Legislature(1993 - 1994)
02/09/1993 01:40 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE February 9, 1993 1:40 p.m. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator Steve Rieger, Vice-Chairman Senator Drue Pearce Senator Georgianna Lincoln Senator Judy Salo COMMITTEE CALENDAR SENATE BILL NO. 64 "An Act relating to civil liability for workplace safety inspections; and providing for an effective date." SENATE BILL NO. 66 "An Act relating to limited partnerships; and providing for an effective date." SENATE BILL NO. 85 "An Act extending the termination date of the Alaska Tourism Marketing Council; and providing for an effective date." SENATE BILL NO. 73 "An Act relating to the time for filing certain civil actions; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 64 - See Labor & Commerce minutes dated 2/4/93. SB 66 - NONE SB 85 - NONE SB 73 - NONE WITNESS REGISTER Michael Schneider 880 N, Suite 202 Anchorage, Alaska 99501 POSITION STATEMENT: Opposed SB 64 Roxanne Stewart, aide Senator Jim Duncan State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Reviewed SB 66 Arthur Peterson, Attorney One Sealaska Plaza, Suite 202 Juneau, Alaska 99801 POSITION STATEMENT: Supported SB 66. Willis Kirkpatrick, Director Department of Commerce & Economic Development Division of Banking, Securities, and Corporations P.O. Box 110807 Juneau, Alaska 99811-0807 POSITION STATEMENT: Supported SB 66. Tina Lindgren, Executive Director Alaska Tourism Marketing Council 3601 C Street #700 Anchorage, Alaska 99503 POSITION STATEMENT: Reviewed SB 85. Josh Fink, aide Senator Tim Kelly State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Reviewed SB 73. Doug Green, Chairman Legislative Liaison Committee Alaska Professional Design Council P.O. Box 10-3115 Anchorage, Alaska 99510-3115 POSITION STATEMENT: Supported SB 73. Richard Ritter, Chairman Legislative Affairs Committee American Chapter of American Architects 800 Glacier Avenue Juneau, Alaska 99801 POSITION STATEMENT: Supported SB 73. Colin Maynard Alaska Society of Professional Engineers 1400 W. Benson, Suite 500 Anchorage, Alaska 99517 POSITION STATEMENT: Supported SB 73 ACTION NARRATIVE TAPE 93-9, SIDE A Number 001 CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting to order at 1:40 p.m. SENATOR KELLY returned SB 64 (INSURER IMMUNITY FOR SAFETY INSPECTIONS) to committee to hear testimony from MICHAEL SCHNEIDER, off-net from Anchorage. (The testimony from MR. SCHNEIDER is transcribed verbatim.) MR. SCHNEIDER - "SENATOR KELLY, members of the committee, I would like to thank you for accommodating my appearance by telephone at a different date and time. I am an attorney. I've been practicing in Anchorage since October of 1975, when I was admitted to the state's bar. I've reviewed SB 64 and I am here to testify against its adoption, and I would hope that it would not leave this committee's hands because, in my view, I will try to explain why it is a bad piece of public policy. This proposed statute is an effort to reverse a case decided by our supreme court, the Van Biene v. E.R.A. Helicopter, Inc. case. It was decided in 1989, and held that an outfit that undertakes to provide inspections can be held liable if they do so negligently, and if that negligence causes injury or death to someone. I guess the first notion I would like to dispel is that this is a radical, new, or unusual statement of the law by our supreme court. I've done just the briefest research on this matter, but I can assure the committee that I've got a October 1912 case, called Hartford Steam Boiler, Inspection, and Insurance v. Pabst Brewing in front of me. I don't want to say it's been followed, but the supreme court of Iowa, for instance, in 1963, came up with the same ruling 30 years ago. In 1964 the supreme court of Illinois reached the same decision. Alabama reached it in 1971. Georgia reached it in 1974. Our supreme court, when finally confronted with the issue, issued it's ruling in 1989, and I guess that the reason that I picked these states, I would just like to get across to the committee that an insurance company undertaking to provide inspection services, who does so negligently can be liable, is an idea that is well established in the law of this country, probably about a century old, and that our supreme court was simply getting in line with radical jurisdictions like Alabama and Georgia, when it came up with its ruling. Another thing that I would like to point out, is that the decision itself was a decision by JUSTICE MOORE. Many of you may know JUSTICE MOORE personally. He's a good jurist, and in my view, a fairly conservative individual. He spent his professional career defending ... the insurance industries as defense counsel. He authored this opinion, and it was joined in unanimously by every justice of the supreme court. This was not a divided court. It wasn't a close call. It was simply a statement of the obvious, quite frankly. The other thing I guess I would like to make apparent to the committee, and one of the reasons that I picked that whole 1912 case, is to illustrate that the rights that are being forfeited here by Alaskans, are not simply forfeited by injured Alaskan workers. They are going to be forfeited by Alaskans in general, and by businesses as well. Remember, that the first case that I mentioned to you, was a case where Pabst Brewing Company was suing the inspecting insurance company, and while I can't tell you, because I didn't spend enough time reading the case, if anyone was killed or injured, I can tell you that the explosion that fostered that litigation put a heck of a dent in the beer production for quite awhile. I guess that I am concerned that the committee not overlook the importance to businesses and to adjacent property owners of a rule of law that exists in this state now that protects people from negligent inspection services. What kinds of businesses and enterprises are likely to be the subject of such an inspection? A lot of things come to mind, but major construction activities, certain kinds of demolition and explosion activities, oil operations and refinery operations. Number 105 You're putting a big dent into the current public policy of the state that provides protection to people injured through negligent acts if this legislation leaves the committee. I have seen some of the correspondence addressed to the committee with regard to this bill, and I guess I would like to again state what I think is obvious to practicing lawyers that may not be obvious to everyone else. And that is, that by providing an inspection, it is not the law of Alaska, not the law anywhere else, and never going to be the law of Alaska, that you are somehow thus liable, period, when an injury or some sort of damage occurs. Your inspection activity has to be related causally, has to cause, in fact, the damage has to be such an important event that a reasonable person would attach it as the cause, wouldn't happen, but for the cause. Then you have to be negligent, and if those things don't apply, you're not liable. In that old 1912 case, for instance, this insurance company had done periodic inspections of a boiler, submitted reports. Pabst relied upon them - and why wouldn't they, they submitted one just a month before the thing blew up. They, as part of their advertising campaign, touted the benefits of their inspection services as an inducement to procure the coverage in the intended inspection services. Under this legislation, the inspecting entity would be cut loose and completely free of any responsibility. I guess I fail to see, and I hope the committee fails to see, how that is in the interest of the people of this state. Number 113 Finally, I guess I've got a couple of comments. Having looked over some correspondence received by the committee, I found one of the more fascinating to be a February 1 letter, addressed to SENATOR KELLY as chair of Labor and Commerce, from JAMES E. PFEIFER, president of Alaska National Insurance Company. With that particular piece of correspondence, it's kind of hard to know where to start. Let me hit a couple of things quickly. As I mentioned, this is not a bill that is just going to affect whether or not injured workers have a third party claim under certain circumstances. It goes to much broader segments of society. Secondly, it is suggested here that in the worker's compensation system, workers get full recovery for their injuries, so what's the problem? That's ludicrous! Injured workers give up the hope of having anything approaching a full recovery in exchange for the administrative proceeding, no liability or comparative fault issues, and prompt payment of their claims. To suggest otherwise, I think, is, well I think should be an embarrassment to whoever wrote this letter. It is certainly not the case. Finally, I think, in evaluating some of the support for this bill, look carefully at some statements made in this particular piece of correspondence. Alaska National suggests that not only should the industry be immune from liability from its unreasonable and negligent conduct, when it causes death or damage, but they should also be free from their intentional misconduct, and I guess that ... I find that to be such a bizarre and unusual request that, in my mind, it would somewhat taint the veracity of whoever is communicating it." Number 180 SENATOR KELLY said the committee agreed with him on that, and has decided to leave the language in the bill as is right now. MR. SCHNEIDER continued, "Thank you, senator. I am sorry I was unaware of that. Frivolous cases are mentioned. Basically the law, as it is, promotes frivolous litigation. Most people that represent plaintiffs, do so on a contingency fee basis, and the basic mathematics of that situation are that a percentage of zero, or a trivial or frivolous amount of money are zero, or something trivial. The suggestion that there is some sort of any number of cases out there based on this claim is absolutely contrary to my own experience, in my own knowledge of plaintiff's practice in this town, and I suspect it is contrary to the record. So, with that notion, I would like to prevail upon the committee to seek information before it does anything with this bill, and some of the questions that I would suggest would be appropriate would be questions like: How many inspections were done by Alaska National, State Farm, Alstate, some of the major, either casualty carriers in the state, before the case in question? How many have been done after the case in question? How many lawsuits were there before and after with this allegation? I think you'll find that this big problem, is no problem at all. ...I would like to leave the committee with the notion that this bill, seeming to address something fairly simple on its face, is not so simple at all. Unfortunate retreat to a concept dead for about a century in this country, and a real step backwards for an important legal principal well established in the juris prudence of this state and every other state. And, with that, if the committee has comments or questions, I would be pleased to answer them." SENATOR RIEGER asked MR. SCHNEIDER, in reference to his testimony, "you said that even if the present law of the state were to stand, that a person performing a work place inspection, would have to have performed an inspection which caused the injury before they could be held liable. Could you elaborate on how that is so?" Number 221 MR. SCHNEIDER answered, "Sure, I'm happy to, and it is a critical, critical part of the public policy analysis that I would be hoping this committee would engage in. Let me give you a couple of examples. I come and inspect your work site, you're engaged in construction activity, you're building a new capitol at Willow, and I look your construction activity and I see things like, maybe, dump trucks running through stop signs, no flagmen present, all ... those kinds of violations. You're relying on me to report them, because I promised to do so. I don't report them. Nothing is done to alter the activity. Someone is run over and killed. Now a plaintiff in that set of facts could argue that the inspection was negligent, the reporting was negligent, and that negligence caused or contributed to the death. So that's one area where you have an argument. Now, a jury might find otherwise, but you have an argument about causation and negligence. Let's say in a different set of facts, the same construction site, I walk up, I see that everything in front of me is fine. The next day, because of a design defect in a crane, which is not noticeable to the naked eye. Or, let's make it easy, let's make it a manufacturing defect in a crane. Some metal fatigue, a boom falls off, kills a half a dozen people. Am I responsible under those facts? If I was sued, my response would be, 'A careful inspection would not reveal that defect.' Number 1, I am not negligent. I haven't done anything unreasonable, and if I have done anything unreasonable, like not even looked at the crane that I should have looked at, ok. Had I inspected, I would have not found the defect, so just like in every single tort case that ever was, outside the area of strict product's liability, every case, every auto case, every construction case. If I can't prove not only unreasonable conduct, meaning an unreasonable act, or an unreasonable omission where there is a duty to act. If I can't prove that, and, and not or, that these negligent failings caused the injury, I got no case, and I lose." (This ends the verbatim portion of the minutes.) Number 250 MR. SCHNEIDER asked if he had answered the question. (This ended the verbatim testimony.) SENATOR KELLY thanked MR. SCHNEIDER for his testimony. SENATOR PEARCE moved to pass SENATE BILL NO. 64 from committee with individual recommendations. There was dissent on the bill. A vote was taken, and SB 64 passed from committee on a 3 to 2 vote. Number 290 SENATOR KELLY introduced SB 66 (UNIFORM LIMITED PARTNERSHIP ACT UPDATE) sponsored by SENATOR JIM DUNCAN. SENATOR KELLY invited ROXANNE STEWART, aide to SENATOR DUNCAN, to review the bill. MS STEWART explained the bill completed the upgrade of Alaska's Limited Partnership Act to conform to the recommendations of the National Conference of Commissioners under the Uniform State Laws. In reviewing the sections, she said Section 1 substitutes the notice form for the certificate of limited partnership for the old long form certificate, and the rest of the bill simply conforms to the remainder of the Limited Partnership Act. SENATOR KELLY opened the committee to questions. ART PETERSON, presently in private practice, strongly supports SB 66. He drew attention to two letters in the bill file from Anchorage attorneys written last year on this subject, also, strongly supporting the bill. MR. PETERSON explained the bill would provide for national uniformity with other states, and it would provide a modern approach to the area of limited partnerships, along with better access to the business communities throughout the country. He noted Section 1 was the heart of the bill, and all of the other provisions were compatible amendments. MR. PETERSON continued to explain the reasons for the substitution of the modern use of the short form, or notice form of the certificate of limited partnership, for the old fashioned long form. He gave an extensive account of the history and use of the certificate from its inception, and he explained the current application of the short form as a cost benefit. SENATOR RIEGER asked several questions of MR. PETERSON to clarify other types of joint ownership in business forms. Number 358 To answer SENATOR LINCOLN, MR. PETERSON explained the format was used by most states, but the long form dated back to 1917. SENATOR KELLY agreed with MR. PETERSON this change had been left out of the re-write last year, which satisfied SENATOR LINCOLN. Next, SENATOR KELLY called on WILLIS KIRKPATRICK, Director of the Division of Banking, Securities, and Corporations, to testify. MR. KIRKPATRICK testified in favor of the change since it would lessen the burden on his department in the filing procedures. He asked the committee to consider a couple of changes to update the standard industrial codes and to include a reminder for the limited partnerships to be filed in his department. Number 404 After some discussion, SENATOR LINCOLN moved to pass SENATE BILL NO. 66 from committee with individual recommendations and a zero fiscal note. Without objections, so ordered. Next, SENATOR KELLY introduced a committee sponsored bill, SB 85 (TOURISM MARKETING COUNCIL) and invited TINA LINDGREN, Executive Director for the Alaska Tourism Marketing Council, to testify. Number 431 MS. LINDGREN explained the bill and gave reasons why the tourism marketing council should be extended for three years. She described destination marketing, why it was important for Alaska, and how it operated within the state. MS. LINDGREN said there were 12000 operators who used the council program as their only means to access the national market place, and they would lose their business without the assistance of the council. The large tour companies would then gain the greater share of the market. SENATOR KELLY opened the meeting to questions. SENATOR PEARCE gave some information on a proposed omnibus bill that would extend boards and commission and explained the Tourism Marketing Council was chosen to be extended for a longer period of time. MS. LINDGREN said there were no objections from either the ATMC or the Department of Commerce. SENATOR LINCOLN objected to the criteria used to select the presiding officer and board members, which she thought denied membership to those in the visitor industry, who couldn't meet the criteria. She said there weren't any member on the council from any of her 93 communities, and she said this eliminated a lot of expertise that could be used by the council. SENATOR LINCOLN opposed the criteria for the make-up of the board. Number 468 MS. LINDGREN reviewed the previous use of the criteria as being too difficult to meet, and she explained a prospective member only needed to meet one of the criteria. She said the Department of Commerce shared her concern about the representation, and she described how members could come to the council through the committee structure. SENATOR LINCOLN asked for an amendment on the make-up of the board on page 1, line 10 by deleting "substantially." She still thought the provisions would eliminate a lot of people who would be good participants on the council. After discussion with SENATOR KELLY, SENATOR LINCOLN moved to delete "substantially." SENATOR PEARCE objected because she wanted to work with SENATOR LINCOLN on the wording. SENATOR KELLY agreed with SENATOR PEARCE and called an at- ease to discuss the problem. Number 505 There was no objection to SENATOR LINCOLN'S amendment, and it was passed. SENATOR PEARCE moved to amend page 3, line 17, to change the date to 1997 for a sunset. Without objections, so ordered. SENATOR PEARCE moved to pass CS FOR SENATE BILL NO. 85(L&C) from committee as amended and with a single fiscal note. Without objections, so ordered. As prime sponsor, SENATOR KELLY introduced SB 73 (LIABILITY OF DESIGN/CONSTRUCTION PROFESSIONALS) and asked his aide, JOSH FINK, to review the bill for committee. Number 523 MR. FINK explained a similar bill had passed the Senate last year, and he gave a brief history on the Statute of Repose along with the rationale. This presumed that after a building had been utilized safely for 10 years, the facility should be deemed safe, and the design professions should be protected from suit after the passage of a reasonable amount of time. MR. FINK outlined the legal problems, and explained that currently design professionals are subject to an indefinite period of liability. He reviewed the supreme court decision arising from the 1988 consolidated cases, Turner construction v. Robert Scales and Iverson Construction v. DeWayne Carson and referred the committee to two legal opinions in the bill packet. MR. FINK said SB 73 would repeal the 6 year Statute of Repose and reenact a 10 year Statute of Repose in its place, and he explained the legal implications of the bill, and referred the Senators to additional information in the bill packet. In his summation, MR. FINK said the bill would provide reasonable protection for design professionals. He noted two zero fiscal notes. Number 554 SENATOR KELLY asked for additional information on the bill introduced during the last legislature, and MR. FINK gave him the voting history on the bill. SENATOR KELLY invited DOUG GREEN, Chairman of the Alaska Professional Design Council's legislative liaison committee, and a registered architect, to begin the testimony. MR. GREEN commenced with some history on the Alaska Professional Design Council which represented all of the design professionals in the State of Alaska - eleven different associations and 1400 design professionals state- wide. He made several points in favor of the bill and explained the Statute of Limitations in relation to the Statute of Repose, which fixes a time from the date the project is completed until a period in the future. This date, 10 years hence, would cut off the time for litigation against the project and against the design professionals, except in the case of gross negligence. MR. GREEN predicted the bill would encourage construction in Alaska, and he described the number of third party claims for a slip-and-fall type of incidence that makes the design professionals vulnerable to litigation. Number 580 TAPE 93-9, SIDE B Number 001 MR. GREEN deplored the amount of research it took to answer the litigations, and he assured the committee the bill would not limit the access to courts, even after 10 years. SENATOR SALO asked for an example of what would constitute gross negligence v. inadequate design or stress on a building. She said it might be many years before a design flaw comes to light. MR. GREEN gave an example of what might be concealed in the construction of a building which might have a deficiency in the design. He said that would not be standard practice and would constitute gross negligence on the part of a designer, giving recourse through the courts. SENATOR SALO asked about roofs, which she said are problem areas in Alaska. She also asked whether a change in the statute would change the burden of proof. MR. GREEN described the circumstances and remedies for the failure of a roof as a maintenance item, and he said the Statute of Repose could inform the design professional to look to the maintenance record by the owners as part of the defense. Number 066 SENATOR KELLY next called on RICHARD RITTER and COLIN MAYNARD to testify. MR. RITTER said that 45 states currently have a Statute of Repose, and of the 45, 32 have been declared constitutional in actual court cases. He explained Alaska's Statute of Repose had been declared unconstitutional. MR. MAYNARD assured the committee of support from the engineering society for the Statue of Repose, but he didn't think they should be subjected to an indefinite period of liability. He described being dragged into a suit even though his firm had been retired for 10 years. He quoted some statistics to show design problems after 10 years was for other than failure by the design professionals, but from remodeling and neglected maintenance. SENATOR LINCOLN questioned the letter from the legislative counsel, MIKE FORD, as to why the change had been made from 7 to 10 years. MR. FORD explained the correction. SENATOR LINCOLN, in reference to the studies by Shinnerer Management Services, Inc., quoted the "vast majority of claims filed against Design Professionals are brought within six years of substantial completion..." She quoted additional statistics from the legislation as stating 83.6% of the claims were filed the first 5 years, and 45% of the claims were filed during construction. SENATOR LINCOLN wanted to know why the legislature was going to 10 years for such a small percent of claims. MR. GREEN explained the legislation stretches out the number of possible claims to 97% of everyone who would, or could, file a claim. He further explained the design professionals want to provide some end point fair to everyone, but as design professionals wanted to be able to retire and not have to be called to be accountable for a building. Number 145 MR. RITTER added that without a Statue of Repose, design professionals are forced to consider "tail" insurance to retire their business. SENATOR SALO asked if after the 10 year period, would the insurance premiums be less? MR. MAYNARD said they were unable to see any difference immediately, but it would enable the design professionals to throw away their files after 10 years. MR. RITTER discussed insurance problems including deductibles and claims. In answer to questions from SENATOR KELLY, MR. RITTER described expensive court costs, legal fees, and insurance premiums. Number 180 SENATOR RIEGER directed MR. FORD to Sections 2 and 3, and questioned him about an equal protection case on page 3, line 5, where a number of trades and crafts have been included in the exemption rather than just the design professionals. MR. FORD explained why he thought it might help to have a broad base of people. He cited the lack of several liability as a success factor in the bill. SENATOR RIEGER and MR. FORD discussed some other aspects of the bill including joint several liability. SENATOR KELLY called for a motion on the bill. SENATOR RIEGER moved to pass SENATE BILL NO. 73 from committee with individual recommendations. Without objections, so ordered. There being no further business to come before the committee, the meeting was adjourned at 2:50 p.m.