Legislature(1997 - 1998)
03/11/1997 01:40 PM House FIN
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* first hearing in first committee of referral
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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
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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.
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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
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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,
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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
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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
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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.
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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
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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
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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
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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.
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HB 58 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 4:00 P.M.
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