The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:10 a.m., on Thursday, April 22, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark E. Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

GUEST LEGISLATORS PRESENT:

Assemblyman David E. Goldwater, Clark County Assembly District No. 10

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Crystal M. Lesbo, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Assemblyman Lynn Hettrick, Douglas and Carson City counties Assembly District No. 39, stated this bill arose from a constituent’s concern that his homeowner’s insurance was the only policy in place to cover injuries sustained by an individual he employed to perform work at his home, such as a babysitter or a person mowing the lawn. The constituent requested Assemblyman Hettrick seek legislation requiring workers’ compensation coverage for casual laborers working in a person’s home. Assemblyman Hettrick stated A.B. 334 has evolved with the help of the insurance commissioner’s office. He said the bill would allow insurance companies that provide workers’ compensation insurance, to underwrite a rider on a homeowner’s policy to cover workers’ compensation for casual laborers.

Clifford N. King, Supervisor, Property and Casualty Section, Division of Insurance, Department of Business and Industry, stated that a rider on a homeowner’s policy could be obtained at a cost of approximately $115 per year for part-time casual labor, and $400 per year for a full-time worker. Assemblyman Hettrick called the rates competitive and economical. He explained that in the event a casual laborer was hurt while working on a homeowner’s property, A.B. 334 would provide coverage of medical costs and, if appropriate, lost wages. The insurance would aid in avoiding a lawsuit against the homeowner.

According to Assemblyman Hettrick, the coverage would cover medical expenses and a "deemed wage" provision to cover income lost due to a temporary disability. He added that persons permanently disabled would also be covered. He further stated, for the record:

Assemblyman Hettrick offered to answer questions and stated he would leave the technical side to Mr. King.

Mr. King stated that under current insurance policies, there exists no exclusion, under either the medical payments or the personal liability sections, covering injuries to "domestic" workers. Mr. King explained there is a low limit of coverage available for medical payments, which is designed for short-term, take-care, prevent-lawsuit type of injuries. He stated policy limits are generally between $1,000 and $5,000, and cover medical expenses incurred within 12 months of the date of injury. He added there is a basic limit of $25,000 for personal liability in standard homeowner policies. He summarized that homeowner policies offer limited coverage under both medical payment and personal liability provisions. He added that personal liability would provide coverage if the homeowner were found negligent; however, it would be the injured worker’s responsibility to prove negligence.

Mr. King averred this type of policy mirrors policies issued in other states. He said there are National Council on Compensation Insurance forms available, which are standard forms to be attached to a standard personal liability or homeowner policy. Mr. King noted these policies would be voluntary and available to homeowners who choose to purchase such coverage.

Senator Rhoads asked if teenagers hired by ranchers are covered under workers’ compensation policies. Mr. King answered agricultural workers are excluded under the description of an employee and Assemblyman Hettrick added A.B. 334 would not include agricultural workers.

In answer to a query by Chairman Townsend, Assemblyman Hettrick said he has not spoken to specific carriers of homeowners’ insurance, but insurance-industry people here today have indicated interest.

Senator O’Connell asked if A.B. 334 would cover a "handyman" type of service. Mr. King answered the bill is designed to target people who are employed around the house to maintain the premises. Assemblyman Hettrick pointed to A.B. 334, section 1, subsection 4, paragraph (a), which reads:

Assemblyman Hettrick continued the inclusion of a "handyman" type of service would be a concern, as it could be construed as a method to circumvent labor laws.

Chairman Townsend asked if a person, for example a pool maintenance employee, was injured, and the contractor he or she is employed by does not have a workers’ compensation policy, would the rider cover the injury? Assemblyman Hettrick said the law requires the contractor to have coverage. Mr. King added it is not the intent of A.B. 334 to offer coverage for an employer who is not within the law. The intent of the bill is to provide coverage for those who are not normally in business. Assemblyman Hettrick noted a proposed amendment (Exhibit C) to the bill, submitted by Amy Halley Hill, Lobbyist, Las Vegas Chamber of Commerce and Nevada Self-Insurers Association, which clarifies some of the concerns raised today.

Lenard Ormsby, General Counsel, Employers Insurance Company of Nevada, testified the proposed amendment is troubling. Exhibit C opens an area of the law Employers Insurance Company of Nevada (EICON) litigates on a daily basis. Mr. Ormsby made a request to work on the amendment with Ms. Hill, since he interprets it as broader than he believes was intended. Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor and Congress of Industrial Organizations, would like to work with Mr. Ormsby and Ms. Hill on the amendment. Chairman Townsend encouraged Mr. Thompson, Mr. Ormsby, and Ms. Hill to work together on the proposed amendment.

Chairman Townsend closed the work session on A.B. 334 and opened the work session on A.B. 470.

Robert A. Ostrovsky, Lobbyist, testified the bill has been amended, as a whole, with new language. Mr. Ostrovsky stated he would answer questions from the committee.

Barbara Gruenewald, Attorney, Nevada Trial Lawyers Association, asserted the association supports A.B. 470, and she proceeded to summarize the bill. It allows an injured worker additional rights, choices, and protections with regard to managed care organizations.

In answer to Senator O’Connell, Jack Kim, Lobbyist, Sierra Health Services, explained the bill would correct problems such as when authorization is issued by a physician for a certain treatment, the managed care organization must respond within 5 days. Ms. Gruenewald said if the managed care organization fails to respond, the treatment will be deemed to be given, and payment must be made. Mr. Ostrovsky expressed language in the bill is meant to assure managed care organizations do not discriminate against a provider who advocates on behalf of an injured employee, and assists an employee in seeking reconsideration of treatment. The bill allows a hearing officer to send an injured worker for an independent evaluation.

Ms. Hill affirmed the amendment her organization is presenting (Exhibit D) for consideration allows the hearing officer to pick a doctor, under certain circumstances.

Assemblyman David E. Goldwater, Clark County Assembly District No. 10, related the genesis of A.B. 470. Previous legislation has addressed many patients rights, but did not apply to workers’ compensation. He asserted that of the many problems with the health system, one half are the result of workers’ compensation and managed-care matters. Chairman Townsend asked Assemblyman Goldwater if there was a reason the previous legislation did not cover workers’ compensation. Assemblyman Goldwater answered it was omitted as a compromise, and it was surmised changes in the workers’ compensation system would provide relief on the health side.

Chairman Townsend closed the hearing on A.B. 470, and opened the hearing on Senate Bill (S.B.) 37.

Mr. Ormsby introduced a proposed amendment to S.B. 37 (Exhibit E. Original is on file in the Research Library.). He summarized the three goals of the bill; to remove the old debt, prevent new debt, and provide a safety net to employers. Mr. Ormsby pointed to section 5 of Exhibit E, which was drafted by the Legislative Counsel Bureau to assure EICON is the successor in all matters of the state system of industrial insurance existing on December 31, 1999.

Mr. Ormsby explained premiums received by the predecessor organization will be transferred to the successor organization; and the commissioner of insurance will take possession of all funds, if the successor organization does not provide workers’ compensation. Mr. Ormsby read page 128 of Exhibit E, which is the section establishing the new structure of the state system of industrial insurance effective January 1, 2000.

Senator O’Connell asked Mr. Ormsby who would write the bylaws for the successor company. He replied an interim board of directors would write the bylaws, which could be changed when the policyholders elect the permanent board of directors. In answer to an inquiry by Senator Rhoads, Mr. Ormsby said S.B. 37 does not establish who is eligible for the board of directors. Previous versions of the legislation authorized a five-member board with qualifications in business; and rules to prohibit somebody from being a member if they are employed by, are counsel for, or are a lobbyist for another insurance company. The interim board would be appointed by existing management and the policyholders would elect the board to replace the interim board after January 1, 2000. Mr. Ormsby said the policyholders would nominate the slate of directors.

Senator O’Connell asked Mr. Ormsby why section 5 of Exhibit E reads "names of employers, their addresses" instead of "names of businesses, their business addresses." Mr. Ormsby said to his knowledge, the business address is the only address on file.

Roger Bremner, Administrator, Industrial Relations Division, Department of Business and Industry, said it is the intent of the department to provide business-oriented information only, and personal information would not be released. Mr. Bremner agreed with Senator O’Connell that the intent of the department should be put into regulation.

Samuel P. McMullen, Lobbyist, Las Vegas Chamber of Commerce, said the chamber would like to make suggestions. Mr. McMullen approved of testimony by Mr. Ostrovsky, heard during a previous meeting of the Senate Committee on Commerce and Labor, detailing the history of premium regulation. The chamber recommends the private company being created out of EICON, be given a shorter transition time than 5 years, and the appointment of an advisory board made up of policyholders to formulate the bylaws. Mr. McMullen assured Chairman Townsend the chamber desires the election of a board by policyholders, as soon as possible, to make all decisions.

Chairman Townsend summarized the section of Exhibit E which states if any successor organization established by S.B. 37 wishes to transact property and casualty insurance, existing trust money will not be considered an asset in the determination of the financial condition of the successor organization. The chairman asked Mr. Ormsby if those assets could be used to create other product lines. Mr. Ormsby answered other sections of S.B. 37 deal with the use of those funds, and the bill states the successor organization shall be licensed for workers’ compensation insurance only. The successor organization may apply for additional licenses with the Commissioner, Division of Insurance, Department of Business and Industry.

Ann Nelson, Associate General Counsel, Employers Insurance Company of Nevada, clarified the Legislative Counsel Bureau determined monies currently held in trust can be used only for workers’ compensation and associated expenses, under the Constitution of the State of Nevada.

Mr. Thompson asserted the issue of monies held in trust is the major problem concerning S.B. 37. He stated it is his belief the whole subject of whether EICON can assume the assets of the trust fund is in question, and the problem will end up in court. Mr. Thompson continued there are huge concerns and not enough details in Exhibit E. Mr. Ormsby reiterated the legal issue has been analyzed in detail, and is believed to be in accordance with the Constitution of the State of Nevada. Mr. Thompson said in previous testimony heard by the Senate Committee on Commerce and Labor, Paul Brown of the American International Group Inc. (AIG) raised these same concerns. He averred there could be reluctance on the part of insurers to enter the market, since on the first day, they might face liabilities. Many questions need to be answered before this bill is processed.

Chairman Townsend said he is trying to get an understanding of how EICON can compete in other lines of insurance, since language in S.B. 37 and the Constitution of the State of Nevada declares the trust fund cannot be used for anything except workers’ compensation. Mr. Ormsby explained that on January 1, 2000, EICON would not have the ability to sell other lines of insurance. The trust provisions apply to EICON when the current system expires on December 31, 1999, and the trust monies will transfer to the successor to be held in trust. He declared a successful calendar year 2000 could generate assets to allow expansion into comprehensive and liability markets. The option also exists to partner with another company to capture those markets.

Mr. Ormsby explained to Senator O’Connell that the attorney general has not issued an opinion relating to the constitutionality of the transfer of the trust fund.

Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association, testified the association is self-insured. He said under current law, self-insured employers are required to gather from an employer, interested in joining a self-insured group, 5 years of previous information. Mr. Capurro said the association would be more comfortable if S.B. 37 stated that would continue, whether the data is provided by the successor organization or any other insurance company that may have acquired compensation business.

Mr. Capurro read from page 135 of Exhibit E which says: "The commissioner of insurance shall not enter any order or take any action that would alter the terms, conditions or enforceability of any contracts of the state industrial insurance system that exist on June 30, 1999." He recommended since the commissioner is responsible for all insurance, she should have the ability to look at all contracts, books, records, and other items insurance companies would possess.

Mr. Ormsby responded to Mr. Capurro by saying the matter of records would transfer to the successor organization. Under current law, the policyholder has the right to his or her records, and that right would continue. Mr. Ormsby testified he did not know what right a policyholder has to access records with a private insurance company.

Mr. Ormsby said in establishing the retrospective rate agreements, EICON negotiated in good faith with policyholders with the intent of having those survive. The goal of the section of Exhibit E, referred to by Mr. Capurro, was to look at the continuation of contracts through existing terms, in order to reinforce the plan to contract in good faith for a term of 2 years.

Senator Carlton asked if workers’ records are going to Archives and Records of the Department of Museums, Library and Arts, as stated on page 131 of Exhibit E, and the archives are open to the public, how would those records be protected. Ms. Nelson said the purpose is to have Archives and Records return the records to EICON. The records have been stored at Archives and Records for over 80 years, and have not been available to the public.

Ray E. Bacon, Lobbyist, Nevada Manufacturers Association, testified the association has a 2-year contract with EICON. Mr. Bacon asked for clarification if the agreement would have legal status when the successor company commences.

Chairman Townsend asked Mr. Capurro if The Nevada Motor Transport Association is requesting all such contracts be terminated. Mr. Capurro answered that is not the objective. He said the position of the association is the provision is severe and potentially ties the hands of the commissioner to look at what might have transpired up to June 30, 1999.

Gary E. Milliken, Lobbyist, Associated General Contractors, Las Vegas Chapter, questioned if an Owner Controlled Insurance Program (OCIP) were agreed to today, would the terms be deemed approved until the contract expires? Chairman Townsend answered under S.B. 37, if the agreement was entered in good faith, it cannot be canceled, just reviewed.

Scott M. Craigie, Lobbyist, Liberty Mutual Insurance Group, stated the group approves of the Governors’ goal to move workers’ compensation out of the state fund system, and S.B. 37 is a reasonable solution. Mr. Craigie said Liberty Mutual Insurance Group approves of the language in Exhibit E, with the exception of verbiage changes recommended in Exhibit F. The change reads "Any contracts of the state industrial insurance system that exist on June 30, 1999, shall be deemed approved until the first anniversary date of the contract, or until the contract is renewed, reissued or amended." The provision as it reads currently, "The commissioner of insurance shall not enter any order or take any action that would alter the terms, conditions or enforceability of any contracts of the state industrial insurance system that exist on June 30, 1999," allows the option to move between EICON rates and National Council on Compensation Insurance Inc. (NCCI) rates. Such an option would not be available to competing insurance carriers, and Mr. Craigie said Liberty Mutual Insurance Group wants the ability to capture some of that business.

Chairman Townsend asked Mr. Ormsby if the average length of contracts is approximately 2 years. Mr. Ormsby described three contract types: contracts with major construction contractors in southern Nevada; agreements with associations; and individual employer agreements. The contracts are for 1 or 2 years, and EICON wants these agreements to survive. Servicing the policies helps to preserve jobs for the extent of the contract. Mr. Ormsby suggested a "snapshot" of all contracts on June 30, 1999, and these contracts continue, as written.

Chairman Townsend said the disagreement deals with two issues; the sanctity of contracts, and the opportunity for all competitors to operate after certain dates, on a level playing field. He requested the parties convene and find common ground.

The meeting was recessed at 10:20 a.m.

The meeting was reconvened at 10:45 a.m.

Senator O’Connell asked Mr. Ormsby if EICON would be mandated to apply NCCI rates on individual and retrospective plans after July 1, 1999. Mr. Ormsby said the agreements created under the old system remain based upon the old system. Under the proposed amendment, if the agreements are amended, changed, or reissued, they would be rewritten, and the new contract would fall under NCCI rates.

Mr. Ormsby read Exhibit G, the compromise language agreed upon during the recess. Mr. Craigie said language in the exhibit exempts consolidated insurance coverage programs, such as OCIP.

Mr. Ormsby explained Exhibit H entitles the state industrial insurance system to the home-office credit.

In answer to an inquiry by Senator O’Connell, Mr. Ormsby said, under Exhibit G, as soon as a contract expires, "grandfathering" under the old rules would also expire. If a party requests an extension before the expiration of a contract, that would be considered an amendment and would terminate the contract.

Mr. Milliken was informed by Senator O’Connell the OCIP contracts could not be amended.

Mary Keating, CPA, Chief Administrative Officer, Administrative Services Unit, Division of Industrial Relations, Department of Business and Industry, explained one of her duties is to assess the workers’ compensation fund. Ms. Keating referred to Exhibit I which would return certain employers back into the system.

Crystal M. Lesbo, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, assured Chairman Townsend she agreed with the change recommended by Ms. Keating.

Mr. McMullen asked where the certificate of authority to transact industrial insurance transfers to, after December 31, 1999, if the Governor determines that the system has purchased a sufficient amount of reinsurance to enable it to operate in a financially responsible manner. Mr. Ormsby answered the delegation portion would go to the successor organization, and is a part of the overall reinsurance agreement.

Chairman Townsend requested those affected by S.B. 37 and Exhibit E review the documents, and suggest a change to policy questions such as Mr. McMullen has raised. The changes will be discussed on April 23, 1999, at the next meeting of the Senate Committee on Commerce and Labor.

The meeting was adjourned at 11:00 a.m.

RESPECTFULLY SUBMITTED:

Cynthia Cook,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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