Legislature(2003 - 2004)

04/06/2004 01:50 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 336 - CIVIL DAMAGES FOR UNINSURED DRIVERS                                                                                  
Number 2137                                                                                                                     
CHAIR McGUIRE announced that the  next order of business would be                                                               
HOUSE BILL  NO. 336, "An  Act limiting recovery of  civil damages                                                               
by an uninsured driver; and providing for an effective date."                                                                   
Number 2128                                                                                                                     
REPRESENTATIVE KEVIN MEYER, Alaska  State Legislature, sponsor of                                                               
HB  336,  explained that  the  bill  has  three provisions.    It                                                               
provides  that persons  who  do not  comply  with existing  motor                                                               
vehicle laws  may not  recover for  damages for  noneconomic loss                                                               
suffered while  operating their cars.   Second, it  provides that                                                               
punitive damages  are not required  to be of the  mandated offers                                                               
of   uninsured/underinsured  motorist   coverage.     Third,   it                                                               
clarifies  that insurance  companies  are not  required to  offer                                                               
uninsured/underinsured  motorist coverage  on insurance  policies                                                               
that  provide  coverage  for  auto  liability  on  an  excess  or                                                               
umbrella basis.                                                                                                                 
REPRESENTATIVE  MEYER  mentioned  that   the  first  section  was                                                               
brought to his attention by a  constituent who asked why his [car                                                               
insurance]  payments had  to be  made every  six months  when his                                                               
neighbor  did  not  even  have insurance  and  yet  could  drive.                                                               
Representative  Meyer agreed  it  was not  fair,  and noted  that                                                               
other states had passed legislation  similar to HB 336 called "no                                                               
pay, no  play."  Driving is  a privilege, and unless  you pay and                                                               
abide by  the laws of  the state, then  you shouldn't be  able to                                                               
drive," he said.  He  pointed out that recently California passed                                                               
Proposition  213,  by a  77  percent  vote,  even though  it  was                                                               
estimated that 35  percent of the people did  not have insurance.                                                               
In Alaska it  is estimated that between 16-20  percent of drivers                                                               
do not have  car insurance.  He  said it is a  matter of fairness                                                               
to require that everyone have auto  insurance in order to be able                                                               
to drive  in Alaska, and  those who opt  to break the  law should                                                               
not have  the right to sue  for damages.  The  uninsured motorist                                                               
will still be able to recover  for economic damages, just not the                                                               
punitive - the pain and suffering - damages, he explained.                                                                      
Number 2006                                                                                                                     
REPRESENTATIVE MEYER explained  that the second part  of the bill                                                               
has to do  with clarifying what insurance  companies are required                                                               
to offer and  what Alaskans are required to obtain  as far as car                                                               
insurance goes.  He added:                                                                                                      
     The  Alaska Supreme  Court handed  down  a decision  in                                                                    
     2001  that  said that  uninsured/underinsured  motorist                                                                    
     coverage   must  mirror   a  policyholder's   liability                                                                    
     coverage.    It  was  interpreted   that  if  there  is                                                                    
     coverage   for  punitive   damages  under   a  person's                                                                    
     liability       policy,      then       a      person's                                                                    
     uninsured/underinsured  motorist   coverage  must  also                                                                    
     have coverage  for punitive damages.   However,  in the                                                                    
     statute  there  is  nothing   requiring  this.    State                                                                    
     statute  only  requires  that financial  limits  on  an                                                                    
     uninsured/underinsured   policy  match   the  financial                                                                    
     limits  on  a  liability   policy.    There's  also  no                                                                    
     requirement   that  a   regular  automobile   liability                                                                    
     insurance policy has punitive  damage recovery.  As you                                                                    
     know,  punitive  damages  are  intended  to  punish  or                                                                    
     deter, and  it's hard  for me to  see how  an uninsured                                                                    
     motorist   is   punished    when   they   are   seeking                                                                    
     compensation  from  an  insured person  who's  actually                                                                    
     funding the  right for recovery.   So, in  other words,                                                                    
     you're paying that person to sue you for damages.                                                                          
REPRESENTATIVE  MEYER related  that  the last  part  of the  bill                                                               
clarifies that uninsured/underinsured  motorist coverage only has                                                               
to  be  offered  on  automobile liability  policies  and  not  on                                                               
insurance   policies  that   provide   coverage  for   automobile                                                               
liability  under an  umbrella  basis.   The  intent  is to  avoid                                                               
repetitive offers;  insurance companies don't have  to offer that                                                               
and  people  don't   have  to  pay  for   repetitive  offers,  he                                                               
REPRESENTATIVE GARA said  that Section 3 is a  concern because he                                                               
has umbrella insurance  which allows him to buy  up to $1,000,000                                                               
of uninsured/underinsured  coverage.  The insurance  company does                                                               
not  offer  that large  amount  of  coverage unless  an  umbrella                                                               
policy is  purchased, he  related.  He  noted that  his liability                                                               
insurance  does  not  provide that  coverage,  but  his  umbrella                                                               
coverage does.   He asked if Section 3 interferes  with this type                                                               
of umbrella coverage.                                                                                                           
REPRESENTATIVE MEYER deferred to  the insurance industry speakers                                                               
for  the answer,  but said  he thinks  it is  optional and  not a                                                               
REPRESENTATIVE GARA  said it is  mandated under current  law that                                                               
insurance  companies  have  to  offer  the right  to  buy  up  to                                                               
$1,000,000 worth of uninsured/underinsured  coverage.  He said he                                                               
is worried that [HB 336] might roll that back.                                                                                  
REPRESENTATIVE MEYER  replied that all  the bill is trying  to do                                                               
is avoid repetitive policies.                                                                                                   
Number 1849                                                                                                                     
JOHN  L.   GEORGE,  Lobbyist   for  Property   Casualty  Insurers                                                               
Association  of  America  -  which,  he  explained,  consists  of                                                               
companies  that write  about  50 percent  of  all the  automobile                                                               
insurance in Alaska - answered  Representative Gara's question by                                                               
saying  that  the  mandatory  offer is  under  the  primary  auto                                                               
insurance policy and low limits  or up to $1,000,000 coverage can                                                               
be bought.  It is not reduced  by not having it under an umbrella                                                               
policy, unless it is a policy in excess of $1,000,000, he added.                                                                
Number 1797                                                                                                                     
REPRESENTATIVE  SAMUELS moved  to  adopt  the proposed  committee                                                               
substitute  (CS)  for  HB   336,  labeled  23-LS1254\D,  Bullock,                                                               
2/23/04.   There  being no  objection, Version  D was  before the                                                               
REPRESENTATIVE GARA repeated that  his insurance company told him                                                               
he could not  buy $1,000,000 worth of insurance  unless he bought                                                               
the umbrella policy.  He said  he does not want to interfere with                                                               
the right to buy that policy.                                                                                                   
MR. GEORGE  replied that he  is certain that the  mandatory offer                                                               
is by the  primary carrier and has nothing to  do with the excess                                                               
policy  and  suggested that  Representative  Gara  may have  been                                                               
misinformed or  may have misunderstood  his options.   He offered                                                               
to follow up on it.                                                                                                             
REPRESENTATIVE  GARA   said  he  has  been   misinformed  by  his                                                               
insurance company before.                                                                                                       
MR.  GEORGE continued  to explain  his extensive  background with                                                               
insurance and  said that as  director and deputy director  of the                                                               
insurance  division he  frequently got  calls from  consumers who                                                               
were upset because  other people did not  have insurance, causing                                                               
their insurance  rates to  go up  if there was  an accident.   He                                                               
noted that  there have been  many attempts  to get people  to buy                                                               
insurance by  mandating it, but  it remains a problem  with 16-18                                                               
percent uninsured drivers.   He said there are  test questions on                                                               
the  driver's  license exam  regarding  the  requirement to  have                                                               
insurance,  and  there   are  vehicle  registration  requirements                                                               
certifying that  the owner  has liability  insurance, and  yet, a                                                               
significant  portion of  drivers  lack insurance.    As a  result                                                               
there  was a  mandated offer  of uninsured/underinsured  motorist                                                               
coverage so people  could protect themselves from  people who did                                                               
not have insurance.   He mentioned that there have  been a number                                                               
of attempts to  make people aware that automobile  insurance is a                                                               
requirement.   This  bill would  restrict a  person's ability  to                                                               
collect the  noneconomic damages  and would  serve as  a reminder                                                               
and as a penalty for driving without insurance, he concluded.                                                                   
Number 1583                                                                                                                     
MR. GEORGE  gave an example  of some  of the problems  related to                                                               
umbrella policies.  Many companies  have stopped writing umbrella                                                               
policies  or  have  sought  other   companies  that  would  write                                                               
umbrella policies over  their own company's policies.   He stated                                                               
that  there  are  advantages  for having  the  same  carrier  for                                                               
primary  and  excess   policies.    It  is   more  efficient  and                                                               
practical, but, at  this point, not possible  with some insurance                                                               
companies today, he said.                                                                                                       
REPRESENTATIVE OGG read  on page 2, [lines  10-12], "coverage for                                                               
punitive  damages that  might otherwise  be  recoverable from  an                                                               
uninsured  or  underinsured person  is  not  required under  this                                                               
paragraph",  and   asked  if  someone  who   is  uninsured  drove                                                               
recklessly    and     "ran    into     you,    but     you    had                                                               
[uninsured]/underinsured  insurance  on your  policy,  basically,                                                               
does  this  paragraph say  that  you  won't  be able  to  collect                                                               
punitive damages under that policy?"                                                                                            
MR.  GEORGE  replied, "You  would  not  collect punitive  damages                                                               
under  your own  -  your  self-procured -  uninsured/underinsured                                                               
motorist coverage.  Yes, that's  correct."  He explained that the                                                               
logic behind that  idea is that punitive damages  are designed as                                                               
a punishment  and are extra  damages, not for medical  or vehicle                                                               
or  pain and  suffering.    He asked,  "If  you're the  uninsured                                                               
person and I collect punitive  damages from my insurance carrier,                                                               
and  that means  I have  to pay  more for  my insurance  to cover                                                               
that, what punishment is it to you?"                                                                                            
REPRESENTATIVE  ANDERSON offered  another  example.   If  someone                                                               
drives  drunk on  the wrong  side of  the road  down Egan  Drive,                                                               
"they're  itching  for a  punitive  claim  against them,  because                                                               
that's punishment,"  if they  hit someone  who has  no insurance.                                                               
He  asked if  the  person  who was  hit  could  sue for  punitive                                                               
MR. GEORGE said  a person can always sue.   Just because a person                                                               
does not  have insurance  does not mean  they don't  have assets,                                                               
and a judgment and collection may  be obtained.  But insurance is                                                               
the  issue,  he  said,  and  he  maintained  that  "my  insurance                                                               
shouldn't have  to pay  punitive damages  for his  negligent act,                                                               
but  they will  pay for  my car,  my medical  bills, my  pain and                                                               
suffering ...."                                                                                                                 
Number 1323                                                                                                                     
REPRESENTATIVE GRUENBERG  asked if the justification  for Section                                                               
1 is purely punitive.                                                                                                           
MR. GEORGE said no.                                                                                                             
REPRESENTATIVE    GRUENBERG   asked    if   there    is   another                                                               
justification.   He said he thought  that the logic is  to punish                                                               
those who  are uninsured by  not allowing them to  get recompense                                                               
for pain and suffering.                                                                                                         
MR. GEORGE replied that is correct.                                                                                             
REPRESENTATIVE  GRUENBERG  asked, "Can  you  think  of any  other                                                               
logic to support that section?  Any other policy basis?"                                                                        
MR.  GEORGE   replied  that  the  legislature,   in  its  wisdom,                                                               
determined that everyone should have  insurance and no one should                                                               
drive without  insurance.  This  is a punitive deterrent  for the                                                               
misbehavior  of  failing to  provide  coverage,  he said.    "I'm                                                               
reminded of  the Golden Rule -  do unto others as  you would have                                                               
them do unto  you.  You are required to  buy insurance to protect                                                               
the  other person  from your  actions.   You failed  to do  that.                                                               
Should the other person have  to protect you from their actions?"                                                               
The other  logic is that an  invoice can be produced  to show the                                                               
cost of damage to a car or  medical bills or lost wages, but pain                                                               
and suffering has no hard number, he concluded.                                                                                 
REPRESENTATIVE  GRUENBERG surmised  that the  real policy  behind                                                               
this is to eliminate pain and suffering [damage claims].                                                                        
MR. GEORGE disagreed.  He said  the real reason for [the bill] is                                                               
for it  to be a deterrent,  to encourage people to  buy insurance                                                               
so that this would never take effect.                                                                                           
REPRESENTATIVE  GRUENBERG   said  these   are  really   two  very                                                               
different issues.   He repeated that he believes  the real policy                                                               
driving this  bill is the desire  to limit pain and  suffering as                                                               
damages.   He  said if  that is  true, "We  should talk  in frank                                                               
terms about  the fairness  or unfairness  of pain  and suffering.                                                               
The only  justification I've heard  hear is that it  is difficult                                                               
to measure  in dollars and cents.   That's a far  cry from saying                                                               
it's  not fair."    He  implied that  if  pain  and suffering  is                                                               
eliminated  entirely,  it would  save  clients  in the  insurance                                                               
industry millions of  dollars annually.  He called  it a terrific                                                               
windfall for the insurance industry.                                                                                            
MR. GEORGE  replied that 20  percent [of drivers] are  not paying                                                               
insurance premiums.                                                                                                             
REPRESENTATIVE GRUENBERG asked about the other 80 percent.                                                                      
MR.  GEORGE  said the  bill  is  not  designed by  the  insurance                                                               
industry to  get out of paying  noneconomic awards.  He  said the                                                               
industry supports the bill, but  it really is to encourage people                                                               
to comply with the law.                                                                                                         
Number 1010                                                                                                                     
REPRESENTATIVE GARA  called the  bill oddly incongruent  and said                                                               
it does not  seem to address the policy concerns  that seem to be                                                               
the basis  of the bill.   The first part  of the bill  benefits a                                                               
bad actor.  It  says that if a person drinks,  drives, and has an                                                               
accident with  an uninsured motorist,  that person does  not have                                                               
to pay  the noneconomic damages.   He said he is  not sympathetic                                                               
to that idea.  He asked if he is missing something.                                                                             
MR. GEORGE  replied that the bill  is directed at people  who are                                                               
violating the  law by not  having insurance.  "Had  they complied                                                               
with the  law, under that scenario  that you gave, they  would be                                                               
entitled to collect noneconomic damages," he said.                                                                              
REPRESENTATIVE GARA said he is  being asked to benefit the person                                                               
who injured other people and he is  not willing to do that, so he                                                               
is not  supportive of  the first  part of the  bill.   The second                                                               
part of the  bill seems to be  just as illogical, he  opined.  He                                                               
asked if  Mr. George would agree  to say that all  insurers would                                                               
have to offer uninsured/underinsured coverage.   He said he wants                                                               
to have  the opportunity as a  consumer to buy a  large amount of                                                               
MR.  GEORGE  said it  could  be  called  something other  than  a                                                               
punitive  damage award.   He  suggested "compensatory  damages or                                                               
windfall profit,"  because it  really is  not punitive  to anyone                                                               
else but the person who has to pay for it.                                                                                      
REPRESENTATIVE  GARA  said  one  of the  recognized  purposes  of                                                               
punitive  damages  is punishment,  but  another  is the  implicit                                                               
recognition that  compensatory damages never really  end up fully                                                               
compensating anyone  after taxes  and attorney's fees,  and there                                                               
is that aspect in the wording "punitive damages."                                                                               
REPRESENTATIVE ANDERSON asked if  those are Representative Gara's                                                               
thoughts or legal standards.                                                                                                    
REPRESENTATIVE GARA replied, "In legal  discussions."  He said it                                                               
is really just about  what a consumer gets to buy,  so he said he                                                               
agrees with Mr. George that maybe it shouldn't be mandated.                                                                     
MR. GEORGE  said he believes  that [compensatory awards]  are not                                                               
REPRESENTATIVE  GARA  replied   that  compensatory  and  punitive                                                               
damages are  taxable in a  personal injury  case.  He  said there                                                               
may be certain classes of cases where they are not taxed.                                                                       
MR. GEORGE repeated that he believes that they are not taxed.                                                                   
Number 0656                                                                                                                     
REPRESENTATIVE ANDERSON  said that Representative  Gruenberg made                                                               
a good point  that someone in the Office of  the Attorney General                                                               
said that the "50 percent rule  to the state" applied on punitive                                                               
[damages].  He said he would like  to hear an opinion of the bill                                                               
from the Office of the Attorney General.                                                                                        
MR. GEORGE  said, "That  is an  interesting concept  where you're                                                               
buying insurance to  pay yourself for punitive  damages, but half                                                               
of it goes to the state."                                                                                                       
REPRESENTATIVE HOLM said he understood Mr. George to say:                                                                       
     The qualifications  for insurance were  not necessarily                                                                    
     in the  best interest of  all of  us, and by  us having                                                                    
     mandatory insurance you have  to provide it at whatever                                                                    
     cost  you can  provide it  for.   But,  in general,  it                                                                    
     seems  to me  that  it somehow  raises  the bar,  then,                                                                    
     because  your exposure  is increased  as  the level  of                                                                    
     inexperience  or  bad  driving   ...  enters  into  the                                                                    
REPRESENTATIVE  HOLM said  the  problem is  that  just because  a                                                               
person  passes  the  driver's  license test,  it  does  not  give                                                               
him/her  the  right to  drive.    He  asked  Mr. George  for  his                                                               
thoughts on the matter.                                                                                                         
MR. GEORGE  replied that  the legislative  branch has  to balance                                                               
what's good  for the insurance  company with what's good  for the                                                               
public.   He said he thinks  that the decision of  everyone being                                                               
insured is  good public policy.   "The insurance  companies would                                                               
prefer not to  have to offer it,"  he said.  "But,  because it is                                                               
mandated,  there is  an  assigned  risk plan.    If no  insurance                                                               
company  wants  to  write  it,   then  they're  assigned  and  an                                                               
insurance  company will  write it  and it's  more expensive,  but                                                               
it's certainly not a money maker."                                                                                              
REPRESENTATIVE OGG  asked why "punitive  damages" is left  out of                                                               
Section 1.                                                                                                                      
MR. GEORGE replied it  is not his bill and that  he can take some                                                               
responsibly for the  uninsured motorist additions to  the CS, but                                                               
Representative  Ogg may  have to  ask the  sponsor his  intent on                                                               
that section.                                                                                                                   
Number 0395                                                                                                                     
CHAIR  McGUIRE said,  "There are  noneconomic  damages which  are                                                               
loss  of consortium,  loss of  your  ability to  hold your  child                                                               
REPRESENTATIVE GARA  said that  noneconomic damages  are intended                                                               
to compensate  the person, to  make the  person whole.   They are                                                               
not punitive  but compensatory, he  explained.   Punitive damages                                                               
are deterrents and punishments, he added.                                                                                       
CHAIR  McGUIRE said  generally  that is  true,  but "some  people                                                               
would argue that 'noneconomics' go beyond compensatory."                                                                        
REPRESENTATIVE OGG said the point of  the bill is if someone is a                                                               
bad actor,  and they have  "dirty hands",  they are not  going to                                                               
get the  benefits.   He asked  why an  uninsured person  does not                                                               
lose both noneconomic and punitive damages.                                                                                     
MR. GEORGE deferred  to Mr. Lessmeier and to the  bill sponsor to                                                               
answer that question.                                                                                                           
CHAIR  McGUIRE  stated  her  intent to  finish  with  the  public                                                               
testimony and then set the bill aside.                                                                                          
Number 0158                                                                                                                     
DONNA J. McCREADY,  Attorney at Law, Ashburn and  Mason, said she                                                               
thinks it is great public  policy to create incentives for people                                                               
to  be insured  when driving,  and  that there  already exists  a                                                               
penalty  for driving  without insurance  in that  a person  could                                                               
lose his  or her license.   However, this bill does  not actually                                                               
do anything  to meet  the goal  of getting  people to  drive with                                                               
insurance, she  opined.  She  mentioned the Portage  Glacier Road                                                               
Case where a  drunk driver drove his truck into  a lake, was able                                                               
to  get  the truck  out  of  the lake,  and  then  hit a  vehicle                                                               
containing  two teenagers  and their  grandparents head-on.   The                                                               
grandparents did not have insurance, she noted.                                                                                 
TAPE 04-60, SIDE A                                                                                                            
Number 0001                                                                                                                     
MS. McCREADY  continued to  say that the  two teenagers  died and                                                               
the grandparents were  seriously injured.  Under  this bill these                                                               
people  would not  be  able to  recover  noneconomic damages  for                                                               
pain,  suffering and  loss.   The mother  of the  teens who  were                                                               
killed  could not  seek recompense  from the  drunk driver.   She                                                               
emphasized that these  cases do happen and the  bill would affect                                                               
these  people.   She  said  the bill  instead  should target  the                                                               
people who cause accidents who do not have insurance.                                                                           
REPRESENTATIVE  OGG said  it appears  from  the way  [HB 336]  is                                                               
written that the  person who is driving without  insurance is not                                                               
protected, but everyone else in the car is protected.                                                                           
MS. McCREADY said that is a  question she still has.  She pointed                                                               
out that  for children  under 18, economic  damages are  not very                                                               
high.     She  asked   for  clarification   on  the   issue  that                                                               
Representative Ogg raised.                                                                                                      
Number 0291                                                                                                                     
MICHAEL J. SCHNEIDER, Attorney at  Law, Law Offices of Michael J.                                                               
Schneider,  PC, said  that these  issues  are extremely  complex.                                                               
The first  part of the  bill is a  blatant gift to  the insurance                                                               
industry that cannot  accomplish its stated goal, he  opined.  He                                                               
noted that Alaska  has a mandatory requirement  to have insurance                                                               
before one can  get a driver's license and if  one drives without                                                               
insurance and  has an accident  one will  lose that license.   He                                                               
also said  that in the  face of  those disincentives, one  out of                                                               
five  people  is  still  driving   without  a  [insurance].    He                                                               
maintained that this  bill will pose no  incentive to [uninsured]                                                               
drivers who  are just "trying  to stay  even with life"  to worry                                                               
about  damages  they  might  incur.     He  emphasized  that  the                                                               
insurance company will benefit by this bill.                                                                                    
MR. SCHNEIDER  termed the second  part of the bill  "solutions in                                                               
search of a  problem."  The Alaska Supreme Court  has adopted the                                                               
mirror image  approach in analyzing some  insurance questions, so                                                               
if an insurance company,  an uninsured/underinsured carrier, does                                                               
not want  to be  on the  hook for  punitive damage  exposure, all                                                               
they've got to do is carefully write their policy, he stated.                                                                   
MR.  SCHNEIDER   addressed  the  third  provision   of  the  bill                                                               
regarding umbrella  coverage.  The  insurance industry,  in spite                                                               
of  legislative demands  that  it offer  uninsured  limits up  to                                                               
certain  levels,  and without  regard  to  the elected  liability                                                               
level, for years has refused to  comply with the law, he related.                                                               
He  said it  is possible  that  Representative Gara  did get  the                                                               
wrong advice from his carrier because  many people do not get the                                                               
insurance that  they are  entitled to.   He noted  that uninsured                                                               
coverage  can be  waived in  writing  and said  there is  nothing                                                               
wrong  with   the  Alaska  Supreme  Court's   determination  that                                                               
uninsured coverage  can be  attached to an  umbrella policy.   He                                                               
said it  is not  a problem  and there  is no  need to  address it                                                               
Number 0818                                                                                                                     
MICHAEL  L.  LESSMEIER, Attorney  at  Law,  Lessmeier &  Winters,                                                               
Lobbyist for  State Farm Insurance  Company ("State  Farm"), said                                                               
that when he  started doing legislative work in 1983,  one of the                                                               
most controversial  issues was the issue  of mandatory automobile                                                               
insurance.  He  relayed that he has worked on  every bill related                                                               
to the "mandatory automobile insurance  scheme" that is in effect                                                               
in this state, and he also  worked on the connected system set up                                                               
for mandated offers  of uninsured/underinsured motorist coverage,                                                               
which was  an idea  by the insurance  industry in  recognition of                                                               
the fact  that there are  going to  be people that  drive without                                                               
insurance.  [State  Farm] has about 26 percent of  the market, he                                                               
reported, or  123,511 policies in  force.   "In spite of  what my                                                               
colleague Mr.  Schneider told you, we  think we do a  good job of                                                               
selling uninsured motorist coverage,  [because] 96 percent of our                                                               
policyholders have uninsured motorist coverage," he said.                                                                       
MR. LESSMEIER related  that in 1983, there was  a bill introduced                                                               
by then-Speaker of the House, Joe  Hayes, and the concern at that                                                               
time  was the  uninsured motorist  population.   In  the last  20                                                               
years there have  been numerous changes in  legislation and still                                                               
16-18 percent of  drivers are uninsured, and so one  out of every                                                               
five  or six  accidents  is going  to be  uninsured,  which is  a                                                               
significant problem for  policyholders.  He said  that many other                                                               
states  have addressed  this issue.   The  rationale for  the "no                                                               
pay, no  play" was recently  before the New Jersey  Supreme Court                                                               
in February  of 2004.   In  a couple of  sentences the  policy is                                                               
explained.  He read:                                                                                                            
     The  law  advances  a policy  of  cost  containment  by                                                                    
     ensuring  that an  injured  uninsured  driver does  not                                                                    
     draw on the pool of  accident victim insurance funds to                                                                    
     which  he did  not  contribute.   The legislation  thus                                                                    
     gives the  uninsured driver  a very  powerful incentive                                                                    
     to comply  with the  compulsory insurance  laws, obtain                                                                    
     automobile  insurance coverage,  or lose  the right  to                                                                    
     maintain  a  suit  for both  economic  and  noneconomic                                                                    
MR. LESSMEIER  continued to say  that in New Jersey,  if somebody                                                               
drives  without  insurance,  they  don't get  to  collect  either                                                               
economic  or noneconomic  damages.   Referring to  Representative                                                               
Gruenberg's  question whether  this  bill is  purely punitive  or                                                               
not, Mr.  Lessmeier replied that  it is not.   It is  intended to                                                               
ensure responsibility  and fairness to  the 82-84 percent  of the                                                               
driving public that does pay for [insurance], he concluded.                                                                     
Number 1098                                                                                                                     
MR. LESSMEIER said  that there were a number  of questions raised                                                               
about  "benefiting a  bad  actor" and  hurting  somebody that  is                                                               
totally  innocent.    He maintained  that  somebody  that  drives                                                               
without insurance  is not totally  innocent.  They have  a choice                                                               
in advance; if  they want the protection of the  system they need                                                               
to contribute to the funding of the  system, he said.  "That is a                                                               
matter of  fairness and that  is a matter of  responsibility," he                                                               
MR. LESSMEIER  opined that  there is nothing  in Alaska  law that                                                               
says   the  purpose   of   punitive   damages  is   compensatory.                                                               
"Punitive" by  its very definition  is punishment, and  when that                                                               
issue goes  to the jury, the  jury has already decided  the issue                                                               
of compensatory  damages, he explained.   He urged  the committee                                                               
to not get sidetracked by that issue.                                                                                           
CHAIR  McGUIRE  asked  Mr.  Lessmeier   about  the  line  between                                                               
compensatory and punitive damages, such as noneconomic damages.                                                                 
MR. LESSMEIER  replied that he would  categorize punitive damages                                                               
as noneconomic damages  in the context of this  bill because they                                                               
are not quantifiable.                                                                                                           
CHAIR   McGUIRE  responded,   "You're  saying   that  noneconomic                                                               
damages, in your opinion, are the same as punitive?"                                                                            
MR. LESSMEIER replied,  "No, what I would say is  when we created                                                               
the limits  for noneconomic damages  in the tort  reform, clearly                                                               
those  limits  did not  include  punitive  damages.   There's  no                                                               
question about  that."  He said  it depends on how  the committee                                                               
defines the  term noneconomic.   "If  the committee  is concerned                                                               
about letting go  the person who is the  supposed wrong-doer that                                                               
commits  a bad  act, then  perhaps you  wouldn't want  to include                                                               
punitive  damages  within  the  definition  of  noneconomic,"  he                                                               
CHAIR McGUIRE  said it probably  relates to the 1997  tort reform                                                               
legislation and  the way that  [insurance companies]  write their                                                               
policies.  She  asked if it is the case  that noneconomic damages                                                               
and punitive damages are lumped together.                                                                                       
Number 1307                                                                                                                     
MR. LESSMEIER  said they are not  really covered that way  in the                                                               
policies.   The way the  policies are written and  the discussion                                                               
of concern  regarding punitive damages  has to do with  Section 2                                                               
of the bill, he explained.   The Alaska Supreme Court adopted the                                                               
mirror rule  in [State  Farm Mutual  Automobile Insurance  Co. v.                                                             
Lawrence].  "If  we sell coverage for punitive  damages under the                                                             
liability portion  of the policy, ...  it means that we  now have                                                               
to  sell  that   coverage  and  include  that   coverage  in  the                                                               
uninsured/underinsured   motorist  coverage.      And  it   makes                                                               
absolutely no  sense for  our policyholders to  pay a  premium so                                                               
that they  can recover punitive  damages.  They're  not punishing                                                               
someone  else, because  that  someone else  is  not paying  those                                                               
punitive  damages," he  said.   Furthermore,  50  percent of  the                                                               
damages must go to the state, he added.                                                                                         
CHAIR  McGUIRE asked  Mr.  Lessmeier  if it  is  his belief  that                                                               
because  of the  mirror image  rule, without  a statutory  change                                                               
there is  no way  for State  Farm to do  what has  been suggested                                                               
about offering various choices to the consumer.                                                                                 
MR. LESSMEIER replied, "We can't."   He pointed out that he has a                                                               
choice with two  consequences because of what  the Alaska Supreme                                                               
Court did.   The  first consequence is  "we change  our liability                                                               
policy, ...  we take  away the coverage  where people  may really                                                               
need  it and  they really  want to  pay for  it, just  because it                                                               
makes another  coverage more expensive,  where it makes  no sense                                                               
to have  that coverage.   So we'd have to  take it away  from the                                                               
liability policy in order to  do what Mr. Schneider talked about.                                                               
It makes no sense for us to do that."                                                                                           
CHAIR McGUIRE added, "Just to get around it."                                                                                   
MR. LESSMEIER  continued, "The problem  is ... that  people don't                                                               
have  that  choice; they  could  have  the  choice by  going  and                                                               
purchasing  a policy  that doesn't  provide it  on the  liability                                                               
side,  so it  doesn't  provide it  on the  uninsured/underinsured                                                               
motorist side, also."                                                                                                           
CHAIR McGUIRE summarized her understanding  by saying it's unfair                                                               
to allow somebody who is breaking  the law to avail themselves of                                                               
higher privileges.                                                                                                              
Number 1505                                                                                                                     
MR. LESSMEIER responded  by saying that for somebody  who has not                                                               
contributed  to the  system  that everyone  else  pays for,  it's                                                               
unfair to  allow him/her full  participation in that system.   He                                                               
repeated  it is  an issue  of  fairness and  responsibility.   He                                                               
responded to  Mr. Schneider's  comment that  the only  people who                                                               
would  benefit by  this are  the insurance  companies, by  saying                                                               
that the  challenge to  the insurance industry  has been  to make                                                               
its products affordable.  He continued:                                                                                         
     If we look back at our  20-year history - we go back to                                                                    
     1894  - we  have decreased  rates six  times.   We have                                                                    
     increased rates a  number of time, too, but  we do what                                                                    
     we're able  to do in terms  of the market.   We look at                                                                    
     this particular  coverage over the last  four years; we                                                                    
     have paid  out in terms  of our expenses and  our claim                                                                    
     payments, about  $1.70-something for every  dollar that                                                                    
     we've take in.   We go back over the  last 20 years and                                                                    
     we look  at what  the premium  structure has  been with                                                                    
     respect  to  uninsured/underinsured  motorist  coverage                                                                    
     versus what  it's been for  bodily injury  and property                                                                    
     damage coverage.                                                                                                           
     Now  uninsured/underinsured  has  increased  much  more                                                                    
     rapidly  and,   of  course,   we've  made   many,  many                                                                    
     significant changes  to the law  during that  period of                                                                    
     time.  But, there's a cost.   We don't believe it is in                                                                    
     the  interest  of  our   policyholders  to  be  funding                                                                    
     punitive damage  claims against ourselves.   We  do not                                                                    
     believe it  is necessary to make  these mandated offers                                                                    
     on  pure excess  policies  when they  are  made on  the                                                                    
     underlying  automobile policy  at the  time the  person                                                                    
     purchases  the  vehicle and  at  every  single time  of                                                                    
     renewal, and they're  made in writing.   And if they're                                                                    
     not made, there are significant ... consequences.                                                                          
CHAIR McGUIRE asked if insurance rates will be decreasing.                                                                      
MR.  LESSMEIER  replied that  there  is  no  way to  answer  that                                                               
question.   He referred  to the tort  reform legislation  of 1997                                                               
and  said  there is  not  a  clear answer  as  to  whether it  is                                                               
constitutional  or  not.    He  said HB  336  will  work  in  two                                                               
different  ways if  it is  passed.   It will  be a  deterrent and                                                               
there will  be fewer people on  the roads without insurance.   He                                                               
also  predicted that  claims will  be reduced  by people  without                                                               
insurance, and  he said  he hopes  that will  reduce the  cost of                                                               
CHAIR McGUIRE said she doesn't think it will act as a deterrent.                                                                
Number 1663                                                                                                                     
REPRESENTATIVE  HOLM  presented  a hypothetical  situation  of  a                                                               
wealthy  person who  chooses  not to  purchase  insurance.   This                                                               
action  says that  the  person  is electing  not  to  be able  to                                                               
collect damages  because he or she  makes plenty of money  and is                                                               
"self-insured,"  he said.    He  asked what  is  wrong with  that                                                               
MR. LESSMEIER said  that is a debate that was  held back in 1983-                                                               
4, and  there is  a way  for a self-insured  person to  avoid the                                                               
mandatory insurance laws.                                                                                                       
CHAIR McGUIRE asked how that is done.                                                                                           
MR. LESSMEIER replied  that he would have to go  back and look at                                                               
the statutory scheme to be able to do that.                                                                                     
CHAIR  McGUIRE  asked Mr.  Lessmeier  to  bring that  information                                                               
MR. LESSMEIER  related that  the policy  made back  then required                                                               
all  people  who drove  to  have  at  least  a minimum  limit  of                                                               
liability,  "50/100/25."   He said  that that  coverage for  most                                                               
people  has remained  relatively affordable.   He  said a  system                                                               
cannot be created in Alaska that  would allow for the policing of                                                               
the  self-insured.   People are  mandated to  buy insurance  at a                                                               
certain level  and the insurance  companies are mandated  to make                                                               
the offers summarized on  page 2 of the proposed CS.   He said it                                                               
is not  a perfect  system, but  it is  the best  system currently                                                               
Number 1784                                                                                                                     
REPRESENTATIVE HOLM said  he objected to several  things that Mr.                                                               
Lessmeier said, such as the  implication that people are "guilty"                                                               
if they  didn't benefit  the general public  when they  choose to                                                               
self-insure.   He maintained  that the  public is  not hurt  by a                                                               
wealthy  person not  carrying insurance.   He  questioned whether                                                               
the  legislature  should be  passing  laws  to benefit  insurance                                                               
MR.  LESSMEIER said  he  did not  mean  to offend  Representative                                                               
Holm.   He said he didn't  think that this bill  will benefit the                                                               
insurance companies,  but the benefit  will be passed along.   He                                                               
     I think that if we're going to go back and debate the                                                                      
     issue of mandatory insurance at the very beginning and                                                                     
     try to  create a  system that  would exempt  those that                                                                    
     are  in your  situation,  that you  described, then  we                                                                    
     have  to talk  about  a different  system.   I  applaud                                                                    
     those   people  who   are   able   to  be   financially                                                                    
     responsible.   Most people  can't.   I don't  know that                                                                    
     we've figured out a way to enforce a system like that.                                                                     
REPRESENTATIVE  HOLM recalled  that his  father was  self-insured                                                               
for fire insurance for years  because he didn't borrow money from                                                               
the bank.                                                                                                                       
CHAIR  McGUIRE  said  it  is  a  tough  debate  whether  to  have                                                               
mandatory insurance or not.                                                                                                     
Number 1893                                                                                                                     
REPRESENTATIVE  GARA, responding  to  the  earlier discussion  of                                                               
noneconomic damages  such as pain,  suffering, loss  of enjoyment                                                               
of  life,  stated  that  those  are  compensatory,  not  punitive                                                               
damages according to statutory definition.                                                                                      
MR. LESSMEIER replied that the  noneconomic damage caps that were                                                               
passed were not  intended to limit punitive damages.   There is a                                                               
separate  section of  that  legislation  that addresses  punitive                                                               
damages, he added.                                                                                                              
REPRESENTATIVE  OGG referred  to  Section 1  and  the New  Jersey                                                               
Supreme Court  saying that no  damages are awarded  [to uninsured                                                               
drivers].    He  said  he wondered  about  the  justification  of                                                               
awarding economic damages in Alaska.                                                                                            
MR. LESSMEIER opined  that the Alaska Supreme  Court would uphold                                                               
this  section of  the bill  because  it is  a legislative  policy                                                               
choice about  where to draw the  line.  He said  he also believes                                                               
that it  is in the  legislature's power  to go further  with this                                                               
legislation in the  hope that it might achieve more.   He said he                                                               
suspects this  [bill] comes from  what was passed  in California.                                                               
There are six or seven states  that have also done some variation                                                               
of this, he added.                                                                                                              
REPRESENTATIVE OGG said he does  not buy the "deterrent" argument                                                               
that much  and may  be interested  in adding  a sunset  clause of                                                               
five  or seven  years;  then,  if it  doesn't  show a  measurable                                                               
deterrent, maybe  that portion is not  needed.  He said  he still                                                               
has  questions  about  the  section   that  deals  with  punitive                                                               
MR.  LESSMEIER explained  that what  the bill  basically says  is                                                               
that  "we don't  have to."    Simply because  it is  sold in  the                                                               
liability  portion of  the policy,  does not  mean it  has to  be                                                               
included  in the  uninsured/underinsured portion  of the  policy.                                                               
He opined that  there won't be much of a  demand for that product                                                               
because  people  won't  want  to  fund  the  ability  to  recover                                                               
punitive damages against somebody else.                                                                                         
Number 2119                                                                                                                     
CHAIR  McGUIRE asked  whether,  if  one of  these  cases went  to                                                               
court, would the fact that  somebody is uninsured or underinsured                                                               
go toward contributory negligence.                                                                                              
MR. LESSMEIER replied that the  only possible way that that could                                                               
come into evidence would be on  a punitive damage claim.  If part                                                               
of  what they're  covered for  on  the liability  portion of  the                                                               
policy is punitive  damages, then there's a  pretty good argument                                                               
that evidence  of amount of  insurance would  go to the  jury, he                                                               
REPRESENTATIVE  GARA  pointed  out  that  the  1997  tort  reform                                                               
legislation  did go  to the  Alaska  Supreme Court  where it  was                                                               
MR.  LESSMEIER explained  that whenever  a  piece of  legislation                                                               
like  this  is passed,  there  is  a  period  of time  where  the                                                               
legislation  will be  challenged,  and different  interpretations                                                               
made.    A  good  example  of that  is  the  [State  Farm  Mutual                                                             
Automobile Insurance Co. v. Lawrence] decision.  He relayed:                                                                  
     Our product was never  priced to cover punitive damages                                                                    
     on uninsured/underinsured  motorist coverage.  ... Many                                                                    
     of  the  umbrella policies  were  not  priced to  cover                                                                    
     uninsured/underinsured.   So  we  don't  know what  the                                                                    
     court's going  to do, and  the example that I  gave you                                                                    
     is a  valid one  because, right now,  as you  know, the                                                                    
     court upheld the constitutionality  of tort reform, but                                                                    
     it did so on a 2-2  decision, and a 2-2 decision is not                                                                    
MR.  LESSMEIER noted  that it  took  10 years  for California  to                                                               
litigate  the  constitutionality  of the  MICRA  [Medical  Injury                                                               
Compensation  Reform Act]  that  was passed.    It's taken  seven                                                               
years in  Alaska and  there is  not a  definitive answer  yet, he                                                               
said.    He  opined  that  in looking  back  at  the  history  of                                                               
insurance in Alaska,  the rates reflect the experience.   He said                                                               
he would like to think that [Alaska] is a competitive market.                                                                   
REPRESENTATIVE  GARA  replied, "I  suspect  that  when you  argue                                                               
about the Alaska  Supreme Court ruling that upheld  our 1997 tort                                                               
reform  [legislation] ...  in court,  and you're  on the  defense                                                               
side,  I  suspect  that  you  tell  the  court  that  that  is  a                                                               
definitive ruling."                                                                                                             
CHAIR  McGUIRE relayed  that  HB  336 [Version  D]  would be  set                                                               

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