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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Alaska National Insurance Company v. Northwest Cedar Structures, Inc. (03/09/2007) sp-6110

Alaska National Insurance Company v. Northwest Cedar Structures, Inc. (03/09/2007) sp-6110, 153 P3d 336

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


ALASKA NATIONAL INSURANCE )
COMPANY, ) Supreme Court No. S- 11747
)
Appellant, ) Superior Court No. 3AN-02-12171 CI
)
v. ) O P I N I O N
)
NORTHWEST CEDAR ) No. 6110 - March 9, 2007
STRUCTURES, INC., BOND NO. )
6875489 ISSUED BY UNITED )
PACIFIC INSURANCE COMPANY, )
TRAVELERS CASUALTY & )
SURETY COMPANY, STEVE E. )
PAVICH, and RODNEY R. )
ROBERTSON, )
)
Appellees. )
)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Mark Rindner, Judge.

          Appearances:  Diane F. Vallentine and Mark P.
          Melchert,   Jermain,   Dunnagan   &    Owens,
          Anchorage, for Appellant. Charles  G.  Evans,
          Law  Offices of Charles G. Evans,  Anchorage,
          for  Appellee  Travelers  Casualty  &  Surety
          Company.

          Before:    Bryner,  Chief Justice,  Matthews,
          Eastaugh,  and  Carpeneti, Justices.   [Fabe,
          Justice, not participating.]

          EASTAUGH, Justice.
          MATTHEWS, Justice, concurring.

I.   INTRODUCTION
          A construction contractor failed to pay premiums to its
workers  compensation insurer.  The insurer sued the  contractors
statutory surety bond, claiming the failure to pay was  a  breach
of contract in the conduct of the contracting business within the
meaning  of the contractors licensing statute, AS 08.18.  Because
the  breach was not of a contract for the sort of activities  the
licensing  statute  addresses, we hold that  the  insurer  cannot
recover against the bond and therefore affirm the judgment below.
II.  FACTS AND PROCEEDINGS
          The  parties  stipulated in the superior court  to  the
relevant  facts:   Alaska  National Insurance  Company  issued  a
workers   compensation  insurance  policy  to   Northwest   Cedar
Structures,  Inc., a construction contractor.   Premium  payments
for  this  insurance were initially estimated;  the  premium  was
adjustable during the policy period and at the end of the  policy
period  an audit determined the final premium due, based  on  the
number  of hours worked and the type of work performed by covered
employees.  Northwest Cedar failed to pay Alaska National  nearly
$80,000  in  premiums due.  Alaska National then  sued  Northwest
Cedar, its $10,000 contractors surety bond, and the insurer  that
issued  Northwest  Cedars surety bond (United  Pacific  Insurance
Company, now owned by Travelers Casualty & Surety Company).
          The  superior court held Northwest Cedar in  breach  of
contract  for  failing to pay the workers compensation  insurance
premiums  and  entered  judgment  for  Alaska  National   against
Northwest Cedar, but ruled on cross-motions for summary  judgment
that  Alaska  National  could not recover against  the  statutory
surety  bond  because the legislature did not intend  contractors
surety  bonds  to cover such general overhead expenses  as  rent,
telephone,   electric,   car  lease,  and  workers   compensation
insurance.   It  also reasoned that to be covered,  the  breached
contract  must be a contract in the contracting business  in  the
course of a construction project.
          Alaska  National appeals.  The only issue it raises  is
whether  it  can  recover against the statutory  surety  bond  in
partial satisfaction of its judgment against Northwest Cedar  for
breach  of  contract.  Appellee Travelers Casualty &  Surety  Co.
does not challenge the breach of contract ruling  and agrees that
the unpaid premiums exceed the amount of the $10,000 surety bond.
III. DISCUSSION
     A.   Standard of Review
          We review grants of summary judgment de novo.1  We also
review  legal  determinations de novo and apply  our  independent
judgment  to statutory interpretation, adopting the rule  of  law
most persuasive in light of precedent, reason, and policy.2
     B.   Breach  of  Contract in the Conduct of the  Contracting
          Business  in  AS  08.18.071(a)(3)  Means  Breach  of  a
          Contract  for  Activities of the Sort Described  in  AS
          08.18.171(4).
          
          Alaska  Statute 08.18.071 requires a general contractor
in  Alaska  to  have a $10,000 surety bond that covers  specified
          types of claims.3  Alaska Statute 08.18.081(a) provides that
anyone  having a claim against a contractor . . . for any of  the
items  referred to in AS 08.18.071 may bring suit upon the  bond.
Alaska  National argues that the superior court erred  in  ruling
that  Northwest Cedars surety bond did not cover Northwest Cedars
breach  of its contract to pay the workers compensation insurance
premiums.   It  contends that the court departed from  the  plain
meaning  of  AS 08.18.071(a)(3) and instead based its reading  of
the  statute on unsupported assumptions about the intent  of  the
legislature.
          The  parties  dispute  the  meaning  of  the  statutory
bonding   scheme.   Both  parties  invoke  plausible,   but   not
necessarily  equally  persuasive,  public  policy  arguments   to
support their readings of the statutory provisions.
          This  case  turns  on the relevant statutory  language.
There  is no contention here that the words of the bond  or  that
general principles of contract law provide greater protection  to
Alaska National than do the relevant words of the statute.4
          To  determine  whether Alaska National can  pursue  the
bond, we must determine whether the claim is for any of the items
referred  to  in  AS  08.18.071.5   Alaska  Statute  08.18.071(a)
specifies  the items the bond must cover.  Former AS 08.18.071(a)
required Northwest Cedars bond to cover these items:
          (1)   taxes  and contributions due the  state
          and political subdivisions;
          
          (2)  persons furnishing labor or material  or
          renting   or  supplying  equipment   to   the
          applicant; and
          
          (3)  amounts that may be adjudged against the
          applicant by reason of negligent or  improper
          work or breach of contract in the conduct  of
          the  contracting  business or  by  reason  of
          damage to public facilities occurring in  the
          course of a construction project.[6]
          
          Only  subsection .071(a)(3) arguably applies here.   Is
the  contractors  breach  of  its  promise  to  pay  the  workers
compensation premiums a breach of contract in the conduct of  the
contracting  business within the meaning of  AS  08.18.071(a)(3)?
To  interpret  a  statute  we  must consider  its  language,  its
purpose,  and  its  legislative history, in an  attempt  to  give
effect  to  the  legislatures intent, with  due  regard  for  the
meaning  the statutory language conveys to others.7  In order  to
interpret  a  statute contrary to its plain meaning, the  plainer
the  language,  the more convincing contrary legislative  history
must be. 8
          Alaska National argues that AS 08.18.071(a)(3) is clear
and  unambiguous.  It contends that the words breach of  contract
in the conduct of the contracting business are not limited to the
actual construction of improvements or performance of work  on  a
construction  project  pursuant to a construction  contract,  but
rather  extend to the broader realm of contracts entered into  in
connection  with  the  conduct  of  [a  contractors]  contracting
          business.  Thus, Alaska National seems to suggest that any
contracts that are in some way related to a contractors  business
must  be  covered  by the bond.  Travelers counters  that  Alaska
National  employs . . . a technical reading of the  statute  that
ignores  the  legislative  intent  and  leads  to  a  harsh   and
unrealistic  result.   Because we  think  it  clear  that  Alaska
Nationals  claim on the bond is outside the scope  of  subsection
.071(a)(3),   we   need   not  craft  a  comprehensive   standard
establishing the line between covered and uncovered  breaches  of
contract.   We consider here only whether Alaska Nationals  claim
for  unpaid workers compensation premiums is covered by Northwest
Cedars statutory bond.
          Subsections  .071(a)(1)(3) set  out  three  classes  of
expenses covered by the surety bond.  They include (1) taxes  and
contributions; (2) labor, material, or equipment; and (3) amounts
adjudged  against the contractor for tortious conduct, breach  of
contract, or damage to public facilities.
          As to this third class, subsection .071(a)(3) refers to
negligent  or improper work or breach of contract in the  conduct
of  the contracting business and to damage . . . occurring in the
course  of a construction project.  To cover, as Alaska  National
proposes,  the breach of the contract to pay workers compensation
premiums,  we  would  have to read in isolation  these  words  of
subsection .071(a)(3): breach of contract in the conduct  of  the
contracting business without considering their meaning  in  light
of  the  surrounding words.  We are reluctant to read the  quoted
words  in isolation because the subsections other words  seem  to
describe  this  class of claims in terms of the contracting  work
and provide interpretive context.
          But  even  focusing  narrowly on the  words  breach  of
contract  in  the  conduct of the contracting  business  provides
little  support  for  the reading Alaska National  advances.   To
avoid  rendering  in  the  conduct of  the  contracting  business
superfluous, we must read it as limiting the scope of  breach  of
contract.9   The  former  phrase  must  have  been  intended   to
distinguish between those contract breaches to be covered by  the
statutory  bond and those not covered.  Without this  distinction
the  bond  would cover all breaches of contract by a  contractor,
without regard to whether the contract has any connection to  the
contractors contracting business.  Subsection .071(a)(3) provides
some  clues about this intended distinction.  The phrase  in  the
conduct  of  the  contracting business contains two  such  clues.
First, the contracting business singles out contracting.  Because
the  entire  chapter applies to those engaged in the business  of
contracting,  contracting  in  subsection  .071(a)(3)  would   be
superfluous  unless it was intended to help limit  the  scope  of
coverage  to  a subset of all business activities of contractors.
Second,  in  the  conduct  of  the contracting  business  implies
activity (conduct) in the contracting business itself.
          The  words  of the subsection therefore provide  little
support for, or even disfavor, a reading that covers a breach  of
a  contract that is not central to the conduct of the contracting
business.
          A  larger  view  of AS 08.18 helps determine  what  the
          legislature intended, and militates against the interpretation
Alaska National proposes.
          Title  8 of the Alaska Statutes regulates a variety  of
businesses   and   professions.   Its  chapters   address   forty
professions, from accountants10 to veterinarians.11   Chapter  18
regulates  construction  contractors  and  home  inspectors.   It
requires  contractors  to  register and  prohibits  persons  from
bidding  or  working  as  contractors until  they  have  received
certificates   of  registration.12   It  forbids   a   contractor
registered  under  one  name from acting as  a  contractor  under
another unregistered name,13 requires a contractors advertisements
and  contracts to include the registration number,14 requires  an
applicant for a certificate of registration to file a surety bond
satisfying statutory specifications,15 and, as seen above, permits
persons  having claims against a contractor for any of the  items
referred to in AS 08.18.071 to bring suit on the bond.16  Chapter
18  requires  proof of insurance, including workers  compensation
insurance   to   the  extent  required  by  the  Alaska   Workers
Compensation   Act.17   It  also  provides  for   enforcing   the
requirements,18 for citations,19 for suspension and revocation of
registration,20 for civil penalties,21 and for criminal penalties
and prosecution.22
          The  legislature, in adopting these requirements,  must
have  concluded  that  the  contracting  business  required  this
regulation.   Absent a definitive expression of  purpose  in  the
statute or the legislative history, the best explanation for  the
scope  of  regulation can be derived from the statutory  list  of
activities  that bring a person within the bonding and  licensure
requirements  of  Chapter  18.   That  list  is   found   in   AS
08.18.171(4), which defines a contractor:
          contractor means a person who, in the pursuit
          of  an  independent business,  undertakes  or
          offers  to  perform, or claims  to  have  the
          capacity to perform, or submits a bid  for  a
          project to construct, alter, repair, move, or
          demolish a building, highway, road, railroad,
          or  any  type  of fixed structure,  including
          excavation and site development and  erection
          of scaffolding; contractor includes a general
          contractor,  builder, mechanical  contractor,
          specialty contractor, and subcontractor.
          
This  definition  thus  describes  two  core  activities  of  the
profession: actually doing work of the sort described, and  doing
specified  things (undertaking, offering, holding  out  as  able,
bidding)  directed at forming contracts to do  that  work.   Both
activities  relate  directly to either performing  contracted-for
work  or  obtaining  contracts to perform work.   Neither  aspect
implicates the sort of routine business activities common to many
other  businesses.   We  assume that  the  legislature  chose  to
regulate  contractors because it was concerned  about  the  risks
resulting from the activities identified in subsection .171(4).
          Reading  the  definition  of contractor  together  with
former  AS 08.18.071(a)(3) suggests that the legislature intended
          to limit statutory contract breach claims, and thus claims
against  the  bonds, to breaches of contracts that  are  directly
related  to  the  sorts  of  listed activities  that  caused  the
legislature  to  conclude  that  regulation  was  necessary.  The
definition   of  contractor  helps  distinguish  the   sorts   of
activities bonds were intended to cover from the sorts common  to
other, less-regulated businesses.  Supporting this distinction is
the  definitions  equal  interest in  formation  of  construction
contracts;   this  suggests  that  the  contracts  discussed   in
subsection .071(a)(3) are also the contracts that are the subject
of  subsection .171(4).  Applying this distinction, a contractors
breach of contract to pay workers compensation premiums should be
excluded  from coverage, as the contract is not directly  related
to the conduct of the work of the contractor.
          Alaska  National argues that the language of the  final
clause  of  subsection  .071(a)(3), damage to  public  facilities
occurring  in the course of a construction project, distinguishes
it from the language found in the prior clause, in the conduct of
the  contracting  business.   Alaska National  reasons  that  the
legislature,  if it had intended the coverage of  the  breach  of
contract  provision to be narrow, would have  used  the  language
found in the final clause.
          But,  as  we  saw  from  the  statutory  definition  of
contractor, the chapter addresses both the conduct of  performing
a contract and the conduct of obtaining, or attempting to obtain,
a contract.23  The legislature, in drafting subsection .071(a)(3),
could  have  logically distinguished between physical  damage  to
public  facilities  occurring during a project  (even  a  project
between  private  parties  and not for  public  works)  and  non-
physical harm suffered by a party to a construction contract.
          In  any  event,  this  argument at most  suggests  that
occurring in the course of a construction project may be narrower
than  in  the conduct of the contracting business.  It  does  not
suggest   that  in  the  conduct  of  the  contracting   business
encompasses  performance or formation of contracts that  are  not
construction contracts.
          Our  interpretation  of subsection .071(a)(3)  is  thus
consistent  with  the  seeming purpose of  the  registration  and
bonding requirements.24  The legislature presumably imposed these
requirements  because it was concerned about the risks  resulting
from  the  sorts of work contractors agree to do, and from  their
efforts to obtain contracts to do that work.25
          Alaska  National offers its own interpretation  of  the
purpose  of  the contractors registration statute  to  support  a
broad  reading of AS 08.18.071(a)(3).  As it points out, we  have
previously  stated  that  [r]egistration  was  intended  by   the
legislature to ensure competence and financial responsibility  in
those who undertake work as contractors. 26  But even though  the
surety  bond is intended to help ensure financial responsibility,
it  does  not  follow  that  the legislature  intended  that  the
statutory bond back every financial dealing of a contractor.
          Alaska  National  also  looks  to  AS  08.18.081(a)  to
support  its interpretation of subsection .071(a)(3).  Subsection
.081(a)  specifies priorities for five classes of claims  against
          surety bonds.27  The fourth class is claims for breach of
contract.28  But subsection .081(a) simply sets claim priorities;
it  does not purport to define, or redefine, the types of  claims
listed  in  subsection .071(a).  And, as it  happens,  its  words
offer no help in interpreting the words of subsection .071(a)(3).
          Alaska National also argues that the priorities set  in
subsection .081(a) effectively preclude insurance companies  from
exhausting these surety bonds.  But the first question is whether
breach  of a contract for insurance is covered at all.  Moreover,
all  breach of contract claims have equal priority, so paying  an
insurer  limits the bonds ability to cover other contract claims,
including  those  of  project  owners  harmed  by  breach  of   a
construction contract.  Finally, subsection .081(a) specifies  no
priority for negligent or improper work.
          Alaska   National  asserts  that  legislative   history
supports a broad reading of AS 08.18.071.  The 1968 Report of the
Judiciary  Committee  on House Committee Substitute  for  SB  161
indeed states that the bond was intended to guarantee payment for
any breach of contract and any damage done to public facilities.29
(Emphasis added.)  Although the report literally states that  any
breach  of contract is covered, the accuracy of a literal reading
of  the  report is undermined by the fact the report also  states
that  the  bond  unqualifiedly covers any damage done  to  public
facilities.   The  statute is clear that damage  done  to  public
facilities is not covered unless the damage occurs in the  course
of   a  construction  project.30   There  is  no  indication  the
legislature  wanted  to protect everyone who  might  incidentally
contract  with  contractors for purposes not  directly  connected
with the type of work described in AS 08.18.171(4).  We therefore
regard  the  report as generally summarizing the subject  of  the
bill,  not as attempting to specify its exact scope. We therefore
give  the  report  no  weight in interpreting  the  text  of  the
statute.
          It is logical to conclude that the legislature intended
subsection  .071(a)(3) to limit breach of contract bond  coverage
to construction contracts.  If the subsection were construed more
broadly,  the  bond  would  be  easily  exhausted,  leaving  some
creditors   unprotected.31   Per  AS  08.18.071(b),   a   general
contractor  must  have  a $10,000 surety  bond  and  a  specialty
contractor  must  have  a $5,000 surety  bond.   Such  bonds  are
relatively modest given the amounts potentially at stake if there
are  claims of negligent or defective work or breach of  contract
to  perform  work; such bonds would be reduced, if not exhausted,
if  they  must also broadly cover all business-related contracts.
The  surety bond is not a project-specific performance  bond;  it
must cover all claims pending at one time, and the surety is  not
liable in an aggregate amount exceeding the bond.32
          We  conclude that the words breach of contract  in  the
conduct  of  a  contracting business in AS  08.18.071(a)(3)  were
intended  to protect contracting parties for whom the  danger  of
breach  is  central  to  the activity of contracting   especially
parties whose ability or incentive to investigate contractors  is
limited.   Alaska National contends that because Northwest  Cedar
was  qualified for coverage through the assigned risk pool,  also
          called the Alaska Plan, Alaska National did not have the option
of  refusing to cover Northwest Cedar.33  But insurers  generally
have  an opportunity to manage and spread risk of non-payment  of
premiums; their ability to avoid or spread the risk and  cost  of
contract  defaults exceeds that of most individuals who  contract
with contractors.  That workers compensation premiums are paid by
many  employers  and  that  insurance  companies  are  for-profit
organizations  capable of minimizing the risk of premium  default
helps confirm that the surety bond was not intended to cover such
transactions.
          Alaska  National points out that a contracting business
must   have   workers  compensation  insurance   to   carry   out
construction   projects.    It  argues   that   because   workers
compensation   insurance  is  essential  to   the   business   of
contracting, the failure to pay premiums for such insurance is  a
breach  of  contract occurring in the conduct of the  contracting
business.34    Most  employers  must  have  workers  compensation
insurance,  subject to statutory exceptions.35   But  many  other
services  are  also  important  or  essential  to  conducting   a
contracting  business,  or indeed, any  business,  and  some  are
mandated  by  statute.  That does not mean a contract  for  those
other services is covered by subsection .071(a)(3).
          It is fair to conclude that the legislature singled out
contractors for bonding and registration requirements because  it
thought   the  activities  described  in  AS  08.18.171(4)   pose
significant risks.  Given that purpose, we are not persuaded that
the  legislature  required contractors to have  surety  bonds  in
order  to  cover the sort of routine contract breaches common  to
most  businesses.  A contract for workers compensation  insurance
is  not  unique  to  the  contracting  business.   It  is  little
different  than a contract for other overhead expenses common  to
many  businesses  in  Alaska.  As the  superior  court  correctly
concluded, the surety bond requirement was not intended to  cover
such  general  expenses as rent, telephone, electric,  car  lease
that are not subject to the unique risks and uncertainties of the
contracting  business.   Many other  businesses  must  also  have
workers   compensation  insurance.   In   addition   to   workers
compensation  insurance, contractors likewise must have  casualty
insurance,  telephone service, and vehicles, but  that  does  not
mean that their need to obtain those services and products caused
the legislature to regulate them and require bonds.
          Alaska  National asserts that limiting the bonds breach
of  contract  coverage to breach of construction contracts  would
render the breach of contract provision largely superfluous.  But
it  concedes that such a narrow reading would nonetheless require
the bond to cover the contractors complete failure to perform the
work  or  its failure to pay subcontractors.  Even if these  were
the  only  two  contract breaches covered by  the  statute,  they
demonstrate that the provision is not superfluous.
          Finally, Alaska National contends that the availability
of  a  registration bond to guarantee a contractors agreement  to
pay  premiums  has  the  effect  of  keeping  costs  for  workers
compensation  insurance  lower.  It suggests  that  these  policy
concerns  are  even  more  acute  here  because  Northwest  Cedar
          obtained its workers compensation policy through the assigned
risk  pool, also known as the Alaska Plan.  The Alaska Plan is  a
state-created plan that provides workers compensation coverage to
employers who cannot otherwise obtain a policy.36  Because losses
under  the plan must be distributed throughout the assigned  risk
pool,  Alaska  Nationals inability to recover from the  Northwest
Cedars   bond  will  theoretically  increase  premiums  for   all
employers  under  the Plan.37  Alaska National  argues  that  the
result  will be increased premiums for those employers in  Alaska
that  cannot  otherwise  obtain  workers  compensation  insurance
coverage,  a  result  contrary  to  the  Legislatures  goals  [in
creating the Alaska Plan].
          Our  focus  here  is  on determining  the  legislatures
purpose  when  it  enacted the Title 8 bonding  and  registration
requirements  in  1968;38 the legislatures goals  in  authorizing
assigned risk pools under Title 21 almost a decade later39 are not
relevant to this inquiry.  Furthermore, even assuming the  effect
on  Alaska  Plan  premiums  would not  be  trivial,  we  are  not
convinced  that the policy goals of the Alaska Plan or any  other
part  of  the  workers  compensation  system  should  trump   any
competing  policy goals furthered by reading the bonding  statute
requirement  as  we  do  here.  Any policy  concerns  potentially
relevant  to the workers compensation system do not outweigh  the
need to avoid exhausting modest statutory surety bonds on general
overhead  expenses.40   Finally,  consideration  of  such  policy
concerns is inappropriate when, as here, the meaning of a statute
is reasonably clear.41
IV.  CONCLUSION
          For  these reasons, the judgment of the superior  court
is AFFIRMED.
MATTHEWS, Justice, concurring.
                               A.
          The question in this case is whether the language of AS
08.18.071(a)(3),  breach  of  contract  in  the  conduct  of  the
contracting  business,  refers to any breach  of  contract  by  a
contractor  relating  to  its  contracting  business   or,   more
narrowly, only to breaches directly related to the performance of
a  building contract.1  I think this is a close question  because
the  statutory  language could reasonably be  read  to  encompass
either  definition.   If  we  were to adopt  the  first  meaning,
contracts for a wide variety of overhead items  office equipment,
rent,  insurance  would be covered by a contractors bond.   Under
the narrow definition, only contract breaches directly related to
a  specific project, such as a failure to complete a building  on
time,  would be covered.  I slightly favor the narrow  definition
for one of the reasons relied on by todays opinion.
          Like  other  businesses, contractors must make  a  wide
variety  of  contracts.  But only contractors can  undertake  and
perform  building  contracts.  Since  other  businesses  are  not
required  to  post  bonds, it seems likely that  the  legislature
meant contractors bonds to cover only those activities unique  to
contractors.  This is the point made by the opinion of the  court
on  pages 8 through 10 and it seems sufficient to tip the  scales
in favor of the narrow definition.
                               B.
          The  superior court relied heavily on Balboa  Insurance
Co. v. Senco Alaska Inc.2 in concluding that workers compensation
insurance  premiums  are not covered by a  statutory  contractors
bond.   I  think  that it is worth noting that  Balboa  has  been
overruled  by  a  statutory  change and  therefore  has  doubtful
precedential effect.
          The  Balboa  court  held that  the  seller  of  an  air
compressor  to a contractor had no claim on the contractors  bond
where the compressor was not incorporated into or used up on  any
particular   project.3    This   seems   surprising   since    AS
08.18.071(a)(2) then, as now, covered persons supplying equipment
to  a  contractor.   But  the court read subsection  (5)  of  the
exemptions  section of the statute, AS 08.18.161, to exclude  the
transaction.4  That section provided that [t]his chapter does not
apply to . . . (5) the sale or installation of finished products,
materials,  or  articles of merchandise which  are  not  actually
fabricated into and do not become a permanent, fixed  part  of  a
structure.  The Balboa court read this provision as referring to,
and  thus disqualifying from bond coverage, sales of construction
equipment to a contractor.5
          But   this  extremely  narrow  reading  is  no   longer
possible.   In 2003 the legislature amended the lead-in  language
of  section .161 so that it now begins with the phrase  [t]o  the
extent  that this chapter governs contractors, this chapter  does
not  apply  to.6   This amendment indicates that  subsection  (5)
refers  to  sales  by a potential contractor  rather  than  to  a
contractor.   Under  the amendment a seller is  not  required  to
register  as a contractor based on sales described in  subsection
(5).   But sales to a contractor are not excluded by section .161
          from bond coverage.
          Judged at least by the 2003 amendment, the Balboa court
construed  the registration statute too narrowly.  This  mistaken
reading  potentially taints the inferences that  the  court  drew
concerning  the  intended  coverage  of  the  bonding  provision.
Therefore,  in my view, Balboa should no longer be considered  to
have precedential value either as to its direct holding or as  to
its dicta concerning the intended scope of bond coverage.
          For  the  reason expressed in Part A of this concurring
opinion, I agree to affirm the decision of the superior court.
_______________________________
     1    In re Life Ins. Co. of Alaska, 76 P.3d 366, 368 (Alaska
2003).

     2    Id.

     3    Although the legislature has amended AS 08.18.071 twice
since the breach at issue here, see ch. 134,  1415, SLA 2003  and
ch.  106,   3, SLA 2004, the amendments do not affect  the  issue
presented  in  this case.  We therefore generally  refer  to  the
current  version of the statute.  We refer to the former  version
as needed.

     4     When  a  surety bond is given to satisfy  a  statutory
obligation,  the  relevant statutory provisions are  incorporated
into the bond.      See 11 Lee R. Russ & Thomas F. Segalla, Couch
on  Insurance  163:39 (3d ed. 2005) (noting that [a]lthough there
is  some  authority to the contrary the general rule is  to  read
statutory  requirements into bond coverage). In  this  case,  the
surety bonds coverage language incorporates, almost verbatim, the
language of AS 08.18.071(a).  The outcome here therefore turns on
the meaning of the statute.

     5    AS 08.18.081(a).

     6     Former  AS  08.18.071 (2002).  AS 08.18.071(a)(3)  now
reads,  amounts  that may be adjudged against  the  applicant  by
reason of negligent or improper work or breach of contract in the
conduct  of the contracting business or home inspection activity,
as  applicable,  or  by  reason of damage  to  public  facilities
occurring  in  the  course of a construction project.   (Emphasis
added.)  The underlined words were added in 2003.  Ch. 134,   14,
SLA 2003.

     7     In  re  Estate of Maldonado, 117 P.3d 720, 725 (Alaska
2005)  (quoting  Alyeska Pipeline Serv. Co. v. DeShong,  77  P.3d
1227, 1234 (Alaska 2003) (internal quotation marks omitted).

     8     Alderman  v. Iditarod Props., Inc., 32 P.3d  373,  393
(Alaska  2001)  (quoting State v. Alex, 646 P.2d 203,  20809  n.4
(Alaska 1982)).

     9    See Kodiak Island Borough v. Exxon Corp., 991 P.2d 757,
761  (Alaska  1999) (We must . . . presume that  the  legislature
intended every word, sentence, or provision of a statute to  have
some  purpose, force, and effect, and that no words or provisions
are  superfluous.  (quoting Rydwell v. Anchorage Sch. Dist.,  864
P.2d 526, 530-31 (Alaska 1993))).

     10    AS 08.04.005.690.

     11    AS 08.98.010.250.

     12    AS 08.18.011(a).

     13    AS 08.18.051(a).

     14    AS 08.18.051(b).

     15    AS 08.18.071(a).

     16    AS 08.18.081(a).

     17    AS 08.18.101.

     18    AS 08.18.116.

     19    AS 08.18.117.

     20    AS 08.18.121.

     21    AS 08.18.131.

     22    AS 08.18.141.

     23    AS 08.18.171(4).

     24     See  Jones v. Short, 696 P.2d 665, 667 (Alaska  1985)
([P]roper  interpretation of the registration provisions  is  one
which carries out the legislative intent.).

     25     See,  e.g., Asdourian v. Araj, 696 P.2d 95, 98  (Cal.
1985) (The general purpose of the [contractor license] law is  to
guard   the   public  against  the  consequences  of  incompetent
workmanship, imposition and deception.) (internal quotation marks
omitted)).

     26    Gross v. Bayshore Land Co., 710 P.2d 1007, 1012 (Alaska
1985)  (quoting Sumner Dev. Corp. v. Shivers, 517 P.2d  757,  763
(Alaska 1974)).

     27    AS 08.18.081(a)(1)(5).

     28    AS 08.18.081(a)(4).

     29     See  Balboa Ins. Co. v. Senco Alaska, Inc., 567  P.2d
295, 296 (Alaska 1977) (quoting Report of the Judiciary Committee
on HCS for Senate Bill No. 161, 1968 House Journal at 545).

     30     AS 09.18.071(a)(3) covers damage to public facilities
occurring in the course of a construction project.

     31     Although Balboa Insurance Co. v. Senco Alaska,  Inc.,
567 P.2d 295, 297 (Alaska 1977), expressed a similar observation,
that  case  is  not  directly  controlling  because  the  statute
interpreted in Balboa has since been amended.

     32    AS 08.18.081(a).

     33      See   3  Alaska  Administrative  Code  (AAC)  30.030
(requiring all insurers to participate in assigned risk pool  and
provide coverage to eligible employers otherwise unable to secure
workers compensation insurance).

     34    AS 08.18.071(a)(3).  Alaska National contended at oral
argument  that workers compensation certainly is in a  very  real
sense  consumed in the course of a construction project and hence
should be treated much like labor or materials that are consumed.
It  is  unclear  if Alaska National means this literally,  or  is
simply  arguing  by analogy.  In either case, we agree  with  the
majority of modern courts that workers compensation insurance  is
not  like  labor or materials.  See United States ex  rel.  Cobb-
Strecker-Dunphy & Zimmerman, Inc. v. M.A. Mortenson Co., 894 F.2d
311,  313 (8th Cir. 1990) (discussing cases construing the Miller
Act).

     35    AS 23.30.045, .230.

     36    See 3 AAC 30.010 et seq.

     37    See 3 AAC 30.030(f)(5).

     38    Ch. 100,  2, SLA 1968.

     39     See  ch.  252,   1,  SLA 1976 (allowing  director  of
insurance  to  require insurers to participate in  assigned  risk
pool);  3  AAC  30.010 et seq. (effective 1977) (creating  Alaska
Plan).

     40    This conclusion makes it unnecessary to speculate about
whether  shifting  the  risk  of workers  compensation  insurance
premium  defaults to surety bond issuers would increase the  cost
of the statutory bonds for all contractors.

     41    Alaska National also argues in reliance on Washingtons
interpretation of its registration statute.  Washingtons  statute
predated Alaskas, but it has been amended several times after our
legislature enacted AS 08.18 in 1968, and our legislature did not
have  the benefit of Washington appellate decisions issued  after
1968.   We do not find Washington law helpful in interpreting  AS
08.18.071 in this case.

1     I  use  the  term building contract here as  shorthand  for
contracts   to   undertake  projects  listed  in  the   statutory
definition of the word contractor in AS 08.18.171(4).  The listed
projects  may only be undertaken by a registered contractor.   AS
08.18.171(4) provides:
               [C]ontractor means a person who, in  the
          pursuit    of   an   independent    business,
          undertakes or offers to perform, or claims to
          have  the  capacity to perform, or submits  a
          bid   for  a  project  to  construct,  alter,
          repair,   move,  or  demolish   a   building,
          highway, road, railroad, or any type of fixed
          structure,  including  excavation  and   site
          development   and  erection  of  scaffolding;
          contractor  includes  a  general  contractor,
          builder,   mechanical  contractor,  specialty
          contractor, and subcontractor[.]
          
     2     567  P.2d  295  (Alaska  1977).   The  superior  court
referred  to  Balboa  as the most relevant case  to  the  present
question.

     3    Id. at 296-97.

     4    Id. at 297.

     5    Id.

     6    AS 08.18.161(5) currently provides:
               To  the extent that this chapter governs
          contractors, this chapter does not apply to
               . . .
               (5) the sale or installation of finished
          products,    materials,   or   articles    of
          merchandise that are not actually  fabricated
          into  and  do  not become a permanent,  fixed
          part of a structure[.]
(2003 amendments are underlined.)

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