Legislature(1997 - 1998)
03/13/1997 01:40 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
MARCH 13, 1997
1:40 P.M.
TAPE HFC 97 - 58, Side 1, #000 - end.
TAPE HFC 97 - 58, Side 2, #000 - end.
TAPE HFC 97 - 59, Side 1, #000 - end.
TAPE HFC 97 - 59, Side 2, #000 - #020.
CALL TO ORDER
Co-Chair Gene Therriault called the House Finance Committee meeting
to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
ALSO PRESENT
Representative Brian Porter; Jeff Bush, Attorney, Deputy
Commissioner, Department of Commerce and Economic Development; Pam
LaBolle, President, Alaska State Chamber of Commerce; Michael
Lessmeier, Attorney, State Farm Insurance Company, Juneau; Ross
Mullins, (Testified via teleconference), Cordova; Jack Hopkins,
(Testified via teleconference), Cordova; David McGuire, (Testified
via teleconference), Anchorage; Dick Cattanach, (Testified via
teleconference), Anchorage; Mike Schneider, (Testified via
teleconference), Attorney, Anchorage; Daryl Nelson, (Testified via
teleconference), Anchorage; Frank Dillon, (Testified via
teleconference), Executive Director, Alaska Trucking Association,
Anchorage; Paul Cossman, (Testified via teleconference), Lawyer,
Anchorage; Tim Dooley, (Testified via teleconference), Attorney,
Anchorage; Mauri Long, (Testified via teleconference), Attorney,
President, Trial Lawyer Association, Anchorage; Karen Cowart,
(Testified via teleconference), The Alliance, Anchorage; Orin
Seybert, (Testified via teleconference), Alaska Air Carriers
Association, Anchorage; Leonard Efta, (Testified via
teleconference), Kenai; Susan Ross, (Testified via teleconference),
Kenai; Paul Sweet, (Testified via teleconference), Matsu.
SUMMARY
HB 58 An Act relating to civil actions; amending Rules 49 and
68, Alaska Rules of Civil Procedure; amending Rule 702,
Alaska Rules of Evidence; and providing for an effective
date.
HB 58 was HELD in Committee for further consideration.
HOUSE BILL 58
"An Act relating to civil actions; amending Rules 49 and 68,
Alaska Rules of Civil Procedure; amending Rule 702, Alaska
Rules of Evidence; and providing for an effective date."
REPRESENTATIVE BRIAN PORTER stated that many individuals and
business have already experienced the nightmares of litigation that
drag on for years and the high legal costs associated with them.
Lawsuits in this country have proliferated. Litigation has become
an industry. Contingent fee contracts give up to 40% of injured
victims' damage recoveries to trial lawyers. The incentives to
create the most litigious society on earth are firmly in place. He
stressed that as a consequence, the cost of liability insurance has
become unaffordable to many. In some areas of the State, there are
no domestic insurance companies which will write a liability
insurance policy for any price. Across the country, and throughout
Alaska, there is an outcry for reforming our civil justice system.
Ordinary people and business of all sizes seek relief from a flawed
system. A more efficient and fair method of compensating wrongly
injured victims must be crafted and maintained.
The consulting actuarial firm, Tillinghast, reported in 1992 that
about 50% of damage awards of some $132 billion dollars spent
nationwide went to the injured party. The remaining 50% went to
the cost of litigation and attorney fees. From that information,
it is apparent that if current tort system is judged as a method of
compensating accident victims for their losses, it is both
inefficient and unfair. He continued, inefficient because only
about half of the cost goes toward any form of compensation for
victims and unfair because many injured victims receive
insufficient compensation to no compensation at all.
He continued, in contrast with the foregoing deficiencies, the
workers' compensation system returns about 70% of the workers'
compensation insurance premium dollars to the injured party. The
efficiencies enjoyed in the health insurance industry are even
higher, with about 85% of health insurance premium dollars being
returned to the beneficiary. The most efficient is Social
Security, with 99% of the social security taxes collected being
returned to the beneficiaries of that system. The relative
certainty of recovery, and the certainty in the amount of recovery
under that system, stands in stark contrast to the uncertainties
inherent in the litigation of claims and defenses. The absence of
uncertainty and high costs of litigation in these alternative
systems makes clear that there is a compelling need for substantial
reforms in the civil justice system.
Representative Porter explained that the legislation was comprised
of three sections, one of which passed the House Floor last year.
It also incorporates several portions that the Governor's Task
Force recommended during the summer tort reform discussions.
Representative Porter highlighted the points from the Governor's
Task Force which had been incorporated into the proposed
legislation.
Section 19. Definition; intentional torts. This section is
taken verbatim from the report of the Governor's Task Force.
The section amends AS 09.17.900 to clarify its application to
intentional acts.
Section 23. Interest on judgments; prejudgment interest.
This section would provide for a floating or variable interest
rate on judgments and prejudgment interest by making it three
hundred basic points above the discount rate at the 12th
Federal Reserve District, as of January 2, of the year in
which the judgement or decree is entered. Once set by this
section, the interest rate does not change until satisfaction
of the judgment or decree. Using the discount rate of the
12th Federal Reserve District would be consistent with the way
interest rates are determined under the usury statute, AS
45.45.010(b). The Governor's Task Force report recommended a
floating interest rate on judgments and prejudgment interest.
This section should satisfy those concerns.
Section 28 Medical advisory panels.
Section 29 Expert advisory panel; panel questions.
Section 30 Expert advisory panel; discovery.
Section 31 Expert advisory panel; public sector provider.
Section 37. Damages resulting from commission of a felony, or
while under the influence of alcohol or drugs. The Governor's
Task Force report recommended that a person who sustains
personal injuries or death during the commission, or attempted
commission of a felony, should be barred from recovering
damages for those injuries.
Section 46. Settlement information. This section is taken
verbatim from the report of the Governor's Task Force. It is
intended to improve upon existing Superior Court, fast track
procedures by providing for a meeting of the parties and a
pretrial conference.
Section 48. Sanctions for rule violations. This section
modifies Civil Rule 95 by imposing increased sanctions against
attorneys and their clients for any infraction of the rules,
including Civil Rule 11. It permits fines of up to $10
thousand dollars against attorneys, which was increased from
$1 thousand dollars under existing rule.
Representative Porter addressed the new sections of the bill.
Section 35. Civil liability of electric utility. This
section would provide immunity from strict liability for
publicly regulated electric utility companies for the
generation, distribution, and sale of electricity. The
section would make it clear that the provision of electricity,
from the time it is generated until the consumer utilized it,
would be a provision of service, and would not change its
character from a service to a product.
Section 40. Appointment of independent counsel; conflicts of
interest. This section makes an insurer responsible only for
the costs and attorney fees incurred by the independent
counsel defending against claims for which the insurer has
either accepted coverage or reserved their right to deny
coverage.
Section 41. Appointment of independent counsel; conflicts of
interest. In the context of an insured, represented by
independent counsel, the section allows an insurer to settle
directly with a plaintiff as to claims for which the insurer
has either accepted coverage or reserved their right to deny
coverage.
Section 42. Workers' compensation lien. This section would
be a consistency change to the workers' compensation statutes
required by the change in Section 18 of the Act.
(Tape Change HFC 97-58, Side 2).
ROSS MULLINS, (TESTIFIED VIA TELECONFERENCE), CORDOVA, testified in
opposition to HB 58. He ascertained that the punitive damage
section of the bill would be detrimental to maintaining a safe
environment when addressing oil transportation measures. The
proposed caps are too low to be efficient when dealing with the oil
industry. He reiterated that the levels proposed for punitive
damages are not sufficient. Mr. Mullins pointed out that the
recommendations made in the Governor's proposal would be more
satisfactory for people living in coastal Alaska and could address
the magnitude of the "wrong-doer".
JACK HOPKINS, (TESTIFIED VIA TELECONFERENCE), CORDOVA, testified in
opposition to the legislation. He stated that the only people who
will benefit from the legislation will be the insurance companies
and "other" big business.
DAVID MCGUIRE, M.D., (TESTIFIED VIA TELECONFERENCE), ANCHORAGE,
voiced support for the proposed legislation. He commented that in
1976, malpractice insurance became unavailable for many doctors.
As a result of that action, the legislature formed an organization
called Medical Indemnity Corporation of Alaska (MICA) which was
designed to provide doctors with malpractice insurance. Dr.
McGuire provided written testimony. (Copy on file). He urged
Committee members to support the legislation.
DICK CATTANACH, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE,
testified in support of the legislation. Written testimony was
submitted to the Committee. (Copy on file). He noted that the
bill was complex and deals with many issues which are important to
Alaska's economy. The recommendations from the Governor's task
force were also considered and many were included as they addressed
issues that had not been previously considered. Mr. Cattanach
urged the Committee's support of the legislation.
MIKE SCHNEIDER, (TESTIFIED VIA TELECONFERENCE), ATTORNEY,
ANCHORAGE, voiced opposition to HB 58. He stated that the
Governor's task force proved the public's misperception that the
"wheels were off the justice cart". Mr. Schneider summarized that
many provisions in the bill do a disservice to each legislator's
constituents.
DARYL NELSON, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, voiced
opposition to the legislation. He noted concern with the statute
of repose, stipulating that many parents with new babies born with
disabilities do not realize that the child has a problem until
later as the child develops. He believed that section of the bill
would be detrimental to all people with disabilities.
FRANK DILLON, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR,
ALASKA TRUCKING ASSOCIATION, ANCHORAGE, testified in support of the
proposed legislation. He emphasized that America was "drowning" in
a sea of judicial abuse. HB 58 is a small but much needed step
toward complete reconstruction of the legal system. He urged the
Committee's support of the legislation.
LEONARD EFTA, (TESTIFIED VIA TELECONFERENCE), KENAI, testified in
opposition to HB 58. Mr. Efta referenced Section 1 of the bill,
stating that such measures would not be "beneficial" to any
"ordinary" people.
SUSAN ROSS, (TESTIFIED VIA TELECONFERENCE), KENAI, spoke against
the proposed legislation. She suggested that the bill was being
driven by "material representation". Ms. Ross spoke about being
recruited for lobbying on tort reform. After an in-depth study,
she realized that tort reform had "nothing" to do with a judicial
or legal reform.
She elaborated that insurance benefits will not decrease with
passage of the legislation. She strongly urged members to pay
attention to the voice of their constituents and not pass the bill
from Committee.
PAUL SWEET, (TESTIFIED VIA TELECONFERENCE), MATSU, voiced
opposition to the proposed legislation. He spoke to the punitive
damages as addressed in the legislation. Mr. Sweet added that 95%
of campaign financing contributions came from large corporations.
He questioned if legislators loyalties originated "out of pocket"
or for the constituents which they represent. Co-Chair Therriault
replied, last year Campaign Reform legislation had been passed,
which would cut off contributions received from corporations.
PAUL COSSMAN, (TESTIFIED VIA TELECONFERENCE), LAWYER, ANCHORAGE,
testified against HB 58. He realized that a tort reform bill would
be forthcoming and proposed that the bill be "worked" on
cooperatively so it become acceptable to all people.
He agreed with Section 1 of the bill, decreasing the cost and
complexity of litigation. Mr. Cossman advised that Section 16
would be contrary to the goal of having the jury determine fault.
(Tape Change HFC 97-59, Side 1).
Mr. Cossman advised under Section 16, the jury determination of the
fault premise would change, as the defendant would no longer have
the right to bring in the third party defendant, allocating the
fault to them. He suggested that this action would cause the
plaintiff's to instigate more law suits, and otherwise, insurance
rates would rise. He advised that to decrease the costs and
complexity of litigation, the system should be left the way it is.
TIM DOOLEY, (TESTIFIED VIA TELECONFERENCE), LAWYER, ANCHORAGE,
spoke in opposition to the proposed legislation. He pointed out
that dispute resolution systems in other third world countries use
burning huts and machetes; our system does not yet. He pointed out
that our system is not "tragic" or "evil" as suggested in previous
testimony and that many countries throughout the world would prefer
the system we have.
Mr. Dooley stressed that someone will have to pay for the cost of
the injury. The legislation will relieve the person at fault from
paying. He asked why should the person at fault be relieved of the
obligation, then have our individual tax rate and insurance and
health care rates raised.
MAURI LONG, (TESTIFIED VIA TELECONFERENCE), LAWYER, PRESIDENT,
TRIAL LAWYER ASSOCIATION, ANCHORAGE, noted strong opposition to HB
58. Ms. Long focused attention on Section 42, the Worker's
compensation lien, which would cause significant problems. This
section would take the collateral benefits Section 17 and the
allocation of fault, Section 16, and create a collision of those
two concepts by removing the benefit of the worker's compensation
system. She discussed that the proposed language would allow for
"an empty chair" defense. That language would increase the scope
of litigation and would clearly stipulate that a jury could not
determine a fair cost to pay. A plaintiff may not recover. She
urged the Committee to consider these issues and strike the
inappropriate language.
Representative Grussendorf asked Ms. Long's opinion of Section 21,
Offers of Judgement. Ms. Long believed that Offers of Judgement
statute, currently in place is not very effective, and believed
that changes could make it more useful. Ms. Long provided
Committee members a copy of a Sectional Analysis of House Bill 58.
(Copy on file).
KAREN COWART, (TESTIFIED VIA TELECONFERENCE), ALASKA GENERAL
INDUSTRY SUPPORT ALLIANCE, ANCHORAGE, spoke in support of HB 58.
She presented her organization's 1997 legislative priorities:
* Continue to close Alaska's fiscal gap;
* Support legislation that promotes sound development of
oil and gas; and
* Support the passage of comprehensive tort reform.
Ms. Coward provided Committee members a copy of her testimony.
(Copy on file).
ORIN SEYBERT, (TESTIFIED VIA TELECONFERENCE), ALASKA AIR CARRIERS
ASSOCIATION, ANCHORAGE, spoke in support of the legislation. He
noted that air carriers are presently being impaired by a lack of
insurance underwriting capacity. Alaska has a potential for the
highest punitive damage awards in the nation. Mr. Seybert urged
the Committee's support of the legislation. (Copy of testimony on
file).
JEFFREY W. BUSH, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE AND
ECONOMIC DEVELOPMENT, submitted a copy of a letter dated March 7,
1997, and sent to Representative Porter discussing HB 58. (Copy on
file). He identified fourteen points of concern to the Knowles
Administration. He advised that three of those concerns would be
addressed through amendments provided by Representative Porter.
He noted that he had served on the Governor's task force for Civil
Justice reform. The bill which the Governor has introduced is the
product resulting from that task force. He advised that the
Administration has a "problem" with some of the sections in HB 58,
which are substantially different from those presented through the
Governor's legislation.
The technical issues are:
* Section 5: Statute of Repose. In previous versions of
the tort legislation, the statute of repose proposal has
included a provision permitting a contractual override of
the time limit, an exemption that the State relies upon.
* Section 6: Special Statute of Response for Minors. The
intention of that change was to impact the statute of
limitations for minors, not the statute of repose. As
drafted, it is a limiting statute of repose, more
restrictive than the general one for adults contained in
Section 5. The Department of Law suggested that language
is likely unconstitutional.
* Section 9: Standard for Punitive Damages. The phrase
being inserted should say "deliberated disregard of
another person's rights" instead of "deliberate disregard
of another person". He stressed that the language should
be consistent with State law.
* Section 11. Taxes on Award. This section would allow a
defendant a deduction for taxes that would otherwise be
payable were the award taxable, and should only apply to
damages for traditionally taxable compensatory damage.
It should not apply to compensation for medical costs
incurred. As written, a verdict for medical
reimbursement only could have a deduction applied,
leaving the victim without full compensation for medical
expenses.
* Section 15. Collateral Benefits. Mr. Bush suggested
that the last sentence in proposed AS 09.17.070(b) which
allows a plaintiff to submit evidence of payments made
for the purchase of the collateral source should be
removed.
* Section 20. Expert Witness Qualifications. He pointed
out that this section is unclear and needs substantial
work. He continued, the section is also "troubling" in
its application. When the Task Force reviewed this
concept, Dr. Wilson spoke to the problems associated with
it's implementation in a state as small as Alaska. The
solution would be to remove proposed AS 09.20.185(a)(1)
and (3), but leave in (2), thereby requiring that the
expert be trained and experienced in the relevant
discipline, but not necessarily "licensed" or "board
certified".
Mr. Bush continued, the Administration also had significant policy
concerns with the following sections.
* Sections 5 & 6: Statutes of Repose.
* Section 8: New Cap on Non-economic Damages.
* Section 10: Punitive Damages.
* Section 15: Collateral Benefits.
* Section 16 - 18: Apportionment of Fault.
* Section 21: Offers of Judgement.
* Section 36: ER Doctors.
* Section 62: ADR.
He urged the Committee to consider the approach recommended by the
Governor.
MICHAEL LESSMEIER, LAWYER, STATE FARM INSURANCE COMPANY, JUNEAU,
testified in support of the proposed legislation. He disagreed
with testimony that insurance rates in Alaska are set on a national
level and that nothing done in Alaska will affect the price of
insurance. He added that State Farm strongly disagrees with that
proposition, as established, and that State Farm's rates in Alaska
are determined primarily by the loss experienced. The fact that
State Farm has returned significant amounts of money to policy
holders is evidence of their intent. He added, other mutual
companies have also returned money to Alaska policy holders.
Ms. Lessmeier believed that the legislation would improve losses in
Alaska. Improvement in that loss experience will be reflected in
the premiums insurance companies charge for their products.
He spoke to several additional provisions within the legislation.
State Farm feels strongly that Section 10 and the language on
punitive damages, suggesting that claims are frequent. Without
exception, these claims are time consuming and expensive to defend
and they impose a tremendous burden in confronting. The limitation
proposed in the bill would lessen the burden.
The second important issue to State Farm is the liability provision
contained in Sections 16-18. He reminded members that in 1988,
voters in Alaska adopted several liability provision through the
initiative process. The ballot told the voters that the
"initiative would make each party liable for only the damages equal
to his or her share of fault". Five years later, the Supreme Court
ruled that fault could be apportioned only to those who were
formally named as parties to the action. Thus, instead of the
party being liable only for damages, they could then be held liable
for damages caused by the fault of another. (Copy of testimony on
file).
Mr. Lessmeier spoke to Section 21, which would dramatically change
the law on offers of judgement, a significant incentive to evaluate
the position early and in a responsible way. The section simply
provides that if a party betters by more than 5% of an offer of
judgement entered within 60 days of initial disclosures, that party
may recover reasonable actual attorney fees.
Mr. Lessmeier addressed Section 48, which would provide a certain
deterrent for those that come to court and intentionally make false
statements of material fact. He stressed that this provision was
not controversial.
Mr. Lessmeier stressed that every person who drives a car, buys an
insurance policy, every Alaskan that has a homeowners policy on
their home, or who flies to a bush community and every small
business owner would be benefited by passage of HB 58. He urged
the Committee's support of the bill.
Representative J. Davies asked how each of those persons would be
benefited through passage of the bill. Mr. Lessmeier replied, to
the extend that the bill will effect "loss experience", insurance
companies will then be able to offer an affordable insurance
policy. Representative J. Davies asked if "affordable" meant
"cheaper". Mr. Lessmeier affirmed that it would be cheaper than it
would be without the bill. Representative J. Davies pointed out
that insurance companies continue to say that the legislation will
save money, although, they are not willing to state that consumers
will be able to purchase less expensive policies.
Mr. Lessmeier agreed, but pointed out that insurance companies do
not know what the Court System will do with the legislation. He
referenced the process that accompanied the initiative passed in
1978. Mr. Lessmeier distributed a handout: THE ROLE OF PUNITIVE
DAMAGES IN CIVIL LITIGATION: NEW EVIDENCE FROM LAWSUIT FILINGS.
(Copy on file).
PAM LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE (ASCC),
JUNEAU, spoke in support of the proposed legislation which would
decrease the costs in resolving cases, to discourage frivolous
litigation, to promote fair compensation and to promote the
predictability of outcomes. (Copy of testimony on file).
Ms. LaBolle stated that the greatest benefit would be the change to
the punitive damage section. Under today's tort system, punitive
damages can be assessed even when there has been no willful act or
intentional wrongdoing on anyone's part. In addition, in criminal
or administrative law, the level of punishment is pre-established.
Punitive damages are known as "litigation lottery", because they
can be assessed without intentional wrong-doing on anyone's part;
she stressed that the "sky was the limit". Statistics do not show
the impact of punitive damages.
(Tape Change HFC 97-59, Side 2).
Ms. LaBolle noted that the current system is not "fair" and that
the number of lawsuits are not accurately reflected in the
statistics. She suggested that this is one of the most flagrant
abuses of justice existing in Alaska's tort law system today, and
one of the most expensive. The Alaska State Chamber wants to see
parameters put in place. Punitive damages should only be assessed
when there is clear and convincing evidence of malicious intent,
outrageous conduct, or reckless indifference. There should be
equal justice for all and that small businesses are impacted the
most by the current system. She strongly urged support of HB 58.
HB 58 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 4:00 P.M.
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