MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session March 22, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:35 a.m. and 6:00 p.m., on Wednesday, March 22, 1995, and was recessed until 10:00 a.m., Thursday, March 23, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Vance Hughey, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Douglas Dirks, General Manager, State Industrial Insurance System (SIIS) Cecilia Colling, Assistant General Manager, Northern Region, State Industrial Insurance System (SIIS) Alice Molasky, Commissioner, Division of Insurance, Department of Business and Industry Eloise Koenig, Self-Insurance Coordinator, Workers' Compensation Section, Division of Insurance, Department of Business and Industry Harvey Whittemore, Lobbyist, Nevada Resort Association Tom Czehowski, Director of Safety and Personnel, Steel Engineers, Associated General Contractors Nevada Chapter (AGC), Las Vegas Pam Miller, Lobbyist, Associated General Contractors, Nevada Chapter Daryl Cappuro, Executive Director, Nevada Motor Transport Association, Nevada Franchised Auto Dealers Association Sam McMullen, Lobbyist, Nevada Resort Association Lyn Grandlund, President, Grandlund, Watson, Clark and Associates, Vice President, Employers of Nevada Danny Thompson, Political Action Director, Nevada State American Federation of Labor/Congress of Industrial Organizations (AFL/CIO) Dean A. Hardy, Attorney, Nevada Trial Lawyers Association Jack Jeffrey, Secretary-Treasurer, Southern Nevada Building and Construction Trades Council Steven Brannon, Vice President, Segal Company Pat Coward, Lobbyist, Nevada Association of Realtors Patsy Redmond, Executive Vice President, Nevada Association of Realtors Ron Swirczek, Administrator, Department of Industrial Relations (DIR) John Taylor, Southern Nevada Association of Injured Workers Nancyanne Leeder, Attorney, Nevada Attorney for Injured Workers, Department of Business and Industry BILL DRAFT REQUEST 54-513: Makes various changes concerning licensing of chiropractors. SENATOR REGAN MOVED TO INTRODUCE BDR 54-513. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Senator Townsend began discussion of Proposal 1 of Exhibit C (Workers' Compensation Reform Proposals). Douglas Dirks, General Manager, State Industrial Insurance System (SIIS), spoke in favor of Proposal 1. Senator Neal asked Scott Young, Senior Research Analyst, to read NEVADA REVISED STATUTES (NRS) 218.5345 AND 218.535. Senator Neal asked Mr. Dirks and Cecilia Colling, Assistant General Manager, Northern Region, State Industrial Insurance System (SIIS), if they wished to change any of their testimony from previous hearings. Mr. Dirks stated he did not. Ms. Colling stated she did not. Senator Townsend stated the people coming into the system replacing people who are leaving the system will be unclassified. Mr. Dirks agreed to the proposal. SENATOR O'CONNELL MOVED TO INCLUDE PROPOSAL 1. SENATOR LOWDEN SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS AUGUSTINE AND NEAL VOTED NO.) ***** Proposal 17 and 18 were discussed. Alice Molasky, Commissioner, Division of Insurance, Department of Business and Industry, presented Exhibit D (Proposed Regulation of the Commissioner of Insurance, Draft). She stated the language in the current statutes does not prohibit heterogeneous groups for insurance purposes. She commented the underlined language in the draft is new language. Senator Townsend asked whose financial responsibility it is if a member of a group cannot fulfill a commitment. He asked if the legal liability of joint and several is defined in the regulation. Ms. Molasky stated section 6, subsection 2, on page 2 of Exhibit D, discusses the audited financial statement of each member. She indicated page 5 of Exhibit D lists the security deposit required. Eloise Koenig, Self-Insurance Coordinator, Workers' Compensation Section, Division of Insurance, Department of Business and Industry, stated each association will tell the department who the individual members are. The department will do an analysis of the expected incurred costs per member, combine that, and do the security deposit on the combined figure. Senator Townsend asked if people are aware they will be required to put up a security deposit of 105 percent. Ms. Koenig stated the self-insureds were required to put up 105 percent when they left the system. In regard to the insolvency fund, she stated there is an initial assessment of each self-insured employer for the fund consisting of a percentage of their security deposit. Annually, they are assessed a percentage of their existing security deposit. Information pertaining to the question is found on page 18 (Exhibit D). Senator Townsend asked what portion reaffirms the joint and several responsibility of each member of the group. He stressed if groups are allowed to leave the system he is concerned that people be paid. He stated he wants reassurance the system is there for people who need it. Ms. Molasky discussed service organizations. She stated there is a bond requirement imposed on them, but they have the same responsibility as third-party administrators, but are not licensed and regulated. She stressed they should have fiduciary responsibilities. She stated a third-party administrator must hold a separate license. Ms. Molasky expressed her concern over information she recently obtained from Oklahoma. Oklahoma has 18 associations, three of which are heterogeneous, and 15 are homogeneous. Of the 18, 14 are insolvent. She stated all three heterogeneous groups are insolvent. She stressed the joint and several liability is a major problem for these groups. She stated a small employer must bear a sizeable or, in the case of a member who is liable and leaving a group, the entire liability of another employer's judgement. Senator Townsend stated a smaller member may become insolvent quicker, leave a group, and leave the larger members liable for its settlements. Ms. Molasky stated the language on page 23 of Exhibit D should help clarify the subject. Senator Townsend asked what would happen if an entire association decides to decertify and return to SIIS. Ms. Molasky stated the law requires the association to fund their claims before they decertify. Senator Townsend asked if she is comfortable with the proposed regulation as it works in conjunction with the current law. She indicated they are trying to guard against weakness which have been discovered during the past 2 years. She expressed her concerns based on the experiences in other states. If heterogeneous groups are allowed, difficulties may arise. She stated they are more dangerous than the homogeneous groups. She said she cannot preclude heterogeneous groups because to do so is not allowed under the law. The law only forbids the heterogeneous groups from merging. Harvey Whittemore, Lobbyist, Nevada Resort Association, stated it is appropriate to look at the basics of the law. He referred to NRS 616.3791, subsection 3(f), and NRS 616.915. He suggested if the committee is concerned about including statutory mandates with respect to what the indemnity agreement should include, it must be discussed this year. Not to do so, will allow the deputy attorney general to devise an indemnity agreement which must maintain and contain joint and several liability. This action will not cover the concerns of the committee which is how to protect the worker, and how to insure those individuals who join together to create these self-insured organizations so that they understand their obligations under the agreement. He stressed the need to require an indemnity agreement by statute. Mr. Whittemore expressed his concern that: The process by which the indemnity agreement is being drafted and ultimately approved, that it does contain sufficient language to protect those companies which have already gone self-insured, and those group insurers which are clearly solvent who would, again, suffer the exposure if, in fact, another small group failed. Senator Townsend asked if there is not enough money in the insolvency fund to handle claims, how will the claims be paid. Ms. Molasky stated the statutes say, "each of the associations may be assessed, as far as the insolvency fund, for the insolvency of any other association." She said the individual self-insured employers have a different insolvency fund. Senator Shaffer asked if a group has the right to eliminate any member of a group who may be a risk to the solvency to the rest of the group. Mr. Whittemore stated the members of a group must join the association. He stated there are specific termination provisions within the law. Ms. Koenig stated the law provides the right for each member to vote on other members to include or to ask a member to leave an association. Senator Regan asked for an analysis of the 18 groups in Oklahoma. Senator Neal asked who is responsible for indemnification. Ms. Molasky stated each member is indemnifying the losses of each other member of the association. Senator Neal asked where the money comes from to cover the losses. Ms. Molasky stated there is an excess policy of insurance which is required which is specific and aggregate. She stressed it does not eliminate the legal requirement that each member be jointly and severally liable for the losses of each other member. Senator Neal questioned page 5 of Exhibit D. He asked why there is permissive language rather than mandatory language. Ms. Koenig stated this section refers to the computation of the security deposit. Senator Neal asked if the security deposit is a form of indemnification. Ms. Koenig stated it is not. Ms. Molasky stated the purpose of the safeguards is to assure that compensation will be given to the injured worker. Senator Townsend stressed the goal must be clear. He stated there has never been a problem with self-insurance in Nevada. He stressed people who have legitimate claims have always been paid even if the company they worked for became insolvent. He wanted to stress that the injured worker must continue to be paid. He emphasized the regulatory atmosphere must be such where all the issues are taken into consideration, and where the line of communication with those who apply must be "first rate" so they understand all the regulations. Senator Lowden asked if homogeneous and heterogeneous will remain in the law, should a third category be added. Ms. Molasky stated they have excellent experience with the self- insured employers and would prefer not to certify heterogeneous associations. Senator Neal pointed out on page 3 of Exhibit D there is a portion to be deleted. Ms. Molasky explained the portion being removed was originally written under the assumption that only homogeneous groups would be permitted. On November 16, it was indicated that heterogeneous groups were not precluded by law and they would have to allow them. Senator Townsend asked if the moratorium is not placed into the law, will she be more comfortable to have independent solvency funds for heterogeneous and homogeneous groups. Ms. Koenig stated the fund is not very large and if it were divided, the fund would be very small. Ms. Molasky stated it would be an administrative problem to identify which are heterogeneous and which are homogeneous. She indicated the assessment may be different because those are based on their experience and the security deposit. Senator Townsend asked if the state law, as currently written, delineates the solvency issue. Ms. Molasky stated she would be more comfortable if some of the provisions indicated in Exhibit D were by statute rather than by regulation. She pointed out page 12 of Exhibit D as an example. There is no allowance for interpretation of net worth. She stressed her desire to have the authority to interpret the law. Senator Shaffer asked about page 3 of Exhibit D where they eliminated the nine industry groups. Ms. Molasky explained the groups were originally included to allow them to be identified as having homogeneous characteristics. Senator O'Connell suggested replacing that section which is indicated as removed on page 3 of Exhibit D. Ms. Molasky requested the statute say that the members must be in the same or similar classifications and permit the insurance commissioner to determine how that classification is to be made. Tom Czehowski, Director of Safety and Personnel, Steel Engineers, Associated General Contractors Nevada Chapter (AGC), Las Vegas, stated changing the discussed section will cause a change to his organization which consists of both active members, and associate members who are not of the same group. He illustrated there are trucking companies in their group who would fall under transportation, but who are members at this time of their group. Pam Miller, Lobbyist, Associated General Contractors, Nevada Chapter, stressed the need for keeping the section on page 3 of Exhibit D. She stated the elimination of that section will require her to manage five or six groups instead of one. Daryl Cappuro, Executive Director, Nevada Motor Transport Association, Nevada Franchised Auto Dealers Association, commented that many businesses are heterogeneous by the nature of the state. He stated an auto dealership encompasses, at least, three of the classifications listed on page 3 of Exhibit D. He expressed his concern of what criteria will be used by the insurance division to make their classifications. He stressed their commitment to success. He commented it is his understanding that $2.5 million in assets is the requirement for being in an insurance group. He stated if he has three people in a group who can show that they have $2.5 million in assets, then the other members of the group should not have to prove they have more. He stated the exclusion of inventory is a "one size fits all exclusion, because assets are assets." He stated the members of his group must sign the indemnity agreement, and it is quite clear. Senator Townsend stated the audited issue is clear and requested "audited" be removed from section 6, number 2. He stressed the committee did not feel "audited" is necessary. Ms. Molasky stressed she feels it is necessary to have an audited financial statement to give them confidence in the financial statements of the employers. Senator Townsend stated he feels it is a bad idea and questioned Ms. Molasky as to why she did not bring the issue up in previous hearings. She said she did not understand there is a problem with the "audited" request. Senator Townsend stressed he was quite clear that the audited financial statement of the group was enough of a statement to assure the $2.5 million in assets. Mr. Cappuro asked that a final hearing be held before the end of this legislative session on the issue at hand. He stressed it is unfair to the people who rely on the statutory allowance to become self-insured as of July 1, to find there are "road blocks" being erected with respect to regulations. He asked for a promise that the hearing will be held before the end of session. Ms. Molasky stated the hearing will be held by the end of session. Mr. Cappuro stated there are substantial changes in the regulations and he will want his counsel to look at the proposed regulations. Ms. Molasky said the "primary" activity is used to determine the classification. Senator Shaffer pointed out there will be some confusion if the subcontractors work in different areas. Ms. Molasky said subcontractors will be listed the same as contractors. Senator Regan suggested there are games some businesses can play. Employees may be leased to a construction company, but are actually employed by a transportation company. He stressed there are ways to get around the system to obtain the lower rate. He urged the need to watch out for the injured worker. Senator Augustine stated the classifications are very broad. Ms. Molasky replied there are no subclassifications of the various industries. Senator O'Connell asked if there should be more than one fund. Senator Lowden said she is comfortable with one fund if it is easier to manage than multiple funds. Senator Townsend asked how the staffing levels will deal with hearings, the regulatory atmosphere in which the hearings must be held, and the need to have certification for the increased numbers of groups applying to become Health Maintenance Organizations. He asked if the staff is overextended. Ms. Molasky stated there is a budget request for two staff members in Ms. Koenig's department. The request was removed pending the moratorium issue. SENATOR O'CONNELL MOVED TO INCLUDE PROPOSAL 17. SENATOR LOWDEN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Samuel P. McMullen, Lobbyist, Nevada Resort Association, discussed Proposal 51 and 52. He presented Exhibit E and Exhibit F (two proposed amendments to SIIS reform). Mr. McMullen stressed the proposals do not request a blanket denial of claims. Senator O'Connell requested the word "unauthorized" be inserted in Proposal 52 to read, "Proximately caused by the employee's unauthorized use of a controlled substance." Mr. McMullen stated, This basically, shifts the burden of proof in the evidentiary standards. It does not deny the claim. It does not say there is not an ability to prove a different causation, but either because of intoxication or because of a chemically detectable presence of an unauthorized controlled substance in the body, then it is up to the injured party to say and prove that there was a different causation. Lyn Grandlund, President, Grandlund, Watson, Clark and Associates, Vice President, Employers of Nevada, stated if alcohol is separated from controlled substance, the state level may be used for the level of consumption of alcohol, and the controlled substance level may be established. Senator Regan stated intoxification according to the Nevada Department of Transportation (NDOT) is .04 and the state level is .10. Senator Neal stated the .04 is for NDOT only and not for the entire population. Senator Townsend stated if someone has one beer at lunch, then suffers an accident, is that person going to be liable under this proposed regulation. He stressed if the person is legitimately injured on the job, is that person going to be protected. Senator Neal stated he is not comfortable with a restriction which would deny coverage to someone who is legitimately injured and the cause of the injury is ignored because that person had a beer at lunch. Mr. McMullen stated: That kind of case, where there is clearly not [any] impact [due to] the condition of the employee, [and where] something [is out of] the control [of the employee], ...that would be a compensable claim. Senator Neal stressed they are talking about motor skills and how intoxication affects a worker's ability to operate a tool. He stated he cannot agree with the inclusion of this stipulation because it is too broad. Mr. McMullen stated there is a responsibility of the employee to consider and take care of their own safety on the job. There is a long standing policy that the use of unauthorized, controlled substances, or the use of alcohol in a way which affects a worker's safety is not allowable. He stressed the proposal is not a blanket denial of claims. He stated: It is something that says if there is evidence of intoxication, or evidence of use of a controlled substance, then it can be presumed that it was the proximate cause, unless it is shown it is outside the effect of that intoxication. The claim can still be proven, and the claim can still be accepted. Senator Neal asked if he is trying to push the burden of proof onto the injured worker. Mr. McMullen stated he is not changing the burden of proof as it has existed in the statutes for a number of years. He stated the controlled substance use is being addressed, but the intoxication provisions are not changing. Senator Shaffer asked how an employee can defend himself if he did have one bottle of beer with lunch, then a wall collapsed on him in the afternoon. Mr. McMullen stated the consumption of the beer did not have anything to do with the falling of the wall. Danny Thompson, Political Action Director, Nevada State American Federation of Labor/Congress of Industrial Organizations (AFL/CIO), stated the language change is for the word "any." He stressed "any" is a key word, because the claim will be denied if the word can be applied. He emphasized that people will be hurt by the language change. Senator Neal asked for an explanation of "rebuttable concept." Mr. Young explained the concept. It means that, in the first instance, if the employer shows, under the new language, that there is a controlled substance present in any level, the burden of proof is on the injured worker to show that the substance level is not the cause of the injury. If the injured worker brings forward evidence that the substance is not the cause of the accident, he has then rebutted the presumption that it was the cause, and the employer has to prove that the drugs were the cause of the accident. The rebuttable presumption starts out on the claimant, but allows it to be shifted back to the employer. Senator Neal asked if physical evidence needs to be presented. Mr. Young replied it would depend on the circumstance. Dean Hardy, Attorney, Nevada Trial Lawyers Association, commented the issue appears to be clear cut. He stated: In an instance where an individual is working, has had alcohol during the course of his work day, he should not be compensated for any injury in that instance. If an individual has participated in a controlled substance, unauthorized controlled substance, during the course of his work day, then that presumption that this industrial injury was caused by the ingestion of the controlled substance, or the proximate cause of the injury, should inure to the detriment of that individual. They should not have a compensable claim. Mr. Hardy explained, further, that the issue is not as clear cut as it sounds. He stated: An individual is on the job site doing what they may be doing for whatever reason, and something falls off the wall, without regard to what they are doing, hits them in the head, and they are taken to a medical care clinic, given a urinalysis and found to have some controlled substance in their system, I am seeing those cases denied. But we are winning those cases at hearing as we should. He further explained a difficult case: A difficult case goes to hearing, when a cocktail waitress slips and falls on a wet floor, and is found to have a very, low level of marijuana in her system, then that individual claim is denied...It is a difficult presumption to rise above. Mr. Hardy suggested to change the language to "any level," will create more litigation. Senator Neal asked if an amendment stating, "day of injury" will clarify the intent. Mr. Hardy said a standard created at such a low level will create a rebuttable presumption which will lead to more litigation. Mr. McMullen pointed out the discussion is about usage of illegal drugs. He stressed the importance of remembering the issue. If a person is using something illegal there should be consequences. He stated the concepts listed are covered by the Doctrine of Proximate Causation. He stressed many chemicals cannot be found in the body in trace amounts. A person must use enough for the drug to be detectible. He stressed he is not asking to change the intoxication laws. Senator Shaffer stated the Department of Health and Human Services (DHHS) guidelines which are .04 will eliminate a lot of litigation. Senator Neal commented the guidelines are set up for the transportation standard rather than a workplace standard. The standards are applicable to the transportation industry, and to no other. He stressed he does not feel the change in language is beneficial to the public and does not want to place something into law which will adversely affect people. Senator O'Connell commented the use of drugs is against the law. SENATOR O'CONNELL MOVED TO INCLUDE PROPOSAL 52 AS AMENDED WITH THE NEW LANGUAGE "UNAUTHORIZED." SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR NEAL VOTED NO.) ***** Mr. McMullen asked to include language from Proposal 51 as follows: Also add language to allow the introduction of an affidavit to prove the presence or quantity of alcohol or a controlled substance as provided in Nevada Revised Statutes (NRS) 50.315 and NRS 50.325. SENATOR O'CONNELL MOVED TO INCLUDE THE PROPOSED LANGUAGE. SENATOR REGAN SECONDED THE MOTION. Senator Neal commented he does not feel comfortable with the language. Mr. McMullen stated the affidavit will be from someone who has administered a test for drugs or alcohol and that the test was done by accepted methods. The affidavit will allow someone to not have to show up at a hearing. He stressed the system will not have to pay expert witness fees with the use of the affidavit. THE MOTION CARRIED. (SENATOR NEAL VOTED NO.) ***** The following exhibits were distributed for the committee's information, but were not discussed during the hearing. Exhibit G, Exhibit H, Exhibit I, Exhibit J, Exhibit K (Original on file in the Research Library.), Exhibit L, Exhibit M, Exhibit N, Exhibit O. Jack Jeffrey, Secretary-Treasurer, Southern Nevada Building and Construction Trades Council, presented Exhibit P, a discussion of Taft-Hartley Trust Funds. Steve Brannon, Vice President, Segal Company, explained Taft- Hartley Trust Funds as empowered by the Taft-Hartley Act. He stated they are established by collective bargaining. The funds are jointly administered by labor and employers. He stated the funds are subject to federal law. He explained the Employment Retirement Income Security Act (ERISA) is a law covering benefits and pension plans in the United States. He stated they are subject to the Internal Revenue Code. The Taft-Hartley Trust Funds do not, usually, fund workers' compensation benefits which are controlled by the states. He explained the structure is in place under the Taft-Hartley Trust Funds to provide benefits. He stated one problem which can occur is that the workers' compensation, insurance company and the specific Taft- Hartley Trust Fund argue over whose responsibility a bill might be. While the injured person is being billed by the doctors, the two companies are fighting over who should pay the bill. A way to avoid this situation is to have one company handle both workers' compensation and non-work related injury compensation. In that case the specific Taft-Hartley Trust Fund would pay the benefits and then determine who is responsible for the bills. Senator Townsend expressed his interest in a program which will pay the bills for a worker without delay. He stressed the importance of the 24-hour concept of health care and its importance to the worker. Mr. Brannon stated the primary concern is to pay the benefits first. Mr. Jeffrey commented that many times when there is an industrial accident, the injured worker is kept waiting for treatment while blame is assessed. He illustrated a case where a man waited a year for authorization for surgery. Under the specific Taft-Hartley Trust Fund, the person will receive treatment, then a determination will be made as to who actually compensates the fund for the treatment. He stressed it is a new concept and there are a few states who are working with the fund. It is a new program in California. Senator Townsend asked for a detailed presentation of the Taft- Hartley Act at a later date. Senator Neal stated the fund will have to be established under 401 of the tax code. He stated under ERISA workers' compensation has an exemption. He asked if it is possible for the Legislature to create a statute to allow the funds that are paid for compensation, to become trust funds under any agreement that is signed by an employer and labor unions. Senator Townsend recessed the meeting until 6:00 p.m. tonight. The meeting continued as planned at 6:00 p.m. in room 227. Due to the severity of the snow storm the meeting will be brief with a presentation by Pat Coward, Lobbyist, Nevada Association of Realtors, who discussed Exhibit Q. He requested real estate agents be removed from the requirement of having SIIS. He stressed coverage should be optional. He stated there is not an employee-employer relationship between broker and agent. They work on contract and the agent can move from agency to agency without obligation to the broker. Senator O'Connell asked how many agents are affected by this change. Mr. Coward suggested there are about 8,000 agents. Patsy Redmond, Executive Vice President, Nevada Association of Realtors, stated the agents pay $260 per year into SIIS. Mr. Coward stated there is a lot of paperwork involved in keeping track of where the agents are working. This monitoring of the agents requires continuous updating of information by SIIS. Senator O'Connell asked how many agents will leave SIIS if given the opportunity. Ms. Redmond stated she does not know, but there are plans to educate the agents so that they may better understand the advantages of remaining in the system. Senator Regan asked if all agents are independent agents. Ms. Redmond stated all agents pay their own premium and are considered independent of the broker. She stressed the agents do not work for a broker. She stated a broker owns a listing and when something is sold, the commission goes to the broker who, then, through contract, gives the money to the agent. Mr. Coward stated as of 2 years ago, there are 25 states who do not require the broker or broker-agent to have workman's compensation. Senator Townsend asked if this would set up a cottage industry of people selling insurance to brokers. Ms. Redmond stated one of the most common complaints is that most agents have insurance and feel the requirement to carry SIIS is redundant. Mr. Coward pointed out the employee-employer relationship with exclusive remedy is the issue. He stated the exclusive remedy probably does not exist and can be challenged. He stated since the agent is paying the premium, the agent is responsible for his or her own actions. Senator Regan commented the state licensing board should be responsible for notifying the agents of the changes, when they are made, regarding SIIS. Senator Townsend recessed the hearing on workers' compensation until 10:00 a.m. on March 23, 1995 in room 227. The hearing continued on March 23, 1995 at 10:00 a.m., with a presentation by Mr. McMullen and a detailed discussion of Exhibit G. He explained the proposal gives discretionary powers to the administrator for the application of fines. Mr. McMullen instructed the committee to add the words "not more than" and to eliminate the words "which is not intentional" in section (b) on page 2. Senator Townsend commented an audit found that in the past not enough fines had been imposed. He pointed out that $25 million in fines were never imposed. Senate Bill 7 on the Sixty-sixth Session made fining for a violation mandatory. SENATE BILL 7 OF THE SIXTY-SIXTH SESSION: Makes various changes relating to industrial insurance and other rights of employees. Ron Swirczek, Administrator, Department of Industrial Relations (DIR), discussed Exhibit G. He stated he is not opposed to the requests. He stressed he would like to study the proposal in more detail. Senator Neal questioned section (h) on page 1 of Exhibit G. He questioned if this is an "intent" standard. Mr. McMullen explained "intentionally" is in the current language. Senator Neal stressed it is, but in conjunction with "repeatedly." Mr. McMullen explained "repeatedly" is handled under subsection 2. Senator Neal questioned NRS 616.700 and asked to what that statute pertains. There was a discussion of the correctness of that number and Mr. McMullen said he will make certain the correct number is put into the language. Senator Townsend suggested to stiffen the penalties for section (e) on page 1. He related a case where the injured worker is entitled to a payment, everyone agrees to the payment, but the payment is not made because there is nothing in the law to require the employer to pay. Mr. Swirczek said he will be issuing an advisory statement as to what constitutes an unreasonable delay. If someone does not pay a claimant within the yet to be established, reasonable time frame, then a fine will be imposed. He stated the self-insured employers, if they receive two $1000 fines, must come before the Insurance Commissioner and are in danger of losing their self- insured status. Senator Townsend asked if there is enough in the language proposed to make the fine work. Mr. McMullen stated the first fine is $250, and the maximum is $1000 under section (h). Senator Townsend commented it is not enough. Mr. Swirczek said there have been $475,000 in fines issued to uninsured employers since February 1, 1993. The problem has been that the premium-paying employer has been subsidizing the non-premium-paying employer. The fines have caught people's attention and the same can happen with the non-compliance fines. Mr. McMullen stated the $250-$1,000 should be considered as an up to, but not more than, assessment. There needs to be flexibility in the fines' application. They should be assessed for each violation as needed. He agreed there are times when the fine might need to be higher. He suggested removing the $250 figure. Senator Townsend stressed the need to put "teeth" in the law to punish those who are not paying their share of the costs. Fines must be levied, premiums must be paid to keep it fair to those in the system. Senator Neal suggested if a person fails to comply with regulations adopted by the agency, the agency should notify the person that they are not in compliance, then, each day they do not comply should be treated as a separate violation. Mr. Swirczek stated that is a good suggestion. Senator Townsend suggested each day could be a separate violation as it is with the Environmental Protection Agency (EPA). Mr. McMullen commented he is not pleased with that suggestion, but does agree there needs to be "teeth" in the law. He suggested an escalating fee schedule might work. Senator Regan stated the magnitude of error is covered in subsection 2a of Exhibit G. He suggested if a person is flaunting the rules and thwarting the intent of workers' compensation, then a $250 fine is insufficient. A substantial fine of $10,000 is more appropriate. He stressed there is a difference between the minor, mathematical error, and the intentional withholding of payment. Mrs. Colling referred to the previous testimony relating to the removal of real estate agents from SIIS requirements. She asked what does the Legislature want as public policy for SIIS? Do they want a large group of individuals not covered by insurance? Do they want SIIS to function more like an insurance company? She stated the nature of the real estate business makes it very difficult to keep track of the collection of premiums. It is, also, a 24-hour business, where agents work odd hours. They need 24 hour coverage for which they pay $281 per year under SIIS. Senator O'Connell asked should insurance salesmen, beauticians, barbers and others who work under the same types of contracts be considered for the same changes? Ms. Colling stated in workers' compensation law, they look at the relationship between the employee and the person who is considered the employer. The change in the law is an exception for real estate agents only. She stated the premium is $281 annually for real estate agents. She commented she did not know how much it costs the agency for administration of the policies. Senator Shaffer suggested any commissioned sales person might want the same option. Mrs. Colling agreed. Senator Townsend asked if the change to collecting premiums yearly from the small policy holders with accounts of $24 per year will cause a change in the capitated rates to the managed care organizations. He asked whether SIIS has analyzed if some accounts are inappropriately funded and if some are being subsidized by other accounts. He asked if the commissioned people should purchase disability policies. Ms. Colling stated the suggestions will require a rate hearing and a rate evaluation process. She stated there is an off- balance in some of the accounts and some rates may need adjusting causing some to go up and some to come down. She pointed out the last rate filing was in 1992. Senator Townsend asked Ms. Colling if she will want to notify the real estate agents of the changes. She indicated the system will notify them of the options with their regular premium billings. Mr. Coward discussed Exhibit Q. He referred to page 3 of the exhibit. Senator Townsend asked if a licensee opts out and they have a prior claim in the system, does the responsibility stay with SIIS. Ms. Colling stated the claim stays with the agency and if a licensee is injured after opting out, then SIIS has no responsibility to the agent for that claim. It was indicated if the agents all opt out of the system, there is a loss of $1.96 million to SIIS in uncollected premiums. There is no estimate of the cost to SIIS for administrating the collection of premiums. Senator Regan asked for an estimate of the "tail" if the brokers and agents leave the system. Senator Townsend referred to the "deemed wage" as the method for calculating the premium and asked if this is to remain in the statutes or if there is a request to change it to "actual wage." He commented a licensee might want to opt out and buy disability insurance which will better reflect their actual earning power, but because they only pay $281 per year for 24- hour coverage, many may stay in the system. Mr. Coward pointed out the Realtors association has always supported workman's compensation as good coverage for their people. Their concern is that it is forced on them, when so many other states do not have the same requirement. He indicated there is a great deal of friction between the brokers and the agents as it is now set up, because the broker is required to "police" the agents to be certain their premiums are paid. He stressed they will educate their members to the advantages of having coverage. Ms. Colling pointed out that the broker loses their exclusive remedy if they leave. Mr. Coward commented exclusive remedy does not reside with the broker now, because the broker does not pay the premium. Ms. Colling disagreed. She stated: If someone were to fall or have an accident in the offices, it would become a negligence case. [That someone] being an agent. The clerical staff is still covered. The broker could not ask us whether they were covered because once they no longer are the employer it is none of their business. I just want all of that to be understood and I have explained that to the real estate association. Senator Townsend stressed the real estate association needs to make all of their members aware of the changes. Discussion was held on Proposal 104A of Exhibit C. John Taylor, Southern Nevada Association of Injured Workers, spoke about this issue. He stated he injured his eye in 1973, the case was reopened in 1982, and 1983 when he lost the eye. He was given an award of $5,500. He returned to work. In 1990 he injured his back, had an operation, went back to work and re- injured his back. In 1993 he was given a Permanent Total Disability Award. Now, SIIS wants him to repay SIIS $60,000. He commented SIIS wants to make money off the loss of his eye. He said the law, placed into statute in 1973, stated that if a Permanent Partial Disability (PPD) Claimant became a Permanent Total Disability (PTD) Claimant in a short space of time, that person would not be allowed double payments. Then, in 1983, it became a law that the payment would stop. He stated, previously, if a person had a separate injury it was not considered a double payment. He injured his back, received payments, then injured his back again. Instead of stopping one of the back injury payments, SIIS is trying to take the eye injury payment. He stated SIIS is applying NRS 616.613 against his eye, instead of against his back. He commented the application of this statute is being applied retroactively to an injury which occurred and was completed prior to the adoption of the statute. He reiterated that he worked for 17 years after his eye injury and now SIIS wants $60,000 for the loss of that eye. Mr. Hardy spoke about Mr. Taylor's concerns. He stated: Under the statutory scheme that we have, there is an offset. That offset is for the prior received residual disability... If a disability is 10 percent, when he begins receiving benefits relative to the reopening, those would be based upon 90 percent. What Mr. Taylor had happen to him, was that the 10 percent residual disability (and I am using numbers from the top of my head), is $5,000. Once that $5,000 has been recouped, there should be no further offset. But that is not how that is being applied, ...the offset that was being applied to his current eligibility for benefits went on beyond the amount that he was paid, and then he was paying more back into the system than he received. Additionally, once he becomes declared permanently and totally disabled as a result of a new incident in combination with the previous incident, the self- insured employer or the system, is offsetting on his new incident from the prior received PPD from the other claim. Two separate claims. Senator Townsend asked if in the Hayes decision the offset includes the cost of money. Mr. Hardy agreed. He related another case where the insurer informed the injured worker she would not receive a check for 2« years because they were taking their offset from a previously received PPD award. They were offsetting 100 percent of her current eligibility. Senator Townsend commented he does not understand the offset being applied to two separate and different injuries. Mr. Taylor stated: The Legislative intent for the last 20 years leading up to the latest one in 1983, and the Russo Case in 1991, [is that] there is not supposed to be an offset, but there is a driving force from SIIS, and maybe a few other people, to just get back in there and say that I will be collecting over 100 percent. That is their theory. Ms. Colling stated they look at the total body when they do a rating. If a person receives a PPD, it is assumed some of the earning power of that person will be lost due to the injury. She said, "You are compensated for that, and it is set up on a table of how old you are until you are 70 years old and what you are expected to earn during that time." She explained if there is another injury that either causes the original injury to become worse, or adds another disability, then those disabilities are added up. She stated there must be 50 percent on a total body basis to be considered for a TDD. She explained the offset: You have already paid him for a portion of his loss of his ability to work. Now he is getting the whole compensation for it [the injury] and a portion is deducted off of there. The issue in Hayes is, it says that after you have recouped what he has already been paid, that should discontinue. However, the actuaries have set it up...the offset goes on until he is 70 [years old]. The system is in favor that once you recoup the loss that you should return it to 100 percent of PTD. In terms of not having to pay the PPD back, that would be inequitable. Senator Neal asked what is the maximum body rating a person may receive. Mr. Taylor commented though they are not allowed to be more than 100 percent, it does happen. Ms. Colling stated most times a person is rated up to 100 percent, but there are times when it might exceed 100 percent. Nancyanne Leeder, Attorney, Nevada Attorney for Injured Workers, commented: The problem comes from the insurer feeling entitled to the percentage of offset beyond the point where the money was more than what was expended. Until recently, we never saw any cases like that, because the presumption was that even though the percentage had been taken, and the statute is worded in terms of percentage, that, nevertheless, the recoupment would end, once it had amounted to a full reimbursement. From 1993 we started to see these situations that appear to be horrendous. Senator Townsend instructed Ms. Colling to meet with Ms. Leeder to discuss the interpretations of the law. Ms. Colling stated, that in the past, SIIS had used the Hayes decision as a way to calculate the awards. Senator Townsend recessed the hearing until 8:00 a.m. on March 24. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor March 22, 1995 Page