MINUTES OF THE meeting

of the

ASSEMBLY Subcommittee on Commerce and Labor

 

Seventy-First Session

March 29, 2001

 

 

The Subcommittee on Commerce and Labor was called to order at 7:30 a.m., on Thursday, March 29, 2001.  Assemblyman David Parks presided in Room 3161 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Guest List.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.  [Exhibit B is not available.]

 

 

COMMITTEE MEMBERS PRESENT:

 

Mr.                     David Parks

Mr.                     Bob Beers

Ms.                     Sheila Leslie

 

STAFF MEMBERS PRESENT:

 

Vance Hughey, Committee Policy Analyst

Margaret Judge, Committee Secretary

 

OTHERS PRESENT:

 

Alice Molasky-Arman, Commissioner, Insurance Division

Frankie Sue Del Papa, Nevada Attorney General

Robert Crowell, Nevada Trial Lawyers Association (NTLA)

Marty Howard, Senior Deputy Attorney General

Kevin Higgins, Chief Deputy Attorney General

Matthew Sharp, Nevada Trial Lawyers Association (NTLA)

 

 

Assembly Bill 134:  Makes various changes concerning assessment imposed by commissioner of insurance upon insurers to pay for program to investigate certain violations and fraudulent acts. (BDR 57-331)

 

Alice Molasky-Arman, Commissioner, Insurance Division, proposed a new amendment (Exhibit C) to A.B. 134 at subsection 4 of Section 1, to delete the word “all.”  There existed a provision similar to Nevada Revised Statutes (NRS) 679B.153 in Chapter 686A that required the commissioner to establish a program of compliance and to investigate violations of the Unfair Trade Practices Law.  The 15 percent of the fees proposed in A.B. 134 would not support the program, hence the deletion of the “all” for clarification. 

 

A second amendment Ms. Molasky-Arman submitted (Exhibit D) affected Section 1, subsection 2(a), which corrected the language to emphasize that the budget, with the assessments, must be submitted to the Governor for inclusion in the Executive Budget. 

 

Ms. Molasky-Arman also reviewed the amendments she submitted the day A.B. 134 was introduced, which changed Section 1, subsection 3, to state that distribution of the assessment would be 15 percent to the Commissioner’s office and 85 percent to the Attorney General’s Office.  Also, in Section 1, subsection 7, an amendment that clarified the Commissioner should establish regulations to carry out provisions of the section and for the calculation and the collection of the assessment.  The regulations were already in place.

 

Attorney General Frankie Sue Del Papa spoke in favor of A.B. 134.  Per a memorandum from her office (Exhibit E), she requested the addition of the words “and external insurance fraud.”  With this amendment, the Attorney General was in agreement with the Insurance Commissioner’s amendments to A.B. 134.  The bill required no General Fund dollars.  The Insurance Fraud Unit was in the Attorney General’s Office and had never received any General Fund money to operate.  However, the unit needed this additional funding to prevent internal insolvency and to prevent any cutback on the resources.  Ms. Del Papa believed this bill was separate and apart from any other and was ready for approval.

 

Robert Crowell, representing the Nevada Trial Lawyers Association, supported A.B. 134. 

 

Assemblyman Parks called for a vote of recommendation from the subcommittee to the Assembly Committee on Commerce and Labor.

 

ASSEMBLYMAN BEERS MOVED TO RECOMMEND AMEND AND DO PASS A.B. 134.

 

ASSEMBLYMAN PARKS SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

Assembly Bill 135:  Makes various changes to provisions governing investigation and prosecution of insurance fraud. (BDR 57-332)

 

Attorney General Frankie Sue Del Papa, with Marty Howard, Senior Deputy Attorney General, understood her staff had met with the Insurance Commissioner’s staff and all were in agreement with the amendments for A.B. 135.  Alice Molasky-Arman emphasized her office was in harmony with the office of the Attorney General.  Mr. Howard explained the Attorney General’s amendments to A.B. 135 (Exhibit E).  They had changed the subpoena power of the Attorney General to seek only the business records relevant to an investigation of insurance fraud.

 

Assemblyman Beers asked why the amendment was needed.  Mr. Howard said he had received questions from Assembly members concerned that the Attorney General would use the subpoena power to seek out criminal suspects in insurance fraud investigations, which was not what they sought to accomplish.  The new language made it clearer.  Mr. Beers thought that was something the Attorney General’s Office should be doing.  Mr. Howard replied the office did not serve subpoenas; generally, a grand jury would do that.  This amendment would save time and money by supplying the office with routine business records, phone records, utility records, and other routine items, without going through the grand jury process. 

 

Mr. Howard explained that the reason Sections 9 and 19 were related concerned the required reporting of insurance fraud.  Section 9 gave the greatest possible immunity from civil lawsuits.  The two sections were made consistent.  Section 17 assured that any money awarded by judges for investigative fees and costs must be used to pay expenses of the Insurance Fraud Unit. 

 

Ms. Molasky-Arman reviewed the proposed amendments to A.B. 135 from the Insurance Commissioner’s office (Exhibit F).  The first, in subsection 1 of Section 10, clarified exceptions to the reporting of violations of the insurance code.  Assemblywoman Leslie interposed a question whether the language “or Attorney General” was left in Section 10.  When she learned it was deleted, she inquired about subsection 2.  Ms. Molasky-Arman admitted they had neglected to address that.  Attorney General Frankie Sue Del Papa told the Chairman she would have the most current information in a more cogent form by the afternoon segment of this meeting.

 

No further comments were heard.  Prior to recessing the meeting, Chairman Parks revealed he was still a member of the Clark County Grand Jury impaneled in October of 1999 and had not been discharged from that duty.  In the past, he had dealt with subpoenas regarding the potential for insurance fraud. 

 

The meeting recessed at 8:00 a.m. to reconvene again at 4:30 p.m.

 

Assemblyman Parks reconvened the meeting at 4:41 p.m. in Room 3161.  He asked the Attorney General’s Office to provide an overview of materials related to A.B. 135.

 

Marty Howard, Senior Deputy Attorney General, reviewed the handouts from his office:  revised consolidated proposed amendments (Exhibit G), a copy of A.B. 135 (Exhibit H), and “Exhibits and Notes in Support of Assembly Bill 135” (Exhibit I).  Mr. Howard proceeded to explain the amendments.  Once again he stated that Sections 9 and 19 should be considered together.  Any person required to report insurance fraud should be entitled to immunity. 

 

Alice Molasky-Arman, Commissioner, Insurance Division, proposed the amendment to Section 10 of subsection 1.  Fraud must be reported to the Commissioner and to the Attorney General.  Subsection 2 was changed to be in accord with subsection 1.  The fourth proposed amendment added a new section to A.B. 135, which read exactly as Section 11, and was applicable to the investigative records and documents maintained by the Attorney General and the fraud unit.

 

Ms. Molasky-Arman had a separate bill draft (A.B. 618) that dealt with confidentiality of records, which would match the language of the new agreements with that of federal regulatory agencies.  There would be a confidentiality provision for the Attorney General and one for the Insurance Commissioner. 

 

Mr. Howard continued discussing the amendments.  Section 17 declared monies collected from insurance fraud convictions must be used to pay the expenses of the fraud control unit.  Assemblyman Beers asked the Chair if this proposal would go to the Assembly Ways and Means Committee.  Chairman Parks felt that would be fair; these funds were for a specific purpose and should not revert back to the General Fund.  Mr. Beers asked if there was any concern about setting up a mechanism whereby the Attorney General’s Office made money by pursuing these fines.  Kevin Higgins, Chief Deputy Attorney General, said this paralleled the provision in the workers’ compensation fraud statute that allowed the funds to be held in a reserve account.  Permission was obtained from the Interim Finance Committee to spend the funds. 

 

Marty Howard referred again to the amendment for Section 19, which required the reporting of insurance fraud.  Section 19 and Section 9 were made consistent in two regards:  1) as to the people who were included and, 2) as to the standard, in this case “suspected.”  A higher standard would not encourage people to report the fraud or would delay it beyond the statute of limitations.

 

Ms. Molasky-Arman explained that the ninth and tenth proposals (Exhibit G) amended Section 20, subsections 1 and 2, to include “and the Attorney General” for several reasons, including to bring the statute in line with current procedure, to file required reports of fraud to the federal government, and to share information with the federal financial regulatory agencies in accordance with the Gramm-Leach-Bliley Act of 1999 or the federal Financial Modernization Act. 

 

Matt Sharp, representing the Nevada Trial Lawyers Association (NTLA), stated their position was to protect the consumer who was unfairly accused of insurance fraud.  It was an important public policy to prosecute insurance fraud but the interests of the innocently accused must be protected.  They also wished to make the insurance companies accountable for insurance fraud themselves.  The law did not include acts committed by insurance companies as being insurance fraud.  He proposed amendments to Sections 9, 14 and 19 (Exhibit J).  The addition of line 9 to Section 14 was a restatement of the law as it existed in 1993.  It was not their intent to supersede any authority that the Insurance Commissioner had to regulate insurance.  However, he continued, the Commissioner could not bring criminal actions against these wrongdoers.  Corporations and people who ran businesses, just like consumers, would commit fraud and criminal acts and should be held accountable just as the consumer was. 

 

Assemblywoman Leslie asked Mr. Sharp about Section 9.  He said they did want the phrase “organizations established to detect and prevent insurance fraud” removed.  The Attorney General believed the word “suspected” should be included within the immunity provision.  Mr. Sharp felt the problem with that was protecting the person who was “innocently” accused.  If an insurance company suspected somebody of insurance fraud, reported that person to the Commissioner and it turned out to be an error, as long as the reporting had been done in good faith without malice, they were protected.  So, the companies had the immunity they sought.  With A.B. 135, even with remote suspicion, if a consumer was unfairly reported, the consumer had no cause of action against that insurance company.  Some companies automatically referred all auto theft claims to their fraud unit and those people were reported to the Nevada Insurance Commissioner unfairly.  Current law gave them cause of recourse, but the addition of the word “suspected” would significantly impact the policyholders’ rights if they were falsely accused.  Mr. Sharp had no problem with the amendment if the word “suspected” was removed. 

 

Assemblywoman Leslie asked Mr. Sharp if the NTLA had concerns about other suggested amendments.  He replied no, only the Sections 9, 14 and 19.  With regard to Section 19, their position was that current law adequately protected people.

 

Bob Crowell, NTLA, said the Nevada Trial Lawyers Association added the provisions of NRS 686A.010 to 686A.295 because it was consistent with the funding bill, A.B. 134.  Section 14 of A.B. 135 dealt with the term “insurance fraud” but there was already a definition of insurance fraud in the NRS 686A.291, which classed it as a category D felony.  NTLA’s position was it made little sense to object to the inclusion of a provision of NRS 686A.291 in A.B. 135 and still have it declared to be an insurance fraud, as it was in the statute.  They suggested that if A.B. 135 were not processed, the acts of insurance fraud that were complained about were adequately covered under NRS 686A.291.  They urged the committee to either include the provisions of NRS 686A.291 in the definitions of A.B. 135 as insurance fraud, or not process A.B. 135 and use current law.

 

Assemblyman Parks asked for an example of who might be “an organization established to detect and prevent insurance fraud” in Section 9.  Mr. Crowell declared that was precisely why they requested it be deleted; they did not know the definition.  Assemblywoman Leslie asked about the Attorney General’s suggestion “any person, governmental agency, political subdivision of the government.”  Mr. Crowell had no difficulty with that; the language “an organization established to detect and prevent insurance fraud” was not defined anywhere in the statute.  However, there were definitions for government agencies.

 

Assemblywoman Leslie expressed again her desire to obtain clarification of where the arguments were on Sections 9, 14 and 19, the pros and cons.  On Section 9 she felt the only argument was on the term “suspected.”  She asked Mr. Howard to identify exactly what in the section was the problem.

 

Mr. Howard claimed “Organizations Who Detect Fraud” (Exhibit I) contained his arguments.  Primarily, the NTLA wanted to remove “organizations established to detect and prevent insurance fraud.”  This was not advisable for four reasons:  1) it treated organizations differently from other “persons,” an equal protection violation; 2) it required an organization to report fraud but did not provide them immunity; 3) organizations deserved the greatest protection from harassing lawsuits; and, 4) the National Insurance Crime Bureau (NICB), a premier not-for-profit organization established to combat insurance fraud, was entitled to the same immunity as that of special investigative units of insurance companies.

 

Ms. Molasky-Arman added that the National Association of Insurance Commissioners (NAIC) was a member of the NICB.  The NAIC had an anti-fraud task force that supported a database for the exchange of information among regulatory authorities, maintained for the purpose of detecting fraud. 

 

Assemblywoman Leslie asked the NTLA why they wished to remove the phrase.  Mr. Sharp made two points.  The first was that the NICB tagged any person unfairly accused of insurance fraud much the same way a bad credit rating would be.  A law that provided immunity for such reporting concerned him.  The second point was that he was unaware of any instance in which the NICB had ever been sued.  To his knowledge, this was not an organization that was conducting business in Nevada.  He questioned why it should receive special protection.  Mr. Sharp did not feel that the Commissioner’s NAIC example applied to this situation because the law did not preclude the Commissioner from sharing information with other commissioners.

 

Mr. Howard responded their intent was not specialized treatment but the same treatment that everyone else in Nevada received.  Mr. Higgins reported that the NICB did work in the state of Nevada; they had investigative agents stationed in Nevada.  It was not actually correct to say there was not an asset here that could be sued.  Assemblywoman Leslie asked how many organizations had been sued.  Mr. Howard knew of none, but related a story of one insurance company that reported fraud to the Attorney General’s Office and was sued when they lost the case.  They had not reported any more cases due to the fear of lawsuits. 

 

Chairman Parks declared his confusion at the striking of the phrase “an individual” and inserting “any person.”  It seemed under the definition of person the NAIC or the NICB or others would be included.

 

Mr. Howard felt this was an issue that he and the trial attorneys could discuss and agree on.  He did not believe this was the key issue.  To “cut to the chase” he moved to Section 14, which attempted to add certain provisions to the definition of insurance fraud.  He believed there was no need for new laws of this nature in Nevada.  The mechanism existed in statute to criminally prosecute insurance companies and their employees who defrauded the insured or violated any provisions of the insurance code.  He proved his point with examples and the statute. 

 

Ms. Molasky-Arman said they would rarely see a case prosecuted in Nevada against an insurance company or its principals on the basis of fraud.  It was interstate commerce activity under the jurisdiction of the federal government.  Chapter 686A was modeled after the NAIC’s Unfair Trade Practices.  Most of the provisions in the chapter were identical to those of other states.  The federal government had aggressively intervened into the regulation of insurance.  It was very important that Nevada maintain consistency and uniformity among the states.  No state used the Unfair Practices Act to criminalize the provisions. 

 

Mr. Howard said the Attorney General’s Office did not possess “the resources nor the expertise to become a criminal clearinghouse for the multitude of matters” handled by the Insurance Commission.  Ms. Molasky-Arman stated, with respect to Chapter 686A, it would hamper them to prove intent in order to bring corrective action against an insurer.  Mr. Howard stated that it appeared the intent of the NTLA in Section 14 was to exclude “knowingly and willfully.”

 

Assemblywoman Leslie asked the NTLA if they agreed with the interpretation, that with the amendment all cases of insurance fraud would automatically bypass the Insurance Commissioner and go to the Attorney General’s office.  Mr. Crowell claimed Section 14 was amended only to include what was currently insurance fraud, not unfair claims practices, nor to create a bad faith cause of action.

 

Assemblywoman Leslie suggested they recommend to the full committee they were in agreement on everything except Section 14, and let them hear the argument on Section 14.  Assemblyman Beers had a concern with the word “suspects” in Sections 9 and 19, preferring something a little stronger.

 

Chairman Parks recommended they report to the full committee there was no vote, but rather concerns for three sections.  Perhaps the parties would have sought more common ground before A.B. 135 returned to the full committee. 

 

ASSEMBLYWOMAN LESLIE MOVED TO REPORT TO THE FULL COMMITTEE THEY WERE IN AGREEMENT ON ALL EXCEPT SECTION 14.

 

ASSEMBLYMAN PARKS SECONDED THE MOTION.

 

Vance Hughey, Committee Policy Analyst, assumed that the confusion was for Sections 9, 14 and 19.  Ms. Leslie agreed she meant three, with Section 14 the primary.

 

THE MOTION CARRIED UNANIMOUSLY.

 

The meeting adjourned at 6:03 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Margaret Judge

Committee Secretary

 

 

 

Linda Lee Nary

Transcribing Secretary

 

 

 

APPROVED BY:

 

 

 

                       

Assemblyman Joe Dini, Jr., Chairman

 

 

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