Legislature(2003 - 2004)

2004-02-09 Senate Journal

Full Journal pdf

2004-02-09                     Senate Journal                      Page 2115
SB 311                                                                                            
SENATE BILL NO. 311 BY THE SENATE RULES COMMITTEE                                                   
BY REQUEST OF THE GOVERNOR, entitled:                                                               
          "An Act providing for a special deposit for workers'                                      
          compensation insurers; relating to the board of                                           
          governors of the Alaska Insurance Guaranty                                                
          Association; relating to covered workers'                                                 
          compensation claims paid by the Alaska Insurance                                          
          Guaranty Association; stating the intent of the                                           
          legislature, and setting out limitations, concerning the                                  
          interpretation, construction, and implementation of                                       
          workers' compensation laws; relating to restructuring                                     
          the Alaska workers' compensation system;                                                  
          eliminating the Alaska Workers' Compensation                                              
          Board; establishing a division of workers'                                                
          compensation within the Department of Labor and                                           
          Workforce Development and assigning certain                                               
          Alaska Workers' Compensation Board functions to                                           
          the division and the Department of Labor and                                              
          Workforce Development; establishing a Workers'                                            
          Compensation Appeals Commission; assigning                                                
          certain functions of the Alaska Workers'                                                  
          Compensation Board to the Workers' Compensation                                           
          Appeals Commission; relating to agreements that                                           
          discharge workers' compensation liability; providing                                      
          for hearing officers in workers' compensation                                             
          proceedings; relating to workers' compensation                                            
          awards; relating to an employer's failure to insure and                                   
          keep insured or provide security; providing for                                           
          appeals from compensation orders; relating to                                             

2004-02-09                     Senate Journal                      Page 2116
          workers' compensation proceedings; providing for                                          
          supreme court jurisdiction of appeals from the                                            
          Workers' Compensation Appeals Commission;                                                 
          providing for a maximum amount for the cost-of-                                           
          living adjustment for workers' compensation benefits;                                     
          providing for administrative penalties for employers                                      
          uninsured or without adequate security for workers'                                       
          compensation; relating to assigned risk pools and                                         
          insurers; and providing for an effective date."                                           
was read the first time and referred to the Labor and Commerce and                                  
Finance Committees.                                                                                 
The following fiscal information was published today:                                               
 Fiscal Note No. 1, zero, Department of Community and Economic                                      
 Fiscal Note No. 2, zero, Department of Law                                                         
 Fiscal Note No. 3, Department of Labor and Workforce                                               
Governor's transmittal letter dated February 6:                                                     
Dear President Therriault:                                                                          
Under the authority of article III, section 18, of the Alaska                                       
Constitution, I am transmitting a bill relating to the workers'                                     
compensation system. This bill relieves employers and employees of                                  
the "administrative burden" present in our workers' compensation                                    
system. The current accumulation of rules, procedures, and appeal                                   
processes increases costs for employers and insurers, delays resolution                             
of claims for employees, and makes the Alaska workers'                                              
compensation insurance market difficult for existing insurers and                                   
unattractive to new insurers. A recent Alaska Supreme Court case                                    
illustrates the problem. It took 1,400 days from filing of the claim to a                           
decision by the Alaska Supreme Court in Bradbury v. Chugach                                       
Electric Assn.,No. S-10532 (Alaska 6/20/2003). This is far too long to                            
wait for resolution of a claim.                                                                     

2004-02-09                     Senate Journal                      Page 2117
This bill reduces the administrative burden of the system by                                        
eliminating the present system of hearings and appeals. For years,                                  
there have been concerns that hearings before the Alaska Workers'                                   
Compensation Board (Board) are not accomplished quickly or                                          
consistently. The Legislature has been forced to take a number of                                   
steps, including: increasing the number of members of the Board;                                    
increasing the number of panels actually hearing cases (composed of                                 
one appointee representing labor, one appointee representing                                        
management, and a hearing officer); and increasing the number of                                    
hearing officers.                                                                                   
The current size of the Board with 14 members and the commissioner                                  
of the Department of Labor and Workforce Development far outstrips                                  
the single three-member Board originally created by the Legislature                                 
and makes assembly as a body (for purposes of meetings and                                          
approving regulations) difficult. While I recognize and appreciate the                              
dedication, public service, and hard work the Board members provide,                                
many members lack even a general legal training and background,                                     
much less specialized knowledge of workers' compensation law.                                       
Similarly, over the years the number of Board hearing panels have                                   
steadily increased in order to partially address concerns about their                               
availability for frequent hearings. The unwanted side effect is a lack of                           
consistency and predictability of decisions. Currently, there are more                              
than 300 combinations of panel members and hearing officers                                         
deciding claims. On appeal, any one of the numbers of superior court                                
judges assigned to hear workers' compensation appeals would rule on                                 
the relevant panel's decision. The losing party may then appeal to the                              
Alaska Supreme Court as a matter of right and no deference is given to                              
the Superior Court's decision. These sources of variation in the                                    
interpretation of the Alaska Workers' Compensation Act have                                         
multiplied in the last years, and have led to inconsistent, unpredictable                           
rulings. There is no doubt. Alaska needs a consistent and predictable                               
system for resolving disputed workers' compensation claims.                                         
This bill replaces the old system with three new components, all of                                 
which will bring more predictability and consistency to the system: (1)                             
a Workers' Compensation Appeals Commission (Commission); (2)                                        
experienced hearing officers; and (3) additional administrative                                     
authority and duties vested in the director of the division. In fact, the                           

2004-02-09                     Senate Journal                      Page 2118
only change to benefits made in the entire bill is "capping" out-of-state                           
claimants' benefits to the amount received by in-state claimants.                                   
Under current statutes, if a claimant resides out of state, the claimant's                          
compensation rate would be adjusted upward or downward based on                                     
the cost of living where the claimant resides. The bill "caps" the cost-                            
of-living adjustment for those claimants residing in a locality that has                            
a higher cost of living than does Alaska. Under the bill, if a claimant                             
resides in a higher cost-of-living locality, the claimant would receive                             
the same benefits that the claimant would have received if the claimant                             
resided in Alaska. Otherwise, no attempt is made to alter benefits                                  
available to injured workers or to disrupt the delivery of benefits.                                
The Commission replaces the Superior Court at the appellate level.                                  
The Commission would be composed of three attorneys who are                                         
members in good standing of the Alaska Bar Association. These                                       
individuals would have significant experience in Alaska workers'                                    
compensation law and their sole job would be to decide workers'                                     
compensation claims. The Commission will produce decisions that                                     
will be legal precedent until and unless overturned on appeal by the                                
Alaska Supreme Court.                                                                               
Initial hearings on disputed claims would be conducted by hearing                                   
officers. Hearing officers would be attorneys licensed to practice in                               
Alaska with significant experience in workers' compensation law.                                    
These hearing officers would have the benefit of some minor                                         
procedural improvements designed to aid the parties in reaching a                                   
prompt adjudication of the claims. Costs currently associated with                                  
continuing to a hearing in cases that ought to be dismissed or                                      
summarily decided will be reduced. Consistency and predictability in                                
the system will be improved. Costs and delays in resolving employees'                               
claims are reduced without changing benefits available to injured                                   
This bill also brings new duties and accountability to the                                          
administration of the system by the department. Currently, the director                             
has little authority to act since all power rests in the Board. This bill                           
would establish a Division of Workers' Compensation in the                                          
department. The director, (appointed by the commissioner) would be                                  
personally accountable for the performance of the division. The                                     
director would have expanded authority to administer the second                                     

2004-02-09                     Senate Journal                      Page 2119
injury fund (AS 23.30.040), obtain stop-work orders, investigate                                    
uninsured employers, seek civil penalties for an employer's failure to                              
insure workers, propose regulations to the commissioner, intervene in                               
cases and file appeals, supervise rehabilitation of injured workers, and                            
administer the Alaska Workers' Compensation Act. The director's                                     
formal decisions may be appealed to the Commission.                                                 
The bill also provides a powerful tool to further the department's                                  
current approach of "zero tolerance" for employers that fail to carry                               
legally required workers' compensation liability insurance. Under this                              
bill, the department gains authority to levy civil penalties against                                
employers whose choice to operate without the required insurance                                    
coverage places their employee's financial and physical well-being at                               
risk. They also gain an unfair competitive advantage over the                                       
employers who act responsibly by complying with the law and                                         
purchasing the necessary insurance.                                                                 
The bill would also revise AS 21, the insurance code, regarding how                                 
the state regulates the insurance industry in the provision of workers'                             
compensation insurance. Under the bill, insurers that transact workers'                             
compensation insurance in this state would be required to maintain in                               
the state a special deposit of cash or securities for the protection of                             
persons in this state covered under workers' compensation insurance.                                
This revision would provide additional financial protection for                                     
Alaskan workers in the event that workers' compensation insurer                                     
becomes insolvent and unable to pay claims.                                                         
The composition of the Board of Governors of the Alaska Insurance                                   
Guaranty Association would be modified under the bill to include                                    
representatives from management, labor, and insurance licensees. This                               
change would expand the expertise of the Board of Governors to better                               
address workers' compensation issues. The bill provides transition                                  
provisions to allow for the initial appointment of members to meet the                              
new statutory standards.                                                                            
Finally, the bill would repeal AS 21.39.155(c), to ensure that the                                  
assigned risk pool for workers' compensation operates as a self-funded                              
mechanism. Under existing law, the pool is not fully self-funded. This                              
additional burden on insurance companies is a factor making the                                     
Alaska workers' compensation insurance market unattractive to                                       

2004-02-09                     Senate Journal                      Page 2120
insurers. Eliminating the cap on the assigned risk pool surcharge may                               
improve the deposit of cash or securities for the protection of persons                             
in this Alaska market for companies and ensure consumers have                                       
access to insurance coverage.                                                                       
This bill represents a major step forward to addressing the significant                             
workers' compensation crisis in Alaska. The bill would rationalize the                              
process for making workers' compensation decisions in this state. This                              
should make Alaska more attractive for businesses to remain here or to                              
relocate their operations to this state.                                                            
I urge your prompt and favorable action on this measure.                                            
Sincerely yours,                                                                                    
Frank H. Murkowski