woller, President Alaska Dental Society 3529 College Rd. #205 Fairbanks, AK 99709 POSITION STATEMENT: Supported CSSB 160. Mr. Lynn Levengood 931 Vide Way Fairbanks, AK 99701 POSITION STATEMENT: Supported CSSB 160. Senator Dave Donley State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 202. Ms. Trisha Connors National Association of Independent Insurers Des Plaines, IL (847)297-7800 POSITION STATEMENT: Opposed SB 202. Mr. John George National Association of Independent Insurers 3328 Fritz Cove Rd. Juneau, AK 99801 POSITION STATEMENT: Opposed SB 202. Mr. Mike Schneider 880 N St., Ste 202 Anchorage, AK 99501 POSITION STATEMENT: Supported SB 202. Mr. Michael Lessmeier State Farm Insurance 123 W. 5th Juneau, AK 99801 POSITION STATEMENT: Opposed SB 202. Ms. Marianne Burke, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, AK 99811-0805 POSITION STATEMENT: Commented on SB 202. Mr. John Ference, Staff Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, AK 99811-0805 POSITION STATEMENT: Commented on SB 202. ACTION NARRATIVE TAPE 98-19, SIDE A Number 001 SB 283 - AUTOMOBILE CIVIL LIABILITY CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:40 p.m. and announced SB 283 to be up for consideration. MS. KREITZER, Staff, Senate Labor and Commerce Committee, said she would refer to work draft LS1467E by Ford, dated 4/2/98. SENATOR MILLER moved to adopt the work draft. There were no objections and it was so ordered. MS. KREITZER said there are two changes to the bill. The first one makes it very plain that AS 09.652.158 does not apply to a person unless he is an owner or operator of the vehicle. The second change so as not to be inconsistent with tort reform that passed last year, was to delete that portion of the bill that deals with drunken drivers. MR. MIKE SCHNEIDER, Anchorage, said he did not have the Committee Substitute before him, but he thought he knew what it said. He didn't like it because in our society typically there are penalties for things like not buying insurance and specific kinds of conduct. If you are completely innocent in a situation and are hurt by someone else, you should not be penalized. It's not fair, right, or reasonable. CHAIRMAN LEMAN thanked him for his testimony. SENATOR MILLER moved to pass CSSB 283 (L&C) from Committee with individual recommendations. There were no objections and it was so ordered. SB 160 - DENTAL RADIOLOGICAL EQUIPMENT CHAIRMAN LEMAN announced SB 160 to be up for consideration. MS. KREITZER explained the changes in the committee substitute that answer concerns brought up in a previous meeting: deleting Section 1 relating to the Alaska Dental Society making nominations for appointments to the Dental Board. References to inspecting the control panel were changed to say the inspection is of dental radiological equipment and a definition of inspectors was added. Language was changed to allow the Board to adopt federal standards and to include a person working under a dentist's supervision in the sections relating to the use of uninspected or registered equipment. "Owners of equipment" was expanded to include lessees. The intent of the previous version was that an inspection occur once every five years and that the inspection seal has an expiration date on it, has all been clarified, in the CS. MS. KREITZER said one point remains to be resolved by the Committee on page 4, line 12 in the transitional provisions. There is a phrase that says, "records, equipment, and other property of agencies of the State whose functions are transferred under this Act shall be transferred commensurate with the provisions of this Act." After speaking with the Department of Health and Social Services, she thought the board only needs records of agencies of the State. There is no other equipment or property and this wording might set up the expectation that there is. Number 170 SENATOR MILLER moved to adopt the committee substitute to SB 160. There were no objections and it was so ordered. DR. PETER NAKAMURA, Director, Division of Public Health, said most of the changes in the CS are very positive and he supports them, but he still has some significant concerns. In Section 1 he has a problem with the fees which are defined to be for certification of any equipment and its inspection. The problem is that there are a lot of radiation devices in distant, rural communities and it costs a lot of money to go out there, even every five years, to inspect and certify the equipment. The fee is low for someone in an urban community where an inspector resides, but the costs of traveling to a rural area would make the fee much more significant to an individual owning that radiation device. Also, once an individual gets out there, he can be weathered in for two or three days adding to the cost. There is also a problem with the training standards which are set by the manufacturer. If all you're going to do is look at the medical device, that's fine; but in terms of public health safety, frequently of greater concern is who is operating the equipment and what kind of training they have. Do they have the appropriate policies and procedures and are those posted? Are they following them and is someone looking at the x-ray films to see if they have been taken appropriately. None of that is involved in this certification or inspection process. It's all presently done by inspections performed by the Department of Health and Social Services. Once this responsibility is transferred, he would not have the resources to continue any kind of certification evaluation of the practitioners or the quality of the film device. He said that the Dental Board will now assume responsibility for the safety of the devices or procedures. According to his radiation specialist, they measure scatter radiation around the room, check the kilovolt peak from the tube housing and check the dose to the patients and the staff involved which would not be done under this new procedure. Other materials involved are computers for reports, records, and letters. The Department would not be able to release this equipment, since it is used for other responsibilities regarding radiation and medical devices. If this change takes place, there will be no assurance of dental radiation safety as practiced in a dentist's office. No one will provide any oversight or assurance of training. CHAIRMAN LEMAN asked what he thought about deleting "equipment and other property" on page 4, line 12. DR. NAKAMURA answered they are more than willing to transfer the records if the responsibility is transferred. He said the equipment and property exists for his department, but does not exist for the Dental Board. SENATOR MILLER moved to delete that language. There were no objections and it was so ordered. Number 281 MS. CATHERINE REARDON, Director, Division of Occupational Licensing, said the amendment deleting the equipment was fine with her, because the Dental Board, itself, will not be doing inspections, so it doesn't need any equipment or property. That responsibility will go to the private sector that is going to be hired by the dentists. If there are complaints from the public or anyone saying that they think the radiological equipment is not functioning properly, the Dental Board will not be going out to check the equipment and HESS wouldn't be responsible for that anymore, either. The statute says what's required of an owner of radiological equipment is to provide evidence to the Dental Board that they have had it inspected every five years. There is no responsibility to spot check to make sure the equipment really is working properly. SENATOR KELLY said he didn't think anyone could complain because they couldn't tell if the equipment was working well or not. DR. ELLENBERG said they were told by the Department that the inspector's job was just more than measuring kdp, that when the inspector is onsite, he is involved in educating the staff on the taking and developing of x-rays and that dentist's pay a registration fee so they aren't disappointed when 10 years elapse and there's no inspection. He asked how much education could the Department give his staff when they don't come to his office. He also asked who took the dentist out of the equation, because they, as owners of the equipment, are the best suited to train staff and are with them every day, not just a couple of hours every seven to 10 years. The best person to inspect an x-ray unit would be a qualified technician, since he has the technical capabilities to calibrate the equipment at the same time and SB 160 mandates this to be done every five years. The Department also testified that you can't say there is no risk in dental radiography which is true, but no one can prove that there is a risk in such low doses. Most investigators agree that there is probably some threshold level of radiation that our bodies deal with, or possibly need. Today, we cannot directly attribute any diagnosed cancer or genetic change to dental radiography. Academically, we can calculate a risk factor, if we make some assumptions which haven't been proven. The only way to calculate this risk is through extrapolation from high dose data such as in post-war Japan. No one can estimate the risk of liver cirrhosis in a person who drinks on New Year's Eve. If we can extrapolate a risk, the cancer risk from dental x-rays is approximately the same as the cancer risk from drinking 30 cans of diet soda. Furthermore, recent studies suggest that our bodies actually need low-dose radiation to synthesize certain proteins. To be on the safe side, dentistry has to assume that there may be some risk and has done a remarkable job to lessen patient exposure by using high speed films, sensitive screens, and lead protective aprons. SB 160 would provide another layer of protection by having the x-ray unit fine-tuned to manufacturer's specifications once every five years. A State registration fee, on the other hand, does nothing to protect anyone. MR. TIM WOLLER, President, Alaska Dental Society, supported the committee substitute to SB 160. MR. LYNN LEVENGOOD, private citizen, supported CSSB 160 because it provides additional protection for individual citizens of Alaska. Number 378 SENATOR KELLY said he would support this bill, but this legislation is not on the books in the face of a vacuum. "There is danger in radiology that has been known since at least the second world war and he wasn't certain how much risk there is in dental equipment. One of the fundamental reasons for the Legislature to be here is to protect the public health and safety and I'm not certain we are doing that by totally eliminating any oversight by the Department." SENATOR MILLER moved CSSB 160(L&C) out of Committee with individual recommendations. There were no objections and it was so ordered. SB 212 - FEES FOR USE OF AUTOMATED TELLER MACHINES CHAIRMAN LEMAN announced SB 212 to be up for consideration. SENATOR KELLY moved to adopt the committee substitute to SB 212. There were no objections and it was so ordered. MS. ANNETTE KREITZER, Staff, Senate Labor and Commerce Committee, said there was some concern that this bill targeted banks, so on page 1, line 11, it makes it clear that it applies to both a bank or other person who owns or operates an automated teller machine in this state. Electronic notification to a customer of the total amount of the charge was deleted. SENATOR KELLY moved to pass CSSB 212 (L&C) from Committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN LEMAN asked Senator Ellis if he approved. SENATOR ELLIS answered that he thought the committee substitute was great. SB 202 - MOTOR VEHICLE INSURANCE CHAIRMAN LEMAN announced SB 202 to be up for consideration. SENATOR DONLEY, sponsor, said the proposed committee substitute made considerable progress. an insurance company could not terminate a contract with an agent solely because the agent refused to perform an unfair settlement practice or report such activities to the Division of Insurance. The next change was because there was concern that this would limit confidential communications between attorneys and their insurance companies and a provision was added to specifically exempt that type of communication as confidential. Section Four, prejudgement interest, was moved into AS 21.36 which regulates unfair insurance trade practices. Section Four, payment of a loss, was also moved into AS 21.36 and clarified language that the payment is due 30 days after a loss becomes determinable, so it's clear they are not required to speculate and make a payment which they can't determine. The required telephone contact was moved into AS 21.36 also. Sections Five and 10 of the original bill were deleted, because those appear in SB 158. The arbitration award section makes it clear that if the arbitrator awards the cost of the arbitration to the insurer, the insurer could deduct the awarded fees from the amount due to the insured, giving the insurance companies a way to recoup their costs. The premium for short-term policies has been changed and a new section specifies that policies of less than 30 days can't exceed 200 percent of the pro-rated premium charge for longer policies. The purpose of this was that in 1986 Mandatory Auto Insurance Act, a lot of people were concerned they couldn't get insurance for a short period of time. That is why existing statutes require that they offer policies for as low as seven days. This sets out for the first time how much premiums can be for all insurance companies. The medical payments have been limited to allow the mandatory offer to only occur at the initial time. Medical claims coverage has been deleted because it's covered under Section Four, payment of loss claims which has been incorporated in AS 21.36. SENATOR DONLEY said he supported the committee substitute. Number 491 SENATOR MILLER moved to adopt the CS to SB 202. There were no objections and it was so ordered. MS. TRISHA CONNORS, National Association of Independent Insurers, Des Plaines, Illinois said her organization represents 49 percent of the property/casualty market in the State of Alaska. She said they are still opposed to CSSB 202. Their main concern is with the payment of claims required within 30 days which places insurers in an untenable position. She didn't see the problem that it was trying to address other than to provide for another lawsuit for trial lawyers to collect contingency fees on, because one of the penalties is a bad faith lawsuit and to erase the agreed upon policy limits on the underlying policy. She said their claims adjusters for most all of their member companies are encouraged and, in some cases, compensated for settling claims faster. Performance reviews are based on whether and how many files they can close in a year. Under this bill if they get a claim they are going to have to decide immediately if they have the time to order the records which takes more than 30 days to receive and analyze them and negotiate based on what they think is due or not due or pay right away which could encourage fraud, because anything could be put forward as their medical claim and companies would pay to save themselves from the prospect of a second lawsuit and the penalties. There is nothing to give them a way to fully analyze a claim and pay it as they see fit. Surely, all this would do would be to raise costs. Number 533 MR. JOHN GEORGE, National Association of Independent Insurers, said it is appropriate that an insurance company pay every nickel that they should pay, but not pay any more. We all pay higher premiums if an insurance company pays out excessive claims, so they need to give insurance companies an adequate time to determine what a fair amount is. He knows that people are concerned about the premiums they pay, so while they are trying to provide protection for a person who has a claim, they also have to think about providing protection for everyone else who is paying an insurance premium. The required 800 number applies to insurers, but he recalls that the definition of insurer in the Insurance Code includes agents and brokers. Therefore, every insurance agent in the State would also have to have an 800 number. The law clearly says that rates for short-term policies should be adequate, not excessive, and not unfairly discriminatory. By definition, that means they need to charge the premium, the cost of issuing the policy, and an appropriate amount for the risk of the time period the policy covers. Two hundred percent may or may not be right. It costs a fair amount to issue a policy by the time paperwork is done. He ended by commending the work that Senator Donley had done on meeting his concerns so far. Number 570 SENATOR HOFFMAN asked on page 2, lines 26 - 28 if he needed more time than 30 days and asked how much. MR. GEORGE answered that he didn't know if there was a magic date, but it could take maybe six months to get repairs done. Insurance companies should be held to a standard, but not a specific number of days. In any case, the director of the Division can say it's been an unreasonable time and level penalties. TAPE 98-19, SIDE B MR. MIKE SCHNEIDER said he is an attorney in Anchorage. He said when their constituents pay insurance premiums, they are not making donations to the insurance industry, but expect something for their premium. They expect what they have been promised which is prompt and fair resolution of their claims. His comments are premised on the notion that attorneys, doctors, and health care providers generally do not work for free. A sum of $5,000 can easily be exceeded in a fairly minor injury setting, but is a lot of money to most of their constituents. Medical coverage is supposed to pay reasonable medical bills; it doesn't matter who is at fault. The way it works now is that a constituent is in an auto accident of some kind, they go to their doctor, follow his instructions, and submit their medical bills. Their carrier may pay those bills or not. The time for payment of these bills is in the hands of the carrier completely. If they want to request records until hell freezes over, they can do that. In the meantime, the doctor, who has a right to be paid, isn't being paid. The constituent is risking damage to his credit reputation as well as not getting needed treatment because the insurance coverage is looking more theoretical by the minute. At some point, there is a letter from an adjuster who says that they have done a records review and don't know if all the stuff is related and want the constituent to appear sometime in the future at an "independent" medical evaluation. Under the terms of the policy, the constituent has to show up and this all takes time. They have the examination and then wait a period of time for the results of the examination which might say that the treatment was not all warranted and the whole bill shouldn't be paid. In the typical medical payments insurance contract, there is an arbitration provision which typically takes three lawyers. The constituent needs a personal lawyer. If the lawyer charges him by the hour, it's one more bill they can't pay. If the lawyer charges a contingency fee and wins, he solves a part of their problem, but the doctor wants all the bill paid, not just 75 percent. These arbitrations are evidentiary proceedings that require the physician to appear and provide testimony. So someone with a $5,000 problem can't afford to resolve it, even if they win. MR. SCHNEIDER said this bill would make the insurance industry put its money where its mouth is. He referenced Ms. Connor's letter for the flavor of the NAII's position which said, "As above, these provisions simply make an insurers investigation of fraud too expensive." He said when an insurance company accuses its constituents of fraud and is ultimately able to prove it, nothing harms the industry in any way. On the other hand, when the constituents are accused of fraud and the accusation is, itself, nothing more than a fraudulent effort to deprive the constituents of what they are entitled to, the insurance industry should pay the price of this sort of outrageous conduct. This bill does nothing more than make the industry bear the burdens of its own sins. Number 590 MR. MICHAEL LESSMEIER, State Farm Insurance, said they have about 31 percent of the automobile insurance market in the State of Alaska. Last year they gave back to policy holders in the State $6.6 million and reduced automobile insurance premiums. One of the challenges they have is making insurance affordable. This bill, as written, would be an absolute disaster for their policy holders because it creates a new cause of action of third-party bad faith liability. When it has been created in other states, claim costs have exploded. He used the example of what happened in California in 1978 and 1979 when they created a cause of action for third party bad faith. For the 10 years following that, until they took it away, the average automobile liability premium claim costs just about tripled. This is their primary objection to this bill. Number 472 MR. LESSMEIER said they remain adamantly opposed to the termination provision saying their contracts with their agents have been a very successful way of doing business and didn't see any reason to change that. The prejudgement interest also still concerns them because it's not clear whether it runs on the policy or some projected verdict. They have a concern about changing the arbitration provisions because the power of an arbitrator to award his costs is within his discretion right now. The premium for short-term policies, when they are artificially limited, end up being subsidized by another sector of the market which isn't fair. The real concern has to do with the payment provisions. There are two reasons why claims are not paid: one is that there is a lack of available information. This bill says an insurer has to pay claims within a certain amount of time, but places no corresponding duty on the other party to provide the information that is necessary to evaluate that claim. He guaranteed that in almost every instance, there will be litigation over the claim payment provisions. It is unfair because the insured needs to have incentive to provide information and there is no incentive under this bill. The second problem is that the obligations in this bill are on one side and not the other. They spent 10 years dealing with tort reform before this legislature and one of the most important parts of that package was the "offer of judgement" provision which says both sides to litigation ought to be treated equally. This bill changes that provision and makes it a one-way street which isn't fair. He urged that they not revisit something on which they spent so much time and effort working out a compromise that was fair to all concerned. Regarding Mr. Schneider's comments, he has been practicing in this state for 19 years and had never seen an insurer dispute a $5,000 medical payments claim. He has never seen an insurer request an independent medical evaluation for a $5,000 claim. When there are disputes over those payments, most of the time it has to be a significant dispute before someone is going to spend the time and money necessary to create that dispute on both sides. He pointed out that we already have an Unfair Claims Settlement Practices Act in AS 21.36.125. There are extensive regulations that were promulgated by the Division of Insurance that deal with that and if the insurance company does not comply, they can be penalized. Number 413 MS. MARIANNE BURKE, Director, Division of Insurance, thanked Senator Donley for accepting her help in making sure this legislation meshed with other provisions. She suggested a three word addition to page 2, line 15, under prejudgement interest. It is her understanding that the sponsor intended this to apply not only to first party, but to third parties as well. So she suggested making that sentence read: "Prejudgement interest due an insured or third party from an insurer as a result of a claim covered under..." She said these are actual complaints filed by Alaskan consumers. MR. JOHN FERENCE, Staff, Division of Insurance, said in the most recent 12-month period, they have received approximately 467 complaints involving the handling of claims. Of those, approximately 60 percent are legitimately justified and 75 percent of those involve unreasonable delays in claim payments. CHAIRMAN LEMAN said he appreciated Ms. Burke's support in crafting SB 283, but then Mr. Jeff Bush testified on the Administration's position which was different from hers. He testified that they did not want to take up another tort reform bill this year, and yet the Committee hears that SB 202 is a retrenching of some tort reform efforts made last year. He asked if she saw the two positions being inconsistent. MS. BURKE answered that she hadn't considered that question. She explained that this bill has many sections that are not in any way tort reform related. They are provisions that address specific needs and addresses them appropriately. She has concerns about whether or not the payment time frames will work in all cases, but she also has evidence that there are unreasonable delays in claims payments. She said she is not an expert in tort reform. SENATOR HOFFMAN asked if she had any problem with the 30 days on page 2, lines 26 and 28. MS. BURKE answered that in most cases she thought it would be quite workable and she strongly supported the prompt settlement of claims. She felt this section was much fairer in that it does recognize there will be a period of time necessary to accumulate all of the data. The one area where that might be troublesome might be where there are multiple claims that might exceed policy limits. She didn't have an answer for the multiple claims situation. CHAIRMAN LEMAN said he wanted there to be some flexibility, but having 30 days as a target was o.k. He asked if she had language they could insert that would convey that. MS. BURKE answered that she felt language saying after it's determinable will handle the situation of parts coming in. Number 303 SENATOR DONLEY said he thought the determinable trigger takes those kind of factors into account. He said he discussed Section Four, the prejudgement interest, with his attorneys and they said it was clearly based on policy limits. He remains open to additional suggestions about how to make that clearer. He noted there was some argument that there was no corresponding duty to pay a loss. But there is a duty, he said, obviously all insurance contracts include a corresponding duty for the insured and, also, since it says reasonably determined, if the insured doesn't come forward with the information to make a reasonable determination, they don't get paid. There is clearly an incentive to provide. He thought this legislation treated both sides equally to the extent that's fair. He explained when you have one large corporate party that's worth billions of dollars holding the money and another single injured party trying to get the money, we can't presuppose these parties are in any way equal in the beginning. If they just hold the money back and don't have reasonable regulations on when they should pay it, we can't consider them equal from the start. There needs to be a balance, not just pure equality when you are dealing with such disparate economic situations. SENATOR DONLEY agreed with the Director that this bill doesn't deal with tort reform and, in fact, it only deals with insurance reform. We are just talking about how insurance companies pay their claims, not the liability of the parties. The third-party section only triggers if the Director of Insurance finds a violation. He agreed with the Director's suggestion of inserting "or third party." Number 251 SENATOR MILLER moved to insert "or third party" on page 2, line 15. There were no objections and it was so ordered. CHAIRMAN LEMAN commented that he still wasn't comfortable with the bill, but he would not stand in the way of reporting it. He thought there may be unintended consequences and this would have to be addressed before it moved from the next committee. SENATOR MILLER said he was concerned, also, but would work with Senator Donely to address them in Senate Finance, and moved to pass CSSB 202(L&C) from Committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN LEMAN adjourned the meeting at 3:00 p.m.