MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

May 24, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:00 a.m., on Thursday, May 24, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada.  The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, 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 Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman John Oceguera, Clark County Assembly District No. 16

Assemblyman Dennis Nolan, Clark County Assembly District No. 13

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

 

STAFF MEMBERS PRESENT:

 

Crystal McGee, Committee Policy Analyst

Scott Young, Committee Policy Analyst

Gayle Nadeau, Committee Secretary

 

OTHERS PRESENT:

 

Raymond (Rusty) C. McAllister, Lobbyist, Vice President, Professional Fire             Fighters of Nevada

Jim Perkins, Professional Fire Fighters of Nevada

Misty Grimmer, Lobbyist, Nevada Resort Association

Donald Jayne, Lobbyist, Nevada Self-Insured Association No. 200

Wayne Carlson, Lobbyist, Public Agency Compensation Trust

James L. Wadhams, Lobbyist, Nevada Independent Insurance Agents, American             Insurance Association, and Nevada Association of Health Underwriters

Alice A. Molasky-Arman, Commissioner, Division of Insurance,             Department of             Business and Industry

Robert B. Feldman, Lobbyist, Auto Insurance America, and Auto Agents Alliance             of Nevada

Doug Head, President, Viatical and Life Settlement Association of America

Robert A. Ostrovsky, Lobbyist, Employers Insurance Company of Nevada

Guy A. Perkins, Jr., Chief Insurance Examiner, Division of Insurance,             Department of Business and Industry

Fred L. Hillerby, Lobbyist, American Council of Life Insurers, and Professional             Insurance Agents of California and Nevada

John Royce, Secretary, Advisory Council on Mortgage Investments and             Mortgage Lending

Raymond F. Williams, Lobbyist, Nevada Association of Mortgage Brokers

Leo D. Davenport, Lobbyist, Nevada Association of Mortgage Brokers

Catherine L. Jackson-Ford, Lobbyist, Nevada Association of Mortgage Brokers

Sydney H. Wickliffe, Director, Department of Business and Industry

Robert Barengo, Lobbyist, Nevada Consumer Finance Association

 

Senator Townsend:

Committee, before we get started on our bills, we need to deal with some administrative things.  Assembly Bill (A.B.) 48 has an amendment to it the Assembly did not agree to.  Were we going to not recede and go to conference?

 

ASSEMBLY BILL 48:  Makes various changes concerning policies of industrial insurance. (BDR 53-768)

 

Crystal McGee, Committee Policy Analyst:

Mr. Chairman, the amendment to A.B. 48 was, essentially, the provisions originally appearing in A.B. 43, which the Assembly indefinitely postponed.

 

Senator O'Connell moved to not recede from amendment no. 802 to A.B. 48.

 

Senator Amodei seconded the motion.

 

The motion carried.  (Senators Shaffer and Schneider were absent for the vote.)

 

*****

 

Senator Townsend opened the hearing on A.B. 313.

 

ASSEMBLY BILL 313:  Creates conclusive presumption that hepatitis is occupational disease for certain employees. (BDR 53-843)

 

Assemblyman John Oceguera, Clark County Assembly District No. 16:

Assembly Bill 313 creates a conclusive presumption that hepatitis is an occupational disease for full-time, salaried firefighters and emergency medical attendants, therefore, providing individuals with workers’ compensation coverage under the Nevada Occupational Diseases Act.

 

Before I go into the details of this bill, I would like to provide you with some telling statistics on hepatitis.  Hepatitis C is four times more common than “AIDS” (acquired immune deficiency syndrome) in the United States.  With nearly 4.5 million Americans infected, this number is expected to triple over the next 10 to 20 years according to National Institutes of Health.  Anywhere from 8000 to 12,000 Americans die each year from hepatitis C.  The National Institutes of Health also estimate nearly two-thirds of those infected are unaware they carry hepatitis C.  This silent killer cannot be ignored.

 

The profession of fire fighting has always been a hazardous occupation.  During the last 10-year period, professional firefighters experienced 342 line-of-duty deaths, 502 occupational disease deaths, 343,000 injuries, and 6632 forced retirements due to occupationally-induced disease or injury.  Firefighter line-of-duty fatalities have ranked firefighters among the highest publicized hazardous occupations in the nation.  Infectious disease has become a hazard to firefighters too big to ignore.  Firefighters in city and state governments need to take progressive steps towards eliminating the risk of these hazards.  Firefighters and emergency responders can be exposed during motor vehicle accidents in which blood and sharp surfaces are often present, by rescuing burn victims, and through the administration of emergency medical care.  The infectious disease status of the victim is almost never known to the firefighter while he is rendering this aid.

 

In addition to its medical challenge, hepatitis also presents a psychiatric challenge.  It is believed the hepatitis C virus causes a serious reactive depression, either from fatigue as the disease progresses or from a psychological component of the virus, itself.  To compound the problem, Interferon-based therapies, which are clinically proven to cause depression, are the standard treatment of choice.

 

Firefighters are stressed not only by the medical aspects of this virus, but also the feeling of isolation brought on by the fear of losing their jobs and benefits because of the disclosure.  Discrimination and job loss has, unfortunately, become an ongoing problem as the epidemic increases.

 

Assemblyman Oceguera:

I believe this legislation is a step in the right direction by providing needed workers’ compensation coverage to individuals who are at particularly high risk of contracting a disease due to the nature of their job activities.  Assembly Bill 313 provides for preventive treatment for hepatitis to be administered as a precaution to full-time salaried firefighters and emergency medical attendants employed in this state.  Additionally, this bill provides if an employee contracts hepatitis A, B, or C, and any disease associated with hepatitis, the disease shall be conclusively presumed to have arisen in and out of the course of the employee’s employment, if the employee has been continuously employed for 5 or more years as a full-time, salaried firefighter or emergency medical attendant in the state.

 

The employee must be awarded full medical coverage and indemnity as provided under the Nevada Industrial Insurance Act.  Further, the bill requires these employees to submit to a blood test to screen for hepatitis upon employment, upon the commencement of coverage, and thereafter, on an annual basis during employment.  Finally, A.B. 313 provides for a firefighter or emergency medical attendant who is determined to be partially disabled from disease and is not capable of performing his job to elect to receive benefits for a permanent total disability.

 

Senator Rhoads:

Assemblyman Oceguera, I noticed this bill has been amended twice and there is a fiscal note of only $8000 on it.  Could you address this?

 

Assemblyman Oceguera:

We have worked very hard on this bill to get it to this point.  In the beginning, we did have the volunteer firefighters included.  With some other legislation, which was passed, A.B. 279, and what happened last session, we think they are going to be covered under little less of a standard, but still close to the same standard.  This significantly reduced the fiscal note on A.B. 313.  I have a letter from the Risk Management Division (Exhibit C) saying it would be within something they could absorb.

 

ASSEMBLY BILL 279:  Provides for availability of industrial insurance benefits to employees for exposure to certain contagious diseases. (BDR 53-123)

 

Senator Amodei:

Assemblyman Oceguera, did you have some information, as I recall, from testimony on the Assembly side about the incidents of hepatitis C in firefighters versus the population at large?

 

Raymond (Rusty) C. McAllister, Lobbyist, Vice President, Professional Fire Fighters of Nevada:

To answer Senator Amodei’s question; there have been about five or six major departments in the United States that have conducted testing for hepatitis C.  The most prevalent is Philadelphia, which is where the problem was first brought to light.  They are experiencing an average of about two times the general population for their firefighters with hepatitis C.

 

We would like to stand in support of A.B. 313.  As you have heard during testimony on bills earlier in this legislative session, hepatitis has become a threat to the health care professionals in our state.  In the United States, it is becoming known as the silent epidemic.

 

Earlier you heard Assemblywoman Leslie’s A.B. 279 and passed it out of this committee.  Almost all of the focus is on the concept of needle-stick injuries.  I would like to create a bit of a different scenario for you with regard to firefighters and emergency medical attendants.

 

Imagine, if you will, the following situation.  The time of the day is 2:00 a.m., and firefighters respond to an automobile accident involving two cars.  There are no lights on the scene to work by.  When they arrive, they find one of the cars broadsided the other car.  There are two patients in one car, two young males ages 20 to 25, who are in critical condition.  The other car has two people in it, a man and a woman, who have moderate to light injuries.  They have blood on them, but they are not in critical condition.

 

The firefighters know the two younger persons are in much worse condition and immediately begin work on them.  They crawl through the broken car windows to get to the victims.  There is a lot of blood on both of them.  The “jaws of life” is used to extricate them from their vehicle, and they are prepared for transport to the hospital.

 

The other two people are not as severely injured, requiring just some simple bandaging.  Even though they are urged to go to the hospital, they choose not to.  They fill out police reports, and then they are released on the scene.  The next day, although stiff and sore, they get on a plane and head home to Mexico City.

 

Mr. McAllister:

Upon return to the fire station, one of the firefighters involved in the call notices he has been cut with sharp glass, or metal, while working around the scene of the accident and his rubber gloves are shredded.  There is blood all over his hands and on a cut.  He reports the injury and exposure to his supervisor.  He is sent in for treatment and subsequent testing.  He asks that the two patients transported to the hospital be tested for blood-borne diseases.  After the results come back, he finds that neither of those two patients has hepatitis.  The other two people cannot be located and, therefore, tested.  Three months later the firefighter who was exposed is retested and has presence of hepatitis C.

 

He files a claim for coverage under workers’ compensation and is denied on the grounds he cannot produce a causal relationship between his exposure and any person with hepatitis C.

 

This situation may seem a little far-fetched, but, as you will hear in later testimony, it is not all too far from reality.  This bill provides for a conclusive presumption for a firefighter or emergency medical attendant if they contract hepatitis.  You will probably hear arguments from insurers saying they would love to provide coverage for hepatitis, if workers have a documented exposure.  Unfortunately, this is not always the case.  With a needle-stick injury, the case can be documented and the follow-up care can be implemented.  There are many instances where firefighters and emergency medical attendants work in
conditions not conducive to knowing when or to whom they have been exposed.

 

This was definitely the case 10 short years ago.  When many of the current firefighters in this state started providing emergency medical care, the threat of hepatitis C did not exist.  We would go out on calls, and get covered with blood from head to toe.  We would come back to the station, wash our hands and go about our business.  There were no rubber gloves provided, no masks, no glasses to protect eyes, and no reporting system in place for exposures.

 

Mr. McAllister:

In 1990, the Ryan White law was enacted providing for notification of medical personnel in the event they were exposed to a contagious disease.  At that time, hepatitis C was a known blood-borne pathogen, but was not included in this federal law because there was not enough information about the disease to consider it a major threat.  Now we know the disease can lay dormant in your body for up to 30 years without manifesting itself in symptoms.  We know there is no cure for the disease, only some treatments.  And, we know many of those infected with the disease are going to die without a liver transplant and proper care.

 

Unfortunately, tremendous numbers of exposures have occurred over the years, and we have no way of knowing if the person we are exposed to had this disease.  Currently, we have members of our fire departments who have hepatitis C and cannot pin down a specific exposure.  Subsequently, any claims filed have been denied.  There are some who have the disease and have not come forward due to fear of denial of the claim and then possible termination by their employers.

 

This bill would provide a level of safety and protection for firefighters and emergency medical attendants throughout this state.  It would provide them with the security of knowing if they are injured, they will be taken care of by the workers’ compensation system, as they have been told throughout the years they would be.

 

The conclusive presumption is necessary to prevent insurers from stalling out on who is responsible and delaying valuable time needed for treatment.  The treatment of hepatitis is greatly enhanced, and the associated costs are greatly reduced when early recognition and treatment are instituted.  We should not have to wait and let the disease worsen while we try to determine if we actually were exposed to someone with the disease.  Oftentimes, it can never be proven.

 

Mr. McAllister:

Assemblyman Nolan testified on our bill in the Assembly, and also on Assemblywoman Leslie’s bill.  He had hepatitis B during the days when he was a paramedic, and he never knew his exposure source.

 

This bill would also provide for those firefighters and emergency medical attendants who already have the disease.  Many have filed claims and have been denied.  This is not right in light of the fact they were just doing their job, not knowing they were being exposed to blood-borne diseases.  The provision for choosing a permanent total disability is meant to provide firefighters and emergency medical attendants the ability to choose a total disability in the event they have a debilitating disease for which they need treatment.  This disease is only going to get worse, and firefighters and emergency medical attendants need to know when they go somewhere to treat someone they do not have to take the time to wonder if this person has a disease or not.  We are employed to take care of people in emergency situations and should not have to be concerned with whether or not we are going to be taken care of in the event we, as the caregivers, are the ones who eventually need care.

 

It appears to me this fiscal note is to address the first part of the bill, which provides for testing when employees leave the job.  This was a law enacted by this committee 2 years ago and should have already been provided for.   This is not new language.  The only new language in the first part of this law is the testing process, which was discussed in the interim committee.  It was brought up, for tuberculosis, the appropriate test is not a blood test; it is a skin test.  Therefore, the language was added in the first part of our bill by the bill drafting staff to provide for the appropriate test instead of saying a blood test.

 

So, this outrageously large fiscal note is not new.  This is providing for the Department of Prisons for corrections officers and police officers, and there are no corrections officers or police officers included in the language we put in our bill.

 

Senator O'Connell:

Mr. Young, do you know who gave us this fiscal note (Exhibit D)?

Crystal McGee, Committee Policy Analyst:

This was the fiscal note included with the bill.  However, Mr. McAllister is correct, if you notice the date on most of these, for example, for the Division of Child and Family Services the date prepared was January 31.  That was on the first of the bill, so for the most part this appears to be obsolete.  However, the yellow sheet (Exhibit C) provided by Sue Dunt (Risk Manager, Risk Management Division, Department of Administration) was given to me via e-mail, yesterday, and this was based on the most recent, or the second, reprint of the bill.

 

Senator Townsend:

Ms. McGee, if this (Exhibit D) is obsolete, the original version, with all the various agencies, are we now down to the screening costs at the bottom of the first page (Exhibit C) from Sue Dunt?

 

Ms. McGee:

From the Risk Management Division?

 

Senator Townsend:

Yes.

 

Ms. McGee:

I am not aware as to whether the Division of Child and Family Services or the Department of Prisons, which originally provided fiscal notes on the original bill, are aware of the changes to the bill and have had an opportunity to prepare a revised fiscal note.  However, as Mr. McAllister indicated, to the extent the bill only covers firefighters, I am not aware of how many firefighters are currently employed by the Division of Child and Family Services.  So, to some extent, there may be no fiscal note from them and, hence, it has not been prepared.

 

Senator Townsend:

Well, does it not also include emergency medical attendants?

 

Ms. McGee:

Yes, it does.

 

Senator Townsend:

Then, is that a person employed in the prisons?

 

Ms. McGee:

I, actually, do not know the answer to your question; however, I would be more than happy to check with the Department of Prisons and confirm whether they have individuals who provide emergency medical services.

 

Mr. McAllister:

Mr. Ostrovsky, from the Nevada Resort Association, is going to offer an amendment (Exhibit E) to deal with this particular situation.  Some of their people in hotels are emergency medical attendants.  His amendment is going to clarify the definition of emergency medical attendant as someone whose primary job responsibilities are related to providing emergency medical services.

 

Senator Townsend:

If we go to the second reprint on page 4, subsection 1, line 8, of the bill, “. . . if an employee has hepatitis, the disease is conclusively presumed to have arisen out of and in the course of his employment if the employee has been continuously employed for 5 years or more . . . before the date of any temporary or permanent disability or death resulting from the hepatitis.”  It then goes down to subsection 3, the employee “shall submit to a blood test to screen for hepatitis upon employment, upon the commencement of coverage and thereafter on an annual basis during his employment.”

 

They must be employed full time for 5 years or more to qualify.  If everyone is now going to get a hepatitis test under subsection 3, because that is the commencement of coverage if the bill passes, and if they are identified on the first test as having hepatitis, are they conclusively presumed to have gotten it in the scope of their employment?

 

Mr. McAllister:

When we discussed this in the Assembly, we amended the bill to provide for the baseline testing when the employee starts employment.  Mr. Jayne (Donald Jayne, Lobbyist, Nevada Self-Insured Association No. 200) from the self-insured employers, asked us to help frame in the period of time for coverage.  We amended the bill to say employees would be tested for hepatitis when they came on the job, and they would tested 1 year after they left the job.  If during that period of time they had the disease, they would be covered.  If an employee is tested when he comes on the job and already has the disease, he is not covered.

 

Senator Townsend:

That is not my question.  I am talking about a current employee who has been employed full time for 5 years.  When the bill passes, he takes the test, which is required, and he is identified as having this terrible disease.  Is he conclusively presumed to have gotten hepatitis in the scope of his employment?

 

Mr. McAllister:

Under section 5, page 5, of the bill there is a 1-month testing period beginning on October 1, 2001.  If a current employee takes the test, and has been employed for 5 years, and they have hepatitis C, it would be presumed those employees got the disease from the job.

 

Senator Townsend:

How do you presume that?  What is the criterion?  That is a tough one.

 

Mr. McAllister:

The problem for us is we have no way of going back and knowing who we were exposed to 10 years ago.

 

Senator Townsend:

I understand; I just wanted to make sure I read the bill correctly.

 

Mr. McAllister:

The Henderson fire department is the only department I know of in the state that has been providing testing for 3 years, now.  Nobody else has provided testing.

 

Senator O'Connell:

Mr. McAllister, how many firefighters do we currently have in the state?

 

Mr. McAllister:

Currently, the Professional Fire Fighters of Nevada total approximately 2000.  Under the fiscal note provided by risk management, they listed 100 firefighters covered by the state.  I believe there are approximately 70 with the Division of Forestry and another 8 at the Air National Guard in Reno.  We believe the Public Agency Compensation Trust, and Mr. Wayne Carlson can probably clarify this, covers between 60 and 70 full-time, salaried firefighters under their insurance plan who would be covered under this bill. Other than those, this should cover
just about all the firefighters in the state.  So, I would say all total maybe 2200 firefighters.

 

Senator O'Connell:

Can you tell me how many of those folks have hepatitis C?  Do we know?

 

Mr. McAllister:

I do not believe we know because nobody has provided the testing.  The City of Henderson has provided testing for 3 years.  They have one firefighter out of 175 who has hepatitis C.

 

Senator O'Connell:

Do you happen to know if he knows what happened, or what time he contracted the disease?

 

Mr. McAllister:

He has been a paramedic for at least 15 years, and he has no idea where or when he contracted the disease.

 

Senator O'Connell:

The information Ms. Dunt has provided us talks about the cost of one claim ranging between $50,000 to $500,000.  Do we have any idea if the figure is correct, or how it was determined?

 

Mr. McAllister:

The ideal situation is if you have early recognition and you start the person on combination drug treatment.  The treatment runs approximately $2000 a month, which is probably on the low end.  The high end is if someone was not identified as having hepatitis C and, therefore, did not have treatment and then got to the point of needing a liver transplant.

 

Jim Perkins, Professional Fire Fighters of Nevada:

I am a captain in the Clark County Fire Department.  I began my service with the fire department in 1973.  I went through the state of Nevada pilot paramedic program under Governor Mike O’Callaghan in 1974.  I have the distinction of being one of only two surviving members of that basic paramedic class.  I can safely say no one in the state of Nevada has been certified as a paramedic longer than I have.

 

I have served as a paramedic for at least 20 years, before all the current protections were used.  We had a lot of exposures to different diseases, which we now recognize and are a little better prepared.  I found out last year I am positive for hepatitis C.  Through looking back at all of my possible exposures during the years, they determined I probably contracted hepatitis C in 1982 while performing CPR (cardiopulmonary resuscitation) on a trauma code victim.  To answer some of your questions on how we know where the exposures come from, they determined my exposure because the doctor in the ER (Emergency Room) wrote I had a gross exposure to chronic hepatitis, and I was treated for it with gamma globulin in the hospital.

 

As Mr. McAllister pointed out, there is no way we can really prepare for the type of exposures we have.  During my testimony to the Assembly last month on some of the types of exposures we encounter, we were asked how many times a day we are exposed to contagious diseases.  Last Saturday, I went to a plane wreck in Las Vegas where we spent several hours trying to cut the victim out of the plane wreckage.  In the process, the members of my crew were lying underneath the plane and were exposed to blood products.  The patient was a fatality, so he is not covered under the Ryan White act (Ryan White Comprehensive Aids Resources Emergency Act of 1990).  He is going to the mortuary, and we are not going to get any testing on him.  We do not know what contagious diseases he may or may not have.

 

Mr. Perkins:

The types of situations we encounter cause us to be exposed to jagged glass and broken metal.  We may not even know we have been exposed.  I have seven documented exposures I was able to turn in when I first started initiating my claim.  The only other surviving member, I say “surviving” because of our original nine people who went through the class everybody is still alive, they just retired, has hepatitis B and tests positive for tuberculosis.  I also test positive for tuberculosis.

 

The exposures are out there.  Anybody who has been doing this business for any length of time, those are the people who we are concerned about.  I want to let you know I am proud of what I do.  From the time a fireman comes through training until he gets out on the job, we are taught and maintain throughout our career life is the most important thing.  When we respond on the scene the protection of life is our number one goal.  Second is property, and third is the environment.

I think I can speak for all firefighters when I say I have never seen anybody hesitate to go in on any situation.  I hope, at this time, you will give the firefighters the same protection and services we have tried to attain and give you.

 

Senator O'Connell:

Mr. Perkins, why would the blood of the gentleman who was dead not be tested?

 

Mr. Perkins:

The Ryan White act addresses the patients’ rights.  The understanding I have is from our county coroner.  When you have a fatality, the rights of the dead body are more protected than the rights of a live patient.  The live patient under law can be forced to go ahead and be tested, whether they want to or not.  The information is then provided to us.  In order for a body to be tested, it has to have family approval and sometimes even court approval.  When we submit any exposure reports, if we are submitting them on fatalities, we have never gotten any results of those back.  So, I assume it is either a legal deadend or an issue not addressed in the law.

 

Senator O'Connell:

Do you know if it would be federally addressed, or is it a local situation we could address?

 

Mr. Perkins:

I do not have the answer.  This is new for us and in trying to find out about it, we have not found any clear-cut answers.  I have asked the same question, and as I understand it, the rights of the body far exceed the rights of the patient.

 

Senator O'Connell:

Ms. McGee, could you see if you could run that information down for us?  I think it would be very important for anyone dealing with dead bodies.

 

Assemblyman Dennis Nolan, Clark County Assembly District No. 13:

I am here to testify in support of A.B. 313.  As many of you know, I worked for about 15 years in emergency medical services with a private ambulance provider in Las Vegas.  Towards the end of that career, one day, I started feeling kind of ill and for about a 2-week period had a general weakness malaise and went into the doctor.  The doctor ran a blood test, which disclosed I had been exposed to hepatitis B.  I contracted the disease, but because I had previously paid for the Heptavax series, the inoculation did exactly what it was supposed to and it protected me from contracting full-blown hepatitis.  I had no idea where I contracted the disease.  In any given day, any emergency medical technician or paramedic on a 10-hour shift will deal directly with 6 or 7 patients, and quite a few indirectly.

 

I was also the director of risk management for this same ambulance company for 5 years, and I oversaw the safety and loss prevention for about 120 emergency medical technicians and paramedics.  During this time, I had a couple people test positive for AIDS and quite a few for tuberculosis.  It was always this dance when you discovered someone had contracted one of these diseases to go back and figure out where the exposure could have occurred.  Frankly, people who have these diseases, generally speaking, while there is a period of time when they can be very healthy, they are very ill by the time they interact with the emergency medical services people.

 

Senator O'Connell:

Assemblyman Nolan, what does this do when you find out you had contracted the disease?  Does this prevent you, as an example, from giving mouth-to-mouth resuscitation?  Does it prevent you from fully doing your job?

 

Assemblyman Nolan:

If it is hepatitis, I think each individual department would have to establish policies and procedures about what you could or could not do, because you are also concerned about exposing others to the same disease.

 

Senator O'Connell:

We currently do not have anything in our rules and regulations or ordinances preventing somebody from performing their job if they contracted one of these contagious diseases?

 

Assemblyman Nolan:

As far as I know there is nothing in statute.  What we did at the time is develop company policies and procedures about what functions they could perform and what they could not perform.  A lot of times the employees give up their careers.

 

Senator O'Connell:

Does this go back to the 66 2/3 issue you were talking about once it has been discovered you have contracted a contagious disease?

 

Mr. McAllister:

This would go back toward that direction, because different departments and different organizations are going to set their own standards for what they are going to allow and not allow employees to do.  If a person shows up with a disease, I am not sure if they can just fire them because of the Americans with Disabilities Act of 1990.  But, at the same time, they are going to limit their job performance.  And, again, there is a risk of what do these people take out to the public when we go out?

 

No, I would not want to perform mouth-to-mouth resuscitation on somebody in the event I had the disease.  I would not want to do it anyway, but sometimes you get stuck doing it.  Circumstances are such you end up doing mouth-to-mouth resuscitation even though we have equipment to use so we do not have to provide mouth-to-mouth resuscitation.

 

Senator O'Connell:

We do not have anything universal as far as handling this issue once the testing has provided positive results?

 

Mr. McAllister:

I do not believe we do.

 

Misty Grimmer, Lobbyist, Nevada Resort Association:

I had the amendment (Exhibit E) passed out to you, and as Mr. McAllister mentioned, I talked to Assemblyman Oceguera about it and he is in agreement with the amendment.  I perused the language by Ms. McGee and she also thinks it looks all right.

 

The purpose of A.B. 313 is to recognize the special circumstances firefighters and emergency medical personnel encounter in putting them at a much higher risk of contracting hepatitis without the ability to document the exposure.  Although some of our properties have employees such as security guards and pool attendants who may be licensed as emergency medical technicians and who, from time to time, may be called upon to perform emergency medical
services, they are not in the same risk category as the emergency personnel focused on in this bill.

 

The amendment we are proposing would limit the definition of an emergency medical attendant just for the purpose of this bill to those individuals whose job consists, primarily, of the provision of emergency medical treatment.

 

Senator O'Connell:

Mr. Chairman, while you were out, we also discovered there is not anything as far as uniformity goes for protection, either of the public or the person who might have contracted this disease, and how it is handled with their job limits.  So, they could not fully perform what they had been trained to do once they contracted a disease for the danger of exposing the public.  It is an interesting “catch-22.”

 

Donald Jayne, Lobbyist, Nevada Self-Insured Association:

When this bill was in the Assembly, I did work with Assemblyman Oceguera and Mr. McAllister.  We were able to add some amendments, which I think improve this bill.  We attempted to frame out some testing provisions, which would allow us to test the individuals upon their hire and upon their termination.

 

Ultimately, to be on the record, there were simply two things with the bill we did not agree to, we agreed to disagree, and Rusty [Mr. McAllister] already alluded to those.  It was the conclusive presumption nature of this bill.  We wanted to remove the word “conclusive” from there; we believe the provisions of this bill are covered in [chapters 616A-616D of Nevada Revised Statutes (NRS)] 616 and, certainly, firefighters on the job are, and should be, covered for contagious diseases.  The only other section of the bill we had a problem with was the ability of the firefighters to opt for their permanent total disability.  In section 4, subsection 5, we ultimately felt we should be able to work with them and try to develop appropriate rehabilitation programs for them.

 

And, if we could not find an appropriate program for them then we could PT (permanent total disability) them.  And, ultimately, those were the last two sections, the only two sections of the bill we had a problem with when it came out of the Assembly.

 

Wayne Carlson, Lobbyist, Public Agency Compensation Trust:

Mr. McAllister indicated earlier our employment base of paid firefighters ran in the 60 to 70 range, which is correct.  My last count was 66 paid firefighters.  Most of those are fire chiefs of volunteer fire departments.

 

I am presenting to you a summary (Exhibit F) of the positions we have taken on the other side.  Additionally, an article from the national Centers for Disease Control and Prevention it talks about the exposure rate.  First, I would say on the key issues I have outlined in detail A.B. 279 addresses an awful lot of the issues the firefighters are concerned with as it clarified there is testing required after an exposure and a subsequent test.  We supported A.B. 279 with those amendments.

 

I do want to point out under the study for the national Centers for Disease Control and Prevention if you look at the top of page 3 (Exhibit G), the study indicated, and they looked at several prior studies in major fire departments, “Health-care workers and first responders exposed to blood in the workplace are at risk for infection by blood-borne pathogens.  However, their risk for acquiring HCV (hepatitis C virus) infection is low because HCV is not transmitted efficiently through occupational exposure.”  And, they go on in the last sentence, “. . . HCV infection was associated primarily with nonoccupational factors, a finding similar to HBV (hepatitis B virus) (1), a blood-borne virus that is transmitted at a rate 10 times higher than HCV (7).”

 

So, with these additional studies, essentially, what the national Centers for Disease Control and Prevention concluded the exposure rate of firefighters and emergency medical technicians is similar to the general public’s exposure.  In other words, 98 percent of the risk is nonoccupational, 2 percent is occupational.  This is the basis on which we oppose the conclusive presumption provision of the bill.  We think current law addresses, adequately, when there is an exposure incident and the testing under A.B. 279 addresses clarification of how you determine where the exposure originated.

 

The problem with the conclusive presumption is we have a two-tiered system now to silos of benefits as I have described under item 2 in Key Issues (Exhibit F), which are a health system and a workers’ compensation system.  The workers’ compensation system is a legal system, and the health system is a benefits system.  What this essentially does is merge those two for paid firefighters.  There is no associated shifting of prior premiums collected by health insurers or under self-insured programs over the workers’ compensation system for the shift of risk.  The conclusive presumption, essentially, shifts exposure over, and is the issue I have addressed under item 3 in my handout (Exhibit F).

 

Senator Townsend:

What happens now, Mr. Carlson?  Is it presumed to be a health issue?

 

Mr. Carlson:

It is a health issue unless there is evidence it arises out of work, which is what A.B. 279 was attempting, a test right after the exposure incident.  If the test is negative within 72 hours, then they did not have the disease at the time.  If they test positively, subsequently, then the bill determines the disease will be considered occupational regardless of whether there is an intervening cause.  If they already had the disease at the 72-hour test, then they got the disease somewhere else.  From that standpoint it would be a 98 percent likelihood of it being nonoccupational; the conclusive presumption really shifts the burden over.  A rebuttable presumption would allow some evidence of proof.

 

There is some sort of DNA testing available to determine the age of the disease.  It has some sort of genetic marker, and based on the marker you can trace it back to some point in time.  We had a similar case in a health care worker where they did a genetic test and found the individual had contracted the disease from a prior exposure some 12 years before his employment with this employer who he had only been working with for 6 months.  So, he did not get it from any occupational exposure at his current job.

 

This is our concern with the conclusive presumption.  We have the similar concerns Mr. Jayne expressed on the election of permanent total disability.  We think there are other ways to address rehabilitating.

 

Senator Amodei:

As you can see, I am one of the cosponsors on the bill from our side, and it has been a pleasure to join with 17 other folks on the north end of the building in cosponsoring this bill.

 

It is interesting to look at the issue because it kind of takes the same lines as many of the issues coming before us.  There is an issue here in terms of this disease with respect to folks in this occupation.  It is not just a regular occupation; though, it is an occupation when we need those folks to go to work, as you have already heard.  We expect them to wade into whatever the situation is and provide the service they have been trained for, regardless of what situation confronts them.  We expect the best possible emergency medical treatment in any scenario into which these trained technicians are thrown.

 

The problem I have with the opposition to this bill is you have not seen anything saying, “Listen, we think this might have come from other areas, so we are opposed to this.”  But, you have not seen any proposal for testing from the insurance side of the equation.  You have not seen anything today in terms of amendments to say, “Listen, this is how we are going to track these folks so if somebody gets this we can tell conclusively what is going on.”  And, I would submit to you the reason you cannot do this is because each one of these individuals treats many more people in the course of a year in terms of cost than it would cost to test them.

 

We have a couple of thousand people, arguably, who would be covered by this bill.  Ask yourself how many victims or customers or clients, whatever you want to call them, they come into contact with over the course of the year in rendering this service.  If we are concerned about money, it is much cheaper to test the captive population who are employees who we know are not going back to Mexico, who are not going to be dead, hopefully, and who are not going to be scattered to other parts of the country.  And, it is a little frustrating when you sit here and hear this, “We cannot do this, it will cost some money stuff,” when there is no alternative being offered about the testing issue.

 

Senator Amodei:

I can tell you this does not, in my mind, represent a nice bobble to have.  You have heard testimony from other fire departments, which have started testing, indicating the incidents here are higher.  This is something that is not going to go away whether we pass this bill or not.  It is also interesting to see, if A.B. 279 had already handled this issue, why is there opposition to this issue?  I would submit this (the conclusive presumption in A.B. 313) is different than A.B. 279, which is why you have the opposition to it.

 

The problem here is, if we do not deal with the problem now and get a baseline, and yes, there may be people who initially test positive who will cost the system money, but if we do not start here and we do not start now with a testing program to define what is going on with these presumptions like this, then it will keep going.  And, as the state is growing, we will have more professional firefighters and emergency medical technicians seeing more people, and the issue will continue to snowball.

 

The other problem is, if you look at the history of this, the impact, and I think you heard it in the testimony earlier, there has been in effect a de facto conclusive presumption that if you have this and you are a professional firefighter, you did not get it on the job.  I ask you if that is fair.  And, I am not trying to lay a log on any of the insurance folks or any of the risk-pool folks, but the nature of the business is to put the individual to the test and I would submit to you they are doing a great job of it because nobody has gotten it on the job so far, apparently.  I would submit to you it is probably not believable.

 

Senator Amodei:

So, maybe it is time to take a look at this in terms of the most efficient way to deal with the problem because we have a captive population we can test, which we can monitor.  Yes, there may be some who will test positive, initially, and will cost some money.  That may be less than what we would want to do, but the alternative I would submit to you is when we send those people into these situations, and we are not going to give them the benefit of this doubt, what are they going to start doing as a self-preservation thing?  I am not saying this in any professional term; they are human beings.  If they know they are going to have to go to extraordinary lengths in a system that has never found hepatitis C to be job-related, what would you start doing as a normal human being in those situations?

 

I guess it is one of those things, “Well, yes, there is money involved, but also what are we going to do in an emergency services context here?”  I would submit to you the bill has been worked pretty well.  Some amendments from the Assembly were put in; there is an amendment here from some folks who are okay; and Assemblyman Oceguera has worked to limit, I think, the fiscal impact to the minimum extent possible.  Now, it is time to say, “You know what, we want those people doing their job, and we know it is going to cost a little bit more money, but we would rather have them doing their job than worry about how to trace down bodies and out-of-country visitors, et cetera.”

 

Senator Townsend closed the hearing on A.B. 313.

 

Senator Townsend opened the hearing on A.B. 618.

ASSEMBLY BILL 618:  Makes various changes relating to regulation of insurance. (BDR 57-564)

 

Senator O'Connell:

For the record, I need to identify that my husband is the chairman of a bank.

 

Senator Townsend:

I would also like to disclose that my wife and I are shareholders in a bank and I am on the board, so that must be in the record before we proceed.

 

James L. Wadhams, Lobbyist, Nevada Independent Insurance Agents, American Insurance Association, and Nevada Association of Health Underwriters:

Appearing in support of A.B. 618, the insurance commissioner had begun having discussions on this bill early last year.  We have watched this progress through the Assembly commerce and labor committee and Assembly ways and means committee.  We support the bill; I do, however, have one technical word change/amendment we would like to offer.  It simply reinstates the use of the traditional phrase of broker and agent.  I have discussed this with the insurance commissioner.  What I will pass out (Exhibit H) has a letter from her (Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry) confirming she does, in fact, support it.

 

Senator Townsend:

Commissioner, is the term “producer” some new federal term everyone wanted to use?

 

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry:

The term “producer” comes from the NAIC (National Association of Insurance Commissioners) Producer Licensing Model, which was adopted by the National Association of Insurance Commissioners to respond to the Gramm-Leach-Bliley Act of 1999 (GLBA), the federal financial modernization act, to effect uniformity and reciprocity among the states.  What they chose to do was adopt the word “producer” instead of the words “agent” and “broker.”  However, just as Mr. Wadhams, I believe it is essential to distinguish the acts of a producer when he performs either as an agent or as a broker.

 

Mr. Wadhams:

Producer is the appropriate word; it satisfies the Gramm-Leach-Bliley Act of 1999.  Brokers represent the insured.  The insured hires a broker to find a place to take the risk.  Agents represent insurers, and they solicit business from consumers.  People will oftentimes be either brokers or agents; sometimes they will be both.  Those distinctions are important both in the relationships with whom they represent and responsibility.  So, although they will be called producers, their relationships and who they originally are contracted by need to be preserved in the law.  That is what this amendment does.

 

Senator Townsend:

How do we call a secretary?  They seem to be the only person a consumer ever talks to.  Are they under the producer category, or the something-else category?

 

Mr. Wadhams:

In insurance agencies, Mr. Chairman, there are rarely secretaries.  There are some, but what you will have are consumer service people.  These are the support staff.  In all businesses if you do not have a good support staff you cannot do the work.

 

Senator Townsend:

I do not say that facetiously; I mean it with the highest regard.

 

Senator O'Connell:

Mr. Wadhams, would you mind going through your definition of the broker, again, please?

 

Mr. Wadhams:

Yes, it is important.  A broker is an individual who is licensed and has passed examinations demonstrating some competence in the business of insurance.  Brokers are retained by the insured.  Often, not in personal lines such as homeowner and automobile insurance, but businesses, typically, will have brokers who they rely upon because their insurance risk might need to be moved around to find the right price and the right combination of terms.  So, brokers represent the insured, legally.  Agents have a contractual relationship with an insurance company.

 

Senator O'Connell:

A specific insurance company?

Mr. Wadhams:

Well, a specific or several insurance companies.  Some agents will have an exclusive relationship with a group of companies.  Agents like I represent in this association will have contracts with dozens of companies.  So, most of the time people will be both a broker and an agent, but the distinction in how they fall in a particular transaction is important to retain.  That is what our amendment does.  We will still be producers, meaning we produce business.  The important legal distinction is to whom does our loyalty belong?  The loyalty belongs to the insured, if we are brokers; if we are an agent it belongs to the insurance company.

 

Senator O'Connell:

Is the license different?

 

Mr. Wadhams:

It will be the same license.

 

Senator O'Connell:

Same one.  So, you can either do one or the other with a license.

 

 Senator Townsend:

And then there is the difference between the captive agent and the independent agent.  Is that correct?

 

Mr. Wadhams:

The distinction is a captive agent, not to be confused with captive insurance companies, but the captive agent is one who has an obligation to place business for a particular insurance company.  Independent agents are not so restricted; they will have relationships with dozens of companies.

 

Senator O'Connell:

Mr. Chairman, I wanted to ask that question because my son who is in the mortgage business also holds a license as an insurance agent.

 

Robert B. Feldman, Lobbyist, Auto Insurance America, and Auto Agents Alliance of Nevada:

We support the GLBA legislation; however, the proposed legislation and model proposes to remove an exemption we have had for licensing.  If you look at the last page of the handout (Exhibit I), we have had an exemption from licensing salaried administrative and clerical employees of agents and brokers.  And, it reads, performing “any function” in the office and under the supervision of the employer and receiving no commissions.  These employees are not out hustling insurance, selling policies on commissions, they work inside the office.

 

The GLBA legislation, if you read the 200 pages, which I have gone through five times and barely kept awake, it has absolutely nothing to do with the employees of insurance agents.  There is nothing whatsoever in the GLBA directing the states or the NAIC to come up with a model saying everybody who gives a rate quote to a new customer has to have a license.  That, also, is sort of ridiculous when you think about the fact you can dial up the Internet, get a rate quote yourself, and purchase insurance on the Internet without ever talking to a human being.

 

Mr. Feldman:

To require every employee in my operation, and the operation of our associate agents, to be licensed who give a rate quote to a new customer who calls for rates is overburdening.  And, frankly, instead of regulation, I think, it gets down to the point where people are trying to run your business for you.  So, I request we add back this exemption in the manner I recommended.

 

I also spoke with a couple agents in the rural areas.  They would find it nearly impossible to keep licensed people to handle every transaction for their customers and to keep up with the continuing education requirements, which are required to be licensed. 

 

Finally, I would end by saying we are professional people.  We are licensed and regulated by the state.  We are responsible for everything our employees do.  Also, some people do a very good job in a limited capacity of things directed by the employer.  Some people are not capable, or do not have the time or the willpower to do all the studying to take these licensing exams.  We have bilingual Hispanic people in our operation.  They do a great job in communicating with their customers, but I doubt many of them could pass the licensing exams.

 

I would just ask you consider the amendment.  Other than that, we support Mr. Wadhams’ amendment and the rest of the legislation.

 

Senator O'Connell:

Do you happen to know, Mr. Feldman, if these amendments were offered on the Assembly side?

 

Mr. Feldman:

We discussed this in the Commissioner’s Property Casualty Advisory Committee with the insurance commissioner more than a year ago.  The commissioner was waiting for the bill draft to come back.  The draft only came back about, if I remember correctly, on April 22, 2001, and the deadline was April 26, 2001.  I offered the amendment on the other side, but it appeared this passed out of committee, they had about 2 days to do it, without the amendment.  I do not think, from the Assembly side, there would be any strong opposition to the amendment I recommend, simply for the reason everybody has insurance agents and everybody has people who service their account.

 

I just think to take the statute, which has been in place for more than 30 years, and do away with it because somebody decided to do so in a model act, and by the way, the model act has been changed five times on this particular issue.  The insurance agents argued part of the issue, which was they did not want insurance companies selling insurance on 800 numbers from out-of-state service centers without a licensed, Nevada representative.  And, I agree.  It was changed one way, it was changed back, and frankly, this is a brand new piece of legislation in a model act nobody has tested.  Some of the states have already voted to depart from the model act on this issue.

 

You know, insurance agents in Nevada are prohibited from charging any fees for their services, unlike California, Texas, and several other states.  An agent cannot charge for services, at all, on personal lines.  To require everybody be licensed and put up with the continuing education and all the expense involved, and obviously additional salaries for licensed people, agents right now are under heavy pressure, financially.  This could very well put some insurance agencies out of business, or they would have to limit their services to the point where consumers would be affected by it.  Just because it is a model, it does not mean we have to follow it off the end of a cliff.  It is not required by the GLBA, at all.

 

Doug Head, Executive Director, Viatical and Life Settlement Association of America:

I am the executive director, now, formerly president of the Viatical and Life Settlement Association of America.  For a period of about 2 months in the early days of this session I was not affiliated with the association, could not speak for the association, so I was in a little bit of an odd situation of transition.  Therefore, perhaps, my remarks are belated.

 

I have given you a letter (Exhibit J) in which I lay out our concerns with the first 52 sections of the proposal.  I have seen some documents, which I had not seen before today, which have come from the State of Nevada Division of Insurance.  One document looks like this (Exhibit K.  Original on file in the Research Library), and I would like to immediately jump to a big issue, which has a little portrait of a scoundrel (Exhibit K, page 6).  This describes some issues that have emerged in the viatical and life settlement area.

 

The first, called “cleansheeting,” largely involves people falsifying their medical history in order to obtain insurance.  They theoretically intend to sell that insurance at some point in the future.  Senior settlements, which we regard as a virtue not a scandal, involve senior citizens who have policies who wish to sell them because they no longer need them.  We are unaware of any pressure or scandals associated with senior citizens getting these policies.  There was a phenomenon, which we have objected to, in which the model act and this act deal with called “wet paper.”  It is not mentioned here as a scandal, but I believe it has been the biggest issue.  It involves people who rapidly move policies, whether they are on old people, new people, but it is the buying of a policy in order to immediately resell it.

 

Mr. Head:

We have opposed it for a number of years.  There is in this act and in the model act, and without support, a policy has been developed within the industry to not trade in policies that are within the period of contestability, typically 2 years in any state.  I would like to just say there are inaccuracies in this presentation (Exhibit K).  I started by pointing those out because the whole realm of viatical settlements can get pretty confusing.

 

A couple years ago in Savannah, Georgia, I gave a speech to the National Conference of Insurance Legislators, which I called “Midnight in the Garden of Good and Evil” because of its relationship to Savannah, but also because viatical settlements involving the policies of terminally ill people have surrounding them a kind of an image of something very difficult for America to deal with, death.  They involve money.  They involve a number of situations where people who are terminally ill have, unfortunately, committed fraud to obtain policies.  They involve all kinds of issues.

 

When we first started considering regulation of this area of business, everybody in America was desperately concerned.  Every legislature, which addressed this issue, was concerned about the rights of the sick.  They were convinced the people who were buying these policies were probably taking advantage of the sick.  It later emerged the sick were taking advantage of many other people.  People, who were perceived of as good people, are perceived of as bad.  Bad actors have become good actors.  The confusion has been tremendous.

 

Mr. Head:

It is time for Nevada to adopt a law in this area.  We support this.  We regret a viatical settlement law is combined, and I found out yesterday from the insurance commissioner in my conversations with her that this is the decision of the Governor to combine it in with this other big package of necessary Gramm-Leach-Bliley Act of 1999 driven insurance reforms.  It creates difficulties for us in that we were not really familiar with how the viatical settlement element came into this law.  It is the first 52 sections, but, frankly, in my opinion, the other sections of the bill are much more significant for you to be adopting as you go forward.

 

I would like to draw your attention, particularly, to section 29, which is on page 8 of A.B. 618.  I would point out there are many differences in this proposal from the model, and the previous gentleman to me in testifying said, “Just because it is a model we do not follow it off the end of cliff.”  Well, Nevada has made some changes.  I am most concerned about the kind of language reflected in the NAIC model, but even increased in the Nevada model in section 29.  An individual selling their policy, before they can sell their policy under the terms of section 29, has to provide under paragraph (b), and this is entirely new language not contained in the NAIC model, “A witnessed document in which the viator represents that he has a full and complete understanding of the settlement ‘that is a good thing’ and of the benefits of the policy ‘that is a good thing’, acknowledges that he has entered into the settlement freely and voluntarily ‘that is a good thing’ and, if applicable ‘and this is brand new and in my view a bad thing’ to determine a payment ‘that is price fixing, and we oppose it’ to a person terminally or chronically ill, acknowledges that he is terminally or chronically ill and that the illness was diagnosed after the policy was issued.”

Mr. Head:

In many cases, people have insurance and have an illness that was diagnosed long before they got their policy and is now leading to their death.  This would seem to say the person cannot sell their policy until they have the illness.  The other thing the NAIC adopted, and which we oppose, is also in section 29, subsection 1, paragraph (c), “A document in which the insured consents to the release of his medical records to a provider ‘we need it in order to sell the policy’ or broker of viatical settlements ‘the broker needs it in order to represent the insured in selling the policy’ and the insurer that issued the policy covering him.”  This requires an insured individual to disclose to his current insurance company something to which the current insurance company has no right under current Nevada law in order to simply sell the policy.

 

We believe this is an invasion of the rights of consumers in Nevada, and we think it is an inappropriate attempt to drag innocent transactions into a strange new world in which the insurer has the capacity to re-underwrite the policy, to reinvestigate everything about the policy, which may have been effect for 10 or 20 years, and can even sit on the policy and sort of stop the transaction.  We do not know what the outcome of that kind of exposure will be.  The insured individual does not know what the outcome of that kind of exposure would be.  In my view, it goes at perfectly legitimate transactions in order to get at those who have an element of fraud in them.

 

I do not think insurers should have veto power over viatical settlement transactions any more than they do have veto power over a pledge of a policy in a bank loan.  When we do a bank loan, we do not ask that the medical records of the insured individual be provided to the insurance company.  This general concept is my biggest objection to the bill.  We have some other concerns with the bill, which I outlined in my written testimony (Exhibit L).  The first issue I have already talked to you about.  There are many heavy new burdens on our industry, which are not imposed on the insurance industry in the state of Nevada, such as requirements for us to employ fraud investigators, requirements for us to file fraud plans, et cetera, which will add to the expense

of doing this business and will necessarily drive down payments to sellers of policies.

 

Advertising law is set forth for our industry in the law here.  We believe, and this may come as a shock to some people hearing me, the commissioner, by rule, is better qualified to set detailed advertising requirements rather than to put it into the law.  So, we would propose the sections dealing with advertising needs to be deleted.

 

Mr. Head:

We recognize, and this is something very important to understand, there are two kinds of people in the viatical business.  People dealing with sellers of policies and buying them, and people trying to raise money and selling them.  There is, in the insurance commissioner’s letter to you today, a document from somebody who is engaged in raising money.  That person is not covered under this law, so far as I can tell.  That is a securities-type area, which is not addressed by the law.  And, indeed, in our view, this law does not adequately address protections for people who might invest in these policies.

 

Finally, we really object to the idea of price fixing and to authorizing the insurance commissioner to set prices for these policies in the open market.  We have found in every state where this authority has been given to commissioners, commissioners have attempted to exercise the authority and when you say to a seller of a policy, “You have to get 70 cents on the dollar for your policy or you cannot sell it.”  Sometimes people who have situations in which the policy will bring only 30 cents in the open market cannot sell their policy, they lapse, and the loser is the insured.

 

Ms. Molasky-Arman:

There are major portions in this bill (A.B. 618) that are vital to preserve state regulation of insurance.  This bill responds to the federal financial modernization act.  It proposes to establish regulations over viatical settlements.  It proposes provisions for patient protection, and we have our usual miscellaneous provisions.  On the Assembly side, there were amendments proposed by the Nevada Insurance Guaranty Association, by Employers Insurance Company of Nevada, by the Nevada Trial Lawyers Association, and by the service contract industry.  All of these are incorporated in the bill.  I really appreciate all the efforts of these organizations that worked very cooperatively with us on amendments.

 

I also need to thank the joint advisory committees on property and casualty insurance and health care insurance Mr. Feldman mentioned.  We worked with them over a period of the last year; we had at least six meetings in trying to get to any problems and issues in this bill.  Hopefully, we were able to accomplish
that with the exception of Mr. Wadhams’ amendment (Exhibit H), which is something we, unfortunately, overlooked.

 

I also need to thank the Legislative Counsel Bureau, and Frank Daykin, who took the language of the NAIC models and refined them beautifully.  And, last but not least, I need to thank the staff members of the Division of Insurance who have worked tirelessly over the last year.

 

Ms. Molasky-Arman:

The first major portion of A.B. 618 deals with viatical settlements.  This is a major step in consumer protection in the state.  I believe it complements this committee’s keen interest in curbing fraud.  Rather than going through some of this presentation, I want to address, immediately, Mr. Head’s concerns.  Make no mistakes about the dangers of viaticals.  It is recognized in one of its street names; it is called “Death Futures.”

 

Mr. Head’s letter (Exhibit J, and referenced in Ms. Molasky-Arman’s May 23, 2001, letter, Exhibit M) to you stated his association is offended, or they found some of the provisions of our bill offensive.  The Division of Insurance is offended by the magnitude of national fraud arising from viatical settlements.  We are alarmed at the increasing illegal activity present in the state of Nevada.  As I indicated, our advisory committees met at least a half dozen times.  All of these meetings were posted on our Web site with every agenda saying we were going to address viatical settlements in this bill.  There was every opportunity for anyone to come forward if they had anything to discuss with us.

 

Yesterday, I met with Mr. Head.  He explained his position and his challenges, and staff and I chose to follow our course.

 

Recently, I became aware of a situation in Nevada that I had not been aware of when we drafted this bill.  It arose when I learned that someone who was in the hospital, who is known to many of us and is terminally ill, was tracked down by viatical merchants who lurk in the corridors of hospitals to identify the terminally ill and then proceed to mutilate human dignity and solicit the purchase of a viatical settlement.  I do not think you want that in this state any more than I do.

 

Ms. Molasky-Arman:

Yes, this bill has different provisions as far as fraud and advertising, but all of our subjects of insurance require different laws.  Our laws on workers’ compensation are different from those regarding our bail agents.  Each of the provisions in this bill is designed to address a particular problem.  Yesterday, I contacted an FBI (Federal Bureau of Investigation) agent who is responsible for viatical fraud investigations in Washington, D.C.  According to the Northern American Securities Administration Association, viatical fraud is among the top ten frauds, not insurance fraud, in the country.  It ranks number three in insurance fraud in the nation.

 

He also told me there are 300 targets, or subjects, of viatical fraud currently before the FBI and the postal inspectors.  These are individuals who are involved in 30 nationwide frauds.  In the past year and a half, the FBI has had 74 indictments and 51 convictions.  These do not involve small change.  They told me some of these cases amount to $1.5 billion.  I did not have an opportunity yesterday, when Mr. Head was with us, to ask him about his membership.  However, after he left I did ask a staff member to obtain anything on the Web site concerning his membership.

 

Ms. Molasky-Arman:

This list is published as of April 7, 2001.  Number two on the list is Accelerated Benefits Corporation.  On February the 25, 2001, the Florida commissioner revoked the license of Accelerated Benefits Corporation on grounds of fraud and misrepresentation.  The commissioner’s order also revealed the special prosecutor in Florida has a companion case investigating this same outfit for fraud.  Again, we look at the legal infirmities occurring.  And, by the way, Accelerated Benefits Corporation did have 24 people involved in the state of Nevada.  Most of this case involved what is called “cleansheeting.”

 

The provisions in our bill are designed to curb increasingly unscrupulous activity.  I want to emphasize we have no interest in curtailing legitimate opportunities.  We want to establish sound rules; we want to place people on notice of what sound conduct is and what is expected in the state of Nevada.

 

We did hand out a paper copy of our slide show (Exhibit K) and section-by-section summary of A.B. 618 (Exhibit N).  As indicated, sections 2 through 52 concern viatical settlements.  These, as I indicated, have become big business in the state of Nevada.  The viatical settlement involves the purchase of the rights to a life insurance policy at less than the face amount of the policy.  The viatical settlement agreement provides a payment to the policyholder that is less than the life insurance benefit.  The lack of regulation in this country has led to numerous, as I stated earlier with the FBI statistics, illegal transactions and other crimes.  Some of these have included murder, which occurred in the state of Texas.  We have had two cases before us at the Division of Insurance in just the last 8 months.

 

As Mr. Head pointed out, there are two kinds of schemes stated in our presentation involving viatical settlements.  One is cleansheeting, which is a fraudulent application for life insurance for someone with significant medical problems.  Medical information is deliberately withheld from the insurer.  Bodily fluids required on applications are substituted with those of a healthy person.  Under senior settlements, senior citizens are seduced by the opportunity for immediate income for their agreement to submit applications for large amounts of life insurance policies.  Once the policies are delivered, the viatical provider or broker can bundle the policy and sell fractional interest to investors who believe they are purchasing interest in the death of an ill person.  These investors are stuck with valid policies on healthy individuals regardless of their age.  The investors have little likelihood of the promised quick return on their investment.

 

The proposed law would establish the conditions for licensures and the sale of viaticals, and we believe those are necessary to protect Nevadans.

 

Ms. Molasky-Arman:

Slides 15 through 17 (Exhibit K) address the federal financial modernization act (also known as GLBA).  It was enacted on November 12, 1999.  It authorizes financial services companies to affiliate.  It eliminates barriers separating banking, insurance, and securities interests.  State insurance regulation is preserved, provided it does not discriminate against banks, for one thing.

 

The bill does designate state insurance commissioners as the functional regulators of insurance.  Those include insurance activities of financial holding companies and national banks.  Our laws do, however, require consistency with the federal laws.  The GLBA, or federal financial modernization act, has a number of provisions on the sharing of nonpublic financial information and preservation of consumers’ privacy.  We are proposing to have regulatory authority so our laws will conform to those federal laws and offer the consumers the highest protection possible for their public information.

 

Senator Townsend:

That has been a bill in front of this committee forever, and are you telling me under the Gramm-Leach-Bliley Act of 1999 these organizations can share between themselves information, but can no longer share it with a third party such as someone who buys it on the open market?

 

Ms. Molasky-Arman:

That is correct.

 

Senator Townsend:

Does that include credit card companies?

 

Ms. Molasky-Arman:

Yes, it does.  In fact, the credit card companies are already sending disclosures.  They must, under the Gramm-Leach-Bliley Act of 1999, offer the opportunity to the consumer to opt out of the exchange of information.

 

Senator Townsend:

Opt out?

 

Ms. Molasky-Arman:

The consumer may ask his credit card company or his bank not to share his personal information.  If the consumer receives the disclosure and submits it back to the bank or credit card company or financial institution, they will not be sharing that information.

 

Senator Townsend:

What you are telling me is this is an opt out, meaning when anyone, your insurance carrier, your bank, your credit card company sends you a form asking, “Would you like this not to be shared?”  I have to affirmatively make that decision?

 

Ms. Molasky-Arman:

Yes.  Under our present privacy rules for medical information, for example, it is an opt “in” law.  The states can expand or broaden the rights under privacy with the GLBA.

 

Page 23 (Exhibit K) concerns the federal financial modernization act’s creation of the National Association of Registered Agents and Brokers (NARAB) created by November 12, 2002, if the majority of the states have not enacted uniform laws and regulations regarding agent licensing or reciprocal laws and regulations for the licensing of nonresident agents.

 

Senator Townsend:

And that is this (Exhibit K)?

 

Ms. Molasky-Arman:

Yes, which is covered by sections 74 through 117.

 

Senator Townsend:

So, if we pass this bill then there is a chance this (NARAB) will not be created?

 

Ms. Molasky-Arman:

Yes, absolutely, NARAB would allow national multi-state licensing.  Agents, brokers, and producers of this bill, if passed, would not need to obtain a state license to conduct the business of insurance.

 

All of the provisions in these sections reestablish the same licensing provisions we have always had, such as:  the application, how a license may be revoked, what is required, the appointments of producers to act on behalf of insurance companies.

 

I want to address Mr. Feldman’s concern.  He and I have known each other for a lot of years, and in this regard we have, I guess, continued to disagree with one another.  And, agreed to do so.  I do not believe this bill provides anything different than what exists now as far as service representatives who are working in the offices of insurance agents.  In fact, on page 29, subsection 7, of section 85, that concept is specifically addressed.  And Mr. Feldman was very right; there was a lot of disagreement at the National Association of Insurance Commissioners level.  The agents in the insurance companies could not agree.  But, I learned something from this committee.  During our advisory committee meetings, I asked members of the insurance company industry and the insurance agents to go off to a corner and agree on something, and they came back with these provisions.  And, this still allows those representatives to serve.

 

I believe the amendment Mr. Feldman proposed would, in fact, broaden the ability for non-licensed persons to solicit and negotiate insurance.  I think it would also hamper our ability to be recognized under the Gramm-Leach-Bliley Act of 1999 as a reciprocal state.

 

We had to change the fees for licensing because we are not allowed under the Gramm-Leach-Bliley Act of 1999 to discriminate against nonresidents.  Our fees were discriminatory; we have amended this with the idea of maintaining revenue neutrality in the state.  With one, single producer licensed, those who have an agent and broker license will realize a savings even though the cost of an individual license has increased since they will only need to have one license.

 

Sections 100 to 117 are technical amendments.  You have already heard Mr. Wadhams’ amendment (Exhibit H), which we endorse.

 

Ms. Molasky-Arman:

What you normally see in our miscellaneous bills, and these are in miscellaneous provisions on adjustors, on page 34 (Exhibit K).  I think it is important to point out sections 138 and 147 amend the chapter on funeral and burial contracts.  We have been identified has having very poor consumer protection laws for purchasers of pre-need, or burial contracts.  We have received many complaints about the inadequacy of refunds where those contracts have to be cancelled.  What these provisions do is enable the purchasers to receive interest on trust funds if they must cancel those.

 

I need to mention, also, section 137.5 for which there is no slide, carries a defect in the guaranty association law.  Our existing law does not allow recovery for insurers or claimants who have a net worth of more than $25 million.  The Nevada Insurance Guaranty Association recognized this was very injurious under workers’ compensation.  So, this amendment does cure that defect currently in the law.

 

If you go to page 36 (Exhibit K), the four chapters on health insurance have been amended to conform to the federal Women’s Health and Cancer Rights Act of 1998 (WHCRA).  These amendments provide for benefits for mastectomy and reconstructive surgery.  They require surgery and reconstruction of the uninfected breast to produce symmetrical appearances.

 

On pages 37 and 38 are provisions to keep our law in consistency with the Health Insurance Portability and Accountability Act.

 

There is no page describing section 166.5, but I am very grateful to the service contract industry.  Last session, they came forward and asked to be regulated.  During the last 2 years, they realized the established fees, which support our required staff person, were inadequate to support the cost of that provision.  So, they have voluntarily come forward with the request to increase the renewal fees, which will ensure we can maintain that position.

 

Ms. Molasky-Arman:

We have several requests for authority to the insurance commissioner to promote regulations.  These include electronic signatures, a patients’ bill of rights, if and when one is enacted by the U.S. Congress, we need to be consistent with them.  There is also the suitability of insurance products, especially life and annuity, and will focus on the sale of inappropriate products, especially to senior citizens without the regards for their needs.  And, lastly, is the regulatory ability to establish privacy rules consistent with the GLBA and with the Health Insurance Portability and Accountability Act.

 

The GLBA also requires state domiciles to have reasonable terms and conditions for a mutual to reorganize into a stock company.  If it does not, the mutual company can transfer to a new state of domicile regardless of any law restricting that transition, or transfer, in the domestic state.  We have a number of amendments in chapter 693A of NRS on corporate powers and procedures enabling the state to be consistent with the GLBA.

 

Last are the amendments that were proposed by Employers Insurance Company of Nevada.  They complement the provisions we placed in the bill and provide some detail for the demutualization of an insurance company in the state of Nevada, and also for the establishment of mutual holding companies.

 

Robert A. Ostrovsky, Lobbyist, Employers Insurance Company of Nevada:

Because of this very difficult drafting on the language in this bill, the matter relative to mutual companies came later than the bill draft, itself, which went to the Legislative Counsel Bureau, so it came as an amendment rather than as part of the bill.  Those sections have the approval of the insurance commissioner, and, as far as I know, the entire industry, even the trial lawyers who I have met with have signed off regarding some confidentiality language.  All of those sections are consistent with Gramm-Leach-Bliley Act of 1999 requirements for mutual companies.  And, I think, as the insurance commissioner stated, without
that language, mutual companies could redomesticate to another state without penalty.  We certainly have no intention of redomesticating.

 

The board, at this point, has no intention of moving toward a stock company.  But, it needs to be in the law.  The question of whether or not a mutual company can become a stock company is already covered under law.  We are not asking you to make that policy decision.  It is in NRS 693A.390, which this act replaces.  This act now creates a road map.  In doing so, it gives broad authority and powers to the insurance commissioner to determine any such act would be fair and equitable to the mutual insurer policyholders, and the insurance commissioner would have broad authority in reviewing such a conversion.  This act will not be interpreted to limit the powers of the insurance commissioner by other provisions of law.  It is really very strong language allowing the insurance commissioner to determine the appropriate steps to take in interest of the policyholders.

 

The second part has to do with mutual holding companies.  That language is requested to be added to this bill as it was added in the Assembly so mutual companies, like the one I represent, can be more competitive in the marketplace in which the world of banking, insurance, and investment now have become a more inclusive package for the consumer.  I am sure in the future my insurance company and other insurance companies will work towards that.  The creation of holding companies is a technical way of remaining and establishing those businesses still in the best interest of the mutual owners.

 

Senator Carlton:

Ms. Molasky-Arman, I would like to work backwards.  One of the sections addressed the women’s act about mastectomies and breast reconstruction.  You have the word “require” in there.  If a woman chose to have breast reconstruction, the bill would require the insurers to provide this option, but it would not require the woman to actually have reconstruction.  Correct?

 

Ms. Molasky-Arman:

That is absolutely correct.  It is the patient’s choice, certainly.

 

Senator Carlton:

I have a couple of concerns about the viaticals.  One of them was brought up by the opponent of one of these sections under the medical records section. If I would choose to take this option on my meager life insurance policy, if I was diagnosed, and under this bill, I would have to turn over my medical records.  My father had me purchase this policy when I turned 18 years old because I was no longer under his policy.  If I understand this correctly, I would have to turn over all my medical records from the time I turned 18, because I purchased that policy when I was 18?  And, what if those records are not available?  I would like just one really good reason why they have to have my medical records?

 

Ms. Molasky-Arman:

You are addressing the life insurance company, which has the right to obtain medical records.  This does not change what occurs now.  Insurance companies do have the right, if they desire, to investigate the circumstances of death, and they may, currently, seek medical records of the insured life.  So, this does not alter that.  What it does here is state it specifically with reference to viaticals.  Especially, in the area of cleansheeting, it is critical for an insurance company to make certain there has not been fraud in the application.

 

In these instances what I discovered in this Florida case was there were two applications.  One application to the insurance company stating a healthy condition and then a confidential application to the viatical provider stating the true condition of the applicant who is not healthy and who would not be accepted for coverage by that life insurance company had they known.  So, in that, there is fraud in the application for insurance companies.

 

Senator Carlton:

Ms. Molasky-Arman, would not underwriting solve this problem if these policies were all checked at the front end rather than at the back end.  If insurance companies underwrote the policies, I have a very small policy, if the policy was underwritten right then we would know if any fraud existed. It seems like there is lack of investigation going on until it hits the back end of this.  Am I correct?

 

Ms. Molasky-Arman:

Under this operation of cleansheeting, there is no way for the insurance company to know.  They may require samples.

 

Senator Carlton:

What I am saying is in this state we do not underwrite policies under $100,000.  Is that correct?  Or, do we underwrite policies from top to bottom?

 

Guy A. Perkins, Jr., Chief Insurance Examiner, Division of Insurance, Department of Business and Industry:

The underwriting standards, or limitations, are left up to the individual insurance companies.

 

Senator Carlton:

I am not saying you mandate it, I am just saying the common practice in the state is if it is a $10,000, $20,000, $30,000, or $40,000 policy it, typically, is probably not underwritten.

 

Mr. Perkins:

It would be underwritten to the extent of looking at the application.  If there is medical history on it, the insurance company may take the trouble to do further underwriting.

 

Ms. Molasky-Arman:

If it is a large policy, the insurance company might also ask for an independent medical physical examination of the applicant.

 

Senator Carlton:

It seems to me, though, if the insurance companies were this concerned about this particular type of fraud they would take a proactive step at the front end to make sure the information they were getting was correct.  If I decided to take advantage of one of these policies, there is a section in this bill telling me that on my meager $20,000 policy, if I was willing to settle for $12,000 and the insurance commissioner said I could not do it, it has to be $15,000 you would essentially be taking my right away to deal with this policy because I would be willing to settle for $12,000.  Do I understand the provision correctly?

 

Ms. Molasky-Arman:

What we are proposing here is to establish what is reasonable, and this is the same thing we establish in connection with insurance policies.  In some of these cases, and it is interesting reading the Florida case, the policies ranged from all kinds of amounts.  And, yet, in some cases only a fraction of the face value for someone who is terminally ill and going to die within the next 18 months.  It was a very small proportion.  And, you are dealing with people who may be in desperate need of funds.  There are those to whom $1000 would seem like a lot, but it would not be in relation to a $50,000 policy.  And, yet, there are activities where people are taken advantage of and are not given a fair return when they do need those funds.  That is what this is designed to protect, and it is no different than what we do in the settlement of life contracts where those contracts are cancelled.  We do establish those returns on life insurance contracts.  And, certainly, it must be reasonable for all parties.

 

Senator Carlton:

I have learned in the last two sessions, the word “reasonable” can be a very tough word to work with, but I feel the consumer should have a few options.  I know you are trying to protect me from myself because I may not be making a good decision at the moment, but protecting me to the point where I cannot access something that might be helpful to my family may be just going a little too far.

 

Ms. Molasky-Arman:

These policies do have a cash value, which we do, currently, oversee.

 

Fred L. Hillerby, Lobbyist, American Council of Life Insurers, and Professional Insurance Agents of California and Nevada:

Wearing the first hat of the American Council of Life Insurers, we are here to support the insurance commissioner’s bill, especially the viatical settlements portion of this bill.  The kind of fraud the commissioner has indicated is a very serious national problem, and unfortunately, according to the commissioner, we have seen some here in Nevada.

 

This is very important.  This committee has dealt with some other issues this session where such things as being sure the advertising is accurate, I think underscores when you have the potential of very vulnerable citizens there needs to be some protection in the statue.  Our legal counsel has reviewed this and is in total concurrence with what the commissioner is proposing.  We cannot say strongly enough for you.  Also, the ACLI, the American Council of Life Insurance, supports the uniform act regarding the producer section of this bill.

 

In that regard, stepping over to the insurance agents whom I represent, we support the position, too.  We have prepared a letter to the Governor, which he requests whenever fees are raised, saying we support the increase in fees because we understand the need for it.  We also support the amendment Mr. Wadhams has submitted on this bill, which the insurance commissioner has also endorsed.

 

Senator Townsend:

Mr. Hillerby, I will ask you and the insurance commissioner the same question, with regard to your conversations with Mr. Feldman, and you continue to disagree on this issue.  I am having a little rough time understanding licensing provisions for employees, salaried employees who do not earn a commission.  Can you help me?  Your feeling Mr. Hillerby?  Are your clients in support of keeping this language the way it is?

 

Mr. Hillerby:

Section 85 in the bill, starting on page 28 and through page 29, it is our understanding with this language, which was part of the model act, our group feels like these subsections in section 85 provide the kind of protection necessary for employees.

 

Senator Townsend:

Mr. Feldman, you do not agree?

 

Mr. Feldman:

No.

 

Senator Townsend:

Why not?  It says, “. . . officer, director or employee’s activities are executive, administrative, managerial, clerical or a combination of these . . .”

 

Ms. Molasky-Arman:

Mr. Chairman, excuse me.  If you will jump down to subsection 7, which is the provision that maintains the status quo as far as service representatives in the offices of agents or brokers.

 

Senator Townsend:

OK.  Mr. Feldman, you do not like section 85?  It does not meet what you sent to us?

 

Mr. Feldman:

Section 85, subsection 7, is exactly the problem we have with this bill.  If you read this subsection, what it says is, if you are an existing policyholder of an agent, his employees can respond to your requests.  He can give you rate quotes, the employees can add cars, they can take them off, and they can issue binders.  However, what it says, which makes no sense to me, it violates common sense, if you are a new customer, they cannot do that.  So, if you call me for a rate quote and he is an existing policyholder, fine.  I can give him a rate quote; the employees can take care of the situation.  If he says, “I want to put my cousin Fred, who is not a policyholder, on the phone.”  They cannot give “Fred” a rate quote.

 

This was very poorly designed.  What they are telling me by this section is one of my employees is qualified to do these services for an existing policyholder, but they are not qualified to talk to a new person who calls me for a rate quote.

 

Senator Townsend:

If I may, and I am not going to speak for the industry nor the insurance commissioner, but it would seem to me the issue is the policyholder has been through an agent, a licensed individual, in the beginning then they become a current policyholder and then they have the right to make a decision whether they want to get a quote or have questions answered from a licensed person or a person who is not licensed.  I think what the language is stating is any time there is a first contact on insurance issues there should be a licensed person in the beginning.  Mr. Feldman, you are saying that is not right?

 

Mr. Feldman:

Well, it is not in compliance with the laws we have right now.  And, this section was mainly negotiated for insurance companies.

 

Senator Townsend:

OK, but let us stay on what I asked you.  Is that not what you think is right as a philosophy?

 

Mr. Feldman:

I do not think it is correct.  No.

 

Senator Townsend:

Well, why would you license anybody if anybody who works in your office can solicit business?

 

Mr. Feldman:

Well, you license the agent who is responsible for training the employees and responsible for all the acts of the employees.  These people are not soliciting business, they are responding to requests for rate quotes.

Senator Townsend:

That would be a huge policy debate for this committee.

 

Mr. Feldman:

Senator Townsend, section 7 was negotiated by the independent agents to eliminate insurance companies from servicing customers from selling policies from out-of-state service centers with no licensed resident agent present.  That was the object of the section.  It allows service centers to respond directly to customer requests.  But, what they have done is they have taken the employees of insurance companies and the employees of producers and bunched them together in section 7.  And, there is a difference between dealing with companies’ service centers from out of state and dealing with a local resident producer.

 

Senator Townsend:

So, Mr. Hillerby, you or I take it Mr. Wadhams has a different group than you represent?

 

Mr. Hillerby:

There are, basically, two major independent insurance groups.  One is known as the big “I,” the Independent Insurance Agents of America.  The other is the Professional Insurance Agents, which is also a national organization.  I happen to represent a regional part of that organization.  Mr. Wadhams and I represent the vast majority of insurance agents in the state, our two associations.

 

Senator Townsend:

And, you are saying you are willing to live with what is in this bill as opposed to what Mr. Feldman is proposing?

 

Mr. Hillerby:

Because of the insurance commissioner’s concern about what the amendment may do, we defer to her judgment on this issue.

 

Senator Townsend:

Mr. Wadhams, is that your feeling on behalf of your client?

 

Mr. Wadhams:

Yes, sir.

 

Senator Townsend:

The hearing is closed on A.B. 618.

 

Senator Townsend:

Mr. Young, what is the current status of A.B. 324?

 

ASSEMBLY BILL 324:  Revises various provisions regarding regulation of mortgage brokers, mortgage agents and mortgage companies. (BDR 54-491)

 

Scott Young, Committee Policy Analyst:

Mr. Chairman, it has received an amend and do pass in Assembly ways and means, but it has not yet reached us.

 

Senator Townsend:

What about A.B. 572?

 

ASSEMBLY BILL 572:  Establishes single fraud control unit for insurance within office of attorney general. (BDR 18-487)

 

Mr. Young:

Assembly Bill 572 is still in Assembly ways and means; it has not been acted on.

 

Senator Townsend:

I open the hearing on A.B. 324.

 

John Royce, Secretary, Advisory Council on Mortgage Investments and Mortgage Lending:

This is the council that was created by A.B. 64 of the Seventieth Session.  I am here to report to you we met 12 times in the last year and took many hours of testimony.  We came up with a set of recommendations, which have been provided to you today as one of my attachments (Exhibit O).  (Mr. Royce continued to read from his written testimony, Exhibit O).

 

ASSEMBLY BILL 64:  Revises provisions relating to mortgage companies and      loans secured by liens on real property. (BDR 54-1204)

 

Senator O'Connell:

I need to put on the record that I have a son who is a mortgage banker.

 

Senator Townsend:

Also, the bank through which I am a board member and a shareholder also owns a mortgage company.

 

Raymond F. Williams, Lobbyist, Nevada Association of Mortgage Brokers:

I would like to make one comment regarding the whole budget issue, which seems to be the crux of the whole matter.  We have received very little opposition as far as the merits of the bill.  Our industry has a petition (Exhibit P), which went out about 10 days ago, and we already have over a 1000 names.  It is a very short petition suggesting the support of the bill.  It says, “We also support the allocation of all or part of our annual licensing and registration fees to go towards the funding of a mortgage commission as found in this bill.”

 

I also have an illustration (Exhibit Q) of the loan officer registration process as it now stands.  Last I heard there were more than 3500 loan officers who have registered.  This is a lifetime registration fee.  It was $45 originally; it was increased to $70 because the gaming commission required it.  We are suggesting the fee increase to $100 and the registration become an annual registration.  The average income for a realtor is $18,000.  They pay more than a $1000 to become members of the Greater Las Vegas Association of Realtors (GLVAR) and have multiple listings. The average income for a loan officer is $45,000.  They pay a one-time annual registration fee of $70.  This is not too much to ask of them. If we were to take 3500 times $100, that is $350,000 extra we would have to help fund a mortgage commission.

 

Leo D. Davenport, Lobbyist, Nevada Association of Mortgage Brokers:

We also gave you a list of some of the amendments (Exhibit R) we feel had been neglected.

 

Catherine L. Jackson-Ford, Lobbyist, Nevada Association of Mortgage Brokers:

I am a licensed mortgage broker in Carson City, and I am the regional vice president for the Nevada Mortgage Brokers Association.  I am also past president of the Nevada Mortgage Bankers Association.  When I was with the bankers association, what John Royce said about mortgage bankers not being controlled is correct.  I was in a net branch for 8 years, and the company I worked for I believe was one of the best net branch sources in the country.  We did have continuing education, and they did do our truth in lending’s.  But, this is not the case with most of the industry.

 

I went to the Internet last night, and as far as I could see there are 35 mortgage companies licensed under chapter 645E of NRS with 13 branches.  There are 279 exempt mortgage companies.  There are 244 licensed branches of mortgage brokers, 50 sub branches for a total of 294.  There are 98 exempt companies, and 117 exempt companies under the brokers.  The case Mr. Royce was making about more than half the industry not being regulated is correct.

 

Now, I am not here to try and get the mortgage bankers exemption.  I do not care, because if we do not do something to clean up our industry on the mortgage broker side and get a professional mortgage industry, I could go to work for an exempt lender and none of this would be an issue for me because I would not have to meet the criteria I am meeting right now.  I meet the criteria because I think it is important to take care of the consumer.

 

Senator O'Connell:

It might be helpful if you made sure we had all of the information summarized before the bill reaches us and before we have the real hearing on the bill.

 

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

Assembly Bill 324 creates a mortgage industry commission and transfers the responsibility of regulating mortgage brokers, agents, and companies from the Division of Financial Institutions to the new commission.  The commission consists of five members appointed by the Governor.  The director of the Department of Business and Industry shall appoint an executive director to carry out the policies and administrative functions of the commission.

 

In addition, A.B. 324 revises provisions concerning certain powers of attorney and allows a power of attorney to be effective for the term of a specific loan for which it was executed.  If an investor is a “credited investor,” as defined by Regulation D of the Securities and Exchange Commission, the investor may sign a power of attorney for any length of time.  Further, the measure defines specific actions constituting reasonable supervision of activities of a mortgage agent by a mortgage broker.  Finally, the bill eliminates the Advisory Council on Mortgage Investments and Mortgage Lending.

 

Thinking of this was very analogous to what happens at the Real Estate Commission.  The Division of Financial Institutions does an excellent job of regulating the soundness of an institution, and it was my opinion they could use more resources in order to regulate the activities of mortgage brokers and agents.  That is why I think the commission will be able to not only monitor the soundness of an institution adequately, but also regulate the activity of the people in the industry.

 

Senator O'Connell:

I understand there is a provision in the law that you do have regulatory authority over any information you receive, and it might be from the banking industry or the mortgage companies, to investigate if you have claims of improprieties going on.  And, there seems to be a misunderstanding, or at least a disagreement, on the interpretation of this from the industry to the people in the industry.  I will try and get the citing for you, but if could share with us, when we come back to hear this bill again, on how you are interpreting this and how it is being applied?

 

Sydney H. Wickliffe, Director, Department of Business and Industry:

I am present today in order to voice my opposition to this bill.  I have sent each of you a memo (Exhibit S) describing it, and I will simply reiterate the first paragraph, or so, and we can continue this on another date.

 

The proponents of this bill have not yet convinced me this new agency is necessary because this work is already being handled by an existing agency within my department.  I, personally, do not believe it is a good idea for the mortgage brokers to regulate themselves.  I do not believe the proponents have a realistic idea of what this will cost to start this new agency, and I have given you a schedule (Exhibit S) showing my estimate based upon my director’s office, which consists of about the same number of employees of what I believe it will cost to start this agency and then to run it on an annual basis.

 

I also do not believe the majority of mortgage brokers are particularly willing to pay the additional fees necessary in order to implement this new agency.  This new petition (Exhibit P) spoken of this morning, I have not seen.  I do not know who has signed it.  I do not know how much detail it goes into on the new fees, and I do not know what kind of a cost allocation has been done in order to give these people an idea of what this agency will cost them.

 

In the event you decide to go forward with this bill when you hold the regular hearing on it, we do have a couple of amendments to it to tidy up some things we are not satisfied with in the bill.  Rather than present them to you today, I will hold off until the next hearing on A.B. 324.

 

Robert Barengo, Lobbyist, Nevada Consumer Finance Association:

As the bill presently stands, we are in support of it with some language cleanup on page 10.  We will speak to that more when the time comes, but basically, what it was, the original bill kept mortgage companies.  Mortgage companies, you will recall, are those kinds of businesses that lend their own money.  We believe we had competitiveness and a different philosophy and would not have wanted to be regulated by our competitors who believe differently than we do.  Assemblyman Goldwater agreed to take this out, and when they took this out they then added this language on page 10, which does not track very well.

 

Chairman Townsend:

There being no further business, the meeting is adjourned at 9:59 a.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Gayle Nadeau,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

DATE: