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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State, Depart. of Commerce, Community & Economic Development v. Alyeska Pipeline Service Co. (6/10/2011) sp-6567

State, Depart. of Commerce, Community & Economic Development v. Alyeska Pipeline Service Co. (6/10/2011) sp-6567, 262 P3d 593

        Notice: This opinion  is subject to correction before publication in  the PACIFIC REPORTER. 
        Readers are requested to bring errors to the attention ofthe Clerk ofthe Appellate  Courts, 
        303 K Street, Anchorage,  Alaska  99501, phone (907) 264-0608,fax (907) 264-0878,  email 
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STATE OF ALASKA, DEPARTMENT                       ) 
OF COMMERCE, COMMUNITY &                         ) 
ECONOMIC DEVELOPMENT,                            ) 
DIVISION OF INSURANCE,                           ) 
                                                  )   Supreme Court Nos.  S-13499/S-13520 
               Appellant/Cross-Appellee,          ) 
                                                  )   Superior Court No. 3AN-07-11593  CI 
        v.                                        ) 
                                                  )   OPINION 
ALYESKA PIPELINE  SERVICE                         ) 
COMPANY,                                          )   No.  6567 - June  10, 2011 
               Appellee/Cross-Appellant.          ) 

               Appeal from the Superior Court of the State of Alaska, Third 
               Judicial District, Anchorage, Peter A. Michalski, Judge. 

               Appearances:      Signe P. Andersen,  Chief Assistant Attorney 
               General,    Anchorage,     and   Daniel    S.  Sullivan,   Attorney 
               General, Juneau, for Appellant/Cross-Appellee.          Kenneth P. 
               Eggers and Sarah A. Badten, Groh Eggers, LLC, Anchorage, 
               for Appellee/Cross-Appellant. 

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

               WINFREE, Justice. 

----------------------- Page 4-----------------------


               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 lawjudge 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 ascertaLl1ed the statute's limits, we affirm the superior court's 



        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, I 

               Contractors typically acquire insurance to protect themselves  and others 
who might be injured while working on a project.       Jacqueline P. Sirany & James Duffy 
O'Connor, Controlled Construction Insurance Programs:           Putting a Ribbon on  Wrap­ 
ups,  22  CONSTRUCTION  LAW.       30,  30  (2002).  An  OCIP  "centralizes  the    insurance 
program  for  all  of the  construction entities" and  is  "managed by  one  for the use  and 
benefit of all." Id.  As the administrative lawjudge explained, the purpose of Alyeska's 
OCIP  "is to  save contractor insurance costs that would otherwise be billed or passed 
through  to  Alyeska.    By  purchasing    coverage   collectively,  Alyeska   achieves   cost 

                                             -2-                                        6567 

----------------------- Page 5-----------------------

 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.,,2  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,,,3 and in tum 

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.,,4 The statute became effective on June 25,2005.5 

              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 

       2      AS 21.36.065(a); ch.  1, § 23,  SLA 2005. 

       3      AS 21.36.065(c)(4). 

       4      AS 21.36.065(c)(5). 

       5      Ch.  1, SLA 2005. 

                                            -3-                                        6567 

----------------------- Page 6-----------------------

 relating to insurance regulation.6      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].,,7           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 or maintenance operations."s  Representative Tom Anderson, 

 Committee Chair, stated the Committee would consult with the Division's director and 

 consider Combs's proposa1.9 

                When the House Labor and Commerce Committee met again, Chairperson 

Anderson      introduced    a  committee      substitl.!te for  House    Bill   147   containing    the 

amendment       language    Combs     proposed. to      After   explaining    that  the  Division    "is 

ultimately the bill's sponsor" he asked the Division's director to "give ... a closing with 

this amendment, what it does and the change to the bill  ...."11            The Division's director 

testified with respect to OCIPs: 

                There have been times when that ability  [to have an OCIP] 
                has  been  attempted to  expand  into  other than  construction 

        6       Committee Minutes,  House Labor &             Commerce  Committee hearing  on 
House Bill (HE)  147 (Mar.  18,2005). 

        7       Id. (testimony of Combs). 

        s       Id. 

        9       Id. (statement of Chairperson Anderson). 

        to      See Transcript of House Labor &  Commerce Committee Meeting, at  1-2, 
(Mar. 30, 2005) (statement of Chairperson Anderson). 

        11     Id.  at 4. 

                                                 -4-                                             6567 

----------------------- Page 7-----------------------

                  projects,  for example, maintenance projects, ongoing things 
                 that in our mind OCIPs were never intended to  do,  and our 
                  concern with the ability to do that for things other than large, 
                  one-time construction projects  is that  it takes  one premium 
                  out of an already fragile marketplaceY2] 
 The Committee approved the committee substitute. 13 

                 The     Division's     director    also    testified   before     the   House     Finance 

 Committee. 14      The  director  stated  that  OCIPs  "are  designed  for  major  construction 

 projects" and that the proposed amendment "is a prohibition against expanding them into 

 other types of things than large construction projects."15              The amendment was adopted 

 and the bill was moved out of committee. 16 

                 The Division's director made additional statements about OCIPs before two 

 Senate committees.  The director expressed concern to the Senate Labor and Commerce 

 Committee about OCIPs expanding into non-construction projects.                         Similarly at the 

 Senate Finance Committee meeting the  director testified that OCIPs were  appropriate 

 only  for  large  construction projects  and not  for non-construction projects. 18               Senator 

         12      Id. at 7-8 (testimony of Division Director Linda Hall). 

         13      Committee Minutes, House Labor & Commerce Committee hearing on HB 
 147 (Mar. 30, 2005). 

                 Transcript of House Finance Committee Meeting, at 1, 10 (Apr.  15,2005). 

         IS      Id. at  11-12 (testimony of Division Director Hall). 

                Id.  at  12. 

         17      Committee Minutes, Senate Labor & Commerce Committee, at 7 (Apr.  12, 
2005) (testimony of Division Director Hall). 

                 Committee Minutes,  Senate Finance Committee, at 26-27, (May  1,2005) 

                                                    -5-                                               6567 

----------------------- Page 8-----------------------

 Lyda Green, the Committee co-chairperson, understood the director's testimony to mean 

 that an OCIP" 'should not morph'  into an ongoing insurance program.,,19 

                 The legislative history includes neither committee reports nor statements 

 by non-committee-member legislators indicating the full legislature's intent in passing 

 the final bill. 

         B.      Proceedings 

                 In November 2006 the Division issued Liberty Mutual a cease and desist 

 order  listing  seven  compliance  issues.         Count  One  stated that  Alyeska's  OCIP  was 

prohibited under Alaska  law because  "[i]n its present  form,  the  OCIP  is  designed to 

 cover  on-going  maintenance  and  is  not  restricted  to  a  large  construction  project  in 

violation of AS 21.36.065."           Liberty Mutual requested an administrative hearing.                The 

administrative lawjudge  granted Alyeska' s request to intervene.20 

                 Alyeska filed a motion for partial summary adjudication arguing that (1) by 

its express language AS 21.36.065 applies only to construction OCIPs and therefore does 

not apply to its non-construction OCIP, and (2) even if AS 21.36.065 did govern non­ 
construction OCIPs, Alyeska's OCIP falls within a statutory exception. 

                 The administrative lawjudge granted Alyeska's motion, determining "the 

Liberty  Mutual  program  does  not  fit  within  the           definition  of an     'owner  controlled 

insurance program' that the statute supplies."  Based on the statute's plain language, the 

         18      (...continued) 
(testimony of Division Director Hall). 

                 Id. at 27 (statement of Co-Chairperson Green). 

        20       The Division and Liberty Mutual  subsequently entered into a stipulation 
settling all compliance issues except those relating to Count One. 

                See AS 21.36.065(b)(2). 

                                                    -6-                                               6567 

----------------------- Page 9-----------------------

 administrative lawjudge concluded AS 21.36.065 "addresses only construction OCIPs," 

 and therefore does not govern Alyeska's non-construction OCIP. The administrative law 

judge   was  not  persuaded  that  the  statute's  legislative  history  compelled  a  different 

 conclusion.  According to the administrative lawjudge, the legislation proposed by the 

 trade  group  "was misdrafted.    While the  surrounding documentation makes perfectly 

 clear the  group's  intent to  'prohibit[] the use  of OCIP[s]  ... outside the  construction 

 industry,'  the group's   private   attorney  wrote   language   that  instead  defined   non­ 

 construction OCIPs out of the scope of the legislation, leaving them unregulated." 

               After the  Division  and Alyeska  filed  proposals  for  agency  action,22 the 

Division's deputy director, acting as the final agency decision-maker, issued a decision 

and final order in October 2007.     Determining that the statute is ambiguous and that the 

legislative  history  supported the  Division's  position,  the  deputy  director  found  that 

Alyeska's OCIP is governed by and in violation of AS 21.36.065.            The deputy director 

reversed  the  administrative  law judge's     decision  with  respect  to  AS  21.36.065   and 

affirmed Count One of the cease and desist order. 

               Alyeska then appealed to the superior court, which determined the deputy 

director's  decision was  "contrary to the plain  language of the  statute."     The  superior 

court reasoned that notwithstanding the legislative history, AS 21.36.065 restricts only 

construction OCIPs.     It stated that: 

               It [is] one thing to use legislative history to correct a drafting 
               error  when   that error  is obvious   or  the  error  imposes   a 
               restriction  on the persons  subject to the  legislation that was 
               never intended by the  legislature.    It is another to  expand a 
               restriction  to  persons  plainly  excluded  by  language  of the 

       22     See AS 44.64.060(e) (outlining procedure for filing proposal for action with 
agency after administrative lawjudge  issues decision). 

                                              -7-                                         6567 

----------------------- Page 10-----------------------

                  statute.   In  these  instances,  the  remedy  must  lie  with  the 
                  legislature, not the court. 

  The  superior  court  also  rejected  Alyeska's  argument that  its  OCIP  falls  within  two 

  exceptions under AS 21.36.065(b). 

                  The   Division    appeals   regarding    the  application    of  AS    21.36.065(a). 

 Alyeska cross-appeals regarding the application of an exception under AS 21.36.065(b). 


                 When     a  superior  court    acts  as  an  intermediate    appellate   court   in  an 
 administrative  matter,  we  review  the  merits  of the  agency's  decision.             The proper 

 interpretation of a statute presents a question of law that we review de novo, "adopting 

 the rule of law most persuasive in light of precedent, reason, and policy."24 


                 The Division claims the superior court erred because AS 21.36.065 applies 

 to  non-construction  OCIPs.        The  Division  makes  three  arguments  in  support  of its 

 position.    First,  the  Division  contends  the  court  failed  to  interpret AS  21.36.065  in 

 conjunction with AS  21.36.190(t).25          Second, the  Division  claims the  court failed to 

 interpret AS 21.36.065 in a manner consistent with the legislature's intent, as evidenced 

         23      Premera Blue Cross v. State, Dep't of Commerce, Cmty. & Econ. Dev., Div. 
 of Ins.,  171 P.3d  1110, 1115 (Alaska 2007) (citing Alaska  Trademark Shellfish, LLC v. 
 State,  91  P.3d 953, 956 (Alaska 2004)). 

         24      L.D. G., Inc. v. Brown, 211 P.3d 1110, 1118(Alaska 2009) (citing Alaskans 
for  Efficient Gov't, Inc.  v.  Knowles,  91  P.3d 273,275 (Alaska 2004)). 

         25      AS 21.36.190(t) states:      "Except as provided in AS 21.36.065, an insurer, 
 whether authorized or unauthorized, may not underwrite an owner controlled insurance 
 program     or  contractor   controlled    insurance    program.      In  this  subsection,   'owner 
 controlled insurance program'  and 'contractor controlled insurance program' have the 
 meanings given in AS 21.36.065." 

                                                  -8-                                             6567 

----------------------- Page 11-----------------------

 by the statute's legislative history.      Third, the Division argues the court's interpretation 
 does not comply with the maxim expressio unius est exclusio alterius.26 

                 In interpreting a statute we "look to the plain meaning of the  statute, the 

 legislative purpose,  and the intent of the statute.,,27        We have declined to mechanically 

 apply the plain meaning rule when interpreting statutes, adopting instead a sliding scale 

 approach:     "The plainer the statutory language is, the more convincing the evidence of 

 contrary legislative purpose or intent must be.,,28         We apply this sliding scale approach 
 even if a statute is facially unambiguous.            Canons of interpretation can also provide 
 useful aids in our efforts to interpret a statute.30 

                 Based    on   its plain   language,     AS   21.36.065      does   not   govern    non- 

 construction OCIPs such as .Alyeska's.          When the statutory definitions provided in AS 

 21.36.065(c)     are  substituted  for  the  relevant  terms     in  AS   21.36.065(a),  the     statute 


         26      Expressio  unius  is  a doctrine  of statutory construction,  instructing  "that 
when  the     legislature  expressly  enumerates  included  terms,          all  others  are  impliedly 
 excluded."    Vanvelzor v.    Vanvelzor, 219 P.3d  184, 188 (Alaska 2009) (citing Ranney v. 
 Whitewater Eng'g,       122 P.3d 214,218-19 (Alaska 2005)). 

         27     Premera Blue  Cross,  171 P.3d at  1115 (citing  W.  Star  Trucks, Inc.  v.  Big 
Iron Equip.  Serv., Inc.,     101 P.3d  1047, 1050 (Alaska 2004)). 

        28       Gov't Emp. lns. Co. v.  Graham-Gonzalez, 107P.3d279,284 (Alaska 2005) 
(quoting Muller v. BP Exploration  (Alaska) Inc.,  923 P.2d 783, 787-88 (Alaska 1996)). 

        29      See Curranv. Progressive Nw. Ins.  Co., 29P.3d 829,831-32 (Alaska200 1) 
(citing Progressive Ins.      Co.  v.  Simmons,  953  P.2d  510,516 (Alaska  1998)).            But see 
Benavides v.  State,    151 P.3d 332, 335 (Alaska 2006) (quoting Tesoro Petroleum  Corp. 
v. State, 42 P.3d 531,537 (Alaska 2002)) ("If a statute is ambiguous 'we apply a sliding 
scale of interpretation  ....'  ") (emphasis added). 

        30      See McKee  v.  Evans, 490 P.2d  1226,1230 n.18 (Alaska  1971). 

                                                  -9-                                              6567 

----------------------- Page 12-----------------------

                 An insurance program [where one or more insurance policies 
                 are procured on behalf of 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          .   .   . for  the 
                 purpose of insuring that person]  ... shall be allowed only for 
                 a major construction project. 

                 Through its incorporation of specifically defined terms, the statute simply 

 was   not   drafted   to  govern    non-construction      OCIPS?1       The   Division    argues   that 

 extra-textual sources or canons of interpretation reveal a legislative intent requiring us to 

 disregard the statute's plain language.  Alyeska argues that the Division seeks to reform 

 the  statute,  not   interpret   it.  We    agree   with   Alyeska.      Taking    into  account    AS 

 21.36.190(f) and expressio unius, AS 21.36.065 remains unsusceptible to the Division's 
 interpretation.     On the record before us,  including the  limited  legislative committee 

history, we must conclude that the statute was either (1) intended by the full legislature 

        31       Cj Anderson      v. Alyeska   Pipeline     Servo  Co.,  234  P.3d     1282,      1287-88 
(Alaska 2010) (interpreting "project owner" under AS 23.30.045 and emphasizing we 
"look first to see if the word or phrase to be construed has a specific definition") (citing 
Ranney,    122 P.3d at 218). 

        32      We note that AS 21.36.190(f) states" 'owner controlled insurance program' 
 ... ha[s] the meaning[] given in AS 21.36.065."  Because AS 21.36.190(f) incorporates 
the  meaning  given  in AS  21.36.065  generally,  and  therefore  incorporates  all  of the 
definitions in subsections .065(c)( 1)-(6) and not merely subsections .065(c)(2) and (4), 
we reject the Division's argument that "[t]he definition of OCIP  ... do[es] not include 
any reference  to     'construction.'''     Nor  does  expressio  unius  support the  Division's 
position; that maxim "expresses the concept that when people say one thing they do not 
mean something else."  2A NORMAN J. SINGER & J.D. SHAMBlE SINGER, STATUTES AND 
STATUTORY CONSTRUCTION §47:25 (7th ed. 2007).  For the reasons stated, the language 
expressly adopted by the legislature does not support the Division's interpretation. 

                                                 -10-                                             6567 

----------------------- Page 13-----------------------

 to govern only construction OCIPs,33 or (2) misdrafted through reliance on the industry 

 trade group's proposal.       Even if the latter, we will not invade the legislature's province 
 by extending the plain language of AS 21.36.065 to govern non-construction OCIPs. 
 The Division's remedy lies with the legislature, not this court. 

 v. 	    CONCLUSION 
                  We AFFIRM the superior court's decision. 

         33      See State v.  Campbell, 536 P.2d 105, 111 (Alaska 1975),overruledon other 
grounds by Kimoktoak v.  State, 584 P.2d 25, 31  (Alaska  1978) ("At some point, it must 
 be assumed that the legislature means what it says."). 

         34      See Alaskans for a Common Language, Inc. v. Kritz, 170 P.3d 183, 192 
 (Alaska 2007) (quoting Campbell,  536 P.2d at  111) (noting that  separation of powers 
 " 'prohibits  this  court  from  enacting  legislation  or  redrafting  defective statutes'  "); 
 Gottschalk v.    State,   575  P.2d  289,  296  (Alaska 1978) (declining  to save  overbroad 
 statute "because in doing so we would be  stepping over the  line of interpretation and 
engaging in legislation"); see also 73 AM. JUR. 2D Statutes  §  121 (2010) ("Generally, 
courts will not undertake correction of legislative mistakes in statutes notwithstanding 
the fact that the court may be convinced by extraneous circumstances that the legislature 
intended to  enact  something very  different  from  that  which  it did  enact.")  (citations 

         35      See Interior  Cabaret, Hotel,  Rest.  & Retailers Ass 'n v.  Fairbanks N              Star 
Borough,  135 P.3d  1000, 1006 (Alaska 2006) (observing legislature mistakenly deleted 
statutory language, realized error, and enacted new language to correct it). 

                 In light of our decision we decline to address Alyeska's cross-appeal. 

                                                   -11-	                                              6567 
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