Legislature(1993 - 1994)
03/26/1993 01:00 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 160: LIABILITY OF DESIGN/CONSTRUCTION PROS Number 026 REPRESENTATIVE GAIL PHILLIPS read a sponsor statement on behalf of Rep. Green, who was absent. She said that HB 160 would amend the time period within which a person could bring legal action against design and construction professionals. She mentioned that the time period was called the "statute of repose," which she said was similar to the statute of limitations and had been adopted in 45 other states. REPRESENTATIVE PHILLIPS commented that the fifth Alaska Legislature had enacted a statute of repose with a six-year limitation. However, she stated that in 1988, the Alaska Supreme Court found that the statute was unconstitutional. She said that HB 160 addressed the court's concerns by expanding the list of those involved in the design and construction process. She said that the sponsor, Rep. Green, believed that without a time limit for filing legal actions, design professionals and others in the construction trade were subject to an indefinite and unfair period of liability. REPRESENTATIVE PHILLIPS noted that after substantial completion of a project, the integrity of a structure could be adversely affected by poor maintenance, improper operation or alteration -- factors for which a designer or builder should not be held responsible. She commented that HB 160 provided for a ten-year statute of repose. She added that the bill did not grant designers and builders immunity, at any time, from injury or damage as the result of gross negligence. She cited a 1988 national study which found that 96.8% of all claims addressed by the bill were filed within ten years of a project's completion. REPRESENTATIVE PHILLIPS stated that under HB 160's provisions, within ten years after a project's completion, even the most frivolous claim could still be filed. After ten years, however, plaintiffs would have to establish gross negligence in order to have a case, she said. She indicated the sponsor's opinion that suits filed more than ten years after a project's completion cost architects, engineers, and contractors unreasonable time, energy, productivity, and financial resources. Number 086 CHAIRMAN BRIAN PORTER mentioned that HB 160 had been heard by the House Labor and Commerce Committee, where it received five "do pass" votes. Number 097 RUSS WINNER, an ANCHORAGE ATTORNEY, testified on behalf of the ALASKA TRIAL LAWYERS ASSOCIATION. He cited his background as a law professor, and said that he was now in private practice. He called the members' attention to a position paper which he had written on behalf of the Alaska Action Trust. (A copy of Mr. Winner's position paper may be found in the House Judiciary Committee Room, Capitol Room 120, and after the adjournment of the second session of the 18th Alaska State Legislature, in the Legislative Reference Library.) MR. WINNER said that HB 160 suffered from the same infirmities as the law which had been struck down by the Alaska Supreme Court. He predicted that, if enacted, HB 160 would be deemed unconstitutional as well. He called the bill bad public policy which did not serve its intended purposes. He stated that in 1967, the Alaska Legislature had enacted a six-year statute of repose for design professionals. He noted that the law had provided no protection for owners or "material men," or suppliers of construction products. That law, he said, was repeatedly attacked in court. MR. WINNER noted that trial courts uniformly found the statute to violate equal protection provisions in the Constitution. He commented that none of these cases ever reached the Supreme Court. He stated that in 1988, the Alaska Supreme Court decided a case known as Turner v. Scales, and found the statute of repose to be unconstitutional. He said that the court found that the rights of injured plaintiffs to bring lawsuits should not be lightly discarded by the legislature. He noted that the court ruled that the purpose of the 1967 statute of repose was to encourage construction in Alaska. MR. WINNER said that the court found the law did not serve its purpose well. He stated that one reason the court found the law did not serve its intended purpose was that it did not cover owners, lessees, contractors, or material men. Instead, he noted, it only protected design professionals. The court found the law to be special interest legislation. He said that the court was also troubled by the fact that the law would have the effect of transferring liability from the design professionals to those who were not protected under the statute of repose, resulting in disincentives to construction. MR. WINNER noted that tort laws had changed since 1988, and said that proponents of HB 160 felt that those changes would cause the Supreme Court to have a different interpretation of the statute of repose now. He expressed his disagreement with the proponents of HB 160 on that point. He mentioned that in 1986, the legislature had enacted tort reform. One year later, he added, voters enacted pure several liability, in which a plaintiff could only recover a defendant's percentage of fault. MR. WINNER stated that the proponents of HB 160 were asking the legislature to reenact essentially the same statute which was earlier struck down by the Supreme Court. He mentioned that HB 160 contained some changes from the earlier law. The statute of repose was increased from six years to ten years, he noted, and contractors were added to the group of protected individuals. Owners, lessees, and material men continued to be excluded from the protected class, he said. MR. WINNER commented that he found the bill's statement of purpose confusing and weak. He expressed his opinion that HB 160's purpose was to encourage construction activities in the state, by reducing lawsuits and insurance premiums. He cited a letter to Senator Kelly from the Alaska Professional Design Council which mentioned that particular purpose. He believed HB 160 had substantial problems, given that intent. MR. WINNER mentioned the voter initiative of 1987, regarding tort reform, which became effective in 1989. He said that the courts had construed that initiative to mean that a plaintiff could choose to not sue all of the responsible parties. Further, the courts had held that a defendant could bring in a third-party defendant. At that point, he said, fault would be allocated among all the parties involved in the litigation. If an original defendant did not bring in a third-party defendant, he added, that third- party defendant's fault could not be allocated in court. MR. WINNER stated that if the courts did not allow for defendants to bring in third-party defendants, then plaintiffs could choose whichever person had a "deep pocket." The purpose of tort reform, to eliminate "deep pockets" and adopt several liability, dictated that result, he noted. MR. WINNER cited an example of what might happen if HB 160 was to pass. He discussed the roof of a building collapsing eleven years after a building was completed, resulting in people being injured or killed. A plaintiff could only sue the building's owner, lessee, or material men, not the architects or engineers. He said that the unprotected professionals would not be able to bring in the design professionals as third-party defendants, because of the provisions of HB 160. Therefore, he said, HB 160 would force the unprotected individuals to bear all of the liability. MR. WINNER expressed his opinion that the problem the court found in Turner v. Scales still existed. He predicted that if enacted, HB 160 would be struck down again by the Supreme Court. He called the bill a disincentive to construction. He stated that under current law, owners, lessees, and material men could share liability with design professionals, if those design professionals were partly at fault. House Bill 160 would prevent that, however. Number 520 MR. WINNER reiterated his assumption that HB 160 was intended to encourage construction. He expressed his opinion that, for the same reasons that the Supreme Court would find the bill unconstitutional, the committee should conclude that the bill would not encourage construction. House Bill 160 would be a help to design professionals only, he said. He asked if it was sound public policy to deprive innocent victims of their day in court, in order to allow architects and engineers to sleep better at night. He called the bill "special interest legislation." MR. WINNER mentioned that one of the rationales for HB 160 was to avoid "frivolous" lawsuits filed more than ten years after a building was completed. He commented that Justice Moore of the Supreme Court had recently appointed a committee of judges and lawyers charged with overhauling the Alaska civil court system, based on an Arizona model. He said that such changes would force frivolous cases out of the court system at a very early stage of the process. He noted that if the purpose of HB 160 was to eliminate frivolous lawsuits against design professionals, the House Judiciary Committee should closely examine the work of Justice Moore's committee. Number 571 REPRESENTATIVE CLIFF DAVIDSON asked how many other states could have statutes of repose on the books, while Alaska's statute of repose was struck down as unconstitutional. Number 582 MR. WINNER had not examined statutes of repose in other states. However, he guessed that the other states' statutes of repose were not terribly different from that which was being proposed in HB 160. The difference, he said, lay in the make-up of the Supreme Court in Alaska. He said that Alaska's Supreme Court was very protective of the rights of plaintiffs. Number 595 REPRESENTATIVE DAVIDSON asked Mr. Winner to comment on claims that HB 160 would provide equal access to the courts, and would limit insurance rates. MR. WINNER had a hard time understanding how HB 160 would aid in providing access to the courts, as in his opinion, the point of the bill was to bar access to the courts. REPRESENTATIVE DAVIDSON noted that proponents claimed that HB 160 would provide equal access to the courts. MR. WINNER believed that proponents had made that claim as a way of expressing their hope that the Supreme Court would not find the law unconstitutional with regard to equal protection provisions. He believed that the court would find HB 160 unconstitutional. He mentioned that the Legislative Affairs Agency's Division of Legal Services agreed with his assessment. Number 618 REPRESENTATIVE DAVIDSON asked Mr. Winner to address the claim of limited insurance rates. Number 620 MR. WINNER said that he had read a letter in the bill packets from an insurance agency which stated, in essence, that insurance rates would likely not drop immediately if HB 160 was enacted. Yet, he said, paraphrasing the letter, as time progressed, design professionals' insurance rates might increase if the bill did not pass, due to exposure to lawsuits. In response, he commented that Alaska was too small of a market for insurance companies to have special rates for Alaska. MR. WINNER asserted that Alaska's experience would not have an impact on insurance rates. What would impact rates, in his opinion, was the lost experiences of an entire region of states, including Alaska. Also, he said, insurance rates were determined largely as a result of the investment performance of insurance companies. MR. WINNER discussed the question of whether insurance rates would go up if HB 160 was not enacted. He stated that not many suits would be filed by people injured as a result of a building collapsing more than ten years after the building was completed. He expressed doubts about insurance rates increasing in the event that HB 160 was not enacted. Number 676 REPRESENTATIVE JIM NORDLUND expressed his concerns regarding HB 160. He said that if the intent of the bill was to discourage frivolous lawsuits, then he supported it. However, he noted his concerns for victims who were injured or killed due to poor building design. He called the members' attention to page 3 of the bill, which set out exemptions to the bill's provisions. On page 3, line 17, he said, the bill mentioned situations in which damage was caused intentionally, fraudulently, etc. He asked Mr. Winner to discuss the difference between "gross negligence" and "simple negligence." REPRESENTATIVE NORDLUND expressed his desire that victims be allowed to file suit if a design professional acted negligently. Number 701 MR. WINNER said that in his experience as a plaintiff's attorney, gross negligence was a very high standard to prove. He noted the current version of HB 160 said that if a design professional was grossly negligent, then he or she could be sued after the ten year period. He commented that there was a big difference between gross negligence and simple negligence. Number 719 REPRESENTATIVE NORDLUND asked if the definitions varied on a case-by-case basis, as determined by individual judges. Number 722 MR. WINNER responded that the definition was a pretty firm standard, although it was generally up to a jury to decide whether a person had been grossly negligent. Number 729 REPRESENTATIVE PHILLIPS asked Mr. Winner if Alaska attorneys had a statute of repose. Number 732 MR. WINNER replied that no statute of repose applied to suits against lawyers. Number 734 CHAIRMAN PORTER asked Mr. Winner if, during the approximately 20 years that the old statute of repose was in place, there were any instances of buildings collapsing after the period of repose had ended. Number 743 MR. WINNER was not aware of any such cases. He reiterated his belief that it would be an unusual case which would fall within the purview of HB 160. He thought it was true that most design defect cases would be brought within ten years of a building's completion. Number 749 REPRESENTATIVE JEANNETTE JAMES understood and agreed with much of Mr. Winner's testimony. She said that the public felt frustrated with regard to tort reform and the need for equal protection. She asked if there could be an incidence of design professionals being sued for a building collapse, although they were not at fault. If in that case the plaintiff's attorney was very astute and the defendant's attorney was not, she asked if it was possible that the design professional would lose the case, although he or she was not at fault. Number 767 MR. WINNER said that the situation which Representative James had described could occur, although it would be uncommon. However, he noted that a judge and jury would also be involved in that case. He expressed his opinion that juries were, as a rule, very skeptical of plaintiffs' claims. REPRESENTATIVE JAMES stated that Mr. Winner had made her point by mentioning the involvement of the judge and jury, and by mentioning the attitude of juries. Number 786 REPRESENTATIVE DAVIDSON asked Mr. Winner why he felt HB 160 needed a fiscal note, in light of his statement that very few cases would be affected by HB 160. Number 793 MR. WINNER replied that, in looking through the materials submitted to the committee on HB 160, he had seen no fiscal notes. He stated that both the Department of Law (DOL) and the court system had indicated that the bill would have no fiscal impact. He expressed his opinion that the bill would result in increased costs to the state. MR. WINNER commented that the agencies had made the point that they contracted with design professionals, when a building was being constructed for the state. Those contracts, the agencies held, entitled the state to sue those design professionals. Those contractual rights, they said, overrode what was in statute. In response, he said that those arguments did not apply to a situation in which a school collapsed, in its eleventh year, due to a design flaw, killing school children. In that situation, he asked, who would pay? If the design professionals could not be sued, he said, the taxpayers would have to pay. TAPE 93-42, SIDE B Number 000 RICHARD RITTER, representing the ALASKA CHAPTER OF THE AMERICAN INSTITUTE OF ARCHITECTS and the ALASKA PROFESSIONAL DESIGN COUNCIL, testified that he was one of the prime sponsors of the joint and several liability initiative in 1987. He said that that law ensured a person was only responsible for his or her share of the fault. He expressed surprise at the court's subsequent interpretation of the law's language. MR. RITTER noted that 32 states had found statutes of repose for design professionals to be constitutional. He added that 96.8% of claims against design professionals were brought within ten years of a building's completion, according to studies. Most claims filed after ten years were easily defended by architects, he said. He said that HB 160 was an attempt to balance the rights of plaintiffs to bring claims against the rights of others to keep their business affairs in order. MR. RITTER commented that if a roof collapsed ten years after a building was completed, it could be for any number of reasons -- maintenance, excessive loads, or a structural engineering error. He said that if he had a structural engineer working for him, and that engineer made an error which resulted in the collapse of a roof, he would call that gross negligence. Number 075 MR. RITTER expressed concern that design professionals had to pay for defense costs, even if they were innocent, out of their own pockets. Additionally, he said, design professionals' insurance only kicked in after huge deductibles were paid. He mentioned that bills similar to HB 160 had been introduced many times in the past, and had never had fiscal notes attached. Number 085 REPRESENTATIVE DAVIDSON asked Mr. Ritter how he, as an architect, protected himself against poor or inadequate building maintenance. Number 095 MR. RITTER replied that to a certain extent, architects could design buildings in such a manner as to minimize maintenance. However, he said that such design features hinged on budget considerations. Number 114 REPRESENTATIVE DAVIDSON asked Mr. Ritter to clarify his remarks. Number 123 MR. RITTER gave an example in which an architect recommended that a client use a roofing system with an expected 20-year life, and the client said that he or she could not afford such a roof. In that case, he said, the architect could recommend a cheaper roof, with an expected life of ten years, which would still meet the building code. Number 131 REPRESENTATIVE DAVIDSON asked Mr. Ritter if, as a design professional who was found innocent of any fault, his attorneys' fees would be paid by the plaintiff. Number 138 MR. RITTER did not know the answer to Representative Davidson's question, as no claims had ever been brought against his practice. Number 143 REPRESENTATIVE DAVIDSON asked Mr. Ritter why, if he had never had a claim brought against him, he felt that HB 160 was needed. Number 145 MR. RITTER stated that when he retired, he did not want to be followed around for the rest of his life by claims that buildings he had designed 30 years earlier had had design flaws. Number 149 REPRESENTATIVE NORDLUND offered an example in which a building had not been constructed according to the building code, and its roof collapsed eleven years after it was completed. "Would that be considered an act of gross negligence on the part of the contractor?" he asked. Number 159 MR. RITTER responded that he was not qualified to provide Representative Nordlund with a legal definition of "gross negligence." He said that in his practice, he subcontracted with a structural engineer to design roofs. If a structural engineer erred in designing a roof, he said, it would, in his opinion, be classified as gross negligence. Number 184 REPRESENTATIVE PHILLIPS OFFERED AMENDMENT NO. 1, reducing the term of the statute of repose from ten years to eight years. She said that the sponsor concurred with her amendment. She mentioned that 96.8% of claims were brought within ten years of a building's completion and 95.5% of claims were brought within eight years of a building's completion. Number 207 REPRESENTATIVE DAVIDSON OBJECTED. Number 209 REPRESENTATIVE NORDLUND also OBJECTED. He noted that design professionals were involved in a unique occupation. He said that the legislature was trying to decide at what point designers should be relieved of the liability of their designs. He expressed his opinion that ten years was adequate, and said that reducing the term to eight years increased the exposure for victims and decreased their ability to collect damages. He urged the committee to vote against the amendment. Number 236 REPRESENTATIVE PHILLIPS commented that her amendment represented only a minuscule change in the number of claims which would be affected by HB 160. She said that her amendment would have a substantial impact on the economy and on the construction industry. Number 245 REPRESENTATIVE DAVIDSON said that, for him, the issue came down to choosing between protecting the public and pretending that it did not matter. He stated that while the state wanted to encourage construction and ensure that Alaska was not a bad place in which to do business, he did not support the amendment. Number 262 REPRESENTATIVE JAMES commented that with a ten-year statute of repose, the committee could "sell" the bill, whereas with an eight-year term, the bill would not "sell." Number 270 REPRESENTATIVE PHILLIPS WITHDREW the AMENDMENT. Number 272 REPRESENTATIVE NORDLUND OFFERED AMENDMENT NO. 2. He mentioned an argument which had been set out in some written materials included in the bill packets, which said that, if HB 160 was enacted, a victim could still sue a building owner in the event that the owner did not adequately maintain a building, resulting in its collapse. He added that in that instance, designers would be absolved of responsibility and the owner held accountable for the damage. He stated that his amendment would allow for an owner to "reasonably know" that there was a problem with a building and either report the problem to design professionals or fix the problem. REPRESENTATIVE NORDLUND added that the amendment provided that a defect would have to be discovered, or could reasonably be discovered, within ten years after a building's completion. Number 306 CHAIRMAN PORTER understood the intent of the amendment to be to relieve owners of responsibility for what otherwise would have been determined to be design defects, but not improper maintenance. Number 322 REPRESENTATIVE NORDLUND said that it was the intent of his amendment that if an owner could see that there was a crack in the beam of a building and did not report that, then the owner would be responsible and the design professionals would be absolved. He MOVED the AMENDMENT. Number 327 REPRESENTATIVE PHILLIPS OBJECTED. Number 331 MR. RITTER commented that Representative Nordlund's amendment seemed to remove the statute of repose. Number 349 REPRESENTATIVE PHILLIPS shared Mr. Ritter's opinion. For that reason, she said, she opposed the amendment. Number 354 REPRESENTATIVE DAVIDSON asked Representative Phillips how the amendment would negate the statute of repose. Number 358 CHAIRMAN PORTER asked Mr. Winner to address the effect of the amendment. Number 360 MR. WINNER said that if an owner or a lessee knew of a problem, or should have known about a problem after the ten- year period, then the amendment would protect the design professionals from lawsuits. If, however, the owner, or the lessee, or the victim, knew about or should have known about the problem with the building, then the design professionals would be covered by the statute of repose and could not be sued after ten years. He added that if a defect were of a type that no one could discern it during the first ten years, then a suit could be brought against the designers. CHAIRMAN PORTER recommended that committee members vote against the amendment, as it would negate the effect of HB 160. Number 402 REPRESENTATIVE NORDLUND commented that the amendment would not negate the effect of HB 160 in every situation. CHAIRMAN PORTER stated that the amendment would be the issue that would cause the litigation to occur, as opposed to not occurring. He called for a roll call vote. Representatives Nordlund and Davidson voted "YEA." Representatives Phillips, Kott, Green, James, and Porter voted "NAY." And so, AMENDMENT NO. 2 FAILED. Number 419 REPRESENTATIVE NORDLUND MOVED AMENDMENT NO. 3. Number 422 REPRESENTATIVE PHILLIPS OBJECTED. Number 424 REPRESENTATIVE NORDLUND indicated that the amendment provided that the ten-year statute of repose would not apply to design professionals in cases of negligence. Number 434 CHAIRMAN PORTER spoke against the amendment. He mentioned that the difference between simple negligence and gross negligence varied on a case-by-case basis. In general terms, he said, the amendment grossly reduced the level of negligence involved. In some cases, he said, simple negligence was found as the result of a simple, honest, mistake. Number 449 REPRESENTATIVE NORDLUND expressed concern for victims and their ability to collect damages. Victims should be allowed to bring suit for mistakes made by design professionals, whether as a result of gross or simple negligence. Number 459 REPRESENTATIVE PETE KOTT called the members' attention to page 2, line 20 of HB 160, which also addressed gross negligence. He asked if that language would also need to be amended, in order to comport with Representative Nordlund's amendment. Number 468 REPRESENTATIVE NORDLUND replied that the language to which Representative Kott had referred was part of the "findings" section, and would not become a permanent part of the law. A roll call vote was taken on amendment no. 3. Representatives Davidson and Nordlund voted "YEA." Representatives Kott, Phillips, James, and Porter voted "NAY." And so, AMENDMENT NO. 3 FAILED. REPRESENTATIVE KOTT made a MOTION to MOVE HB 160 out of committee with individual recommendations and a zero fiscal note. Number 484 REPRESENTATIVE DAVIDSON OBJECTED. He said that it appeared that the legislature was giving designers a license to design for ten years and no more. "Who better than architects and engineers knew where a building's weaknesses were?" he asked. He spoke against HB 160. He asked why the legislature wanted to create more victims and encourage professionals to do less than the very finest work. He cited Mr. Ritter's testimony about never having faced a claim in fifteen years. He said that he would vote against moving the bill out of committee. Number 518 CHAIRMAN PORTER indicated that he intended to support HB 160. In his opinion, the bill leveled the playing field for design professionals. If, he said, insurance rates were regionalized, it was not fair that Alaska's design professionals were not protected, while their counterparts in other states were. Regarding the question of who would pay if HB 160 were enacted, he submitted that the bill did not cover owners for very obvious reasons, as owners were required to maintain insurance on their property. REPRESENTATIVE DAVIDSON OBJECTED to the motion. CHAIRMAN PORTER called for a roll call vote. Representatives Kott, Phillips, James, and Porter voted "YEA." Representatives Nordlund and Davidson voted "NAY." And so, HB 160 was PASSED out of committee. CHAIRMAN PORTER announced that the committee would next address SB 54.
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