Legislature(1993 - 1994)
11/22/1993 11:00 AM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE November 22, 1993 11:00 a.m. MEMBERS PRESENT Rep. Bill Hudson, Chairman Rep. Joe Green, Vice Chairman Rep. Brian Porter MEMBERS ABSENT Rep. Eldon Mulder Rep. Bill Williams Rep. Joe Sitton Rep. Jerry Mackie COMMITTEE CALENDAR HB 292: "An Act relating to civil actions; amending Alaska Rules of Civil Procedure 49 and 68; and providing for an effective date." HEARD AND HELD WITNESS REGISTER DR. DAVID JOHNSON Alaska State Medical Association 4107 Laurel Street Anchorage, Alaska 99508-5334 562-2662 Position Statement: Supported HB 292 (via teleconference from Ketchikan) GLENDA STRAUBE Alaska Women's Lobby 1318 N St. Anchorage, Alaska 99502 278-0840 Position Statement: Opposed HB 292 (Spoke via teleconference) BOB COWAN Private Trial Lawyers P.O. Box 1681 Kenai, Alaska 99611 283-7187 Position Statement: Opposed HB 292 (Spoke via teleconference) CHUCK ROBINSON Private Trial Lawyers 35401 Spur Highway Soldotna, Alaska 99669 283-7187 Position Statement: Opposed HB 292 (Spoke via teleconference) JOHN GEORGE, Lobbyist State Farm, Allstate, National Association of Independent Insurers 9515 Moraine Way Juneau, Alaska 99801 789-0172 Position Statement: Supported HB 292 DAVE WALSH, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 465-2515 Position Statement: Answered questions regarding HB 292 (Testified via offnet from Dallas, TX) DICK CATTANACH Alaskans for Liability Reform 1318 N St. Anchorage, Alaska 99501 379-9568 Position Statement: Supported HB 292 (Spoke via teleconference) MICHAEL SCHNEIDER Alaska Academy of Trail Lawyers 880 N St. #207 Anchorage, Alaska 99501 277-9306 Position Statement: Opposed HB 292 (testified in Juneau) MARK CHOATE Juneau Attorney 175 South Franklin, Suite 308 Juneau, Alaska 99801 586-4490 Position Statement: Opposed HB 292 CHRIS CHRISTENSEN, Staff Attorney Alaska Court System 303 K. Street Anchorage, Alaska 99501 264-8228 Position Statement: Spoke on behalf of Court system (Spoke via teleconference) AL TAMAGNI 1205 E. International Airport Road, Suite 205 Anchorage, Alaska 99518 562-3938 Position Statement: Supported HB 292 (Spoke via teleconference) HARLAN KNUDSEN State Hospital and Nursing Home Association 319 Seward Street, #11 Juneau, Alaska 99801 586-1790 Position Statement: Supported HB 292 STEVE SCHROEDER, Engineer Address and phone number not available Anchorage, Alaska Position Statement: Supported HB 292 (Spoke via teleconference) THOMAS FINDLEY, Attorney 229 Highland Dr. Juneau, Alaska 99801 586-4000 Position Statement: Opposed HB 292 HENRY SPRINGER Associated General Contractors of Alaska 4041 B Street Anchorage, Alaska 99503 561-5354 Position Statement: Supported HB 292 PREVIOUS ACTION BILL: HB 292 SHORT TITLE: CIVIL LIABILITY SPONSOR(S): LABOR & COMMERCE JRN-DATE JRN-PG ACTION 04/23/93 1459 (H) READ THE FIRST TIME/REFERRAL(S) 04/23/93 1459 (H) L&C, JUDICIARY, FINANCE 09/10/93 (H) L&C AT 09:00 AM CAPITOL 17 ACTION NARRATIVE TAPE 93-43, SIDE A Number 001 CHAIRMAN HUDSON called the meeting to order at 11:12 a.m., November 22, 1993. Members present were Reps. Hudson, Green and Porter. HB 292 - CIVIL LIABILITY CHAIRMAN HUDSON stated that the bill before the committee is a vehicle to educate the committee on this issue. Chairman Hudson further stated that after doing considerable reading he felt the opposing sides have clear differences and that those differences of opinions were held nationwide. Number 010 DR. DAVID JOHNSON, Alaska State Medical Association, testified via teleconference from Ketchikan that the biggest issue regarding tort reform was access to health care. Dr. Johnson believes that the current liability situation restricts Alaskans access to health care especially in rural areas. DR. JOHNSON went on to explain that doctors attending women giving birth are putting their professional lives on the line each time as they may be deemed at fault for a bad outcome. Dr. Johnson believes that somehow we have to come up with a system that fairly protects the medical community and gives the very best care to those that are most vulnerable; i.e., pregnant women and small children. DR. JOHNSON testified that a second area of concern was in complex injury cases where again the attending medical personnel put their professional careers on the line. DR. JOHNSON stated that physicians, particularly in small communities, must decide between providing services at a price that they think is fair and sustainable or being insured and the two are not compatible. DR. JOHNSON pointed out that approximately 2/3 of the insurance premiums paid are consumed in the processing of a claim, court costs, attorneys fees, etc., and only 1/3 is recovered by the victim. DR. JOHNSON stated that the reform has to inject some predictability into the system, especially in the area of noneconomic compensation. He said economic compensation for medical costs, loss of wages and rehabilitation is relatively simple to figure; noneconomic compensation is wide open and subject to the eloquence or lack thereof of the attorneys involved and the sympathy of the jury. The resulting award of the jury varies widely. Dr. Johnson believes a cap on damages is needed. DR. JOHNSON stated that current law provides for a statute of limitation that can stretch 20 years or longer after a service or procedure has been rendered by a doctor. Insurance coverage is only good for the period of time a doctor is paying the premiums, so if a claim is made after a doctor is retired, they are not protected. This type of long term exposure is what is driving doctors away from pediatric services. CHAIRMAN HUDSON inquired about the history of increases in medical malpractice premiums and what percentage of that is included in the patient's bill. Number 292 DR. JOHNSON answered that that would depend on the type of service provided and the level of coverage purchased. DR. JOHNSON added that obstetrics, neurosurgery and orthopedic surgery are at the top end of the premium scale and a general office practice would be at the bottom. Prices range typically from $30,000 to $80,000 for one to three million dollars in coverage. Dr. Johnson said that the premiums have not grown significantly in the last two years. Number 322 REP. HUDSON asked if specialists are leaving the state due to our present tort system and to what extent did Dr. Johnson feel the present system had on the medical community choosing what state they would work in. Number 329 DR. JOHNSON answered that it is one factor in the decision making process, primarily because Alaska is considered a pro plaintiff state. Dr. Johnson noted an interesting trend in doctors being hired as hospital employees so that they may be covered under the hospital's insurance where the unit cost would be lower per employee. Number 342 REP. PORTER raised the concern that this problem also causes duplicative or unnecessary testing. Number 346 DR. JOHNSON agreed that there is a significant amount of unnecessary testing that he calls defensive medicine. Dr. Johnson suggested that it is very hard for a doctor not to perform a test on someone who shows some indications of need for the test and has insurance. Dr. Johnson stated that a lawsuit could be filed if there is a bad outcome and the test could have prevented it. Number 390 REP. GREEN asked if there is an increase of awards which prompts higher premiums and costs. Number 402 DR. JOHNSON replied yes; that given ten similar cases, nine being awarded $100,000 and the tenth $10 million, the $10 million case will cause enough fear to drive the system into increased costs and premiums. Number 418 DR. JOHNSON further noted that the noneconomic damages are similar to the lottery system in that they currently vary widely and this uncertainty drives up cost. REP. HUDSON noted that in some states, specifically Maine, they set explicit treatment guidelines for specific conditions. Rep. Hudson inquired if Dr. Johnson thought this direction was helpful. Number 439 DR. JOHNSON answered that it was too early to tell because that system still has to make its way through the courts. Dr. Johnson noted that there is a very large question in medicine as to what is science and what is an acceptable course of treatment for any given set of circumstances. For example, you can have two experts on the same subject differ widely on their opinion of what course of treatment should be taken in any given case. Number 473 GLENDA STRAUBE, Alaska Women's Lobby, read a statement via teleconference then answered questions. The statement read as follows: As you know, there was tort reform in 1986 and tort reform again in 1988. I thought we already gave away the store, yet once again we see before us even more so called tort reform in 1993. The Alaska Women's Lobby believes that it is simply not good public policy to make further onerous changes, all of which are detrimental to your constituents, without any quantitative or qualitative analysis of the effects of existing tort reform laws. From listening to the previous speaker for the Medical Association, I would like to recommend that, before any legislation be passed, that independent research be undertaken to ascertain the following, at a minimum: 1) Whether medical tests are done merely for the self protection of physicians. If so, to what extent. 2) Whether or not we have a doctor shortage in Alaska. If we do, is it truly because of tort issues? 3) The previous speaker testified that awards are sometimes based on who has the most eloquent attorney. So, let's find out who has more money to hire the most expensive attorneys and expert witnesses. And who are those so called eloquent attorneys, anyway? 4) Let's survey jurors who have served on successful and unsuccessful cases and determine the reasoning for their decisions. 5) What percentage of physicians in Alaska have had liability claims filed against them. 6) What percentage of tort cases filed have been settled, lost and won. What was the amount of the awards and the percentage and amount of those upheld on appeal. What percentage of the awards went to attorneys fees, court costs, expert witnesses, other costs not directly benefiting attorney, and how much went to the victim? 7) What is the true effect of previous tort reform on insurance rates? And is the high cost of insurance rates really due to torts or greed of insurers? I do agree with the saying that "if you've got a problem, fix it." But the real question here is "do you really have a problem" and if you think so, what are you basing it on? Horror stories told by insurance companies and the medical profession? And if you're introducing legislation based on anecdotal stories, how about some from the victim's side? Actually, I'm sure you would agree that passing legislation based on anecdotes is bad public policy. Look, I am not here today to take sides with or pick on lawyers, doctors, corporations or others. But I am here to take sides with your constituents and our constituents. And I do not care to pussy foot around this issue. You know, in order to get tort reform passed in Alaska years ago, we heard over and over again how if we didn't do tort reform then insurance costs would escalate unbelievably and doctors wouldn't be able to practice. But neither tort reform in Alaska nor in other states caused insurance costs to decline. In fact, an industry study by the Insurance Services Office determined that tort reforms did not affect its rates. Well, we listened when they cried "wolf" then, and it appears that the legislature is still listening to those crying "wolf" about the need for so called tort reform. By the way, the word "reform" always sounds good, but let's call it like it is: a desire to protect those with money from having to answer for their negligent acts. This so called reform is a crime against those, through no fault of their own, who become quadriplegics, widowed, left childless, or others left in horrible circumstances. And more than anything else, this legislation is an insult to anyone who has or who could possibly sit in the jury box (and that means most all Alaskan adults). What you are saying is that innocent victims cannot have their day in court because you simply trust the judgement of insurance companies, medical professionals, and yourselves over the judgement of twelve independent and objective jurors who have heard all of the facts. I am not going to spend this committee's time picking apart every disgusting piece of this anti-constituent legislation. There are excellent reports that have been made available to you which factually describe the onerous impact of this legislation. Even some sources in the insurance industry, independent insurance task forces and independent researchers, have produced studies and reports which clearly indicate that the provisions in this legislation are unnecessary. Again, legislation such as this is not based on any factual evaluation of the tort system operating in Alaska now. It is, instead, based on anecdotes, myths and misconceptions. Even though I said I wouldn't pick it apart, there is one part of the legislation which is, unbelievably, more perplexing and stupefying than other parts. This bill would preclude a claim of sexual abuse from a victim if it is not filed within six years after the abuse occurred. Well, any mental health professional can tell you that to survive the abuse, victims place the memories out of reach in their minds and only when they really feel safe do these memories return. I know this for fact, because I was 40 years old before all the horrible memories returned. So, you would victimize me again by not allowing me to seek simple, legal redress in civil court? Who are you to decide if I have my day in court? Even if the legal system is overburdened, and frankly less than 3% of all civil suits are actual tort cases, you still do not have the right to take away my access to justice, fairness and equity through my constitutional access to the courts. And what does this provision mean when the legislature has already passed other legislation extending the amount of time that a sexual abuse victim can file against the abuser? I am offended that insurance companies and doctors are not accused by legislators of trying to line their pockets or keeping their pockets full of what they've already got, but I have read and heard statements by legislators inferring that we should not listen to attorneys because of their vested monetary interests. Well, I think it should be all or none. Either we agree that all vested parties have some altruistic motives or none of them do! And since when do we give special protection to one specific profession: health care providers (but we really mean doctors). Why are you willing to provide a special provision allowing only two years to seek redress? I have my own personal story. I will never forget being with my mom in the hospital when she had serious back problems and listening to the doctor ridiculing my mom for "daring" to play doctor by telling him that she had a lump in her breast. He ignored her, but she died several years later from this cancer which started as a lump in her breast. Oops! Too late, two years has gone by and tough luck. Sorry, I thought she was just another hysterical woman. Again, how dare you take away my right to redress in the courts. Now, granted, I never tried to sue anyone over this negligent act, but I certainly should have the right to do so. And that doctor should have had to answer for his outrageous action or lack of. I know that the majority of the members of this committee believe that we need tougher criminal laws and that there should be stricter accountability of those in the criminal arena. Most people don't care why a criminal does what he or she does, whether they themselves were emotionally or physically abused as children. We don't seem to care about that. By God, regardless of original fault, we want them to be held accountable for their actions. Yet, why aren't you willing to demand white collar accountability. Why shouldn't people or corporations who ruin people's lives through negligence, through malpractice, through careless and reckless conduct, have to answer for their mistakes. Why aren't you willing to hold them accountable? And why are you willing to make the innocent victims suffer even more than they already do? This bill is one of the most anti-consumer pieces of work perpetrated by the legislators against their own constituents. And believe me, if it was your daughter, wife or mother who lost her life to cancer through a negligent act of another person... if it was your child who was paralyzed from the neck down because of a corporation's negligence... YOU WOULD WANT ACCOUNTABILITY!!! To sum it up, you have before you legislation not based on any review of the existing system, but legislation based on hype. Nevertheless, legislation which would punish your innocent constituents. For those who want to pass this bill out of committee, you should be ashamed for agreeing to deny innocent victims their rights! I know some of you and I consider you to be kind and caring persons. How could you even consider creating an unfair, inequitable and extremely biased system? Please think carefully about what you are doing. Thank you for your time. TAPE 93-43, SIDE B Number 001 REP. HUDSON clarified some of his feelings by saying that there are problems and the dialogue has to begin somewhere. Rep. Hudson added that it's with the testimony of the doctors, lawyers and advocates of victims that the committee can fine tune the bill. REP. HUDSON stated that there were several issues that caused him to introduce this bill as a committee bill. One concern is that nationwide the victim only gets about 25% of the actual award. Rep. Hudson believes the system should be made more efficient and simpler so that the victim receives more. REP. HUDSON cited the example of a friend as another area of concern. This doctor delivered his grandchild but had to leave her high risk pregnancy practice shortly after because the new premiums were up to $80,000 per year and her practice couldn't sustain that big of an expense. Her absence leaves no specialist in Juneau to care for other women with high risk pregnancies, forcing them to leave town to seek help. Number 010 MS. STRAUBE responded that while she doesn't doubt the example given above, she noted that only 1% of the actual cost of health care can be attributed to medical liability premiums. Number 026 REP. PORTER asked Ms. Straube to cite her source of the previous statement. MS. STRAUBE gave the source as the 1989 publication of an article titled "National Health Expenditures" in the magazine called Health Care Financing Review. Number 045 BOB COWAN, Trial Lawyers of Alaska, testified via teleconference from Kenai. Mr. Cowan stated he represents roughly 3,000 fishing clients. Mr. Cowan suggested that this legislation should be called the "Exxon Relief Act" since it would have protected Exxon from significant punitive damages. The new standard of proof will shelter most future wrongdoers. MR. COWAN added that the fishing community is strongly opposed to this legislation. MR. COWAN stated that he feels Sections 6 and 7 of the bill placing a cap on noneconomic damages could be grossly unfair to a person, for example, who is severely burned to the point that the outlook for the future includes no children, no marriage, a lifetime of plastic surgery etc. MR. COWAN opposes the cap on economic damages to two years as it is unfair to the children and/or widow who may have had to depend on the person's wages. MR. COWAN stated he opposes the change the bill offers that would give the option of choosing structured payment to the wrongdoer. Mr. Cowan believes this would put the victim at the mercy of a insurance company that may become insolvent. MR. COWAN believes HB 292 would give relief to big business and outside corporations and it shows no promise that the change will reduce premiums. In short, no clear benefits to Alaskans. Number 102 REP. PORTER stated that he disagrees with Mr. Cowan's assertion that the punitive damages wouldn't be enough to deter a big corporation since the amount of damages awarded could be up to three times the amount of compensatory damages. MR. COWAN replied that a large corporation like Exxon would consider that just a cost of doing business, a light slap on the wrist. Number 119 CHUCK ROBINSON, attorney, testified from Soldotna against HB 292. Mr. Robinson stated that there seems to be a lot of misinformation about the impact of personal injury cases on the judicial system. Mr. Robinson said that of the 18 million civil suits filed in the United States each year, only one million of them are actual personal injury cases and the vast majority of them are settled out of court. Mr. Robinson suggested that the fact that there are so many settled out of court shows that there is much more agreement between plaintiffs and defendants of the resolution of the claims than disagreement. MR. COWAN believes that the wrongdoers will benefit from this legislation; the big losers will be the victims. MR. COWAN added that HB 292 will not lower premiums, as evidenced by previous tort reform bills in the past. MR. COWAN questioned why HB 292 would treat awards in personal injury suits as taxable income when the United States Congress and the Internal Revenue Service does not. MR. COWAN believes that the certainty that HB 292 hopes to inject in the system actually will cause more cases to go to court, not less; most certainly everyone will want to go for the cap placed by this legislation. Number 209 REP. HUDSON inquired as to the guidelines used to decide which personal injury cases to take and which to turn down. Rep. Hudson added that he has heard that many times someone with a legitimate claim can't find an attorney to take the case. MR. ROBINSON replied that under the current system most people have access to redress their personal injury. REP. GREEN asked Mr. Robinson if he had some percentage in mind as to the difference between what someone might settle for out of court versus what they might get if they go to trial. Number 260 MR. ROBINSON replied that he did not have a percentage in mind but the uncertainty and risk in the current system promotes settlements. Mr. Robinson added that the number of cases that actually go to trial will soar if this legislation passes. REP. GREEN clarified that it seems then that most cases settled now out of court are for substantially more than the caps proposed in this bill. Number 299 JOHN GEORGE, National Organization of Independent Insurers, testified that the insurance community wants predictability, the ability to see forward. Mr. George explained that insurers unfortunately have to set the premiums they charge based on past experience. MR. GEORGE stated that to the extent that HB 292 will reduce the statute of limitations may not be fair to the injured person but it makes it more predictable for the insurance industry and therefore they can more finely tune the rate they need to charge. MR. GEORGE stated that insurers are criticized for not writing certain types of insurance, for example, OB/GYN practices. The fact is that there is a significant amount of loss with this field which leads to higher premiums. Mr. George added that there is no right or wrong answers in this area. For example, if the increased premium was spread amongst all doctors regardless of type of practice, that could be called unfair to those doctors who are not in a high risk practice. MR. GEORGE emphasized that it is not the insurance industry's job to make insurance affordable, they simply charge the appropriate rate for the risk. MR. GEORGE observed that the increased number of lawsuits are a reflection of a changed society. MR. GEORGE stated that it's not the larger awards that run up premiums, it's the accumulation of small cases and potential exposure. Mr. George gave as an example a case where a doctor is sued for $10,000 and the doctor says there was no negligence. The insurance company is then placed in the position of balancing a $10,000 settlement vs. $100,000 to defend the claim with the outcome possibly being $500,000 in jury awards. MR. GEORGE pointed out that the insurance industry is a highly regulated industry. Insurance companies have to file their rates, losses, submit its financial statements for review, and is regulated for solvency. The industry is a very complex system and Mr. George summarized that the committee needs to look for a balance in the legislation that would allow for the promotion of commerce and development of medical care and yet not remove the award from someone who is unjustly injured. Number 513 CHAIRMAN HUDSON commented that in his overview of this issue he'd always assumed that it was the threat of the high payouts that drove the premiums up, but he understood him to say that that was not true, that it was the smaller settlements that drove the system. Number 520 MR. GEORGE reiterated that it is the small to medium sized settlements that greatly influence the premiums with the larger payouts having some impact. Number 565 CHAIRMAN HUDSON stated that he knew Mr. George had been in the business many years and wondered from his observations what had been the changes by tort reform as it impacts medical liability and insurance costs. TAPE 93-44, SIDE A Number 001 MR. GEORGE observed that if you go back to 1976, medical malpractice insurance in Alaska was essentially unavailable. In 1976 the state created the Medical Indemnity Corporation of Alaska, an insurance company that required mandatory participation by the doctors. The doctors sued over the mandatory clause and won. The state then was left with some doctors covered and others not. At the same time insurers were coming into the state offering to insure some of the doctors but not the high risk ones. Number 030 CHAIRMAN HUDSON asked what position the industry takes on punitive damages and noneconomic caps. Number 040 MR. GEORGE stated that if a punitive damage is designed to punish the offending doctor and it's the insurance company that pays the bill, it is not having the desired effect intended. It may punish the doctor by raising his premium, but it also raises everyone else's rates. Number 098 CHAIRMAN HUDSON asked if the industry had analyzed how much, if any, the rates would go down with the passage of HB 292. Number 103 MR. GEORGE declined to speculate on how much the rates would go down, citing the effect the courts would have on the bill. Number 130 REP. PORTER asked Mr. George that if this bill passes and survives its challenges in court, would it not reduce insurance costs? Number 145 MR. GEORGE replied that if losses are reduced, then it follows that rates will drop. Number 152 REP. GREEN asked, as a follow up question to Rep. Porter's, if the bill passes and is left alone, would the industry be forced through regulation to lower rates or would it be out of good will? Number 165 MR. GEORGE replied that to the extent that a coverage falls in a class that is regulated and done by an admitted carrier as opposed to a nonadmitted carrier, the rates regulated by the Division of Insurance should drop. In any case, the rates should drop due to competition. Number 200 CHAIRMAN HUDSON stated that he has read the suggestion that there be different levels and procedures for redress for different types of civil liability suits ranging from the least serious to most egregious. Number 228 MR. GEORGE observed that there are already alternative systems in place to turn to; i.e., arbitration and mediation. MR. GEORGE commented that we may want to look at compensating people for injuries regardless of who was at fault. The question of negligence then would fall, in the case of a doctor, to the medical board to determine whether or not some action should be taken. Number 265 CHAIRMAN HUDSON asked Mr. George if we could improve the system to be more efficient, less costly and pro-victim. Number 285 MR. GEORGE suggested that the committee look at the no fault vs. fault system. He explained that this system would cut out the adversarial nature of the system. MR. GEORGE added that the arbitration and mediation system are a more efficient method than going through the courts, but this system would not work in every case. Number 320 DAVE WALSH, Director, Division of Insurance, Department of Commerce and Economic Development, testified via teleconference from the Dallas airport. Mr. Walsh provided an overview of the Division. There are 55 employees in the Division evenly divided between the Division's two main issues, making sure the insurance companies of the state are solvent, and secondly doing market surveillance. MR. WALSH explained that the first duty is to make sure that the companies have a sufficient amount of capital to cover claims. Secondly, the Division provides market surveillance to determine on behalf of the insurance consumer's of Alaska that they are getting the products they are paying for, getting them at a fair price, and that covered claims are being handled in a timely fashion. MR. WALSH has not seen any statistics that would show the effect tort reform would have on lowering premiums. He did suggest a couple of general conclusions: any time costs are lowered should have the effect of lowered premiums, and similarly the workers compensation reform passed by the legislature in the mid-1980's had the effect of lowering rates. MR. WALSH agreed with Mr. George's comment regarding using nonadversarial methods as a way of lowering costs and increasing efficiency. MR. WALSH noted that the Division monitors changes intended to benefit consumers and would most certainly monitor to insure that any tort reform aimed at lowering cost would be followed. Number 408 CHAIRMAN HUDSON asked Mr. Walsh if he viewed the Division as being the watch dog on cost efficiency of the whole system. Number 415 MR. WALSH replied that in terms of insurance premiums the Division of Insurance is the watchdog. They follow how rates are made and premiums develop. The Division does not follow how premiums are passed on to the consumer. Number 425 REP. GREEN asked, if premiums go up to cover costs, then is the reverse true -- if the costs come down will premiums come down? Number 430 MR. WALSH replied that in general principal 80% of the premiums go to pay claims and 20% to costs. He added that to the extent that any of the costs items go down the rates should go down. MR. WALSH noted that it is difficult to answer Rep. Green's question with any certainty as rate making is a complicated procedure and public policy changes take a while to take effect. MR. WALSH further noted that it is difficult to isolate the public policy changes from all the other changes that affect rates. Number 465 CHAIRMAN HUDSON asked if there is any shortage or reluctance of the insurance industry to participate in the full spectrum of programs required by the current law in Alaska. Number 467 MR. WALSH said he has not seen any reluctancy. Number 478 CHAIRMAN HUDSON asked if the state had seen any kind of loss to its consumers through failure of a company to be fully solvent or bonded. Number 482 MR. WALSH replied that there has been only one insolvency since statehood. This case involved a company called PacMar and had less to do with insolvency than the fact that the owner took money out of the business and left the country. Number 492 CHAIRMAN HUDSON asked Mr. Walsh to put in writing his thoughts on what the public policy should be on noneconomic and punitive damages. Number 525 DICK CATTANACH testified via teleconference on behalf of the Alaskans for Liability Reform. Mr. Cattanach's group believes that the civil justice system must be reformed. Mr. Cattanach believes that more money should be going to the injured parties. MR. CATTANACH illustrated his point by quoting from a study done by a national consulting firm dealing primarily with personal matters. The study showed the total amount of premium dollars returned in the following four categories: Tort - 50% of premium dollars to beneficiary Workers' Compensation - 70% of premium dollars to beneficiary Health - 85% to beneficiary SSI - 99% to beneficiary MR. CATTANACH noted that his group believes there are many misstatements about the bill by the trial lawyers. MR. CATTANACH said that the statute of limitation and repose should apply to all professions -- architects, lawyers, accountants, engineers, etc., unless it can be clearly shown that it would be in the public's best interest to have a different time period. Alaskans for Liability Reform has proposed six years as a reasonable time limit. TAPE 93-44, SIDE B Number 001 MR. CATTANACH explained that HB 292 provided for reduction of economic damages awarded to a plaintive to replace lost wages equal to the amount of income taxes normally taken out. MR. CATTANACH pointed out that HB 292 provides for periodic payments rather than a lump sum to insure the party has the money during the remainder of their projected life. MR. CATTANACH stated that HB 292 proposes that the initiative regarding joint and severed liability approved in 1988 by more than 70% of Alaskans be specifically set out in statute. MR. CATTANACH'S group proposes that the interest rate fluctuate at 3% above the federal discount rate. MR. CATTANACH stated that HB 292 would protect hospitals from lawsuits against independent contractors using the facility. MR. CATTANACH pointed out that in HB 292 if either party offers to settle and the offer is rejected and the final settlement is less than the original offer the party who refused the settlement should be responsible for the other party's costs and attorney's fees incurred after the offer was made. Mr. Cattanach believes this would encourage settlement and reduce the number of cases going to court. Number 046 CHAIRMAN HUDSON asked Mr. Cattanach to explain the reasoning behind the provision for collateral benefits in HB 292. Number 051 MR. CATTANACH responded that this provision would allow that other settlements or awards received be taken into consideration in subsequent lawsuits. Number 068 CHAIRMAN HUDSON asked for the reasoning behind the six year statute of limitation; why not four or ten? Number 071 MR. CATTANACH responded that there were a number of reasons for the six year limitation. One being that as the years go by, a person's memory gets hazy and the case gets stale. Number 090 CHAIRMAN HUDSON brought up the concern first expressed in the hearing by Glenda Straube that the six year limitation would preclude someone who was sexually assaulted as a child to seek redress in the courts because the memory hadn't returned within six years. Number 108 MR. CATTANACH replied that the problem is addressed in Section 2 of the bill where the limitation does not apply if the injury was caused intentionally. Number 123 MICHAEL SCHNEIDER, private attorney, testified via teleconference from Anchorage. Mr. Schneider said he was frustrated at what he had been hearing all morning, but he would try to keep his comments to the broader issues. MR. SCHNEIDER stated that there seems to be a broad public policy issue over what the system is in place to do. If efficiency and expediency; i.e., getting the most money to a given group of people in a timely and efficient manner; was the sole criteria, we wouldn't have a democratic form of justice, we would be under some other form of government. MR. SCHNEIDER commented that probably another form of government could make our current system more expedient and cost efficient. However, we have declined to follow those paths, not because it's quick, easy, or pretty, but because it delivers to those of us governed by it very important fundamental values. Among those is life, liberty, pursuit of happiness and the right to petition our government for redress of grievances. These things we value above money. MR. SCHNEIDER suggested that the committee ask itself each time they look at the provisions of HB 292 if it will make Alaska a better place or not. He reiterated Ms. Straube's previous testimony that we've visited this area before and we do have some data to help determine some of the effect of this bill. Mr. Schneider pointed out that Ontario, Canada had a system in place in the mid-1980's that was a tort reformer's dream, but he suggested it also had the same insurance industry problems we have, hard to get insurance and extremely high prices. He reemphasized the point that these changes the bill would provide are not related to costs and availability. This was illustrated by the negative reply Mr. George gave to the committee in answer to the question of whether insurance costs would go down if HB 292 passed. MR. SCHNEIDER stated that there have been less than 10 medical malpractice verdicts in the history of the state. He added that the number 10 is very conservative; it may be as low as six -- three against hospitals and three against individual health care providers. There have been settlements, but in the face of that kind of predictability, knowing that when you go to trial you are going to win most of the time, the insurance industry has what it needs to make. MR. SCHNEIDER stated that the medical community already enjoyed a set of tort rules that do not cover any of the other professions. He added, as a citizen of Alaska, not as a trial attorney, that he was offended that one of the most prominent and wealthy professions in this country would want more than they currently enjoy. MR. SCHNEIDER said that he doesn't feel the proposal is fair, it's unreasonable and the committee would have a hard time justifying their actions to their constituents. MR. SCHNEIDER encouraged the committee to look beyond the anecdotes and see the broader picture. MR. SCHNEIDER stated that much was made by the prior speaker that the trial lawyers were attempting to misrepresent the implications of the proposed six year statute of repose. Mr. Schneider said that this was simply not true. He suggested that the prior speaker's comments illustrate the accuracy of our report's account of HB 292. MR. SCHNEIDER again brought up the issue of predictability. He noted that the changes made in 1986 and 1988 to tort reform had not lead to any kind of predictability the insurance industry touted. The changes this bill would make will make the current system even less predictable than they are now. Furthermore, the system will remain unpredictable for a long, long time. MR. SCHNEIDER asked the committee to note that the trial lawyers agreed there were costs and availability problems in earlier tort reform movements. But he explained, the trial lawyers asked the legislature to wait 18 months before they passed any kind of reform to allow the insurance industry to upright itself. The request was not granted; the legislature "gave away the farm," and within 18 months the insurance industry showed some signs of decreasing costs and increased availability not attributable to the reform measures but merely a business turnaround. MR. SCHNEIDER stated that contrary to the testimony of Mr. George and Mr. Walsh, the insurance industry makes its money of its reserves and the favorable tax treatment that those reserves receive. If they lose money on those reserves, everybody suffers, and if they make money, the premiums go down. Mr. Schneider indicated that nothing the legislature did would change this situation. MR. SCHNEIDER concluded by saying that our civil justice system, while not perfect, accords each one of us the dignity of being an individual in making our case. He further stated that the arbitrator should not be a compensation board, the legislature or some fraternalistic organization that evaluates this, but by the citizens of the state, a randomly selected group of people that form a jury. He added that HB 292 is a slap in the face to the constituency that elected the legislature. Number 475 REP. PORTER commented that the trial attorney's have expressed their concern that this legislation is taking away from the jury system the ability to make a good judgement. Rep. Porter then asked how can the trial attorneys complain about collateral damages information going to a jury to be understood before they make an award? Number 500 MR. SCHNEIDER answered that there are three or four good reasons for this that are historically well documented and well developed in the law. Mr. Schneider added that concepts of basic fairness also answer that question. It has always been the rule in America that a jury not be informed of a defendant's wealth and insurance. The reason for that is to not prejudice the jury. NOTE: MR. SCHNEIDER submitted a letter clarifying his testimony regarding Section 14, collateral benefits. The letter is dated November 30, 1993, and is on file.) Number 520 CHAIRMAN HUDSON expressed concern over the value of awarding punitive damages and open ended noneconomic damages. Rep. Hudson believes the awards in these areas are retribution or out of anger. Rep. Hudson stated that that should be applied in the law, and if you find that a defendant has done something punitive, then they ought to pay to the public till. In the interest of trying to make a finite amount of resources go to the greatest extent possible and try to get the maximum amount of money to those people legitimately injured, Rep. Hudson asked Mr. Schneider what he and the trial lawyers offer to meet this end. TAPE 93-45, SIDE A Number 001 MR. SCHNEIDER responded that it's important to address the issues separately. First, compensatory damages are not there to punish, they are there to compensate for one's loss, and the jury is there to put a value on the loss. MR. SCHNEIDER quoted the Insurance Services Organization as saying that even a cap as low as $250,000 would only effect one in 10,000 claims. This harmonizes with Mr. George's testimony. MR. SCHNEIDER pointed out that no matter what cap you put on compensatory damages, you are denying the victims their chance at seeking compensation equivalent to the loss as they perceive it and as the jury values it. MR. SCHNEIDER noted that punitive damages are much different. The Supreme Court often reverses punitive damages. Also, it is a rare case where there are punitive damages awarded or settled on before trial. These damages, rarely awarded, are usually given in a case where there has been outrageous conduct. Mr. Schneider went on to say that a $200,000 award in punitive damages is a slap on the wrist to a large corporation, even a million would probably not be a deterrent. Punitive damages should be awarded in the worst cases at a level where they will get the defendant's attention. MR. SCHNEIDER further noted that punitive damages are almost exclusively excluded from insurance policies so the money comes directly from the defendant. MR SCHNEIDER addressed arbitration and alternative dispute resolution as an alternative to litigation. He stated that the committee would find agreement in the legal community that plaintiff's are probably treated more fairly, receive more money, and the system works more efficiently through arbitration and alternative dispute resolution. However, he believes the system could be co-opted and the people who would most likely co-opt the system are the most wealthy and best connected, not the average victim. He added that the jury system is the ultimate equalizer. Number 168 CHAIRMAN HUDSON asked if alternative resolution wouldn't be useful to the majority of the cases that are less severe; i.e., where a person may be out of work due to an injury for six months, but not permanently maimed. Number 172 MR. SCHNEIDER replied that having the option to choose alternative resolution or a jury trial would be a practical solution. Number 178 MARK CHOATE, private attorney, testified against HB 292. He expressed his feeling that HB 292 is part of a consistent effort to deny Alaskans their right to a jury trial. MR. CHOATE added that juries add the human element to awards that tort reformers can't. He stated that juries listen to real people talk about how injuries affect them. They use their common sense and base their decisions on what they hear and see. Number 220 CHAIRMAN HUDSON asked Mr. Choate how many cases he's asked to take and how many he actually takes. Number 230 MR. CHOATE responded that he rejects about 93% of the cases that he's asked to take. He stated the legal profession does a tremendous amount of screening so as not to encourage someone whose case may not be a winner at any level. MR. CHOATE explained to the committee one reason that many potential clients get turned away is because he can't afford to take them. He stated that based on the uniform approach the medical community takes, which is to fight every case, he can't afford to take a case unless it is valued at $100,000 or more. He concluded that there are a lot of people with legitimate claims that can't find an attorney because the institutional defense is so strong. CHAIRMAN HUDSON asked if these types of cases wouldn't be good for some type of alternative resolution. Number 390 REP. GREEN asked if the reason so many cases are settled out of court is due to expediency, and at what time does Mr. Choate make the decision to recommend a settlement? Number 398 MR. CHOATE responded that, given the small volume of business in this state in small to mid-level claims, you just won't find a "claims mill" like you would in a heavily populated state like California. Furthermore, he feels attorneys are highly professional in Alaska in wanting the best for their clients. Number 414 CHAIRMAN HUDSON asked Mr. Choate to go through the bill and provide the committee some of his thoughts on it. Especially in regard to streamlining the system to make it more cost efficient. Number 435 MR. CHOATE added that when these types of reforms go into effect, we are reducing the amount of costs to insurance companies in the reduction of risk and payouts. But it's his contention that we end up putting more public dollars into the process; i.e., state services to retrain injured workers, etc. MR. CHOATE noted that lawyers get sued much more successfully than doctors. Number 467 CHRIS CHRISTENSEN, General Council to the Judicial Branch, testified via teleconference in regard to Civil Rule 82. He stated that he has been instructed by the Supreme Court to voice its opposition to this change. This rule allows the prevailing party in a civil suit to recover a portion of its attorney's fees from the losing party. MR. CHRISTENSEN said the stated justification for repeal of Rule 82 as laid out by the Alaskans for Liability Reform was to reduce litigation costs and court time and streamline the civil process for expediency and fairness. The Supreme Court disagrees that this would be the result of the repeal of Rule 82. MR. CHRISTENSEN testified that Rule 82 and its predecessor have been around since 1884. The rule has been continuously revised over the years and the Supreme Court did a substantial review of it, concluding this last July. The latest revisions were intended to make the rule even more efficient and fair. MR. CHRISTENSEN stated that Rule 82 does make the system more efficient as it discourages frivolous lawsuits against a defendant if they know that they might end up paying $5,000 to $15,000 in attorney's fees to the defendant. It also gives the client a personal financial stake in the lawsuit as a client is more likely to disclose the weak parts of his case so that the attorney can more accurately evaluate the merits of the case. MR. CHRISTENSEN added that in the interest of fairness, Rule 82 provides partial compensation to the prevailing party. MR. CHRISTENSEN pointed out that Rule 82 makes it more likely that insurance companies will settle claims before the hiring of lawyers or the filing of lawsuits. It gives the companies incentive to evaluate the claims early and fairly. MR. CHRISTENSEN said it allows individuals with small claims to bring action. It's reality that most attorneys won't take contingent fee cases where the amount of work vs. the potential payback makes it too great a risk. Clients with small claims generally have to pay attorneys on an hourly basis. The reality is that a victim will not file a claim for $20,000 if he knows that he will end up giving most of it to his lawyer. Rule 82 insures that if the plaintive prevails he will get at least a portion of it's attorney's fees. MR. CHRISTENSEN stated that Rule 82 discourages marginal appeals by the losing party. MR. CHRISTENSEN said that at its most basic level Rule 82 is important because it is fair. MR. CHRISTENSEN stated that a fiscal note will be submitted from the court system because HB 292 doesn't simplify or make the court system more efficient, it just shifts the costs around. He added that these changes will make the tort system more costly to administer. MR. CHRISTENSEN cited two reasons why it will be more costly: 1) Presently a defendant has no right to pay civil judgments periodically, the plaintiff does have this option but rarely requests it as it is not in its best economic interests. If Sections 12 and 13 of the work draft allow defendants to make periodic payments to plaintiffs. The courts will have to have many hearings to make a judgement on the structure of the periodic payments. 2) Section 14 regarding collateral benefits will add to the court system's workload for similar reasons as above. The courts will have to hold additional hearings on the complicated issues involving collateral benefits. CHAIRMAN HUDSON asked Mr. Christensen to submit something in writing outlining his testimony. Number 570 AL TAMAGNI testified via teleconference from Anchorage in support of HB 292. Mr. Tamagni read the following statement into the record: It is a pleasure to appear before you today and to support the many aspects of HB 292, which are intended to reduce the cost of litigation and get the largest amount of funds to innocent victims and to rightfully protect those innocent defendants in a fair and just manner for all parties. Currently, as we know, the civil liability system is unbalanced and unfair, both in many instances to innocent victims and innocent defendants. One of the many questions and topics that have been raised is what have the Tort Reform Acts of 1986 and the Initiative in 1988 have done. The most important thing that has been accomplished by these acts is reflective in the report of tort reform legislation general liability by Richard Z. Eckhauser and Kip Viscusi, who are from the Harvard Kennedy School of Government, and Department of Economics at Duke University in which they state, "Insurance, like any other factory production, should have a ready supply sold at a price to reflect its long run cost." TAPE 93-45, SIDE B Number 001 The Liability Reform Acts of the mid-1980's did more than constrain the spiraling costs of insurance. They stabilized the insurance markets, and thereby fostered the sound function of the economy, while at the same time saving American consumers approximately 2.5 billion dollars in future premium increases. We find this to be reflective also in regards to the state of Alaska, particularly in the areas of the modified joint and civil liability, which affects approximately 53-55% of the premium dollars. The limits on liability, which affect approximately 11-14% of their premium dollars, and limits on economic damages, which affect approximately 12-14% of the premium dollars and structured periodic payments, which affects approximately 10-12% of the premium dollars. We think these are positive accomplishments that need some small refinement, and that we need to further efficienize the operation and usage of the system so that a larger part of the award gets to the victim in a more prompt, fair and fashionable manner with the least amount of cost to the consumers statewide to provide these services. We feel there are substantial wrongs being committed in the civil justice system, and that the criminal statutes should be more adequately revised to reflect criminal prosecution where the actual criminals are punished for the crimes that they personally commit, and the cops are not the victims of the system. I would simply like to highlight a couple of the issues on damages resulting from the commission of a crime, in which the trial lawyers apparently support the position that the criminal should be rewarded and the cop should be punished. We feel like this is a total injustice. It's not supported by 75% of Alaskans and should be supported as proposed. We find that the proposal by the Trial Lawyers on Periodic Payments is so far fetched as to render one to think and question the credibility of its thought. With this type of legal representation, no wonder our civil justice system is in the state of disarray which is apparently being reviewed and restructured on a federal basis and on a state basis. We find that periodic payments are a very useful mechanism. They provide long term tax free income to people who are injured. We find that victims, when they are presented with optional choices of settlement, and are properly informed of their consequences, are readily acceptable to their use. We find with the assignment of treasury certificates, guarantees and guarantors of other life insurance companies, that the market is substantially far safer than putting your money into a certificate of deposit in a local bank, the many of them who have gone broke in the last eight to 10 years. We find there are substantial guarantees from the Insurance Guarantee Associations in the various states, including that of Alaska. The IRS agrees and Congress agrees these guarantees are beneficial safeguards to our society as a whole. We find that plaintiff attorneys, in most cases, do not personally like structured settlements, as it requires a little additional work on their part and it also requires them to perform and give their client informed consent. We see this as one of the major problems in the profession today that victims are not given offers of judgement that reflect periodic payments. They are not properly disclosed. They are not properly presented, and in most cases are never presented at all. We feel like this is an aspect that has been an abusive practice by the trial lawyers and should be rectified to allow any person or any entity to provide it as an offer of judgement. We feel to restrict the hands of the jury is improper and is not in the best interest of society as a whole. We feel that the offer of judgement for interest rates at 3% above the federal discount rate is sufficient. It is sufficient in two ways, that it adequately and fairly compensates the victim for the funds they would have had and invested at the time they would have received them and is far in excess of what one could earn on certificates of deposit. It is probably more important to note that it is our position that neither the defense nor the plaintiff should dictate the scheduling of the trial and the progress of the case. It is the responsibility of the third branch of government; i.e., the court system that when a case is filed to immediately put that on a fast track basis and to secure justice in the quickest, fairest and most economical manner for both sides; i.e., plaintiff and defense. Therefore, the argument that the defendant capitalizes on the investment earnings is not why we should be here today. The problem is why isn't the court system prioritizing and fast tracking these cases for a quick, cost efficient and fair resolution. As you all know, we, the general public, have virtually no input on a majority basis into either the Alaska Judicial Council, the Alaska Bar Association, nor the Judicial Conduct Commission. So, therefore, one should review the operations of these entities and ensure more public participation, perhaps by increasing and varying the size of the various commissions, and required public hearings on all rules, by-laws and operation changes. We need to be concerned about the collateral source, and the purpose of the collateral source is that jurors can offset any awards or fees that have already been paid in regards to the settlement. The purpose of this is to allow a more efficient and fair operation in which a 50% legal contractor's fee would be eliminated and a jury could offset those costs before issuing the final judgement. This, of course, gets the most amount of money to the victim with a smaller percentage of the case to the attorney. It is fair. Juries are fully capable of it and should be granted that right. This bill affects virtually every Alaskan, whether they buy homeowner's insurance, automobile insurance, or any other type of property and casualty liability insurance. Their rates are affected by a number of ways, including that of Alaska Rule 82, which has a surcharge built in for homeowners insurance, automobile insurance and substantial property and casualty additions for liability insurance. Number 101 CHAIRMAN HUDSON asked Mr. Tamagni to send his testimony in writing. Number 109 HARLAN KNUDSEN, President and Chief Executive Officer, State Hospital and Nursing Home Association, testified in support of HB 292. MR. KNUDSEN believes one of the most important issues to be addressed through HB 292 is the lack of access to health care in rural areas of Alaska due to liability problems. MR. KNUDSEN noted that the London insurance market dropped with the changes implemented in the 1988 tort reform legislation. MR. KNUDSEN suggested it is up to all to help bring down the cost of health care coverage. Number 204 STEVE SCHROEDER, Civil Engineer, testified via teleconference from Anchorage. Mr. Schroeder stated that he supports HB 292 in general and the statute of limitation and the statute of repose in particular. MR. SCHROEDER commented that he has difficulty remembering what he had for breakfast today let alone trying to remember why decisions were made five, ten or more years ago in response to a claim. Finding the other parties involved is equally as difficult. MR. SCHROEDER believes that small businesses are the most adversely impacted by the current lack of a statute of repose. Number 324 TOM FINDLEY, private attorney, testified against HB 292. Mr. Findley commented that he has not heard any complaints in Juneau about how the jury system works. He has heard complaints about problems in Anchorage. Mr. Findley believes there are not many complaints in Southeast because the perception is that the system is fair and that the juries do a good job. MR. FINDLEY questioned what this legislation hopes to fix, since the testimony seems to indicate that HB 292 won't result in lower premiums. In fact, he pointed out, the top nationwide automobile insurance companies would admit their rates are not set by 500,000 people in this state, they're going to be set by five million people in Los Angeles, the secondary market. MR. FINDLEY agreed that access to the system is important and to that end the idea of having an optional alternate dispute resolution procedure or arbitration panel is a good idea. MR. FINDLEY said that the last time the legislature passed tort reform legislation there was an attempt to create dram shop liability protections. Currently, if a person gets drunk with a friend, rides as a passenger in a car with the friend, and they get in an accident, the passenger can sue the person who served him alcohol. Number 343 HENRY SPRINGER, representing the Association of General Contractors, testified in support of HB 292, specifically the statute of limitation and statute of repose. He noted that the contracting business involves a whole area of people, engineers, architects, subcontractors, plumbers, suppliers etc. At the time the project is finished and the final payment is made, the bonding and insurance requirements cease. If there is a problem after this point, there is no logical and fair process to determine who is at fault. The current tort system usually identifies the contractor as the deep pocket and they are the ones sued. In conclusion, Mr. Springer believes a six year limitation is a fairer limit. REP. PORTER stated that he takes exception to the testimony given that the committee has not received testimony that this bill would reduce costs, because it is not true. Number 422 CHAIRMAN HUDSON adjourned the meeting at 4:20 p.m.