Legislature(1995 - 1996)
05/03/1995 01:43 PM Senate 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 158 CIVIL LIABILITY SENATOR TAYLOR announced he would take testimony on the six court rule changes, requested by Senator Adams. He first took teleconference testimony. Number 521 DICK CATTENAUGH testified via teleconference from Anchorage. He stated HB 158 is supported by many organizations statewide. He discussed ways in which the current law hurts small businesses. Punitive damages are not covered by insurance policies, and can potentially destroy a firm and the individual owners of a firm. This can cause small firms to settle rather than fight a case, to minimize costs. In a case his firm was involved in, members did not want to put their personal net worths in jeopardy to prove they did no wrong. Number 565 DANIELLA LOPER, staff to Representative Porter, sponsor of HB 158, provided the highlights of HB 158. HB 158 creates a more equitable distribution of the cost and risk of injury and will reduce costs associated with the civil justice system in that it will eliminate duplicate recoveries for injured plaintiffs. It will establish thresholds for damage awards in order to allow predictability of liability exposure. It will also stabilize the rapidly escalating costs of health care associated with civil liability. It will require one-half of punitive damages awarded by a court be deposited to the general fund since punitive damages were never established to compensate the injured plaintiff, but rather to punish the wrongdoer. The Municipality of Anchorage supports HB 158. MS. LOPER gave the following sectional analysis. Section 2 deals with the statute of repose which prevents a lawsuit from being filed after eight years. Most states offer a statute of repose between four and six years. Exclusions to the statute of repose are as follows: product liability; hazardous substances; defective products; intentional acts of gross negligence; fraud or fraudulent misrepresentation; intentionally concealed acts; or undiscovered presence of a foreign body that has no therapeutic or diagnostic purpose. Number 595 SENATOR TAYLOR commented he was contacted by a woman representing 300 breast implant recipients. They are very concerned about potential health hazards resulting from those implants. He asked MS. LOPER how she would respond to those concerns, since many of those women received the implants more than eight years ago. MS. LOPER assumed breast implants would be considered a defective product. SENATOR TAYLOR noted the problems could also be caused by medical malpractice. TAPE 95-30, SIDE B MS. LOPER believed the defective product exclusion under the statute of repose would give that group an unlimited time in which to file a lawsuit. MS. LOPER explained Section 3 makes a technical change suggested by the Division of Legal Services. Section 4 provides for two years of accrual, the time from which an injury is discovered. Number 586 SENATOR TAYLOR asked if that provision would apply to women who had Dalkon Shields. MS. LOPER was unsure, but replied those products would be considered defective products under the statute of repose, therefore would be excluded. SENATOR GREEN clarified the person would have two years from the time symptoms appeared and the problem was discovered to file the suit, not two years from the time the Dalkon Shield was inserted. SENATOR TAYLOR noted he had a client who had a Dalkon Shield inserted ten years prior, and had given birth to two children, and had six miscarriages. She had been misdiagnosed for ten full years by 12 different physicians. The problem was discovered after surgery. MS. LOPER asked how the case turned out. SENATOR TAYLOR replied she found a contingency attorney to represent her against some very large insurance companies. MS. LOPER noted she was allowed to file the claim, and HB 158 would not change that ability. MS. LOPER explained Section 5 limits the non-economic cap on damages to $500,000 unless there is disfigurement. In most states, the limitations on non-economic damages range anywhere from $250,000 to $400,000. HB 158 has a two-tier system: there is a $300,000 cap on non-economic damages for pain and suffering, and if the injury is substantially more serious (defined in the bill), the cap would be $500,000 on non-economic damages. An amendment adopted on the House floor allows each child and the spouse in a family to file a claim for that amount. SENATOR TAYLOR questioned page 5, line 11, which allows the $500,000 amount for a person who has third degree burns over one- half or more of his/her body. If the burns do not cover at least one-half of a body, the limit would be $300,000. He noted he had third degree burns over 35 percent of his body 25 years ago, which was an extremely painful experience. MS. LOPER stated Senator Taylor's experience was unfortunate, however many quadriplegics and paraplegics support HB 158. She stated there must be some predictability to the system, and that non-economic damages should not be treated as a lottery ticket. A jury does not have anything substantial upon which to base the judgment, whether it is $300,000 or $500,000. In most cases in the state of Alaska, it is rare for non-economic damage awards to be above $200,000. She estimated in the past five years there have probably been less than five awards of $500,000. Number 508 SENATOR TAYLOR asked what the purpose of Section 5 is, in light of that fact. MS. LOPER responded the purpose is to offer predictability to the system. SENATOR TAYLOR questioned if the five awards she referred to were a reaction to passion on the part of the jury, rather than a meaningful decision. MS. LOPER stated that unlike economic damages, where there is a paper trail, and include economic, medical, and wage costs, there is unpredictability. SENATOR TAYLOR asked how Section 5 provides any certainty. MS. LOPER replied that would occur by the limit of $500,000 for non- economic damages. SENATOR TAYLOR ascertained the predictability would be in the fact that the plaintiff would not get an award from the jury commensurate with the damages the jury should award. He asked if the five awards of $500,000 made by juries that went "nuts" over the past five years is the unpredictability HB 158 attempts to curtail. MS. LOPER explained that any case that is filed in which an injury occurred is open to the lottery ticket of non-economic damages. SENATOR TAYLOR disagreed. Number 475 MS. LOPER described Section 6, dealing with punitive damages. Section 6 codifies punitive damages as defined by the Alaska Supreme Court: outrageous conduct, including acts done with malice or bad motives, or reckless indifference to the interest of another person. SENATOR TAYLOR asked, if that was the same standard of law to which Mr. Cattenaugh and his firm were to be held, so that when he made his decision about whether or not the firm was at risk for a punitive damage award, his attorneys would have advised him that the Alaska Supreme Court has determined it was outrageous conduct, including acts done with malice or bad motives, or reckless indifference to the interest of another person. He stated Section 6 does not change anything for Mr. Cattenaugh's firm concerning punitive damages. MS. LOPER stated that is correct, to the best of her knowledge. She stated there is no cap on punitive damages, but a formula is offered. MS. LOPER explained the formula for punitive damages in Section 6 is three times the compensatory damages (the economic damages plus non-economic damages), or $300,000, whichever is greater. SENATOR TAYLOR asked if a person had $1,000,000 in economic damages and $300,000 in non-economic damages, how much he/she could collect in punitive damages. MS. LOPER calculated the punitive damages could be $3.9 million. If the injured person was awarded no economic or non-economic damages, the amount could be $300,000. She explained of the $3.9 million punitive award, one-half would go to the state, the other one-half would go to the injured party. Number 439 SENATOR TAYLOR questioned the incentive for an injured party to request punitive damages, if one-half is given to the state. He asked if the state would pay for one-half of the attorney fees to get the punitive damage award. MS. LOPER replied the state has absolutely no standing, as stated in the bill, because punitive damages were never established to compensate the injured party, but to punish the wrongdoer. SENATOR TAYLOR asked who would pay for the attorney. MS. LOPER answered the attorney would base the contingency fee on the full amount before it is divided. Number 428 SENATOR TAYLOR discussed the following scenario. If the punitive damage award is $300,000 and the attorney takes the contingency fee (50 percent) off of the full amount, the attorney would receive $150,000. The injured party would then get $75,000, or one-half of the remaining award. MS. LOPER agreed, and repeated the reason is that punitive damages were not established to compensate the injured party; they were established to punish the wrongdoer. SENATOR TAYLOR stated under HB 158, the attorney would receive twice as much as the victim. MS. LOPER agreed, and noted an amendment on the House floor failed, but would have based the attorney's contingency fee on a percentage of the injured party's one-half portion. Number 408 SENATOR TAYLOR asked how many punitive damage awards have been awarded in the past five years in Alaska. MS. LOPER estimated the number was under ten, because the state of Alaska has one of the toughest standards for punitive damage awards. SENATOR TAYLOR asked if the punitive damage provision in HB 158 would apply to a case similar to the Exxon Valdez case. MS. LOPER replied that case was covered by federal law. SENATOR TAYLOR noted the state also filed suit. MS. LOPER believed any state suits filed would fall under the provisions of HB 158, if passed. SENATOR TAYLOR commented if a tanker spilled oil around Southeast, the damages would not be economic. MS. LOPER indicated economic damages were awarded in the Exxon Valdez case. SENATOR TAYLOR stated there were also punitive and non-economic damages, to cover the loss of environmental things, such as the ambiance. MS. LOPER noted, under maritime law, awards for non-economic damages cannot be made. SENATOR TAYLOR clarified that under maritime law there is a sailing to suitor's clause, which allows the injured party to bring the suit to either state or federal court. If the case is tried in state court, state laws apply, therefore, the injured party would be allowed to sue for non-economic damages. Under maritime law, there is a limitation on liability which is the value of the ship. MS. LOPER informed Senator Taylor that a bill passed the House in Congress and is working its way through the Senate, that limits non-economic damages to $250,000, and uses the same formula for punitive damages. SENATOR TAYLOR ascertained the state received $50 million from the Exxon Valdez case, for "restitution." MS. LOPER stated those punitive damages will be going to the injured parties, not to the state. SENATOR TAYLOR noted a company owning a leaky oil tanker would support the bill in Congress. Number 359 MS. LOPER explained Section 8 clarifies the plaintiff is the only party that can choose to take periodic payments. Security should be posted, and self-insured municipalities would be excluded. SENATOR TAYLOR asked for the definition of an "authorized insurer." MS. LOPER assumed it would be an insurance company that could offer enough money not to cause the court any problems for any kind of security to be posted. SENATOR TAYLOR stated it means people who are authorized to sell insurance in the state of Alaska. MS. LOPER offered to obtain the statutory definition. MS. LOPER discussed Section 9 which offers inflation adjustments for periodic payments, so that the court will specify the percentage or method for increases of future periodic payments to cover inflation. She added it will prevent future litigation for adjustment of the original award. SENATOR TAYLOR asked Ms. Loper if she had any money invested between 1976 and 1980. He remarked that had the best experts been hired in 1975 to determine an inflation rate for an award, they would have been wrong. MS. LOPER commented there was not even a provision in current law that adjusted future payments by anticipated inflation, so this section was added for the benefit of the injured plaintiff. She guessed the plaintiff could request the periodic payment schedule be amended if inflation rates changed radically. MS. LOPER described the collateral benefits section (Section 10). Most of the section is current law, except for the fact that plaintiffs would not be able to recover duplicate amounts received from collateral sources. It provides exceptions for certain collateral sources that are subrogated to the claimant, and for death benefits and worker compensation benefits. It allows a person defending a defendant to introduce evidence of amounts received from certain collateral sources and prohibits a person who provides a collateral benefit that is introduced into evidence from recovering that amount from the claimant or being subrogated the rights of the claimant. SENATOR TAYLOR asked how that would apply to a construction worker who was badly injured on the job due to an improperly manufactured DA cap. The worker begins to receive worker compensation payments and brings suit against the third party for negligence. MS. LOPER stated workers compensation benefits cannot be introduced as a collateral benefit (lines 25-29, page 7). SENATOR TAYLOR noted that is convenient for the insurance company defending because that way the jury would not hear about how much money was paid by workers compensation to keep the worker alive before the suit was settled. MS. LOPER noted it is similar to Civil Rule 411. If the workers compensation benefit was $100,000, and the third party's damages for negligence amounted to $200,000, the workers compensation award could not be introduced as a collateral source. If the workers compensation award was for $300,000, he/she would have to pay the employer $100,000 for the workers compensation, and would keep $200,000. SENATOR TAYLOR asserted the jury would not know the worker owed the $100,000 bill that would have to be paid. He asked what other sources the jury could be informed of. MS. LOPER replied medical benefit payments could be disclosed. SENATOR TAYLOR answered if a person is responsible enough to purchase an insurance policy to cover his/her own injuries, even though the other party was negligent, they could claim they did not owe the claimant that amount. MS. LOPER gave the following example. An employee is covered by health insurance by the employer, and is involved in an accident (not job related) and breaks a leg. The hospital bill is $50,000. Her medical insurance covers 80 percent of the $50,000. The jury awards $100,000. Even though the medical benefit was paid for by the insurance company, the employee would pocket that money. SENATOR TAYLOR asked what kind of policy would allow that since the carrier would sue for payment. Under state health care coverage, if the state covers medical bills, the injured party is required to sue the negligent party or the state can terminate health care coverage. The state does not pay attorney's fees for the law suit. Most insurance carriers have a similar provision in their contracts. SENATOR TAYLOR clarified under Section 10, the jury would be informed that the injured party received $50,000 from the employer, to prevent the injured party from receiving a judgement of $100,000. MS. LOPER stated plaintiffs are overcompensated all of the time; they are not repaying the insurance company. SENATOR TAYLOR asked MS. LOPER if she had any evidence to cite. She stated she did it herself. SENATOR TAYLOR noted if she was reimbursed for $100,000, the negligent party would essentially get credit for the $50,000 paid by the employer. MS. LOPER asserted collateral benefits are not designed to punish the wrongdoer, that would be paid under punitive damages. SENATOR TAYLOR remarked that if the award was for $100,000, and the jury was informed the insurance company paid $50,000 in medical bills, the difference would be $50,000 paid to the injured party, and the wrongdoer would essentially be rewarded by not having to pay the medical costs. Number 076 MS. LOPER responded everyone bears the cost in the increase of insurance rates. An injured party could punish a drunk driver under punitive damages, collateral benefits were never designed to offer duplicate recoveries to the injured party. SENATOR TAYLOR believed the employer has the right to be reimbursed for the cost of medical expenses paid by the employer, which will keep rates down. MS. LOPER replied it basically sets up a no-fault state. The intent of the section is to stop the overcompensation of plaintiffs. TAPE 95-31, SIDE A SENATOR TAYLOR argued that punitive damages cannot be relied on, since they are very rarely awarded, and one-half would have to be paid to the state under HB 158. Also, punitive damages are not covered by an insurance policy. He repeated that if Aetna paid $50,000 in medical bills, and the injured party sues, Aetna would be entitled to repayment. If the judgement was $100,000, Aetna would be repaid $50,000, and the attorney's contingency fee of 30 percent would amount to $30,000. The remainder of $20,000 would go to the injured party. SENATOR TAYLOR explained that under HB 158, under the collateral rule, the amount of the award would be $50,000, of which 30 percent would be paid to the attorney ($17,000) but $50,000 would still be owed to Aetna. Number 295 SENATOR TAYLOR commented he did not understand why the sponsor would want to deprive the insurance carrier who did no wrong, from being able to seek subrogation and restitution. He noted this provision would work well for a millionaire since one's own money is not considered a collateral source. MS. LOPER said an indigent person would collect the same amount as the millionaire. SENATOR TAYLOR asked how the working class person would be affected by the collateral source provision. MS. LOPER answered if the person was insured, there would be no subrogation, and the person would have to show that some compensation had been made, and that the injured party did not pay the hospital bill out of pocket. SENATOR TAYLOR repeated his concern that the collateral source provision allows the "bad" guy to take credit for the "good" guys coverage. MS. LOPER replied she views the situation from the standpoint of returning the injured party to where they were prior to the accident. From that perspective, she believes the collateral benefits section in current law overcompensates the injured party. SENATOR TAYLOR asked for data on the amounts of overcompensation awards. MS. LOPER explained Section 11. It deals with the apportionment of fault by bringing in all parties responsible for the accident. It does away with joint, civil liability. In Section 11 the phrase "party to person" is removed and the clause, "or other person responsible for the damages to each claimant regardless of whether the other person, including the employer, is or could have been named as a party to the action" is added. That would stop the practice of going after the person with the deep pocket by naming each person responsible for the accident as a party to the action, including the employer. This section would reverse the Lake v Construction decision. Section 12 further delineates the apportionment of fault. MS. LOPER stated when the injured party brings a claim to court, all parties that have a percentage of fault must be named, instead of just naming one that is insured for the largest amount. SENATOR TAYLOR asked if this provision would result in multiple litigation which would increase costs, as opposed to suing the two most liable parties. MS. LOPER replied all people responsible for the act would be sued. SENATOR TAYLOR stated the defendant has always had the right to name and bring into the suit all parties involved. He added if a person was hit by two cars and the accident resulted in a pileup, the injured party would have to sue all cars involved, and the state for poor road maintenance, rather than the two drivers who were primarily responsible for the accident. He questioned the increased amount of court time the provision would create. MS. LOPER stated she believes it is fair and just to name all those responsible for the accident, rather than allow those who have no insurance to walk away from a case. SENATOR TAYLOR claimed the defendant would bring in other responsible parties, rather than taking sole responsibility. MS. LOPER believed the issue to be a policy call and that Senator Taylor is saying the defendant should take full responsibility, even though he/she is only 10 percent at fault, but has the most insurance coverage. SENATOR TAYLOR clarified that under current law, a wealthy contractor who is being sued, but is only responsible for 10 percent of the damages, would have his attorneys bring the other defendants into court. He stated Section 12 forces the injured victim to figure out who all of the actors were, down to the smallest percentile of liability. MS. LOPER reiterated Section 12 is designed to prevent the plaintiff from suing one party only because that party has the most money. MS. LOPER explained Section 13 allows either party to make an offer to settle a claim up to 10 days before a trial begins. The offer must be accepted within 10 days and recorded by the clerk of the court. Section 14 deals with prejudgment interest and changes the interest rate from the fixed amount of 10.5 percent, to a floating rate, three percent above the Federal Reserve District discount rate. SENATOR TAYLOR asked if the prejudgment interest is determined on the date the process is served, rather than the date of injury. MIKE LESSMEIER, State Farm Insurance, clarified it would be determined on the date of written notification by the claimant, which could be the date of injury. Section 15 disallows the payment of prejudgment interest for future economic damages, future non-economic damages, or for punitive damages. MS. LOPER stated Section 16 makes a technical change to current law and includes all of the provisions in HB 158 in the Uniform Arbitration Act. Section 17 requires medical expert witnesses to meet certain standards. SENATOR TAYLOR asked if a general practitioner would be unable to testify to previous malpractice by a specialist, since that practitioner was not trained in that particular discipline. MR. LESSMEIER noted the general practitioner would be allowed to testify. SENATOR TAYLOR asked for evidence of cases in which the court has allowed a doctor, not familiar with a specific discipline, to testify on that discipline. MS. LOPER stated Section 18 defines the terms "professional negligence" and "professional services" as used in HB 158. She noted at one time there was a specific statute of limitations and repose for health care providers, but that section was eliminated in the House Finance Committee. SENATOR TAYLOR added AS 09.55.560 contains a definition of health care providers by listing each. MS. LOPER described Section 19 as providing clarification of circumstances in which hospitals are held directly liable for the actions of a health care provider not employed by the hospital. Current law permits a claimant to sue only the hospital, rather than the doctor as an independent contractor, who may have less ability to pay. SENATOR TAYLOR asked if current law only permits the claimant to sue the hospital. MS. LOPER replied under current law the claimant can sue both the doctor and the hospital. She added the state of Alaska does not require doctors to carry insurance. SENATOR TAYLOR stated that resulted from the first tort reform movement. Doctors complained they could not purchase insurance at a reasonable rate, so MICA was created which doctors had to join. The state was sued by doctors who were able to find less expensive insurance, so they did not have to be covered under MICA. Since that time, the state has not been able to require doctors to have malpractice coverage. SENATOR TAYLOR commented line 29 defines when a doctor is an independent contractor. MS. LOPER noted the definition is on page 11, line 19. SENATOR TAYLOR believed the definition classifies an independent contractor as a welcome trespasser. MS. LOPER noted the definition is further defined by the list of "health care providers" on line 14, and the hospital will always be liable for the hiring of an independent contractor if it was negligent in its hiring practices. Section 19 also requires the independent contractor to give notice of limited liability, posted in all admissions areas and in area newspapers annually. TAPE 95-31, SIDE B SENATOR TAYLOR asked what that notice will mean to a patient. MS. LOPER replied the only control a hospital administrator has over a physician is in the hiring process. SENATOR TAYLOR stated as a hospital attorney, he got rid of five doctors, and had their licenses pulled. He stated a good hospital board and administrator will regularly engage in peer review and will not cover for incompetent doctors. He noted if the hospital in Tampa, where several tragedies have recently occurred, had hired those doctors as independent contractors, the hospital would have no liability to any of the victims. MS. LOPER replied the hospital would not be liable if it believed the doctors were competent when they were hired. SENATOR TAYLOR asked how the hospital board would know if the doctor was incompetent until he/she did an incompetent act. MS. LOPER believed the hospital board would investigate a doctor's background, and added if the hospital was negligent in hiring a doctor, it would be liable. SENATOR TAYLOR stated mistakes are considered negligence, and if a good surgeon makes a mistake, the hospital would not share the liability. He discussed the heart surgeon in Portland, Oregon who made fatal errors in two heart transplant operations in one year, and how a notice of limited liability would be of little help to the families of those victims. MS. LOPER stated Section 20 prevents a person from suing if the accident occurred while in the act of committing a felony. SENATOR TAYLOR stated this section resulted from testimony in the House Finance Committee about several young men who were attempting to paint numbers on the roof of a high school as a prank, and one of the men fell through a skylight and was disabled for life. He was awarded several hundred thousand dollars because the skylight was painted black and was difficult to see. He asked if this provision was originally written to include any crime. MS. LOPER replied the crime must be a felony. SENATOR TAYLOR clarified the section has been tightened since it now includes a person who attempts to convict a felony and not only a person convicted of committing a felony. MS. LOPER explained Section 21 is fashioned after Civil Rule 11. It is an attempt to stop frivolous lawsuits from being filed. If there is a violation, monetary sanctions of up to $10,000 shall be imposed. SENATOR TAYLOR questioned whether a similar provision exists in the rules of court. MS. LOPER stated affirmatively, but noted there are no monetary sanctions. SENATOR TAYLOR stated it is his understanding there are no limits, either. He asked what the purpose of placing this provision in statute is. MS. LOPER repeated the court rule does not specify monetary sanctions against the attorney. SENATOR TAYLOR stated this provision caps the amount the attorney can be charged. MR. LESSMEIER commented Rule 37 allows sanctions. MS. LOPER added Section 21 provides one option, a larger sanction could be obtained using Rule 37. MS. LOPER stated Alaska Rule of Civil Procedure 95 was amended in Section 21. SENATOR TAYLOR noted that instead of changing the Rule which would require a two-thirds majority vote, the statute is changed, which has the effect of changing the rule. SENATOR TAYLOR asked Ms. Loper to provide the requested information as soon as possible, and adjourned the meeting at 6:26 p.m.
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