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State of Alaska, Department of Commerce, Community & Economic Development, Division of Insurance v. Alyeska Pipeline Service Company

January 21, 2011

STATE OF ALASKA, DEPARTMENT OF COMMERCE, COMMUNITY & ECONOMIC DEVELOPMENT, DIVISION OF INSURANCE, APPELLANT/CROSS-APPELLEE,
v.
ALYESKA PIPELINE SERVICE COMPANY, APPELLEE/CROSS-APPELLANT.



Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Peter A. Michalski, Judge. Superior Court No. 3AN-07-11593 CI

The opinion of the court was delivered by: Winfree, Justice.

OPINION

No. 6534

Before: Carpeneti, Chief Justice, Fabe, Winfree, Christen, and Stowers, Justices.

I. INTRODUCTION

Alyeska Pipeline Service Company (Alyeska) contracted with the Liberty Mutual Group (Liberty Mutual) to write an owner-controlled insurance program (OCIP). The State of Alaska, Department of Commerce, Community and Economic Development, Division of Insurance (Division), issued a cease and desist order stating that Alyeska's OCIP was prohibited by statute. An administrative law judge determined that "the Liberty Mutual program does not fit within the definition of an 'owner controlled insurance program' that the statute supplies." The Division's deputy director, acting as the final agency decision-maker, reversed the administrative law judge's decision. On appeal the superior court reversed the deputy director's decision. Because the superior court correctly ascertained the statute's limits, we affirm the superior court's decision.

II. FACTS AND PROCEEDINGS

A. Facts

1. Alyeska's Non-Construction OCIP

Alyeska transports crude oil through the Trans-Alaska Pipeline System. Alyeska contracted with Liberty Mutual to write an OCIP to "include[] workers compensation and general liability coverages" for Alyeska and several contractors,*fn1 effective for three years beginning January 2002. Alyeska renewed the program for another three years effective January 2005.

Six contractors enrolled in Alyeska's program. These contractors provided a variety of services for Alyeska, including warehousing, mineral mining, security, medical and emergency response, catering, oil spill prevention, and surveying. It is undisputed that the contractors' work is properly characterized as maintenance and support -- not construction. For this reason, we refer to Alyeska's OCIP as a "non- construction OCIP."

2. Alaska Statute 21.36.065

In 2005 the legislature enacted AS 21.36.065 which, in subsection (a), states that "[a]n owner controlled insurance program or a contractor controlled insurance program . . . shall be allowed only for a major construction project."*fn2 The statute defines "owner controlled insurance program" in relevant part as "an insurance program where one or more insurance policies are procured on behalf of a project owner,"*fn3 and in turn defines "project owner" as "a person who, in the course of the person's business, engages the service of a contractor for the purpose of working on a construction project."*fn4 The statute became effective on June 25, 2005.*fn5

The legislative history of AS 21.36.065 is undisputed. In March 2005 the House Labor and Commerce Committee met to discuss House Bill 147, a bill generally relating to insurance regulation.*fn6 Mike Combs, a representative of Alaska Independent Agents and Brokers, Inc., suggested that the Committee adopt his trade group's proposed amendment "to clarify its position regarding [OCIPs]."*fn7 According to the Committee Minutes, Combs testified that "there are several problems with using [the OCIP] insurance method for maintenance and repair programs" and that "[t]he [proposed] amendment would limit [OCIPs] to construction projects in excess of $50 million only and not include any repair ...


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