Legislature(1997 - 1998)
03/14/1997 01:45 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 14, 1997
1:45 P.M.
TAPE HFC 97-60, Side 1, #000 - end.
TAPE HFC 97-60, Side 2, #000 - end.
TAPE HFC 97-61, Side 1, #000 - end.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:45 p.m.
PRESENT
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
Representative Kelly
Co-Chair Hanley was absent from the meeting.
ALSO PRESENT
Representative Brian Porter; Paul Dillon, Attorney, Juneau;
Bob Engelbrecht, Alaska Visitor's Association; Michael
Lessmeier, Attorney, State Farm Insurance.
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."
CSHB 58 (FIN) was reported out of Committee with
an "amend" recommendation; and with three zero
fiscal notes; and with two fiscal impact notes.
HOUSE BILL NO. 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."
PAUL DILLON, ATTORNEY, JUNEAU testified against HB 58. He
began his presentation with a hypothetical case involving a
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family of three. The father works for ARCO, the mother is a
homemaker, and they have a small child. He theorized that
the mother, "Becky", was seriously injured by a commercial
vehicle while stopped at a red light. Becky's injuries are
serious, resulting in the loss of limbs, back pain and hip
injuries, and the inability to have more children. He
observed that her past medical costs are $200 thousand
dollars; future medical expenses are estimated at $700
thousand dollars; and the commercial vehicle is clearly at
fault.
Mr. Dillon continue discussion of "Becky's" hypothetical
case. He noted that under HB 58 the jury would be
instructed that there is a $300 thousand dollar cap on non-
economic damages. He theorized that the jury awarded Becky
a $1 million dollar judgement. He maintained that under HB
58 there could be an immediate reduction of 50 percent of
the judgement because the commercial driver, at the trial,
blamed the repair shop for faulty breaks. Due to this
testimony, the jury determined that there is a 50 percent
award of fault to the break repair shop. He pointed out
that the owner of the brake repair shop is not present at
trial. The award is further reduced by future medical
costs, since the father's insurance covers future medical
benefits.
Mr. Dillon observed that in "Becky's" hypothetical case the
remaining determination of $300 thousand dollars would be
further reduced by the tax percentage that would have been
assessed against future wages. He indicated that
interpretation of this provision is unclear. He questioned
if the taxes would be assessed on the original $1 million
dollar judgment, or if only non-economic damages would be
taxed. He observed that neither the state or federal
government have taxed non-economic damages. If the full
judgement was taxed by 28 percent Becky would be left with
$140 thousand dollars. He observed that Becky would not
have enough money to pay her lawyers, court costs or medical
experts. He observed that lawyer fees could be greater than
$100 thousand dollars and medical experts could cost "tens
of thousands of dollars". In addition, the judgement could
be paid in periodic payments.
Mr. Dillon maintained that the legislation affects Alaskans'
right to a jury trial and the right of a jury to make a
determination on awards. Current statute does not allow
someone to try the "phantom chair". He pointed out that if
a phantom defendant is brought into the trial there is no
one to contest allegations of fault.
Mr. Dillon urged members to not include section 11. Section
11 requires that "the amount of damages awarded shall be
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reduced by the amount of federal and state income tax that
would have been paid..."
BOB ENGELBRECHT, ALASKA VISITOR'S ASSOCIATION spoke in
support of the legislation. He asked that recreational
liability be added to the bill. He observed that HB 300 was
merged with the tort reform bill during the last legislation
session. The provisions of HB 300 were not included in HB
58. He observed that they would like to see an amendment to
establish the responsibilities of people who operate
commercial recreational activities and the responsibilities
of people who participate in those activities.
Representative Martin MOVED to adopt Amendment 1 (copy on
file). Representative J. Davies OBJECTED. Representative
Porter explained that the amendment clarifies language
regarding delivery, or sale of electricity. He noted that
an electrical service is a service not a product, including
the entry into a consumer's home and its application in the
home. He observed that there was concern that the language
would be interpreted to mean that delivery or production to
a neighborhood transfer would be a service and that from the
transformer to the home would be considered a product.
There being NO OBJECTION, Amendment 1 was adopted.
Representative Martin MOVED to adopt Amendment 2 (copy on
file). Representative J. Davies OBJECTED. Representative
Porter explained that the amendment does not change the
legislation's intent. The amendment could clarify that the
statute of repose is eight years. (The statute of
limitation is two years. Amendment 2 clarifies that the
statute of limitations does not apply to minors from birth
to sixs-of-age.) Within the statute of repose there would
be an exception as it applies to children from birth to six
years old. This would cover concerns regarding birth
injuries. A six year old would have two more years to
introduce an action.
Amendment 2 also clarifies that a school district may extend
the statute of repose on new school construction when agreed
to by contract.
In addition, Amendment 2 clarifies that one case adds
"another person's rights." This is consistent with current
case law.
Co-Chair Therriault observed that the mere consumption of
alcohol does not imply that a person's acts were not
conscious. Representative Porter observed that consumption
of alcohol can mitigate a sentence but not be used as a
defense.
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Representative Porter noted that the Alaska Court System has
requested that section 65, the effective date clause, be
deleted.
Co-Chair Therriault MOVED to AMEND Amendment 2, delete
"section 65" and reflect the change in the title. There
being NO OBJECTION, it was so ordered.
There being NO OBJECTION, Amendment 2 as amended was
adopted.
In response to a question by Representative J. Davies,
Representative Porter explained that Amendment 2 clarifies
that the statute of limitation is extended to eight years
for children under six. Co-Chair Therriault summarized that
the statute of repose will supercede the statute of
limitations in regards to the exception for children under
six.
Representative Porter responded to comments by Mr. Dillon.
He stated that homemaker duties can be quantified in dollars
and fall under economic damages, which is not capped. He
stressed that the defense of faulty brakes would have come
out during discovery.
Representative J. Davies questioned why the defendant is not
required to bring the other party at fault into the trial.
Representative Porter responded that "people who are
responsible, should only be responsible to the extent of
their own responsibility."
In response to a question by Representative Grussendorf,
Representative Porter discussed section 11, reduction of
taxes. He emphasized that victims should not be paid for
wages that they would not have received. He noted that the
judgment is not taxed by the federal government. He
stressed that the same wages would have been taxed. The
provision does not apply to judgments that are taxed.
Representative J. Davies asked why it is not left to juries
to decide the impact of taxes. Representative Porter
maintained that it would be unusual for a jury to make a
deduction of taxes when the IRS would tax the judgement.
Representative Kelly suggested that juries would assume some
level of taxation and add to the judgement.
Representative Porter clarified that collateral benefit
provisions exist in current statute. He explained that,
under current statutes, the Court deducts collateral
benefits from the judgement. Under the legislation, the
jury would make the deduction.
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In response to a question by Co-Chair Therriault,
Representative Porter could not estimate the economic value
of a homemaker.
Representative G. Davis MOVED to adopt Amendment 3 (copy on
file). Co-Chair Therriault OBJECTED for purposes of
discussion. Representative J. Davies noted that the
amendment would change the statue of repose from 8 to 10
years. He stated that at ten years 98 percent of claims
would be discovered within the allowed period.
Representative Porter noted that Representative J. Davies
was referring to construction claims. Representative Porter
responded that 96.8 percent of all claims would be
discovered within 8 years. He stressed that a ten year
statute of repose would mandate two additional years of
insurance coverage. He observed that the change would also
affect the provision for children. He emphasized the
difficulty to defend against cases involving time-lapse. He
observed that the Alaska Supreme Court ruled:
"A five-year statue of limitations governs the filing
of attorney grievances. Alaska Bar R. 18. This
reflects a judgment that five years is the outer limit
of time in which responding attorneys are able to
fairly defend themselves against charges, given the
loss of memory, evidence, and witnesses that occurs
over time."
Representative J. Davies argued that, in the case of a
construction project, there are circumstances where the
problem would not be discovered for more than many years.
He pointed out that a statute of repose accrues based on a
fixed period of time. A statute of limitation accrues from
the time one would reasonably know about the problem. He
spoke in support of a ten year statute of repose. He
stressed that there would not be a huge additional expense
to keep documents another two years in order to catch the
majority of cases. He observed that Representative Porter's
concerns are attached to non-construction issues. He
suggested that there could be two different statutes of
repose.
A roll call vote was taken on the MOTION to adopt Amendment
3.
IN FAVOR: J. Davies, Grussendorf, Moses
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin,
Therriault,
Representatives Mulder and Hanley were absent from the vote.
The MOTION FAILED (3-6).
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Representative J. Davies WITHDREW Amendments 4 and 5.
Representative J. Davies MOVED to adopt Amendment 6 (copy
on file). Representative Kelly OBJECTED. Representative J.
Davies explained that Amendment 6 would allow the caps on
non-economic damages to be tied to the Consumer Price Index
(CPI). Representative Porter spoke against Amendment 6. He
stressed that the Court would be required to make constant
CPI adjustments. He pointed out that statutes can be
revised.
Representative J. Davies responded that CPI calculations are
simple and can be calculated quickly. He stressed the
impact of inflation. He emphasized the difficulty of
passing legislation to revise statutes.
Representative Porter observed that the legislation contains
an accelerator. He stressed that the value of the CPI is in
national dispute.
A roll call vote was taken on the MOTION to adopt Amendment
6.
IN FAVOR: J. Davies, Grussendorf, Moses
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin,
Therriault,
Representatives Mulder and Hanley were absent from the vote.
The MOTION FAILED (3-6).
Representative J. Davies MOVED to adopt Amendment 7 (copy on
file). Co-Chair Therriault OBJECTED. In response to a
question by Representative Porter explained that each claim
is limited by $300 thousand dollars. The amendment would
reduce the amount of money that children could get over loss
of consortium. Representative J. Davies indicated that the
amendment was not correctly drafted.
Representative J. Davies expressed concern that subsection
(b) on page 5 could be interpreted that the cap applies in
aggravate. He suggested adding "of a person" on page 5 line
16.
Representative J. Davies WITHDREW Amendment 7. He MOVED to
insert after "claims", "of a person" on page 5 line 16.
There being NO OBJECTION, it was so ordered.
Representative J. Davies WITHDREW Amendment 8 (copy on
file). He MOVED to adopt Amendment 9 (copy on file). Co-
Chair Therriault OBJECTED for purposes of discussion.
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Representative J. Davies noted that Amendment 9 addresses
the limit on punitive damages. The amendment would delete
"four times the amount of compensatory damages awarded or
$600 thousand dollars, whichever is greater"; and add "three
times the annual net profit reasonably attributable to the
commercial activity." He spoke in support of the amendment.
He noted that the amendment would address the situation
where a large corporation makes a business decision that
they are willing to risk the cost of injuries or death
against the cost of instituting a change to the product. He
referred to the Exxon Valdez case. He maintained that $600
thousand dollars is not "a hammer big enough to get the
attention of a large corporation." He stated that the cap
should be appropriate to the size of the corporation.
Representative Kelly pointed out that the in the Exxon case
they would have been required to pay four times the
compensatory damages since the legislation requires that the
greater amount be paid.
Representative Porter noted that the Exxon Valdez case would
not be tried under state law. He stated that, if it were
decided under HB 58, that Exxon would have been required to
pay $3.5 billion dollars in punitive damages at three times
the compensatory damages. He questioned which corporation
would be held responsible under Representative J. Davies'
amendment, the Alaskan corporation or the parent
corporation. He pointed out that there are several
definitions of "net profit".
Representative Foster suggested that the amendment would be
detrimental to small businesses. He cited a hypothetical
case in which a company has contaminated soil. The company
has insurance, but only made a small profit. The amount of
damages that would be recoverable would be minimal.
Representative J. Davies argued that $600 thousand dollars
would be too much for a small company. He reiterated that
the award needs to relate to the economic ability of the
company.
A roll call vote was taken on the MOTION to adopt Amendment
9.
IN FAVOR: J. Davies, Grussendorf
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin,
Therriault
Representatives Hanley, Mulder and Moses were absent for the
vote.
The MOTION FAILED (2-6).
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Representative J. Davies MOVED to adopt Amendment 10 (copy
on file). Co-Chair Therriault OBJECTED for purposes of
discussion. Representative J. Davies explained that
Amendment 10 would delete section 11, reduction of taxes.
He argued that the judge and jury should determine the
affect of taxes on the award. He expressed concern with the
victims' rights.
Representative Porter argued against the amendment. He
reiterate the intent of the provision is to make someone
responsible for what a person lost, not make a profit.
Representative Grussendorf spoke in support of the
amendment.
Mr. Dillon discussed section 11. He noted that the federal
government is the taxing authority. He observed that juries
are told to take into account taxes for past wages. Juries
are not told to take into account taxes for future economic
wages. He did not know of other states that makes a
deduction for taxes. He stressed that the IRS will take its
share of the award.
In response to a question by Representative G. Davis, Mr.
Dillon maintained that the argument should not be allowed
that some form of damages should not be paid on the bases of
the federal government taxing or not taxing. He asserted
that litigation will result from the provision.
MICHAEL LESSMEIER, ATTORNEY, STATE FARM INSURANCE spoke
against the amendment. He observed that economists make
projections of past wage lost. Past wage lost is reduced by
the amount that one would have to pay for federal income
tax. The Alaska Supreme Court ruled that juries be
instructed not to consider future taxes. He stressed that
the intent is to clarified that persons are paid for wages
they actually would loose. Net wages would be paid for the
future and the past.
Representative Grussendorf summarized that future
compensation is not taxed. Mr. Lessmeier asserted that the
legislation would remove a windfall.
Representative J. Davies observed that juries are instructed
not to consider future taxes. Mr. Lessmeier observed that
the State Court recognized the unpredictability of the
federal system. If federal law changes (judgments are
assessed a federal tax) the provisions would not apply. He
acknowledged that there is a policy issue.
Representative J. Davies noted that the verdict shall be
itemized. In response to a question by Representative J.
Davies, Mr. Lessmeier explained that only punitive damages
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are subject to tax and past wage loss. Representative J.
Davies clarified that if they are subject to taxation they
would not be reduced. Representative Porter stated that
federal courts deduct taxes that would have been paid on
future wages.
A roll call vote was taken on the MOTION to adopt Amendment
10.
IN FAVOR: J. Davies, Grussendorf, Therriault
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin
Representatives Hanley, Mulder and Moses were absent from
the vote.
The MOTION FAILED (3-5).
Representative J. Davies MOVED to adopt Amendment 11 (copy
on file). Co-Chair Therriault OBJECTED for purposes of
discussion. Representative J. Davies explained that
Amendment 11 would apply to the periodic payment. He
observed that periodic payments can be made on judgments
over $100 thousand dollars with the exception of attorney
contingency fees. He expressed concern that periodic
payments may not be large enough to allow a person with
large medical bills to cover their expenses. Amendment 11
would provide that periodic payments be made if the judgment
exceeds $100 thousand dollars, "or the total of medical
bills and other costs reasonably expected to be incurred by
the injured party form the time of the injury through two
years after the date of judgment, whichever is greater."
(Tape Change, HFC 97-61, Side 1)
Representative Porter maintained that the Court would
consider medical bills prior to awarding periodic payments.
He stated that medical payments would be part of the lump-
sum payment. He observed that the legislation does not
limit how much the periodic payment will be or the length of
payment. He stressed that periodic payments are usually
agreed to by the parties. He noted that future wages would
have been periodic.
In response to a question by Representative G. Davis,
Representative Porter explained that the legislation would
allow the plaintiff or defendant to elect periodic payment.
Representative J. Davies pointed out that existing law
allows the injured party the option to except periodic
payment. He maintained that this helps to assure that the
payment is a reasonable apportionment. The legislation
would require the Court at the request of either party to
institute periodic payments. He expressed concern that the
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injured party could be forced into an injurious periodic
payment.
Representative Porter observed that studies show that it is
more likely that the wealth of a lump-sum payment will be
dissipated in an untimely fashion.
A roll call vote was taken on the MOTION to adopt Amendment
11.
IN FAVOR: J. Davies, Grussendorf, Therriault
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin
Representatives Hanley, Mulder and Moses were absent from
the vote.
The MOTION FAILED (3-5).
Representative J. Davies MOVED to adopt Amendment 12 (copy
on file). Co-Chair Therriault OBJECTED for purposes of
discussion. Representative J. Davies explained that
Amendment 12 refers to joint severability. He stated that
the statue of repose removes certain people from
responsibility. He stressed that they could still be
apportioned a portion of fault. The intent of Amendment 12
is to clarify that if a person is barred from being brought
to the table by the statute of repose that they cannot be
apportioned a portion of the fault. He observed that the
responsibility of a building owner increases overtime. He
acknowledged arguments that a large portion of the problem
arises from poor maintenance. He asserted that the
responsibility of maintaining the building should be
shifted, overtime, to the building owner or his insurance
carrier. Once the statute of repose has been reached and
the design professionals are no longer liable, then the
owner should be fully responsible. He alleged that a victim
cannot be made whole under a circumstance where the fault is
apportioned to someone who cannot be held responsible.
Representative Porter spoke against Amendment 12. He
observed that the design portion of the statute of repose is
15 years. He maintained that the amendment would eliminate
the design portion of the statute of repose.
Representative J. Davies observed that, in the case where a
building collapses nine years after it was designed, a case
could be made that a jury could apportion 25 percent of the
responsibility to the design professional. He argued that
25 percent would not be claimable by the injured party
because of the statute of repose.
Representative Porter stressed that the amendment would
apply to all claims. He stressed that the majority of
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claims would be made before the statute of repose. He
stated if a design problem is gross negligence or
fraudulent, or where the building specifications were not
followed the designer could still be responsible. He
maintained that the jury would not find the designer
responsible. He argued that the amendment would take away
the discretion of juries.
Representative J. Davies reiterated that if by the statute
of repose a person is removed from responsibility the jury
should not be allowed to apportion a part of the blame to
that person.
A roll call vote was taken on the MOTION to adopt Amendment
12.
IN FAVOR: J. Davies, Grussendorf, Moses
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin, Mulder,
Therriault
Representative Hanley was absent from the vote.
The MOTION FAILED (3-7).
Co-Chair Therriault reviewed the fiscal notes. He stated
that the fiscal notes appear to be reasonable and justified.
Representative Martin MOVED to report CSHB 58 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. Representative J. Davies
OBJECTED for purposes of amendment. Representative Martin
WITHDREW his motion.
Representative J. Davies MOVED to delete section 21. Co-
Chair Therriault OBJECTED for purposes of discussion.
Representative J. Davies noted that section 21 pertains to
offers of judgement. He expressed concern that if a
plaintiff could be liable for the entire cost of attorney
fees if the judgement is within 5 percent of an offer to
settle. He acknowledged that the section will reduce
litigation. He maintained that no one will be able to take
the risk. If a plaintiff is wrong they could be financially
wiped out even if they win the suit.
Representative Porter stressed that most cases in Alaska are
against small businesses that have no ability to face a
punitive damage complaint. He explained that the offer of
judgment allots actual attorney fees and costs from the time
the offer is made to the trial, if the offer is not
accepted. He acknowledged that it would not be fair if
judgment was missed by 1 percent. He stressed that the
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intent of the provision is to provide a motivation, for both
sides, to make a reasonable offer and to settle.
Representative J. Davies emphasized that plaintiffs are not
going to run up attorney fees if the settlement is
reasonable. He spoke in support of a sliding scale for
apportionment of attorney fees. Representative Porter
argued that plaintiff's attorney costs would not be a
consideration since they are provided by contingency fees.
A roll call vote was taken on the MOTION to adopt Amendment
13.
IN FAVOR: J. Davies, Grussendorf, Moses
OPPOSED: G. Davis, Foster, Kelly, Kohring, Martin, Mulder,
Therriault
Representative Hanley was absent from the vote.
The MOTION FAILED (3-7).
Representative Martin MOVED to report CSHB 58 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
ADJOURNMENT
The meeting adjourned at 3:50 p.m.
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