Legislature(1997 - 1998)
02/24/1997 01:12 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
February 24, 1997
1:12 p.m.
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Con Bunde, Vice Chairman
Representative Brian Porter
Representative Norman Rokeberg
Representative Jeannette James
Representative Eric Croft
Representative Ethan Berkowitz
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 58
"An Act relating to civil actions; relating to independent counsel
provided under an insurance policy; relating to attorney fees;
amending Rules 16.1, 41, 49, 58, 68, 72.1, 82, and 95, Alaska Rules
of Civil Procedure; amending Rule 702, Alaska Rules of Evidence;
amending Rule 511, Alaska Rules of Appellate Procedure; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SSHB 58
SHORT TITLE: CIVIL ACTIONS &ATTY PROVIDED BY INS CO.
SPONSOR(S): REPRESENTATIVE(S) PORTER,Cowdery,Bunde
JRN-DATE JRN-DATE ACTION
01/13/97 43 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 43 (H) JUDICIARY, FINANCE
01/16/97 95 (H) COSPONSOR(S): COWDERY
02/17/97 373 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS
02/17/97 374 (H) JUDICIARY, FINANCE
02/19/97 (H) JUD AT 1:00 PM CAPITOL 120
02/21/97 (H) JUD AT 1:00 PM CAPITOL 120
02/21/97 429 (H) COSPONSOR(S): BUNDE
02/24/97 (H) JUD AT 1:00 PM CAPITOL 120
02/26/97 (H) JUD AT 1:00 PM CAPITOL 120
02/27/97 (H) JUD AT 10:00 AM CAPITOL 120
WITNESS REGISTER
JOHN WHEATLEY, Vice President of Policy
Support Industry Alliance
4220 "B" Street
Anchorage, Alaska 99503
Telephone: (907) 563-2226
POSITION STATEMENT: Testified in support of SSHB 58.
JUDY BRADY, Executive Director
Alaska Oil and Gas Association
121 Fireweed Street
Anchorage, Alaska 99503
Telephone: (907) 272-1481
POSITION STATEMENT: Testified on SSHB 58.
STEPHANIE GALBRAITH, Attorney
Municipality of Anchorage
632 West Sixth Avenue
Anchorage, Alaska 99501
Telephone: (907) 343-4545
POSITION STATEMENT: Testified in support of SSHB 58.
LEONARD EFTA
P.O. Box 353
Kenai, Alaska 99611
Telephone: (907) 283-7670
POSITION STATEMENT: Testified against SSHB 58.
SUSAN ROSS
P.O. Box 198
Kasilof, Alaska 99610
Telephone: (907) 262-5479
POSITION STATEMENT: Testified on SSHB 58.
ROSS MULLINS, Chairman
Prince William Sound Fisherman
Plaintiff Committee
P.O. Box 436
Cordova, Alaska 99574
Telephone: (907) 424-3664
POSITION STATEMENT: Testified against SSHB 58.
JACK HOPKINS
P.O. Box 343
Cordova, Alaska 99574
Telephone: (907) 424-7632
POSITION STATEMENT: Testified against SSHB 58.
DICK CATTANACH, Chairman of Legislative Committee
Associated General Contractors
8101 Old Seward
Anchorage, Alaska 99501
Telephone: Not provided
POSITION STATEMENT: Testified on SSHB 58.
DR. DAVID JOHNSON
Ketchikan Medical Clinic
3612 Tongass Avenue
Ketchikan, Alaska 99901
Telephone: (907) 225-5144
POSITION STATEMENT: Testified in support of SSHB 58.
GLENN C. SMITH, Manager
Scott Wetzel Services, Inc.
3000 C Street, Suite 110
Anchorage, Alaska 99503
Telephone: (907) 561-1725
POSITION STATEMENT: Testified in support of SSHB 58.
CHERI SHAW, Executive Director
Cordova District Fishermen United
P.O. Box 939
Cordova, Alaska 99574
Telephone: (907) 424-3447
POSITION STATEMENT: Testified in opposition to SSHB 58.
COLIN MAYNARD, Engineer
Alaska Professional Design Council
510 L Street, Suite 200
Anchorage, Alaska 99501
Telephone: (907) 274-2236
POSITION STATEMENT: Testified in support of SSHB 58.
STEVE BORELL, Executive Director
Alaska Miner's Association
501 W. Northern Lights, Suite 203
Anchorage, Alaska 99503
Telephone: (907) 276-0747
POSITION STATEMENT: Testified in support of SSHB 58.
AL TAMANGI
Structured Financial Associates
1205 E. International Airport Road
Anchorage, Alaska 99501
Telephone: (907) 562-7421
POSITION STATEMENT: Testified in support of SSHB 58.
JAMES JORDAN, Executive Director
Alaska State Medical Association
4107 Laurel Street
Anchorage, Alaska 99508
Telephone: (907) 562-2662
POSITION STATEMENT: Testified on SSHB 58.
FRANK DILLON, Executive Director
Alaska Trucking Association
3443 Minnesota Drive
Anchorage, Alaska 99503
Telephone: (907) 276-1149
POSITION STATEMENT: Testified in favor of SSHB 58.
MIKE BURNS, President
Key Bank of Alaska
101 West Benson
Anchorage, Alaska 99510
Telephone: (907) 564-0250
POSITION STATEMENT: Provided testimony on SSHB 58.
CHARLES WALLS, President
Alaska Villages Electric Cooperative
4831 Eagle Street
Anchorage, Alaska 99503
Telephone: (907) 561-1818
POSITION STATEMENT: Testified in support of SSHB 58.
MIKE LESSMEIER, Defense Attorney
State Farm Insurance Company
One Sealaska Plaza, Suite 303
Juneau, Alaska 99801
Telephone: (907)586-5912
POSITION STATEMENT: Testified in support of SSHB 58.
MIKE SCHNEIDER, Attorney at Law
Law Offices of Michael J. Schneider
880 North Street, Suite 202
Anchorage, Alaska 99501
Telephone: (907) 277-9306
POSITION STATEMENT: Testified in opposition to SSHB 58.
BOB VALLIANT, Hospital Administrator
Alaska Hospital & Nursing Home Association
4409 Cloverdale
Juneau, Alaska 99801
Telephone: (907) 789-5865
POSITION STATEMENT: Provided testimony on SSHB 58.
MIKE BARCOTT, Attorney at Law
Faulkner, Banfield, Doogan and Holmes
1647 Second Avenue East
Seattle, Washington 98112
Telephone: (206) 292-8008
POSITION STATEMENT: Provided testimony on SSHB 58.
ORIN SEYBERT, President
Peninsula Airways
Representing Alaska Air Carriers
6231 Collins Way
Anchorage, Alaska 99502
Telephone: (907)243-7701
POSITION STATEMENT: Testified in support of SSHB 58.
NEIL MACKINNON, President
National Federation of Independent Business
1114 Glacier Avenue
Juneau, Alaska 99801
Telephone: (907) 586-1254
POSITION STATEMENT: Testified in support of SSHB 58.
PAMELA LABOLLE, President
Alaska State Chamber of Commerce
217 Second Street, Suite 201
Juneau, Alaska 99801
Telephone: (907) 586-2323
POSITION STATEMENT: Testified in support of SSHB 58.
ACTION NARRATIVE
TAPE 97-25, SIDE A
Number 001
The House Judiciary Standing Committee was called to order by
Chairman Joe Green at 1:12 p.m. Members present at the call to
order were Representatives Con Bunde, Jeannette James, Norman
Rokeberg, and Chairman Joe Green. Representatives Eric Croft and
Ethan Berkowitz joined the committee meeting at 1:17 p.m. and
Representative Brian Porter arrived at 1:20 p.m.
SSHB 58 - CIVIL ACTIONS & ATTY PROVIDED BY INS CO.
Number 055
CHAIRMAN JOE GREEN indicated the committee would hear SSHB 58,
"An Act relating to civil actions; relating to independent counsel
provided under an insurance policy; relating to attorney fees;
amending Rules 16.1, 41, 49, 58, 68, 72.1, 82, and 95, Alaska Rules
of Civil Procedure; amending Rule 702, Alaska Rules of Evidence;
amending Rule 511, Alaska Rules of Appellate Procedure; and
providing for an effective date." He set a deadline of 5:00 p.m.
for members to submit proposed amendments on SSHB 58, and noted
there might be an exception for an extenuating circumstance.
Number 115
JOHN WHEATLEY, Vice President of Policy, Support Industry Alliance,
testified via teleconference from Anchorage. He said the alliance
has over 300 member companies and individuals supporting petroleum,
mining and resource development in the state of Alaska. He stated
Alaska is competing for investment dollars in a global basis and we
must continue to send a message that we are open for business.
This can be done by stabilizing the economic climate through fiscal
restraint and stabilizing the legal climate through comprehensive
tort reform.
MR. WHEATLEY said the cost of personal litigation of liability
insurance has a dramatic impact on large and small businesses. The
ever increasing private liability personal injury suits and the
unpredictability of damage awards has caused costs to soar. Tort
reform legislation will help control these expenditures while
assuring appropriate compensation for persons injured through the
fault of others. Over the years, the tort litigation system has
been increasingly criticized by many public and private sectors.
Efforts to institute change to reduce opportunities for abuse have
been hindered by fears that a change in the system would not allow
just compensation for injury.
MR. WHEATLEY said the alliance believes tort reform should: Limit
non-economic damages; prohibit punitive damages unless malice or a
concrete act showing deliberate disregard for another person can be
shown; limit punitive damages; allow jurors to be informed about
awards already collected by claimants for state injuries; allow
courts to decide each of the shares of damages; provide monetary
sanctions against any attorney in civil cases for filing frivolous,
unnecessary and/or legally deficient pleadings; bar damage suits if
injuries were received while committing a felony; and establish
guidelines for the qualification of expert witnesses. The alliance
believes the ability to recover costs in damages is manyfold, it
should be protected. Punitive damages should be capped by a
multiple of actual damages and assessed when willful negligence or
malicious intent is proven. If the intent of punitive damages is
to punish rather than award, it would follow that a portion of
punitive damages could be allocated to the state. Government
officials must continue to search for ways to reduce costs for
doing business in Alaska, including comprehensive review of
liability laws affecting the economics of business. Comprehensive
review of tort reform is a positive step toward improving the
business climate in Alaska. He expressed their support for SSHB
58.
Number 358
JUDY BRADY, Executive Director, Alaska Oil and Gas Association
(AOGA), testified next via teleconference from Anchorage. She said
AOGA is a trade association whose 19 member companies account for
the majority of oil and gas exploration, production,
transportation, refining and marketing activities in Alaska. She
said AOGA believes that Alaska should adopt reforms to its civil
justice system. The civil justice system gives juries and judges
discretion to impose unlimited punitive damage awards without
adequate guidelines and criteria necessary to insure the
constitutional protection of due process. The civil justice
system, in some instances, discourages investment in the state.
MS. BRADY said a variety of reforms have been suggested and AOGA
believes the most important is limitations on punitive damages
which would make it clear that awards, beyond those necessary,
compensate claims for real damages and would need to be justified
by clear and convincing evidence about rates and conduct. This
amount would be capped so that juries and judges cannot impose a
financially ruinous or undue award. Judgment should be
proportionate to fault. It's unfair to require a defendant to pay
a much larger share of damages [indisc.--simult.speech] fault.
Number 505
STEPHANIE GALBRAITH, Attorney, Municipality of Anchorage, testified
next via teleconference from Anchorage. She said she is in support
of SSHB 58. She said she would like to suggest some things that
would greatly assist the municipality. Changing the statute of
limitations to property claims to two years, instead of the current
statute of six years. That six year period has been a problem for
the municipality, in particular for the Anchorage Police
Department. Handling adjoining property and claims that can be up
to six years old is difficult because witnesses and evidence are
gone at that point. She said the municipality strongly supports
changing the statute of limitations to two years which is
consistent with almost all other tort claims.
MS. GALBRAITH said, in addition, the municipality supports limits
on non-economic damages and punitive damages. They also strongly
support language that any person responsible for damages may be
assessed for a percentage of fault regardless of whether that
person is named in a particular lawsuit. It is very expensive and
time consuming to file third party complaints and this would be a
method to make sure that fault is proportioned fairly without
uncontrolled [indisc.]. The municipality also supports change of
prejudgment interest, which, as it currently stands ends up
developing a windfall towards many claims.
Number 661
REPRESENTATIVE ETHAN BERKOWITZ asked how many times the
municipality was involved in civil actions last year as a
plaintiff, as opposed to being involved as a defendant.
Number 669
MS. GALBRAITH said she did not have that exact number, but it is a
very small number and on fairly small claims in terms of recovering
damages for property.
Number 700
REPRESENTATIVE BERKOWITZ referred to her suggestions about
limitations and asked her how many cases the municipality had
involving the statute of limitations.
Number 723
MS. GALBRAITH said there were 250 property claims against the city.
REPRESENTATIVE BERKOWITZ asked how many claims would be affected if
it were changed from six years to two years.
MS. GALBRAITH responded a small percentage of claims would be
affected. It may not be a small number, but it is significant in
terms of dollar amounts.
Number 795
LEONARD EFTA testified via teleconference from Kenai. He feels the
jury should decide what is fair and what is not fair. His
understanding is that less than one-tenth of 1 percent of lawsuits
have been frivolous. Mr. Efta referred to the sponsor statement
and said over 50 percent of the lawsuits that go on to lawyers
[indisc.], and according to the bill, the lawyer will still get his
share and now the state will take 50 percent of it too. The
claimant will end up with maybe 10 percent. It appears that SSHB
58 is intended to protect the insurance companies [indisc.] and
doesn't think it will help him. He opposed SSHB 58.
Number 869
SUSAN ROSS testified next via teleconference from Kenai. She read
the section of SSHB 58 regarding legislative intent and then
compared that intent with quotes from the Governor's Advisory Task
Force report of civil justice reform located on page 7. She said
SSHB 58 appears to address the wrong problem, the problems are:
Excessively high attorney fees, and excessively high insurance
premiums that have not been reduced in spite of 16 very historical
court reforms since 1967.
Number 1061
ROSS MULLINS, Chairman, Prince William Sound Fisherman Plaintiff
Committee, testified next via teleconference from Cordova. He said
he did not understand why SSHB 58 was necessary when even
Representative Porter agreed that only about 5 percent of the cases
procede to trial and of that 5 percent only 1 out of 20 has a
punitive damages award. Out of 2,000 cases, 1,900 were settled out
of court, 100 go to trial and approximately 5 of them result in
punitive damages being awarded. He assumed that the trial cases
are those with the most seriously injured and damaged plaintiffs.
It is unclear whether the punitive award often exceeded the
punitive caps, as proposed in SSHB 58. If they did, this would
have been brought forth and it wasn't. It seems likely these
punitive awards are not of serious consequences. To fix punitive
caps does not serve the best interest of the citizens of Alaska.
Today's dollar is worth approximately 38 cents of a 1970 dollar.
A fixed cap of any kind will only serve the interests of a
liability over time as the value of the dollar diminishes, the
cap's value would also be diminished.
MR. MULLINS said this bill will clearly reduce the financial risk
of doing business with the major oil corporations and their
insurers, particularly wrongdoers who have a potential capacity to
devastate the natural environment and common property resources in
Alaska, and of those Alaskans who depend on them for their
livelihood, except with the commercial fishermen. He questioned if
this is what we want in Alaska. The possibility of large punitive
damage awards is a great motivation and explains why the major oil
companies are seriously attempting to improve their marine
transportation operations. When the cost of compliance rises above
the possible consequences, then he feared that we would no longer
see big oil complying with what is best for Alaska and its
citizens.
MR. MULLINS said SSHB 58 is similar to the bill vetoed last year by
the Governor. Maybe the legislation had a different provision
regarding punitive damages, but it would have had a retroactive
effect in a case where final judgment had not been entered. It was
vetoed, in part, due to the opposition expressed by the Exxon
Valdez plaintiffs out of concern for the causal effect of the bill
on the Exxon Valdez verdict. In an attempt to avoid another veto,
the current bill now states that it has a separate effect only, and
it does not apply to the Exxon Valdez litigation. This change does
not reduce the threat of SSHB 58. It is obvious that state law,
regarding punitive damages, does not apply by its own force in an
award of punitive damages in a federal maritime action. Instead,
this state law would apply by [indisc.] the interstice of federal
maritime law to indicate public policy regarding punitive damages.
We could count on Exxon's counsel to prominently display the
current bill's [indisc.] damage limitation, if enacted, in support
of their public policy argument. This bill would have as much
effect, or nearly as much effect on appeal, as would the vetoed
bill.
MR. MULLINS referred to a chart of the ocean survival of pink
salmon at the [indisc.] hatchery right in the path of the oil
spill. Prior to 1989, they were averaging returns of 4 to 8
billion fish a year, with ocean survivals between 4 and 8 percent.
Since 1989, ocean survivals have dropped down to about 1 to 1.25
percent and we are returning less than 1.3 million fish per year.
The long term effects of the Valdez oil spill is continuing to have
an affect on the facilities and fishermen, and cannot be remedied
by punitive caps that are of a paltry nature and do not necessarily
reflect the major environmental consequences of large oil spills
when they occur. He said those spills are inevitable over time.
Number 1332
REPRESENTATIVE ERIC CROFT clarified that he is getting significant
changes from Exxon because of the threat of punitive damages.
Number 1340
MR. MULLINS said one of the reasons that the oil industry is making
major efforts to work with their SURGE program, and with the
commercial fishing industry in attempting to upgrade their
transportation facilities, is largely due to the threat of a large
award such as the one that occurred from the Exxon Valdez spill.
He said we need to show companies that it costs more to be careless
then it does to do business straight. He said SSHB 58 would put
the state right back to where the state was pre-1989.
Number 1457
JACK HOPKINS testified next via teleconference from Cordova. He
said he is opposed to SSHB 58. The common man has very few tools
to work with in this world, and said this bill appears to take one
more tool away from him.
Number 1490
DICK CATTANACH, Chairman of Legislative Committee, Associated
General Contractors (AGC), testified next via teleconference from
Anchorage. He said AGC represents approximately 600 construction
members in the state of Alaska. He referred to Section 8, Statute
of Repose, 1999 and 1992 and said Shinaner [Ph] Management
Services, Inc. reviewed four studies that measured the claims that
were brought on construction projects, and it indicated that the
vast majority of the claims were filed within six years of
substantial completion of the construction project. He said claims
filed more than six years after substantial completion almost
always involved users of projects. Due to the complexity of the
construction process, it is unrealistic to expect parties involved
in the design and construction of any project to defend state stale
claims brought many years after their involvement when the project
has ended. This section of the statute does not impose an unfair
burden on the injured party because it allows them to seek redress
from the owner, or the occupier of the project, who are the parties
most likely to be responsible for the injury, and the one in the
best position to have prevented it.
Number 1575
MR. CATTANACH said that section of SSHB 58 provides protection to
some injured parties by tolling the time period if the cause of
action was the result of an intentional, or fraudulent action,
which contributed to the cause of action. The matter of Frederick
W. Triem, the Alaska Supreme Court held that a five year statute of
limitation governed the filing of attorney grievances. This
reflected the judgment that five years is the outer limit of time
in which responding attorneys are able to defend themselves against
charges, given the loss of memory, evidence and witnesses over
time. He did not believe that anyone would argue that the
construction industry does not face the same problem as the legal
profession does in defending themselves against suits. He
questioned why the construction industry had a longer period of
time before they are free from litigation.
MR. CATTANACH said that according to reports through legislative
research, the eight year period was exceeded by only four states.
Statute of reposes are commonly three, four and five years, and the
proposed time frame of eight years seems to be more than adequate
to provide the detection of any construction and design defects to
allow property owners to take action to remedy them. He provided
written testimony to the committee since he would not be able to
review the second area of concern, punitive damages, due to time
constraints. He did say, though, that 95 percent of businesses in
the state of Alaska are classified by the state as small
businesses. Punitive damages are not covered by insurance, and
therefore must be borne by the parties themselves. This is an
undue burden, not only do businesses have to pay damages awarded,
but also pay for the defense of the award.
Number 1675
REPRESENTATIVE CROFT clarified that Mr. Cattanach was referring to
a five year statute of limitations for grievances.
MR. CATTANACH responded that in the matter of Frederick W. Triem,
the Alaska Supreme Court held the five year statute of limitations
for the filing of attorney grievances due to the fact that
attorneys would not be able to fairly defend themselves against
charges given the loss of memory, evidence and witnesses that occur
over time.
Number 1710
REPRESENTATIVE CROFT asked Mr. Cattanach if he understood that this
was a statute of limitations with a discovery rule. What he's
asking for is an absolute bar after 8, something that attorneys
have never gotten to his knowledge.
MR. CATTANACH stated that this was not an absolute bar if there is
any proof that any defects were intentional, or that there was a
fraudulent action.
Number 1740
REPRESENTATIVE CROFT asked if Mr. Cattanach wanted the same
standards that the lawyers have.
MR. CATTANACH responded that what's fair for one should be fair for
all.
Number 1750
REPRESENTATIVE NORMAN ROKEBERG asked Mr. Cattanach if he thought it
would be fair to draw a distinction between construction and
design, in regards to statute of repose. Clearly, if there was a
construction defect it would probably come to light sooner than a
design defect. He asked Mr. Cattanach if these should be
approached differently in this statute.
MR. CATTANACH spoke from his experiences with dealing in areas that
do have building codes, and consequently, they do have municipal or
borough oversight. He thought they should be the same. The
designers design the project, the contractor builds it according to
plans and specifications. All of these must meet the building
codes that are in place at that time. There are state and local
inspectors who make sure that these projects are built according to
design. Plans must go through a plan review, and under the city of
Anchorage, this is a very rigorous review. They make sure that the
design professionals do, in fact, comply with the building codes.
He felt that a similar statute of repose for both parties is only
appropriate.
Number 1818
REPRESENTATIVE ROKEBERG asked if Mr. Cattanach was suggesting that
the city plan reviewers can verify the structural integrity of a
design based on their review of blueprints.
MR. CATTANACH stated that it was his understanding that the
municipality, whether they like it or not, go over the structural
design, and actually recompute all of the calculations. In fact,
he responded, yes.
Number 1848
REPRESENTATIVE BERKOWITZ questioned Mr. Cattanach's position. He
clarified his position that the cost of defending suits is too
high, and that the punitive damages place an undue burden on
businesses through insurance.
MR. CATTANACH stated that this was the second part he didn't get to
testify on, but clarified by personal example. His firm was
involved as a second party two years after the first party was
sued, in a particular case. The plaintiffs found that the initial
defendants didn't have deep enough pockets, hence his firm was
named. The initial request was for $225,000. The insurance
company refused the case as blameless and denied the claim. The
attorney was very aggressive and boosted the claim to $500,000 and
stated that they believed punitive damages also applied. His firm
is small. Once punitive damages are assessed, they come directly
out of the firm's pocket, not to mention costs to litigate, all
totaled, this added up to about $50,000 to $100,000. Their
instructions to their insurance company were to settle, no matter
what the costs were within the policy limits. This is why they
don't see a lot of punitive damages going to court, since people
can't afford the risk of losing everything they've worked all their
lives for, just to say they've won.
Number 1941
REPRESENTATIVE BERKOWITZ asked how many construction cases there
were that fell within the proposed statute of repose. Mr.
Cattanach indicated that most cases take place within the first six
years. He asked for a breakdown of cases within the six year
period, within 8 years and then outside of 8.
MR. CATTANACH stated that he would provide that information to the
committee within the next day or two.
Number 1974
DR. DAVID JOHNSON, Ketchikan Medical Center, testified by
teleconference from Ketchikan on behalf of the State Medical
Association in support of SSHB 58. He addressed three sections
which particularly relate to medicine. The first, Section 6
regarding statute of limitation, and the concern about changing
this to eight years, especially for children under age six, would
be unfair. He stated that there is a suspicion that there are
seminal birth injuries that lurk undiscovered for years, and show
themselves much later. He noted that this has not been shown to be
true, most bad things that happen at birth are evident at birth.
They believe the language proposed is the safeguard of the school
system, as well as other physicians caring for a child, and
certainly they trust parents to make these judgments regarding an
impaired child. They support this language.
Number 2046
DR. JOHNSON stated in regards to the section on noneconomic
damages that there was nowhere in law a Faustian bargain trading an
injury for any amount of money. This rapidly becomes something
arbitrary. In jurisdictions where limitations have been enacted
conspicuously, California, with their Medical Injury Compensation
Reform Act (MICRA) reforms, the single thing which made the most
difference on liability insurance premiums was injecting
predictability, which is to say, a limitation on what is
essentially unlimited, mainly, non-economic damages. They applaud
the attempt to make some type of definition here.
Number 2082
DR. JOHNSON referred to Section 29 and 30 that address the expert
advisory panel. This is something that's been a difficulty for all
parties. The way it is currently being administered in the courts
makes it difficult for them, as an association, to do their job in
choosing people to serve on these panels. They thought the
questions, as posed, sharpen the questions that were written twenty
years ago. They do believe the expert advisory panels have a place
and role, as well as helping to accomplish the legislative intent
at the beginning of the bill.
Number 2113
REPRESENTATIVE BERKOWITZ referenced Section 35 regarding civil
liability of hospitals, which basically exempts contractual
emergency room physicians. He asked if Dr. Johnson would share his
comments on that section.
DR. JOHNSON responded that what Section 35 does, is shift liability
from a hospital to the hospital medical staff in those cases where
the hospital medical staff is not employed by the hospital. There
are a number of ancillary issues raised in a proposal like this,
and it's something of more interest to them. Hospitals are
released from their liability, but there is the section that
specifies the amount of professional liability insurance, the
physician must carry this in order to qualify.
DR. JOHNSON noted that there was a variety of arrangements for
physicians working for hospitals, government entities, state or
federal, various of the private or non-profits, such as the native
corporations and physicians in private practice, that there are a
number of ways that physicians are paid. He felt that this had the
potential for being a confusing issue, but it's a policy call on
whether hospitals or physicians ought to be liable. In general,
before Jackson v. Powers, it was generally held that each party was
responsible for their own actions. This case created an agency
relationship between the hospital and the physicians. This
legislation is trying to change that back to hospitals being liable
for themselves, and physicians liable for themselves. He noted
again, that this is a very confusing issue and there were a number
of ancillary issues raised in Section 35.
Number 2210
REPRESENTATIVE CROFT stated since Dr. Johnson is a pediatrician
that he was particularly interested in the doctor's input on
discoverability of childhood illnesses. He asked if there were any
childhood injuries, whether birth, mental or physical that are
difficult to discover until later.
DR. JOHNSON stated that "any" was a big word, and in answer to this
"any" question, he noted that someone could think of one, but
added, "are there many? No." He used the example of brain damage
from a childbirth accident, a child that has seizures on the basis
of a birth injury. If they don't have seizures in the neo-natal
period, their later seizures are not related to the birth injury.
In general, as a practical matter, there aren't things that lurk
and would be hidden past the child starting school.
Number 2281
REPRESENTATIVE CROFT asked if there were any forms of childhood
traumatic injury that would only show up in mental slowness. He
noted that seizures seem to be an obvious, and good example, but he
asked if there are injuries that show up only as "Johnny not being
as bright as the other kids."
DR. JOHNSON responded that describing these two injuries earlier,
or assuming that if there is a big variance in a family, it's from
an injury and he didn't think there is data to support this. He
would have to say, no, there's no evidence for an isolated injury
that's visible in no other part of a child, except one certain
aspect; birth injury doesn't cause the inability to learn calculus,
for example.
Number 2322
REPRESENTATIVE CROFT stated that this never happens, that it
doesn't just show up in a mental slowness.
DR. JOHNSON stated again, if he's asking any, or many, he would say
as a practical matter, there is no data that he knows of in the
pediatric or the neurological literature that has a causal
relationship between some specific trauma earlier, and any specific
learning disability later.
Number 2343
REPRESENTATIVE BERKOWITZ referred to Section 5, subsection (c) on
page 4, which tolls the statute of repose upon the discovery of a
foreign body. It seemed to him that lawyers are trying to out
diagnose doctors, and he wondered if there is any other medical
procedures that could cause a problem down the road, other than
leaving a foreign body inside a human body.
DR. JOHNSON responded that in terms of lurking for years and years,
and causing problems, and then all of a sudden being a problem,
something that's left as a foreign body, generally if it's going to
cause problems, will do so relatively soon. It's mere presence
there is an affront and clearly an error. The reason there is an
exception for this type of situation isn't that it will somehow lay
there, and then at a later time cause a problem. If it's there, by
definition it's an error, which needs to be addressed. The degree
of injury created by it is another issue, but it's precisely listed
in this section as something which isn't covered in a statute of
limitations.
Number 2428
REPRESENTATIVE BERKOWITZ stated that he was concerned that this
might be a narrow definition, and there might be something other
than leaving a foreign body in a person that can cause problems
down the road. He wondered if in this situation a problem could
eventually surface.
DR. JOHNSON stated that by and large, if something bad is
happening, it doesn't start and stop being bad. It's just bad. It
stays this way. If it's not bad early on, the likelihood that it
will become bad later on is, in his experience, doesn't happen. I
can't say always or never. He added that there aren't lurking time
bombs within us.
TAPE 97-25, SIDE B
Number 000
DR. JOHNSON stated that this is a continuous thing. Significant
trauma is not discontinuous, but rather continuous. As a practical
matter, covering 99.99 and on, no it's not going to be something
lurking undiscovered that will later rear it's ugly head.
REPRESENTATIVE ROKEBERG asked in his 27 years of practice as a
pediatrician, has he ever personally had a case that came before
him where after a child reached 8 years of age that he discovered
some malady as a result of something which happened earlier.
Number 039
DR. JOHNSON responded no.
REPRESENTATIVE ROKEBERG referred to Section 35 regarding emergency
room physicians, and asked if the provisions of this would, in any
way, make more difficult the hiring of emergency room physicians in
the state of Alaska.
Number 047
DR. JOHNSON responded that he thought the requirement for a half
million dollars insurance coverage will potentially be a problem,
particularly in smaller hospitals. He knows there are some
hospitals who require physicians to carry liability insurance,
others do not. He wasn't sure what the limits of each of them
require in each specific case.
REPRESENTATIVE ROKEBERG referenced a letter submitted by the
Association where they would like to see a recommended ceiling of
$250,000 on non-economic damages. He asked if Dr. Johnson agreed
with this.
Number 080
DR. JOHNSON stated that the reason for the $250,000 is that this is
the number included in the MICRA reforms he mentioned earlier; the
program in California which has been in operation for quite a
number of years. Whatever number is picked, the key from the
insurance side is that a predictable number can be funded. It's an
unpredictable number which can't be funded and $250,000 happens to
be the number that's micro legislation. This is a pure judgment
call.
REPRESENTATIVE PORTER clarified Section 35, and wanted to point out
that it only addresses and affects doctors who actually contract
with hospitals for emergency room activities, not the full gamut of
other doctors, services, et cetera, of the entire facility.
Number 131
DR. JOHNSON noted that he did realize this. He stated that there
had been different definitions, and the key is to look at how it's
actually defined. Emergency room physician definition, if it was
somebody who was contracting with the hospital for services in the
emergency room. He will sometimes see his patients in the
emergency room from time to time, and he's called there as a
consultant to the physicians who are there. If the legislation is
going to specifically address coverage of physicians contracting to
provide coverage in emergency rooms, and if they were to make a
specific definition assigned to the emergency room, or some such
confining language, this would certainly address that part of his
concern. The key is how it is defined in terms of
responsibilities. He noted they needed to distinguish between
those physicians assigned to the emergency room, and those that use
these facilities periodically.
REPRESENTATIVE BERKOWITZ stated on his experience that frequently
young residents moonlight in the emergency rooms and are paid as
contractors. This provision would work against this situation.
Number 212
DR. JOHNSON said he didn't think this was happening at all in
Alaska. They don't have a full-time residency program in Alaska.
When they do, though, it will be in Anchorage. There are residents
who come to the state, from time to time, as part of their training
program, but they all have relationships with practices. He didn't
think moonlighting in emergency rooms is an issue in Alaska.
Number 249
GLENN C. SMITH, Manager, Scott Wetzel Services, Inc., testified by
teleconference from Anchorage on SSHB 58. This firm administers
and adjusts claims for both self-insured and insured. He stated he
was in favor of SSHB 58. He noted in the course of a year, he and
his staff handle approximately 1,500 to 1,700 claims in the areas
of general liability, auto liability, products liability,
protection, indemnity and workers compensation. They have a 4.51
claim [indisc.] on an average, and they have opposing efficiency of
about 1.19 to every claim they bring in. He said in light of this,
he shouldn't have any business, but he does. The reason for this
is primarily in the area of $5,000 to $15,000 claims that goes on
year after year. Normally when he evaluates a case, he does so on
the special damages, the type of injury, et cetera.
MR. SMITH stated that his job is to investigate, evaluate, and to
negotiate a claim to conclusion. This is very difficult to do
within 4.5 months if they don't get medicals for a year, and the
facts strand that should be resolved in 8 weeks, according to the
medical profession. When an claim for an alleged slip and fall is
submitted, they will at least get a photo of the scene and maybe a
witness's name to resolve the issue. The $5,000 to $15,000 claim,
that's evaluated for $50,000 because of the cost of trial being
$20,000 to $35,000, definitely affects the small business man and
also the insurance company. If anyone doesn't think that those
costs aren't being passed down to the consumer, either from the
small business person or the insurance company in the way of
increased premiums, then they're sorely mistaken.
Number 365
REPRESENTATIVE BERKOWITZ asked how much will insurance rates come
down if this bill is enacted into law.
MR. SMITH responded that he didn't think insurance rates would come
down at all, for the reason that they are trying to base this same
piece of tort reform on something that's based nationally. He
noted that they needed a constituent tort reform nationally to
affect the rates. He felt as though the underwriters, and the
companies in Alaska, will look seriously - many excessive insurance
companies insure for punitive damages. Some primary carriers
don't. The question is loaded. If Representative Berkowitz is
referring to one that provides punitive damages, it is definitely
going to affect the rates. Anyone would have a good argument to do
so.
Number 408
REPRESENTATIVE CROFT stated that they were trying to get an
understanding about underwriting. He asked how this bill helped
settle the $5,000 to $15,000 problem case.
MR. SMITH responded that the Rule 82 language is much stronger than
the previous. He said that he didn't think he'd still collect his
actuals from the plaintiff. He explained that the plaintiff would
be able to collect the actuals from most of the defendants that he
handles, since it's a deep pocket versus shallow pocket, but the
fact that it's a level playing field up to the point of bankruptcy
was encouraging to him.
Number 438
REPRESENTATIVE CROFT clarified that this would cut down on
frivolous law suits, not the caps which give them more of a hook on
these $5,000 to $15,000 cases.
MR. SMITH responded that in the $5,000 to $15,000 scenario, they
were paying more because of the threat of litigation. Perhaps now
that the playing field is somewhat level, from the standpoint of
the prevailing party, there will be more consideration given to
resolving of cases before trial and mediation [indisc.].
Number 465
REPRESENTATIVE CROFT asked what section of the bill helped him to
solve these cases.
MR. SMITH stated that he would send this information to
Representative Croft.
Number 505
REPRESENTATIVE PORTER noted that the Section they were looking for
dealt with the offer of judgment. He asked if it would be a fair
statement to make that they have limited insurance availability in
this state because of the limited amount of companies that want to
write here. To the extent that passage of this legislation and it
staying in effect, he said, would cause greater competition, i.e.,
more people, more insurance companies desiring to come to the
state, and asked if the competition might have a positive affect on
rates.
MR. SMITH responded, yes. He's been in the insurance business for
22 years in Alaska, and he said that 50 percent of the companies
doing business today were here in the 70's, largely to different
things like that.
Number 553
REPRESENTATIVE BERKOWITZ asked how these rates were set. If
Alaskan insurance buyers have very little affect, it would seem to
him that the market is driven by what goes on in places in
California. When California enacted its reform, he asked if this
had any effect on driving down rates in Alaska.
MR. SMITH responded that he didn't believe so; however, there are
experienced ratings used by underwriters, and a local underwriters,
such as a company that is down south and Alaska, he thought sure
would take into consideration tort reform legislation. They would
have to include this in their equation. Whether or not they would
see an immediate decline in the rates, he couldn't say. He doubted
this very seriously.
Number 614
CHERI SHAW, Executive Director, Cordova District Fishermen United,
(CDFU) testified via teleconference from Cordova. She also spoke
in her capacity as chairman of the Tort Reform Committee for the
United Fisherman of Alaska. She stated that she would speak for
both organizations and wished to reiterate portions of her previous
testimony. She noted she would fax the same testimony for the
committee's convenience.
MS. SHAW stated that neither organization, as previously outlined,
support SSHB 58, and stressed that they most vehemently protest the
punitive damage portion of the bill. She stated that it was
important that the committee include an amendment that exempts
natural resource torts. Future damages to natural resources
resulting from oil transportation in Alaska's waters, or industry
disasters, should not be subjected to the proposed punitive damage
caps. Long range reoccurring damages cannot be assessed or
confined to the parameters contained in SSHB 58.
MS. SHAW noted that if SSHB 58 is enacted as written, the Exxon
Valdez award and appeals process would be jeopardized. The
thousands of Alaska victims, who are a party to this court case,
will be extremely disadvantaged and could lose the punitive damages
that were awarded them. She reiterated their distress about giving
over 50 percent of the punitive award back to the state. This
would be unfair to the victims of any punitive award and should not
be considered. Representative Porter himself stated that the
victims were not receiving their fair share of punitive awards due
to court costs and attorney fees. This would only lessen the award
intended.
MS. SHAW stated that the final question she wished the committee to
consider is, "does the state of Alaska have a history of frivolous
law suits driving this legislation to be passed?" She noted they
would be happy to work with the committee on amendments to address
their concerns.
Number 715
REPRESENTATIVE ROKEBERG stated for the record, that the state of
Alaska has literally case loads full, reams, boxes, full of
vexatiously litigated natural resource suits in the state. He
asked how, in Ms. Shaw's opinion, this legislation would jeopardize
the Exxon Valdez cause of action presently being litigated.
MS. SHAW responded that the Exxon attorneys would be able to say
that the legislature passed a bill capping punitive damages awards,
and that their sentence goes against public policy. Exxon would
use this in any way possible to either accomplish lowering the
punitive award accessed, or having it thrown out all together. She
didn't think that the effective date of July 1, for this bill,
would deter them from this. Exxon has filed in the appellate court
and have two years worth of appeals to go through.
Number
COLIN MAYNARD, Engineer, representing the Alaska Professional
Design Council, testified from Anchorage via teleconference in
support of SSHB 58. He read a written statement into the record.
"My name is Colin Maynard. I am a professional engineer
representing the Alaska Professional Design council, commonly known
as APDC. APDC is a consortium of professional societies
representing architects, engineers, land surveyors, building code
officials, and landscape architects. The ten member organizations
have a combined membership of over 1400 and represent approximately
5000 licensed professionals. APDC is very supportive of tort
reform in general and SSHB 58 in particular.
"Our legal system needs modification. Over 90 percent of civil
suits never get to a court hearing. Most cases are settled, with
little to no consideration to actual fault, to avoid the expenses
of discovery, trials and the seemingly capricious decisions of
juries. Suits are filed against all possible defendants,
regardless of fault, to ensure there are plenty of pockets to chip
into the settlement. Some people use the court system as a means
of legal extortion by filing frivolous suits with the hope of a
quick settlement. Millions of dollars are spent in the so called
"discovery process' which almost always results in the defendants
throwing in their insurance to stop the bleeding and make the case
go away. Existing sanctions against frivolous suits are rarely
used because they require that the plaintiff first lose at trial,
a trial that rarely happens. Summary judgment is also very rare
because appellate courts have almost always overturned such
decisions, making trial judges wary of issuing such orders. SSHB
58 includes two sections which will help the situation for design
professionals:
"The fist reduces the Statute of Repose for construction related
suits from fifteen years to eight years and expands it to cover all
suits. Over 95 percent of cases associated with construction are
brought within eight years after substantial completion, over 98
percent within ten years. We believe that an eight year statute is
more reasonable for four main reasons. First, almost all of the
cases brought after eight years are related to maintenance
problems, rather than design or construction problems. The owner
of the building would still be available for suit, since his lack
of maintenance is an on-going problem. secondly, it is impossible
to defend, or prosecute, a case fifteen years after substantial
completion due to the lack of witnesses, fading memories, and lack
of documentation. Most of us would have a hard time remembering
what we did fifteen days or months ago, never mind fifteen years.
Thirdly, we will not have to store fifteen years after they retire.
Errors & omissions insurance for design professionals is on a
claims-made basis; that is, it covers you for claims made during
that year. therefore, the longer a period you have to cover, the
higher the premium. The firm in which I am a principal had a
premium of nearly $20,000 in our first year, with no "tail" to
cover. If you add a 15 year tail to that, you get a considerably
higher premium. It is not unheard of to have a premium of over a
hundred thousand dollars with a deductible of a hundred thousand
dollars for a million dollar policy. If we can limit the "tail"
for which we have to insure to eight years, we will make a
considerable reduction in our insurance bills.
"The second section in which we have an interest is the section
regarding alternative dispute resolution. It is time to develop a
system which identities patently frivolous and meritorious suits
early, so we can to get them out of the system. With this in mind,
APDC is urging that an alternative dispute resolution method be
included in any tort reform action by the legislature. A mandatory
mediation or independent early evaluation system would reduce the
number, and costs, of frivolous suits. Fewer, smaller, and shorter
cases should provide relief to an overtaxed court system. A bill
which would have established mandatory mediation in suits against
design professionals passed the House last year, 37-3. The trial
attorneys who testified on that bill said that they would support
mandatory mediation if it was mandatory for all suits." This
concluded Mr. Maynard's written testimony.
Number 955
REPRESENTATIVE CROFT referred to Mr. Maynard's statement regarding
capricious decisions of juries, and he knew that at times this was
frustrating, but he asked what other mechanism they could use to
decide these issues, but with a jury.
MR. MAYNARD noted that there are currently no guidelines for
juries. He referred to an article regarding a jury which awarded
$50 million in punitive damages, on the first appeal this judgment
was reduced to $5 million, the second appeal reduced it to
$350,000. He added that if they could set limits on what our
society believes is a reasonable limit on punitive damages, as
guidelines to juries, to help them decide within those parameters.
To have no parameters established, they're just shooting in the
dark.
Number 999
REPRESENTATIVE CROFT asked for clarification, if Mr. Maynard meant
to propose to constrain their discretion by a cap, and asked about
a proposed minimum.
MR. MAYNARD said that, essentially, what they already have is a
minimum. If economic damages are $300,000, they'd be limited to
$900,000; three times the economic damages. He added that it's
only for the cases that are less than a $100,000, that the $300,000
would become effective.
Number 1038
STEVE BORELL, Executive Director, Alaska Miner's Association
testified via teleconference from Anchorage in support of SSHB 58.
He stated that the Alaska Miner's Association has over a 1,000
members from all parts of the industry, including small suction
dredges, all placer miners, independent miners and prospectors,
suppliers and major international mining companies. He stated that
the time had come for full and comprehensive reform of Alaska's
tort law. This bill would accomplish much of what is needed.
MR. BORELL stated that some of the specific points of this bill he
wished to mention, is that this organization supports fair
compensation for injured persons, but they do not support the
current system that encourages abuse of the law. They also support
a change to ensure that each party is liable, only to the extent
for which that party is responsible. They also support the change
to ensure that a person cannot receive an award for an injury
received while conducting a criminal act. Lastly, this area of law
is a major factor in the general and wide spread distrust and
contempt for the legal system in our country. For the courts, for
the attorneys of this country included, these changes are
reasonable. Reasonable limits within this bill will help restore
the public faith in the legal system.
Number 1111
REPRESENTATIVE BERKOWITZ referred to Mr. Borell's references to
abuses of the law, and asked him to give instances.
MR. BORELL pointed out that they had just heard several of them
with the case of the $5,000 to $15,000 claim situations.
Number 1132
REPRESENTATIVE BERKOWITZ referred to Mr. Borrell's indication for
the need of civil justice reform. He asked what Mr. Borrell
thought would be the prerequisites for "meaningful."
MR. BORELL stated that people need to be treated fairly. He noted
that it's not fair for a small, or large business man, to be
totally exposed to whatever punitive damages can come along without
some guidelines would be one example.
Number 1160
REPRESENTATIVE BERKOWITZ asked Mr. Borrell about his feelings for
mediation, or the expedited discovery process.
MR. BORELL said he was acquainted with Senator Leman's proposal
from last year, and said he wasn't sure this was in the proposed
legislation or not. This seemed to be an extremely good approach
to the matter.
Number 1183
REPRESENTATIVE BERKOWITZ asked if he would feel more comfortable
with a bill that included mediation, or an alternative dispute
resolution, as well as expedited discovery.
MR. BORELL responded that both were necessary, but whether or not
the sponsor feels as though this should be in this bill, he left
to their judgment.
Number 1213
AL TAMANGI, Structured Financial Associates testified via
teleconference from Anchorage in support of SSHB 58. He said he'd
like to visit Sections 12, 13 and 14, as well as the area of
periodic payments. He thought that Section 13 was very important,
and allows the defendant to make an offer of periodic payments as
an [indisc.] to the jury, which currently cannot be done because of
this restriction. He felt that number two, a plaintiff by
[indisc.] presentation, must be advised of his or her options to
either receive a partial lump sum, future lump sum, and future
periodic payments on a tax exempt basis. This eliminates the
potential for dissipation of the award, and insures the steady
income stream on a tax exempt basis, as well as eliminating
dependency on social programs.
MR. TAMANGI continued that these payments can begin to meet the
needs of any individual claimant. Most importantly, it allows a
person to retain their pride and dignity for their lifestyles. It
also mandates that the injured party is made aware of their choices
under Section 104 (A) (2) of the IRS code. Currently, it is
estimated that about 95 percent of injured parties are not advised,
or properly advised, on this issue. In most cases, it would amount
from thousands to millions of dollars in increased tax benefits.
It would certainly eliminate potential legal malpractice cases
which are currently escalating, particularly in this state where
insurance rates for attorneys are going up substantially.
MR. TAMANGI stated that Section 13 is excellent, as it allows
claimants to choose between a structured settlement funded by the
United States public obligations, or an annuity from someone's life
insurance company, or a combination of both. Additionally, it
mandates diversification from affiliated companies [indisc.] for
independent payment choice. Section 14 [indisc.] the following
change, inflation [indisc.] change in the consumer price index for
[indisc.] customers for all items as published by the Bureau of
Labor and Statistics, United States Department of Labor or
[indisc.] thereof. This allows a judgment to be made on a United
States basis, whereever and whenever [indisc.]. He then noted an
Internal Revenue Service ruling which allowed these increases under
this description to be exempt from gross income under Section 42 of
the Code.
MR. TAMANGI referred the committee to the Alaska Judicial Council's
report given to the Task Force on page 12, addressing the length of
time it takes for someone to get their case resolved. He said this
time period was despicable.
Number 1398
JAMES JORDAN, Executive Director, Alaska State Medical Association
testified via teleconference from Anchorage on SSHB 58. He
referenced the written testimony submitted to the committee and
noted that he would not verbally testify. He noted that he would
answer any questions, and mentioned an article entitled, A Surgical
Fix for Medical Malpractice, in the American Academy of Actuaries,
January/February 1997 edition. A report is referenced in this
article, and he has been in contact with the American Academy to
try and receive it. He said he would supply this article to the
committee.
REPRESENTATIVE BERKOWITZ asked if it was Dr. Jordan's expectation
that it will be easier for doctors to do business if this civil
justice reform is enacted, i.e. cost of business to be lower,
disputes will be easier to resolve, et cetera.
Number 1473
MR. JOHNSON noted that if California was any example, you would
say, yes.
REPRESENTATIVE BERKOWITZ stated that medical insurance rates seem
to be generated nationwide, rather than Alaska specific.
Number 1501
MR. JOHNSON delineated that the professional liability insurance
marketplace is quite different than other forms of insurance in the
state of Alaska. Primarily, the two major carriers for medical
malpractice coverage for physicians in Alaska base their premiums
only on Alaska experience. These two companies are Medical
Insurance Exchange of California (MIEC) and NORCAL. The latter
operates in the State of Alaska essentially by virtue of having
assumed the assets and liabilities of the medical insurance company
in Alaska MIEC, which was the quasi-state funded medical
malpractice company that was in operation until the late 1980's.
REPRESENTATIVE BERKOWITZ asked what would happen to rates if they
enacted this legislation.
Number 1560
MR. JOHNSON stated that he couldn't say. He is not an actuary, but
if measures were adopted similar to California, that the experience
in California is that their medical malpractice insurance rates
were some of the highest in the nation. Now, they are not.
REPRESENTATIVE BERKOWITZ asked if medical fees would come down if
insurance rates came down.
Number 1600
MR. JOHNSON responded that this would depend on the other costs of
business.
Number 1618
FRANK DILLON, Executive Director, Alaska Trucking Association,
advised members that the Association was a 38 year old trade
association that represents companies who operate trucks in Alaska.
It was a 300 member company that represents approximately 15,000
employees.
MR. DILLON advised members they were in support of SSHB 58, both in
its detail, and its concept. He pointed out that the association
felt attorneys were becoming far too intrusive in all respects,
noting that one needs an attorney to go into business, to buy a
house, to get married and to get buried. Mr. Dillon wondered if it
was really necessary to have that level of expertise, in terms of
the legal affairs that were crafted, by the most part, by non-
attorneys; i.e., state legislators.
MR. DILLON advised members what they were seeking, in the form of
tort reform, was a manner whereby they could lessen the burden
involved in terms of treating people and seeking justice without
the need to pay outrageous attorney fees in order to get to the
appropriate level of justice.
MR. DILLON gave an example of what his association believed to be
a grievous case in terms of liability. One related to a company in
the state of Alaska which was involved in an accident at an
intersection in Fairbanks. The witness to the accident saw that it
was clearly a noncommercial vehicle that caused the accident. A
ticket was issued to the noncommercial vehicle's driver, and
subsequent to the settlement, everyone thought things were fine.
Some time later, the manager of the company received an insurance
claim for over $5,000. Mr. Dillon explained that the person who
had witnessed the accident, even though the accident was caused by
the noncommercial operator, felt that he had suffered a trauma as
a result of the accident, causing him to fear commercial vehicles,
so he sued the commercial vehicle operator. The settlement was for
only $5,000 and considered not significant enough to report it to
the company. Mr. Dillon pointed out that the only time the company
became aware of the settlement was when it was reviewing its
insurance claims.
MR. DILLON apprised members of another settlement case involving a
company called Ryder Transportation out of Florida, which was a
multi-national company that operates in all the states and most
Canadian providences. This particular case involved a truck driver
who was found to be not medically qualified to continue driving
truck because of federal regulations. The truck driver was laid
off. The truck driver subsequently sued the trucking company for
not having been retrained, and was awarded punitive damages in the
amount of $18 million. Mr. Dillon pointed out that that was a
result of Ryder Transportation complying with the federal rules.
MR. DILLON continued, pointing out that the association understood
there were a number of complications in the proposed legislation,
SSHB 58; however, definitely believed in its concept because
attorneys, from both the left and the right of the spectrum, oppose
it.
Number 1841
REPRESENTATIVE BERKOWITZ asked Mr. Dillon how the $5,000 claim
issue in Fairbanks would have been affected by SSHB 58.
MR. DILLON stated that he was not sure that the specifics of SSHB
58 would address that situation, but went on to say that his intent
was to eliminate as many lawyers from the process of business and
normal life as possible.
Number 1911
MIKE BURNS, President, Key Bank of Alaska, advised members he was
a member of the Governor's Task Force on Civil Justice Reform. He
noted that as a member of that task force, he was Chairman of the
Damages Subcommittee.
MR. BURNS explained that the two major goals of the task force were
to protect the fairness of the system, and to increase the
predictability of the state's judicial system. In Mr. Burn's
opinion, the biggest issue the task force dealt with related to the
economy between some very voluminous statistical data on judicial
process and judicial decisions, versus the perceptions of a very
broken system. Mr. Burns felt it was important to note that the
perceptions of the system were driven by settlement activities, not
by judicial decisions.
MR. BURNS pointed out that the commission had spent a great deal of
time on many of the issues contained in SSHB 58; however, they only
supported and brought forth issues which received a two-thirds vote
of all members of the commission. He noted that the commission
consisted of a very diverse group of individuals, ranging from pro-
change to no-change advocates of tort reform. Mr. Burns advised
members the commission was able to reach consensus on a number of
issues, of which a prime example was the discussion and vote taken
on the matter of punitive damages. The vote was 17 for and 2
against. Mr. Burns stated that one member voting against was one
of the strongest pro-change members of the commission, and the
other negative vote was one of the strongest anti-change members of
the commission. He felt the commission did a fairly decent job of
trying to define the middle ground, or common ground, in the area
of punitive damages.
MR. BURNS hoped the work done by the commission would be of help,
and useful to the committee, adding that a change was definitely
needed in the arena of tort reform.
Number 2073
CHAIRMAN GREEN asked Mr. Burns what his position would be if an
upper limit of punitive damages could be resolved which would
penalize the perpetrator, not necessarily to the benefit of the
injured, and half of the proceeds paid to the state.
MR. BURNS advised members he was only speaking on behalf of
himself, not the commission per se; however, he felt it was very
appropriate that the state receive half of the proceeds.
REPRESENTATIVE ROKEBERG asked Mr. Burns if the subcommittee he
served on considered the issue of collateral benefits in terms of
damages, and offsetting collateral benefits to the claimant.
MR. BURNS responded that the commission did consider that issue.
He noted that he would have to refer to the report which he did not
have in front of him. Mr. Burns reiterated that a two-thirds vote
was required to bring an issues forward; however, there had been
many issues that had a simple majority vote, in favor, that did not
meet the two-thirds requirement. He could not recall where the
issue of collateral benefits fell, although he could find the
information and provide it to the committee.
Number 2187
REPRESENTATIVE PORTER referenced the issue of apportionment of
fault, and asked if the committee recommended that but it could not
be brought forward because of the lack of a two-thirds vote.
MR. BURNS reiterated that he was Chair of the Damages Committee,
and they did not consider that issue, although he thought that
apportionment of fault did receive a majority vote, but not the
required two-thirds vote.
Number 2241
CHARLES WALLS, President, Alaska Village Electric Cooperative
(AVEC), advised members they were in support of SSHB 58, adding
that overall, the proposed legislation was long overdue. He stated
with respect to the electric utility business that the issue of
public liability, or strict liability, was addressed by most other
states to exempt electric utilities from that sort of liability by
recognizing that electricity was a service, not a product. Mr.
Walls expressed that Alaska did not provide that protection. He
advised members that AVEC had an ongoing case stemming from a house
fire, in one of the villages a couple of years ago. where a child
perished. Mr. Walls advised members that one of the plaintiffs
arguments related to strict liability. claiming that AVEC provided
a dangerous product and should be responsible, or liable, if
someone is injured as a result of using the product of electricity.
MR. WALLS advised members that that line of thinking would quickly
relate to unaffordable electric service and put AVEC out of
business, among other things. Mr. Walls referenced a handout
reflecting a proposed amendment by Chairman Green which addressed
that very point. He spoke in favor of Chairman Green's proposed
amendment, not knowing whether it had been introduced at that point
or not.
CHAIRMAN GREEN advised members that the amendment would not be
introduced until Wednesday, February 26th, as well as any other
proposed amendments to SSHB 58.
TAPE 97-26, SIDE A
Number 000
MIKE LESSMEIER, Defense Attorney, State Farm Insurance Company,
advised members that he was speaking on behalf of State Farm
Insurance, and that most of his practice had involved trial work
which was defense related over the past 18 years. Mr. Lessmeier
advised members that State Farm Insurance rates, in the state of
Alaska, were determined by Alaska experience, which he felt was
important to understand. He referenced the questions posed by
Representative Berkowitz relating to medical reforms in the state
of California, MICRA, California Medical Injury Compensation Reform
Act, and expressed that those medical reforms had nothing to do
with the rates charged in Alaska by different companies based on
different law. Mr. Lessmeier felt it was important for members to
consider California's experience compared to Alaska's experience,
noting that there had been testimony comparing the two experiences
several years prior in a tort reform debate. Mr. Lessmeier advised
members he was speaking strictly from memory; however, believed it
was over a 10 or 15 year period that California's rates increased
by 160 percent. It was his recollection that in Alaska, over that
same period of time, the rates had increased by approximately 1600
percent. Mr. Lessmeier pointed out that MICRA had a significant
benefit in California, particularly when compared to Alaska.
MR. LESSMEIER advised members that another point he wished to
emphasize was that when looking at issues, such as punitive
damages, it would be important to not look just at verdicts. He
pointed out that punitive damage claims are raised in many cases
and were incredibly expensive to defend, and were unpredictable,
with few of them actually leading to verdicts. Mr. Lessmeier noted
that of the last six cases he tried, three cases included punitive
damage claims. He explained that punitive damage cases were
expensive because they were basically, "bet your company" cases,
and a small business person would have everything on the line. For
a large entity, the potential financial exposure was unlimited.
Mr. Lessmeier advised members there was a punitive damage case in
Juneau a year ago which awarded $18 million. He noted that that
case was set aside; however, huge awards had been realized in
Anchorage as well.
MR. LESSMEIER referenced a study that had been conducted within the
last year that addressed the issue of punitive damages which
reached a number of conclusions. Law suits claiming punitive
damages take one-third longer to resolve than suits without
punitive damages. Another conclusion of that study found that
business and government defendants were four times as likely as an
individual defendant to face a claim for punitive damages. Mr.
Lessmeier advised members that a third result of that study found
that punitive damages played a significant role in out-of-court
settlement processes, where the vast majority of law suits are
settled. Punitive damage demands tilting the playing field in
favor of the insured parties, and increase the out-of-court
settlement amounts.
MR. LESSMEIER continued, noting that the study reflected that if
one looked at jury verdicts, they would only be looking at the tip
of the iceberg, and it would be necessary to consider the rest of
the iceberg because that would be where the action was at, when
talking about the effect of reforms on claims. Mr. Lessmeier
advised members that they felt the punitive damage provision was a
very important provision in SSHB 58 that presented a reasonable
limit. He noted that it would not solve every problem, that there
would always be an exception to the rule; however, reiterated that
it was a reasonable limit.
MR. LESSMEIER referenced the issue of several liability, pointing
out that in 1988 the voters voted on that issue, and what they were
told in the ballot initiative, was that each party would be liable
only for damages equal to his/her share of fault. It would repeal
the law concerning reimbursement from other parties. Mr. Lessmeier
advised members that five years later a decision had been reached
by the State Supreme Court that changed what the voters were, in
effect, told what they were voting on. Now, a defendant, in order
to ensure that he or she is responsible for only his/her percentage
of fault, would have to sue someone else. Mr. Lessmeier expressed
that if that was not done, the individual could be held
responsible, potentially, for more than the actual percentage of
his/her fault. Mr. Lessmeier noted that approximately 75 percent
of the voters approved of they were told and understood what they
were voting on.
MR. LESSMEIER asked that the House Judiciary Committee go back and
implement the will of the voters, adding that that should be an
easy decision to make.
Number 363
MR. LESSMEIER advised members that the third issue he felt
important, in the proposed legislation, was the provision on offers
of judgment. He felt that litigants ought to be responsible for
the decisions they make. The proposed legislation presents a
staggered provision for litigant responsibility based on when
offers of judgment are made, which he felt was a good idea. Mr.
Lessmeier pointed out that it provided an incentive for people to
make reasonable offers early on in the process, and rewards or
penalizes the party, based on the decisions they make. Mr.
Lessmeier expressed that that was something that would put teeth
into the responsibility of making decisions.
MR. LESSMEIER referenced Section 48 of SSHB 58 advising members he
referred to that as the "truth" section of the proposed
legislation. He advised members that under the current state court
system, if someone came into court and lied, there would be no
damage that the case would suffer, other than the damage to one's
credibility. He noted that currently there was no disincentive to
play the lottery game, which some people do. Mr. Lessmeier pointed
out that Section 48 basically reflects that if someone goes to
court and provides false testimony, that the individual would lose
the claim. He did not feel anyone would oppose that concept.
Number 453
MR. LESSMEIER referenced a new provision in SSHB 58 that dealt with
independent counsel, and the appointment of independent counsel.
He stated that that was a significant problem, and one that Mike
Barcott would address during his testimony before the committee.
MR. LESSMEIER advised members he would provide two experiences that
his firm had encountered with what is called CHI [Ph] Counsel,
which involved independent counsel that the insurer is required to
pay. In one of the cases, State Farm Insurance paid over $1
million in defense costs, and in another, they paid close to
$500,000 in defense costs. Mr. Lessmeier advised members that
Section 39 of the SSHB 58 went a long way to resolve the problem of
paying for the defense of their insured defendants
Number 517
CHAIRMAN GREEN expressed that through prior testimony, as well as
testimony provided at the present hearing, there had been the
frequent question theme regarding the current system causing high
insurance rates, and if that was correct, he asked Mr. Lessmeier
what would happen if a reasonable and understandable cap were
placed on those rates. If a cap was not established, testimony
reflected that the rates would increase, and Chairman Green
questioned why the rate would not decrease if a cap were imposed.
MR. LESSMEIER felt that one issue necessary to understand was that
SSHB 58 would affect only causes of action that accrue after the
effective date. He pointed out that there were many years of
causes and claims within the system currently, that would not be
affected by the proposed legislation. Mr. Lessmeier noted that
there were causes of action that the proposed legislation would
apply to; however, most of the cases for the next several years
would be causes of action that accrued under the old system which
SSHB 58 would not affect in any way, shape or form.
MR. LESSMEIER continued to point out that if SSHB 58 should pass
the legislature, one would not know which of the provisions the
court would ultimately put into effect, or how the court would
interpret the law. He advised members that the legislature passed
the initiative in 1988 where the insurers thought they were getting
pure several liability; however, five years later the Supreme Court
decided differently. Mr. Lessmeier advised members that he had
lunch with the Chairman of the Board of the Medical Indemnity
Company of California, who stated the insurers had litigated every
provision in the MICRA, California Tort Reform, for 10 years. Each
provision was challenged by the trial lawyers, which results in a
situation where you do nothing and the problem continues, or you do
something, with the hope that, ultimately, the problem will be
solved.
MR. LESSMEIER advised members there were a couple of different
companies in the state called Mutual Companies. NORCAL [Ph] was
one of those companies, and State Farm Mutual Automobile
Association was another. Mr. Lessmeier advised members that they
had given money back when their experience was better than what
they thought it would be. He felt that what would be found was
that insurers who do business in Alaska would recognize that the
challenge was to make their product affordable, adding that
insurance was a fact of life for many people; you cannot drive a
car without it, along with many other things, so many aspects of
society need affordable insurance. Mr. Lessmeier advised members
if insurance was not affordable, it would not be available.
MR. LESSMEIER advised members that State Farm would base their
rates on their experience. It was his belief that the NORCAL's,
the MIAC's, and many of the other professional liability groups
that evaluate their experience based on Alaska claims, would do the
same. That was one of the things that was the benefit of
competition. He noted that as long as there was a healthy
environment there would be better competition, and what that would
hopefully lead to would be more affordable insurance for everyone.
Number 734
REPRESENTATIVE BERKOWITZ advised members that what he was concerned
and frustrated with was that they were only seeing the tip of the
iceberg, and the legislature was being asked to pass, he felt, some
rather sweeping legislation without having access to all the
underlying facts. He noted that they had talked about punitive
damage cases that had actually been settled in court, and asked
what kind of evidence Mr. Lessmeier could provide that it would
have an affect on the settlement phase.
MR. LESSMEIER advised members that he could provide a study that
came out in 1996, entitled The Role of Punitive Damages in Civil
Litigation: New Evidence from Law Suit Filings. He pointed out
that it was the most comprehensive study of 1000 cases, that were
not Alaska cases, although he was sure the experience was the same.
Mr. Lessmeier reiterated that punitive damage claims take longer,
are more expensive to defend, and the play a significant role in
the settlement process.
REPRESENTATIVE BERKOWITZ asked if the California Legislature
required any commitment from the insurance industry, with the
California experience and the reforms that went though, prior to
enacting its legislation.
Number 835
MR. LESSMEIER did not believe so; however, could not be completely
positive. He pointed out that that question was always posed, and
he felt it was an unfair question because the legislature would be
requiring the insurance industry to do something based on a belief
that could not be given. Mr. Lessmeier explained that the
legislature could enact a law, but they could not guarantee that it
would not be challenged, nor could the legislature guarantee that
the Supreme Court would not overturn the law, which he felt was
part of the problem. He expressed that whatever was done or
intended by the legislation, there would be no guarantee that that
was the way it would ultimately be applied.
MR. LESSMEIER advised members that the opponents of the proposed
legislation were very talented people, and Mr. Schneider would be
speaking to members, who passionately believed the proposed
legislation was wrong, and would be fighting it, tooth and nail,
every step of the way. Mr. Lessmeier reiterated that the problem
was that they did not know how the proposed legislation would be
applied or interpreted. Only experience would provide that. Mr.
Lessmeier repeated that State Farm would base their premiums on the
Alaska experience, whether it's good, or whether it's bad.
Number 924
REPRESENTATIVE CROFT pointed out that Mr. Lessmeier stated several
times that the Supreme Court did not implement the will of the
voters in 1988; Benner v. Wichkman, 874 P. 2d 949 (Alaska, 1994)
decision. He asked if Mr. Lessmeier would explain how he felt Mr.
Benner was wrong.
MR. LESSMEIER advised members that under Benner, fault was
allocated only to the parties to the action. If there was a third
party that had not been brought, in who would bear a percentage of
the fault, that fault would, instead, be born by the people that
were parties to the action. He stated that under Benner,there were
two affects to that; one was a defendant may bear more than his or
her percentage of the fault, or more than his or her share of the
fault. A person may be responsible for damages that someone else
may have contributed to or caused, and secondly, that defendant
would be forced, in order to implement the intent of the
initiative, to incur the expense and the risk of bringing someone
else into the action. Mr. Lessmeier advised members that those
were things that were beyond the scope of that initiative. He
further stated that what the people were told in that initiative
was that it would make each party liable, only for damages equal to
his or her share of the fault.
Number 1012
REPRESENTATIVE CROFT asked if the initiative made clear who should
bring in the "potential" liable party.
MR. LESSMEIER stated that it did not, that what it said was that
the new law would let the court enter judgment against each person
at fault, but only in an amount that represented that person's
share of the fault. He pointed out that the problem with that was
that the burden would fall on the defendant to do that, and if the
defendant did not do that, he would run the risk of paying for
damages that would be more than his or her percentage of fault.
Mr. Lessmeier thought that was clear, and stated that the reason
the Supreme Court decided Benner v. Wichman the way it did was
because it chose to place an interpretation on parties, which was
certainly different than the people that presented the initiative
intended, as well as different than what voters intended.
REPRESENTATIVE CROFT presented a hypothetical situation where he
sued Mr. Lessmeier, thinking he was the one that did it, and no
other; however, Mr. Lessmeier thought Representative Berkowitz did
it. Whose job would it be to bring Representative Berkowitz into
the picture?
MR. LESSMEIER's response was that he felt it should be the
plaintiff's responsibility. He explained that he, himself, should
only be responsible for his percentage of fault, noting that the
percentage of fault that a jury assessed against him should not be
dependent upon who was a party to the accident. It should be
dependent on nothing, other than his percentage of fault. That was
what Mr. Lessmeier believed, and that is what he believed the
voters were told in Ballot Measure Number 2 in 1988.
Number 1123
REPRESENTATIVE CROFT asked if what Mr. Lessmeier was saying was
that the proper procedure would be for him to bring Representative
Berkowitz into the case even though he did not believe he was
involved in the accident.
MR. LESSMEIER advised members that the proper procedure was for the
plaintiff to sue the parties that the plaintiff thinks are at
fault, and for a defendant to be responsible for his or her
percentage of fault, regardless of who the plaintiff chose to sue,
or who was present in the court room. He pointed out that that was
the proper procedure, in his personal view, but was not the
procedure given under Brenner v. Whickman.
CHAIRMAN GREEN asked if that was the way Mr. Lessmeier was
interpreting the intent of SSHB 58.
Number 1202
MR. LESSMEIER stated that what was being proposed in SSHB 58 would
implement what he believed was the intent of the voters in 1988.
REPRESENTATIVE ROKEBERG asked Mr. Lessmeier if he could provide
committee members the information he had on the 1988 ballot
initiative, as well as the study he referenced earlier.
MR. LESSMEIER responded that he would provide that information.
REPRESENTATIVE ROKEBERG referenced Section 15 relating to
collateral benefits and asked if it wasn't customary for insurance
companies to segregate the awards that occur to victims. He asked
how that section would harm insurance businesses, and how would it
help or harm an individual that might be involved.
Number 1339
MR. LESSMEIER advised members that it was his belief that provision
was modeled after the medical malpractice law, which had a
provision where there was no subrogation, unless it was a federally
funded program. He expressed that what that did was simply reduce
a lot of litigation and a lot of dispute over things that one,
basically, self insures for. The policy call made under Section 15
was, to the extent that one has insurance that covers something,
that the insurance companies would not argue about that; there
would be no secondary litigation, in terms of subrogation, one
would just bear his own cost or loss. Mr. Lessmeier stated that he
felt, on balance, that would be fine and the benefit would be the
reduction of potential litigation and potential dispute.
REPRESENTATIVE ROKEBERG followed up by asking what reason an
individual would have for buying disability income insurance if it
was an insurance disincentive.
MR. LESSMEIER pointed out that a person would not know if he was
going to be hit or injured through the fault of someone else.
Number 1383
MIKE SCHNEIDER, Attorney at Law, Law Offices of Michael J.
Schneider, advised members he disapproved of the testimony provided
by previous speakers. He expressed that someone once cautioned
that people should be careful with their wishes because they might
come true. Mr. Schneider stated that with the political reality
being what it was, the republican majority might get what it
wished, in terms of the miserable piece of public policy members
were presently considering.
MR. SCHNEIDER asked members of the committee to think hard and long
about the public trust they had been given, and consider the
comments made by Mr. Burns, who runs a bank; who was not a trial
lawyer and not a flaming liberal. Mr. Schneider noted that Mr.
Burns pointed out very carefully, in his comments, that the issue
at hand was a matter of perception, and that perception was that
the wheels were off the cart. He noted that hundreds of years ago
the perception was that the world was flat.
MR. SCHNEIDER advised members that only the insurance industry
would come before the legislature and suggest that one could take
a system, substantially alter it, as was done in 1986, and
dramatically alter it again, as with proposition two, and conjure
up an innocuous Supreme Court decision to say how it all did not
count; insurance companies did not change their rates, they never
will change their rates, and would find a reason not to change
insurance rates, no matter what. Mr. Schneider stated that the
rate roll-back that member's constituents thought they might get
someday was a "fairy tale".
MR. SCHNEIDER advised members that legislation, such as SSHB 58 and
the Governor's bill, was a slap in the face to the people that
elected their state representatives, and a slap in the face to
Alaska juries, that despite the perception, had no history of doing
funny, odd, terrible things to litigants in front of them.
MR. SCHNEIDER referenced Scott Whetsell [Ph], who spoke about
frivolous law suits of $5000 to $15,000 claims, and asked if that
was a trivial sum to the people that elected their state officials.
Mr. Schneider pointed out that the legislature was about to change
rules, and rule was a concept of broad application, which meant
that everything done to dissuade the few frivolous suits, would
also do a great deal to dissuade the widows, the orphans, the
businesses, and others who were justified to bring their claims to
the courts; with no empirical evidence that a problem existed that
needed to be addressed, as well as no pay back to the public in the
form or reduced insurance rates for the rights people will give up
if SSHB 58 passes. Mr. Schneider hoped members would vote against
the proposed legislation.
Number 1500
CHAIRMAN GREEN pointed out that Mr. Schneider attacked the proposed
legislation and implied that only because there had been
consideration that $1,500, in comparison to the millions that were
at stake as insignificant, and reminded Mr. Schneider that there
was a small claims court. Chairman Green asked that in the future,
if Mr. Schneider testified in front of the House Judiciary
Committee while he was Chairman, to confine his comments to the
merits, or non-merits of a case, and to not get derogatory.
REPRESENTATIVE CROFT asked Mr. Schneider to explain how
apportionment currently worked, and how it would work under the
proposed legislation.
MR. SCHNEIDER advised members that presently fault was apportioned
between people brought before the court. Under the scenario
presented by Representative Croft earlier, Mr. Schneider stated,
quote: "Something happens to you, you sue me because you think I'm
at fault; appropriately I believe. If I think Representative
Berkowitz is at fault, it's my burden to bring him into the case.
The bottom line being, that fault will not be apportioned to anyone
who is not before the court to help in the process of sorting out
what happened; what didn't happen. And to bring some sort of
reality to the dispute, everybody's got a dog in the fight, so
everybody's going to fight hard, and theoretically, a better
assessment of the truth will come of it all."
MR. SCHNEIDER expressed that in the proposed bill, it was all the
kings horses and all the kings men sort of proposition, in which an
individual would not have to be brought before the court and could
be accused of fault whether there or not. He noted that there
could be a trial going on about someone's fault that the person
never heard of, which would present a number of problems. Mr.
Schneider stated that one of the problems, more-or-less, flew in
the face of the sponsor's mission statement which was to make
litigation more simple, cheaper and more efficient. He pointed out
that that goal would not be reached with the provision of law
proposed in SSHB 58, in his opinion.
CHAIRMAN GREEN asked Mr. Schneider to elaborate. He provided a
scenario in which there was an action against "A", and "B" was
somehow partly at fault, however he was not present at court. If
the court said "A" was only 50 percent at fault, and either "B" or
someone else was equally at fault, SSHB 58 would provide, as he
understood it, that the information brought out in the court
hearing would not be usable against "B" because those facts would
have to be brought forward in order to go after "B".
MR. SCHNEIDER agreed with that scenario, adding that that part did
not bother him too much because that was not the problem with the
proposed legislation. He explained that the big problem with SSHB
58 was that presently if a person wanted to make an argument that
someone was at fault, the person has the burden, even though fairly
minimal, to show fault and actually sue the individual. Mr.
Schneider pointed out that for the plaintiff to make sure his
argument was not frivolous, the individual has to bring the person
into court, and if the argument turns out to be frivolous, the
individual would be stuck with Rule 82, attorneys fees, which was
appropriate because it gets rid of frivolous litigation and
frivolous claims.
MR. SCHNEIDER continued pointing out that under the language in
SSHB 58, the defendant could make all the frivolous arguments about
people's conduct as he wished, with impunity. He did not feel that
promoted judicial economy, minimized the expense of litigation or
promoted the search for truth, in any given set of facts.
Number 1787
REPRESENTATIVE PORTER asked if it would be fair to say that it
would not be impossible for Mr. Lessmeier to say that he had heard
other plaintiff attorneys say that there was a disincentive to name
a defendant, who was judgment proof, in favor of one or more that
had a deep pocket.
MR. SCHNEIDER agreed with that, adding that it made no sense.
REPRESENTATIVE PORTER understood that SSHB 58 would allow both the
plaintiff and the defendant to discuss parties that were not
present; that the problem that would be presented to a plaintiff or
to a defendant in naming another actual party to the suit, thereby
having the cost and the exposure, would be eliminated if they were
allowed, as they are by law in employment kinds of cases, to
discuss whether they really thought they were totally at fault, or
partially at fault, when someone else might have been.
MR. SCHNEIDER, in due respect, advised Representative Porter that
his position was misplaced because he truly believed the
Representative was ascribing a level of professionalism to the
defense in the cases that are not witnessed in every day
experience. Mr. Lessmeier pointed out that when someone wants to
broaden a debate, in a court of law, that good rules currently
existed for that purpose. He stated that if someone wanted to
stand up in a court of law to accuse someone of doing something, it
is made known by placing that individual's name in the caption of
the pleading. And because there are anti-frivolous litigation
rules in the state of Alaska, that have existed since the mid 1970s
in the form of Civil Rule 82, the plaintiff would bear a burden, or
pay a price if his or her arguments were frivolous. It was Mr.
Schneider's strong belief that if the legislature wanted to
minimize frivolous litigation that allowing people to stand up and
say whatever comes to them in their opening statement, and then
call witnesses behind that, was not the way to accomplish their
intent.
MR. SCHNEIDER stated that as a plaintiff attorney, he would be
defending claims that he had never seen or heard of. He would have
had no chance to prepare for the cases, and would be hearing
arguments he had never heard before. He advised members they would
be chasing fairies around the court room until everyone was dead
tired, and that would generally assist defendants. Mr. Schneider
pointed out that it would not help the regular working people that
he represents, and would not make the process cheaper.
Number 1952
REPRESENTATIVE ROKEBERG asked if there was a vicious litigation
statute in the state of Alaska.
MR. SCHNEIDER stated that the answer to that was, "kind of." He
advised members that during his 22 years in the state there was a
rule of court called Civil Rule 82, which had changed over time,
and the most recent change was an attempt to define what happens
when a person loses, because it was a loser pays rule. Mr.
Schneider pointed out that that was a kind of rule that contained
frivolous litigation. He added that another thing, as a practical
matter, that contained frivolous litigation and had always existed,
was the contingency fee. Mr. Schneider expressed that a third of
zero was nothing, and as a plaintiff's lawyer taking those cases on
and lose the case, the attorney would not be paid for his work.
The case would have to have some merit prior to accepting
representation of the client.
REPRESENTATIVE ROKEBERG thought the answer to his question was no,
and he did not think the citizens of the state should have to know
the rules of court, although should know what the statute says. In
terms of the allocation of fault, Representative Rokeberg asked how
a tort claim was handled in federal court.
MR. SCHNEIDER explained that if there was a tort action in federal
court, you would generally apply state rules of law, and federal
rules of procedure, adding that state law rules were applied even
when suing the federal government. He further stated that the case
would get federal procedural treatment; however, would get state
rule of law application whether a federal defendant or not.
Number 2052
REPRESENTATIVE BERKOWITZ pointed out that Mr. Schneider referenced
Civil Rule 82 several times, and asked his opinion on Civil Rule
11.
MR. SCHNEIDER advised members that Civil Rule 11 existed to slap
attorneys that misbehave, file frivolous cases and aggravate
judges.
REPRESENTATIVE BERKOWITZ asked Mr. Schneider how many times he had
seen a frivolous case come through during his years of practice.
MR. SCHNEIDER's response was, "not very many times." He advised
members that he had seen suits that he did not think were
particularly meritorious, or generally found to be that way;
however, he had seen a number frivolous defenses because one could
make those by the hour and get rich by doing so. Mr. Schneider
expressed that plaintiff attorneys had to chose their battles, if
they want to survive, and that allows a degree of creativity, but
the economics of that situation catch up with the attorney if
he/she is too creative, too often.
CHAIRMAN GREEN pointed out that Mr. Schneider was a plaintiff's
lawyer and 95 percent of the cases were settled out of court. He
asked if there had ever been a situation where one might take a
case, fully intending to settle it out of court, as the plaintiff's
attorney, knowing that the case was either small enough that the
defendant might not want to take the trouble to go to court and
therefore, the plaintiff would be the winner, defacto, because the
defendant would settle for above the zero times one third.
MR. SCHNEIDER felt the answer to Chairman Green's question would be
yes, "but". Mr. Schneider stated, quote: "Like with some of the
examples that you heard earlier, just ask yourself this. If you
have a $15,000 dollar case and State Farm can't afford to litigate
it, or doesn't want to pay to litigate it -- I don't really want to
get into comparing balance sheets here, but State Farm is a lot
bigger than mine. I mean, if anybody can't afford to deal with a
case, it's the regular citizen, and the regular citizen's regular
lawyer. Does that mean there's never an abuse, there's not a
nuisance value settlement? No, it doesn't mean that. But it means
that that playing field is not tilted in favor of regular citizens
and their regular lawyers at all; never has been. That tilt is not
-- was not improved in '86; was not improved as a result of
proposition number two. If I make that guess about, you know, will
State Farm -- you know, will Mike roll over and pay me some money
for this little case. If I make that guess wrong very often, I do
not lead a happy or profitable existence. I just -- I -- I don't.
The idea that this is just a one-way street and we're just out here
picking cherries and milking the situation, is not good."
MR. SCHNEIDER advised members that every single case he accepts he
wants to settle. One of the reasons for that was that the jury
system was a conservative institution in the state of Alaska, and
always had been. He stated that it was a firing offense, in most
defense firms, not to demand a jury, adding that he rarely demanded
a jury trial. Mr. Schneider pointed out that the proposed
legislation calls the plaintiff's discretion and judgment into
question, and he did not feel that was right.
Number 2184
CHAIRMAN GREEN stated that the people who make up State Farm's rate
payers involved the ordinary citizen, and Mr. Lessmeier wanted to
keep their costs at a minimum.
MR. SCHNEIDER felt that was a very excellent point, and one that
might be overlooked in the present debate. He stated that the
committee would hear from fishermen, who were tort reformers and
always had been historically, because they believe the myths and
the perception that the wheels were off the cart and that their
rates had something to do with claims. Mr. Schneider advised
members that the fishermen woke up one morning to find oil on their
beach and that was when they recognized that there was another side
to tort reform. Mr. Schneider pointed out that it would be hard to
explain votes for the proposed legislation in the face of another
event like the Exxon Valdez oil spill, or another mass tort. He
added that it would be hard for members to explain to their
individual constituents when they ask for an explanation as to why
a bill was supported that made a difficult situation more difficult
for them, with no guarantee of anything back to the public.
Number 2258
BOB VALLIANT, Hospital Administrator, Alaska Hospital and Nursing
Home Administration, advised members that prior to presenting his
prepared comments he would like to address the issue that appeared
to be at the front of everyone's mind, which was, would the
proposed legislation, or the improvement of the business
environment in the state reduce insurance rates. He pointed out
that he was the one who paid the insurance bill for the hospital he
worked at, and this year he would buy liability insurance at levels
three times higher than he did eight years ago. Mr. Valliant
advised members that that had been precipitated by NORCAL coming in
and buying out MICA and the addition of a competitor under the
market place, Western Indemnity. He noted that Western Indemnity
came into the market place approximately three years ago.
MR. VALLIANT advised members that he truly believed that if the
business environment improved so business people could compete
fairly, that the competition would result in a decrease in rates.
The competition created in the market place, because of Western
Indemnity's participation in the industry, did not decrease the
hospital rates, but did not allow the hospital to increase rates at
the same rate other institutions were increasing their charges at.
Mr. Valliant advised members that, consequently, the hospital he
worked at was the lowest cost provider in the state.
MR. VALLIANT felt that insurance rates would not go down the
following year if SSHB 58 should pass, but in the long term, he
felt it would be good for business and that competition would
regulate the price of the insurance in the market place, and all
would benefit from that.
MR. VALLIANT read the following statement into the record: "On
behalf of the Association, we would like to go on record supporting
the legislation before you. House Bill 58 contains two provisions
that our 33 member hospitals and nursing homes recognize as
critical components in any tort reform legislation. First is the
provision of relief from civil liabilities for hospitals for non-
employees. The hospital and nursing homes take great care in
credentialling both employees and non-employees to ensure that
certain standards of care are maintain. We believe there's a duty
by non-employees to maintain a certain level of responsibility for
their own actions. And that hospitals and nursing homes should not
be held liable for those negligent acts of non-employees over which
it exercises little or no control.
The second provision also addresses individual responsibility we
feel pretty strongly about, and that is that the practitioner has
to maintain a given level of liability insurance coverage.
Hospital and nursing homes become deep-pockets for uninsured, or
under insured practitioners who are sued. Therefore, mandated,
minimum liability coverage for practitioners, as a prerequisite to
immunity from Jackson v. Powers for hospitals makes sense to us.
Finally, our gravest concern is that the Alaska Supreme Court
decision, in the Jackson Powers Case, will be expanded to include
institution liability for not just contract practitioners, which
that particular case involved was a contract relationship that was
expanded into an agency relationship by the court. But that they
will expand that even farther to include any practitioners that
respond to the emergency room to provide coverage in one of our
hospitals."
MR. VALLIANT referenced page 17 of SSHB 58, and the definition of
an "emergency room physician", advising members that, to him, that
would mean anybody that a hospital allows to practice in the
hospital that responds to the emergency room would have immunity
from the decision of Jackson v. Powers if they maintained the
$500,000 liability insurance. Mr. Valliant advised members that if
he was interpreting that definition incorrectly, he would like to
know.
MR. VALLIANT urged that members vote for and move SSHB 58 out of
the House Judiciary Committee.
Number 2470
REPRESENTATIVE BERKOWITZ pointed out that there were a number of
civil justice proposals floating around the legislative body.
TAPE 97-26, SIDE B
Number 000
REPRESENTATIVE CROFT referenced Jackson v. Powers, noting that
Section 35 of the proposed legislation included a statutory notice
of limited liability. He asked Mr. Valliant where he would post
that, and how would his hospital notify people, coming into an
emergency room, of that provision.
MR. VALLIANT advised members that it could be posted in the
emergency room, at the admitting desk, or they could hand it out as
a part of the admitting packet at the admission counter. He
believed there was also a requirement to post a notice in the
newspaper on an annual basis. Mr. Valliant advised members that
his hospital required mandatory insurance presently, so it would
not pose a real problem for them. He stated that for hospitals
where they did not require that insurance, he would anticipate
they would have to publish all the names of the medical staff that
had immunity because they were carrying the $500,000 limit of
liability insurance.
REPRESENTATIVE CROFT asked Mr. Valliant if a person entered a
hospital and requested to be treated by an employee, if that could
be done.
MR. VALLIANT's response was that his hospital had no employees. He
noted that the hospital in Wrangell, Alaska had only employed
doctors. He stated that the employed physicians were covered under
their own personal insurance policies. Mr. Valliant advised
members that if he were an administrator of a hospital where it was
not mandatory, that SSHB 58 would provide the option of allowing a
hospital to say if one wishes to practice in the hospital's
emergency room, he or she would have to take the responsibility of
being adequately insured.
Number 093
REPRESENTATIVE PORTER asked if Mr. Valliant knew how many hospitals
might be affected by not having that insurance requirement, and if
there were some, would it be a burden to the medical service
provided in a particular community.
MR. VALLIANT stated that from his knowledge of the hospitals in the
state, the ones in the Anchorage area would be the only ones
affected because they do not require liability insurance for their
practitioners. He felt most of the other hospitals in the state
were covered either through employment relationships with their
physicians, or through board mandated coverage. Mr. Valliant
advised members that the association's position was that they felt
it was a personal responsibility of the physician to provide for
his own insurance coverage.
REPRESENTATIVE PORTER noted that previous testimony reflected that
both the Providence Hospital and the Columbia Hospital require
their emergency room contract doctors to have insurance, and asked
if Mr. Valliant was referring to other doctors that might be on
staff.
MR. VALLIANT agreed, adding that while the contractor might be
exempt from Jackson v. Powers, there would still be many more
physicians on the medical staff that respond to the emergency room.
He advised members that his fear was that if there was another case
that went to the Supreme Court, that the Supreme Court could carry
the Jackson Decision one step further, and say that the hospital
was vicariously liable for their family practitioners who get
called in to see their patients on week ends, and pediatricians
called in as consultants, et cetera.
Number 219
MIKE BARCOTT, Attorney at Law, Faulkner, Banfield, Doogan and
Holmes, advised members he would testify on two provisions of SSHB
58, Sections 39 and 40 which dealt with independent counsel.
(Mr. Barcott utilized large charts to explain and emphasize his
testimony, so his portion of these minutes may appear vague).
MR. BARCOTT pointed out that those sections were necessary as a
result of the Supreme Court Decision in CHI [Ph]. Mr. Barcott
hoped and suspected that there would be no controversy in the House
Judiciary Committee regarding those two provisions.
MR. BARCOTT advised members that the situation those provisions
addressed dealt with the instance in which a plaintiff sues a
defendant, in this case, injury negligently caused as count one,
and injury negligently, or intentionally, caused as count two. And
three additional claims for which there clearly was no insurance
coverage, and was never intended that there be insurance coverage
in those cases.
MR. BARCOTT explained that an insurance company would typically
issue a letter stating they cover count one. As to count two, Mr.
Barcott expressed that the allegations were negligently or
intentionally caused, and the insurance company would typically
issue a Reservation of Rights letter that would reflect they do not
cover intentional injuries; would provide a defense, but if it was
determined the injury was intentional, the insurance company would
not pay the judgment on that case.
MR. BARCOTT stated that under the CHI of Alaska v. Employers
Reinsurance, Incorporated, 844P.2d 113 (Alaska, 1993) and under the
statutes enacted since that time, allow that defendant to select
independent counsel, whomever they would like to defend the law
suit.
MR. BARCOTT advised members that under current practice in the
state of Alaska, the independent lawyer would defend claims for
which there was insurance coverage, or may be insurance coverage,
and also under current practice, defends the remainder of the
lawsuit for the insured.
CHAIRMAN GREEN asked if that was choice, or if it was required.
MR. BARCOTT explained that the law was unclear on that issue in
Alaska. He stated that that issue had not been litigated to the
Alaska Supreme Court. Mr. Barcott expressed that it had been
litigated in California who had determined that they did not have
to pay for all of that, and Mr. Barcott advised members they were
hoping, with the passage of SSHB 58, that it would eliminate three
years of fighting in the court system. He noted that the problem
had been a horrendous abuse by independent counsel, explaining that
those were lawyers who had not worked for insurance companies
before, and who bill extraordinary amounts for the defense of those
types of claims. Mr. Barcott stated that independent lawyers had
no fiscal responsibility to anyone, and were working just to make
the litigation expensive, which in turn makes the cost for the
insurance carrier extraordinary. He explained that those attorneys
typically engage in extensive motion practice, extensive discovery
practice, as well as extensive deposition practices to make the
plaintiffs jump through extraordinary hoops, and no one, who has
any control, is watching the purse in those instances.
MR. BARCOTT advised members that he had been involved in litigation
where the charges from independent counsel had approached $100,000
a month. He noted that he had talked with Mr. Lessmeier, and State
Farm, his client, had had a very similar experience. Mr. Barcott
expressed that he had prepared his chart prior to speaking with Mr.
Lessmeier, only to find out that he had very much the same
situation with a State Farm case.
MR. BARCOTT stated that Section 39, SSHB 58, makes clear what he
hoped the courts would do if they addressed the issue, which was
that the independent counsel would not get paid by the insurance
carrier for the defense of those claims. That the insured being
sued would be responsible for the defense of those claims, and
hopefully, the fiscal check of having to pay their attorney would
cause them to act reasonably in that process.
MR. BARCOTT advised members that Section 40, SSHB 58, would allow
the insurance carrier to deal with the plaintiff to settle the two
charted claims, and eliminate other charted claims, and would leave
claims for which insurance was not purchased for the entity to
defend itself. Mr. Barcott stated that Section 40 would not be
implicated unless the plaintiff and the insurance company were
willing settle. Mr. Barcott stated that the present problem
involved the question of bad faith. If the insurer should deal
with a plaintiff directly, Mr. Barcott could tell members from a
close personal experience, that there would be the threat of bad
faith litigation, and the lawyers who were turning those fees do
everything they can to prevent the settlement to those kinds of
claims.
Number 462
REPRESENTATIVE BERKOWITZ referenced the comment made by Mr. Barcott
that defense counsel act unreasonably during certain phases of the
litigation, and that phase being the phase that insurance companies
would like to get out of paying for. He asked if the claim of
unreasonable defense attorney behavior apply to the first two
phases on the chart.
MR. BARCOTT stated that if it involved independent counsel, it
could certainly apply to the other two charted phases, but he went
on to say that the Supreme Court and the legislature have said that
individuals who have purchased insurance are entitled to
independent counsel when there was a Reservation of Rights letter
submitted. If there was no Reservation of Rights letter, and the
insurance carrier had appointed its own selected counsel, those
claims of unreasonable behavior would not happen that often because
the insurance carrier and the lawyer have a long standing
relationship. Mr. Barcott stated that the attorney would want to
have a long standing relationship with the insurance carrier in the
future, and if it should get carried away, that would be his last
case for that company. He added that independent counsel were not
subject to those kinds of constraints. All they were getting from
the insurance company was a pay check with no expectation of future
assignments.
Number 521
REPRESENTATIVE PORTER asked what the sanctions were for bad faith
representation.
MR. BARCOTT advised members that the sanctions for bad faith
representation would be a lawsuit, and presently, that lawsuit
involved claims of actual damages, plus punitive damages. Mr.
Barcott referenced the $18 million verdict mentioned by Mr.
Lessmeier, and advised members that that was a bad faith case
against an insurance carrier where the actual damages amounted to
approximately $150,000, and punitive damages of $18 million. He
noted that the punitive damage verdict was taken away by a federal
judge who determined there was not sufficient evidence to support
it.
CHAIRMAN GREEN thanked Mr. Barcott for the charted diagram, and
asked that Mr. Seybert come forward and address the committee.
Number 565
ORIN SEYBERT, President, Peninsula Airways, and representing Alaska
Air Carriers Association, advised members that the association
currently had approximately 130 members of virtually every air
carrier in the state, from Alaska Airlines to the smallest "Mom and
Pop" operation. He noted that they collectively serve over 200
rural communities not on the road system, who were totally
dependent on the services for everything.
MR. SEYBERT advised members the association had a very serious
problem that had developed over the last two or three years which
had to do with the lack of insurance underwriting capacity. Mr.
Seybert pointed out that it was not so much the price, but the fact
that the association was no longer able to get reasonable limits of
liability insurance at any price. He expressed that it was a
nationwide problem that related to commuter accidents in 1994. Mr.
Seybert stated that most airlines carried $20 million, smooth
combined single limit policies, and now, his company was limited to
$1 million per seat. He noted that his company was fortunate to
have that, as most carriers in the state were operating at $500,000
a seat, which did not go very far in this day and age. Some of the
small carriers have only $150,000 a seat in liability coverage,
with no assets, so it would not make any difference what the
judgment was because that would be all that could be recovered.
MR. SEYBERT stated that the accident in Nome three years ago had
four young Native Corporation leaders and executives on the
aircraft. The carrier at that time had $20 million worth of
coverage and the underwriters had reserved the entire $20 million
for those four people. A result of that accident, Mr. Seybert
stated, was that the British Aviation Insurance Group (BAIG), who
wrote most North American commuters, ceased writing coverage
approximately 2-1/2 years ago. He expressed that Lloyds of London
would not provide coverage, adding that he made a trip to Europe 6
months ago and visited six different aviation specializing
underwriters in London and Paris, and none of those companies would
help at any price.
MR. SEYBERT advised members that they had only two underwriters in
the world, one being USAIG in New York, who had made it clear that
they could care less whether they wrote the policies or not. The
other company was Aviation Insurance Group (AIG) in Atlanta who
have a monopoly on the market. Mr. Seybert advised members that
the limit of liability insurance available was the big problem.
MR. SEYBERT advised members that their renewal, on September 30th,
cost Penn Air over $3 million on $30 million in sales; 10 percent
of the company's costs were going to insurance coverage and they
still only have the $1 million per seat coverage.
MR. SEYBERT advised members that in August, Penn Air lost an
airplane with one passenger. The passenger was a master mariner,
a highly skilled, licensed, marine pilot, who was highly
compensated, young and with a family. Mr. Seybert explained that
the first letter Penn Air received from the plaintiff's attorney
estimated his pure economic future value at $2.8 million. Mr.
Seybert pointed out that he could not argue with that, except that
he should have been able to buy enough insurance to protect
himself. He noted that the letter also stated that the attorney
felt he could easily get $10 million or $12 million in punitive
damages, noting that Penn Air would be liable for everything over
$1 million.
MR. SEYBERT advised members the association's primary concern was
the cap placed on punitive damages. He advised members that was
necessary, and they strongly supported SSHB 58. Mr. Seybert
advised members that Alaska had the perception, or the fact, of
having nearly the highest jury punitive damage awards in the
nation, second only to Alabama in the record of extremely high
punitive damage awards. He noted that air carriers were very
concerned about any of the association's cases going to a jury
because the cases mostly involve technical details, and the average
jury person does not understand technical details of aircraft
operations.
MR. SEYBERT advised members that he began looking at the
association's customer base, pointing out that if they were at
risk, they should begin identifying customers who have the
potential of costing the air carrier that much money. He pointed
out that they had refused service to a couple of customers because
of the risk involved. Mr. Seybert advised members that in the case
of Dutch Harbor, his company was the only source of transportation
for those people, so they would be limiting the ability of those
people, who were very important to the seafood industry in the
state, to do business.
MR. SEYBERT expressed that if SSHB 58 passed, underwriters would
come in, make more coverage available, at more reasonable rates,
and the bottom line was there would be more coverage and more money
available to a person who gets injured or killed in an aircraft
accident.
Number 906
CHAIRMAN GREEN referenced the example provided by Mr. Seybert, and
stated if the person's family was awarded $2.8 million, and there
was a three times economic damage limit on punitive damages, that
it would come fairly close to the $12 million the attorney said he
could get.
MR. SEYBERT thought economic damages were separate from the
punitive damages.
CHAIRMAN GREEN said they were separate, however they were used as
a guide to establish the limit on punitive damages.
MR. SEYBERT thought there was a $300,000 or $500,000 limit on
punitive damages, regardless.
REPRESENTATIVE PORTER advised members that what the bill provided
was limit of $300,000 on punitive damages, or three times the
compensatory damage; which ever was greater.
MR. SEYBERT stated, with that response, it would not help his
company that much.
Number 1062
REPRESENTATIVE BERKOWITZ pointed out that a settlement was somewhat
like a poker hand where one would be betting on the outcome.
MR. SEYBERT agreed, but stated that a jury trial involved a much
bigger poker hand.
REPRESENTATIVE BERKOWITZ pointed out that Mr. Seybert had stated
that he was not sure SSHB 58 would assist with his problem, and
asked him if there were modifications to the proposed legislation
if he would support the legislation.
MR. SEYBERT advised members that it was necessary for the aviation
industry to have limited punitive damages, and stay with straight
economic damages.
Number 1103
REPRESENTATIVE PORTER pointed out that the provision of punitive
damages in the case described by Mr. Seybert, that he did not think
there was a chance of getting into that level of exception. He
stated that SSHB 58 would limit the absolute cap of the punitive
damage award, in that case, to $6 million.
REPRESENTATIVE BERKOWITZ spoke to the case referenced by Mr.
Seybert and asked if it was a case where the air carrier was
conceding fault, but could not get the insurance coverage needed.
MR. SEYBERT advised members that they fall under the strict
liability statute and are required to compensate, whether at fault
or not, but are unable to get the coverage needed. He explained
that it was because of the perception of the underwriters that they
are at such potential risk because of the excessive punitive damage
amounts.
REPRESENTATIVE PORTER stated for the record, that if questions were
being posed regarding a particular case, it would be in Mr.
Seybert's best interest not to answer.
REPRESENTATIVE BERKOWITZ advised members he would not do that, and
that he was posturing his questions carefully to that effect.
Number 1218
NEIL MACKINNON, President, Alaska Laundry and Cleaners, and
Chairman of Leadership Council of the NFIB, advised members that
the Alaska Chapter of the NFIB had 4400 members, making it the
largest small business advocacy group in the state. Each year the
NFIB polls its entire membership on a variety of state legislative
and regulatory issues. Mr. MacKinnon pointed out that the
federation used the poll results to set its legislative agenda and
promote the positions approved by the majority.
MR. MACKINNON advised members that the NFIB Alaska ballot results
had shown overwhelming support for a number of the provisions
contained in SSHB 58. The NFIB supports placing reasonable limits
on non-economic and punitive damages. He noted that when there
were no limits on damages, the unpredictability of what a jury
might award often forces insurance companies to settle out of court
too soon for too much money, which drove up the cost of liability
insurance.
MR. MACKINNON pointed out that the cost of personal injury cases,
and the unpredictability of unlimited damage awards, placed a large
impact on small business entities. He expressed that NFIB Alaska
believed SSHB 58 would assist in controlling those costs, while
assuring appropriate compensation for persons injured through no
fault of their own. Mr. MacKinnon stated that the proposed
legislation would make the civil justice system more fair,
efficient, and less costly.
MR. MACKINNON stated with respect to his own business, Alaska
Laundry and Dry Cleaning, that they had been in business in Alaska
for over a century. He noted that after closing his books for the
past year he was well aware of the cost of liability insurance, and
applauded the efforts to bring some sanity to tort reform which
would hopefully slow the rise of insurance premiums, if not reduce
them. Mr. MacKinnon expressed that he did not expect to see a
decrease in premiums, but expected they would not increase. He
felt increased competition in the insurance industry would result
in maintaining a reasonable insurance rate.
MR. MACKINNON pointed out that beyond the cost of insurance, there
were costs incurred in trying to tort proof a business. He stated
that it was a real shame when many business decisions were driven
by exposure to liability and noneconomics. Mr. MacKinnon advised
members that where a fear of frivolous lawsuits overrides the
desire to expand services and products, the only winners in the
present system were the shyster lawyers, and a few of their
clients. He noted that the rest of the public only gets to pay for
the outrageous awards. Mr. MacKinnon asked that members bring
sanity to the system and pass tort reform this year.
Number 1395
PAMELA LABOLLE, President, Alaska State Chamber of Commerce,
advised members there were approximately 700 business members and
35 local chambers that work with the State Chamber to develop their
legislative priorities. Ms. Labolle noted that through Chamber
members, they employ approximately 70,000 Alaskans.
MS. LABOLLE advised members the Chamber strongly supported tort
reform legislation, adding that they had filed an initiative on the
subject. She pointed out that the Chamber's greatest concern was
in the area of punitive damages. Ms. LaBolle advised members that
they felt the single greatest cure for some of the ailments that
face business would be fixing the punitive damage problem.
MS. LABOLLE advised members the Chamber was in support of placing
parameters on when punitive damage claims could be assessed. She
stated that it should involve willful actions and actions that
would ordinarily be punished because that was, in fact, what
punitive meant. Ms. LaBolle pointed out that punitive damages
should be a representation, or statement from society, that certain
things were unacceptable, and a person or entity should be punished
if doing those things.
MS. LABOLLE stated that the fine, or penalty that had been
established as punishment, should be awarded to society, not the
claimant because the wrongful actions were actually a crime against
society. Ms. LaBolle expressed that three times the amount of the
award, or $300,000, which ever was greater, should be the cap
placed on punitive damages and should include malicious intent or
willful neglect.
MS. LABOLLE advised members that the Chamber was not supportive of
the change in the punitive damage arena that produces another
level, under certain circumstances, because they felt that would
put one right back into the ball game they were attempting to get
out of, which was ongoing litigation.
MS. LABOLLE advised members that approximately 85 percent of the
members of the State Chamber of Commerce were small businesses, and
even the minimum $300,000 cap set out in SSHB 58, was a large chunk
for a small business.
MS. LABOLLE stated that the Chamber would suggest deletion of
Section 10 (c), but fully supported the remainder of SSHB 58.
Number 1777
CHAIRMAN GREEN agreed with Ms. LaBolle that Alaska was mainly made
up of small businesses and it would be very difficult for those
businesses to survive a large punitive damage award. He questioned
whether there would be merit to a sliding scale punitive damage
claim.
MS. LABOLLE felt that when it came to criminal law, and the
establishment of penalties, that it involved penalizing the person
who committed the crime, not a level of punishment dependent on who
the perpetrator was. She stated that the Chamber was not concerned
with who caused the problem, or how deep the pocket was, but a
system of equal justice.
Number 1913
REPRESENTATIVE BERKOWITZ noted Ms. LaBolle's opposition to Section
10 (c), pointing out that there were certain crimes which carried
very severe penalties, such as life in prison in the state of
Alaska. He asked Ms. LaBolle if she felt life in prison would be
appropriate if there were certain civil problems that were
particularly egregious.
MS. LABOLLE advised members that her problem with that section was
the inability to fully understand its intent. She noted that she
was not an attorney, and most of the Chamber members were not. Ms.
Labolle pointed out that the language "wrongful conduct or omission
arose in connection with a commercial activity", would affect
anybody in the organization, as well as "motivated by financial
gain". She expressed that the Chamber was not attempting to
protect anyone for committing a wrong doing; however, once a wrong
doing had been determined, how large of a penalty would be imposed,
and how would one know when it would be best to settle out of
court. Ms. LaBolle advised members that was the worst part about
punitive damages, because it was daily forcing people to settle out
of court even if they had not done anything wrong.
REPRESENTATIVE BERKOWITZ advised members he had been looking at the
16 punitive damage cases that had been awarded in the state of
Alaska, and stated that the lawyers who were throwing in the towel
early, were not playing hard enough.
MS. LABOLLE advised members they would not see the claims that were
being settled out of court, adding that it was a punitive damage
threat that was driving people to tell their insurance companies to
settle the case because everything a person had earned, or hoped to
earn, would be on the line for the small business person.
MS. LABOLLE pointed out that the Chamber conducted a survey in 1996
of 500 registered voters which revealed that two out of three
Alaskans thought the system was broken, and they want it fixed.
REPRESENTATIVE BERKOWITZ expressed that he grew up in a small
family business and they weathered their share of what he termed
"extortion", rather than frivolous suits, of which some they paid
and some they fought. He felt that was a judgment call that small
businesses need to make on a case by case basis. Representative
Berkowitz pointed out that when he said "throwing in the towel on
punitive damages", that people have the expectation that the claims
are all huge, when in fact some were as small as $100.
Number 2251
REPRESENTATIVE PORTER pointed out that if what Representative
Berkowitz was referencing was the task force information, that
their gathering of information consisted of one year's worth of
statistics. He stated that the Judicial Council that gathered the
information indicated they did not have the time to include all the
cases in 1995.
REPRESENTATIVE BERKOWITZ noted that the information he was
referencing included statistics from 1985 to 1995; but if it
involved only one year he would retract some of what he said.
CHAIRMAN GREEN closed testimony on SSHB 58, adding that the
committee would again consider the proposed legislation the
following Wednesday.
Number 2328
ADJOURNMENT
CHAIRMAN GREEN adjourned the House Judiciary Committee meeting at
4:18 p.m.
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