Legislature(2001 - 2002)
05/07/2002 01:43 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
May 7, 2002
1:43 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Jerry Ward, Vice Chair
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
Senator Robin Taylor
COMMITTEE CALENDAR
SENATE BILL NO. 372
"An Act providing for and relating to the issuance of general
obligation bonds in a principal amount of not more than
$160,130,000 for the purpose of paying the cost of state
transportation projects; and providing for an effective date."
MOVED CSSB 372(TRA) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 528(FIN)
"An Act relating to programs of state reimbursement for debt
payments for certain capital projects; and providing for an
effective date."
ASSIGNED TO SUBCOMMITTEE
CS FOR HOUSE BILL NO. 175(2d FIN)
"An Act making an appropriation to the Alaska Energy Authority to
secure repayment of bonds for power and intertie projects; and
providing for an effective date."
ASSIGNED TO SUBCOMMITTEE
CS FOR HOUSE BILL NO. 271(JUD)
"An Act relating to recovery of punitive damages resulting from
an aviation accident; and providing for an effective date."
HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SB 372 - No previous action to record.
HB 528 - No previous action to record.
HB 175 - No previous action to record.
HB 271 - No previous action to record.
WITNESS REGISTER
Mr. Don Smith
Aide to the Senate Transportation Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the provisions of SB 372
Mr. Kevin Ritchie
Alaska Municipal League
217 Second Street, Suite 200
Juneau, Alaska 99801
POSITION STATEMENT: Stated support for SB 372
Mr. Mike Scott
Municipality of Anchorage
PO Box 196650
Anchorage, AK 99519
POSITION STATEMENT: Testified in support of SB 372
Mr. Kip Knutson
ERA Aviation
Anchorage, AK
POSITION STATEMENT: Testified in support of HB 271
Mr. Chris Knight
Staff to Representative Halcro
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Testified for the sponsor of HB 271
Representative Andrew Halcro
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 271
ACTION NARRATIVE
TAPE 02-23, SIDE A
Number 001
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 1:43 p.m. Senators Ward, Wilken and Chairman
Cowdery were present. The first order of business to come before
the committee was SB 372.
SB 372-TRANSPORTATION BONDS
MR. DON SMITH, staff to the Senate Transportation Committee,
informed members that SB 372 would put a proposal before the
voters on the November 2002 ballot to fund 14 transportation
projects around the state through the sale of bonds. He listed
the 14 transportation projects listed in the legislation and said
the total cost will be just over $160 million.
SENATOR WARD moved to adopt Amendment 1, which would delete the
existing item number (10) on page 2, line 28, and insert a new
item number (10) Eagle River, Old Glenn Highway MP 0-18.7. The
amendment would also add item number (15), the Matanuska-Susitna
Fairview Loop Path for $1,310,000 and item (16), which would be
the Nash Road Rehabilitation project in Seward for the amount of
$2,605,000.
SENATOR ELTON objected for the purpose of discussion and asked
for an explanation of why the Trunk Road was being dropped and
new projects added.
SENATOR WARD explained that the new projects are a higher
priority of the Senators from those areas who have a better
knowledge of what is needed. He said that Mile 0-18.7 on the Old
Glenn Highway travels up toward the Knik River and is a part of
the old Alcan Highway. It has not been improved since the new
highway was built. He added that item (15) was requested by the
Senator from that area, who said it is a high priority. He said,
regarding item 16, the Nash Road Rehabilitation is one of
Seward's highest priorities.
SENATOR ELTON pointed out that the adoption of Amendment 1 will
require a title change.
SENATOR WARD moved a conceptual amendment to adjust the title to
reflect the new appropriation amounts and asked for unanimous
consent.
CHAIRMAN COWDERY noted that Amendment 1 was not yet adopted.
SENATOR WARD withdrew his conceptual amendment.
CHAIRMAN COWDERY asked if there was continued objection to
adopting Amendment 1. There being none, Amendment 1 was adopted.
SENATOR WARD moved to change the title of SB 372 as amended to
reflect the new dollar amount resulting from the adoption of
Amendment 1.
CHAIRMAN COWDERY announced that without objection, the title
would be changed.
SENATOR ELTON moved to adopt Amendment 2.
SENATOR WARD objected.
SENATOR ELTON explained that Amendment 2 would add a total of $35
million for the fast ferry project. If adopted, the bill title
would have to be adjusted again. He informed members that one
fast ferry has been approved; Amendment 2 would allocate dollars
for a second fast ferry. Amendment 2 would require changes on
page 2, lines 10 and 21 (to add a project description), page 3,
line 6, and page 4, line 1.
CHAIRMAN COWDERY noted that objection was maintained therefore a
roll call vote was taken. The motion to adopt Amendment 2 failed
with Senator Elton in favor and Senators Ward, Wilken and Cowdery
opposed.
CHAIRMAN COWDERY noted that no one else wished to testify on the
bill as amended.
SENATOR WILKEN asked if the other body was deliberating companion
legislation.
[No response was audible.]
SENATOR WARD moved SB 372 as amended, CSSB 372(TRA), from
committee with individual recommendations.
CHAIRMAN COWDERY announced that people were waiting to testify
via teleconference.
SENATOR WARD withdrew his motion to move CSSB 372(TRA) from
committee.
CHAIRMAN COWDERY took public testimony.
MR. KEVIN RITCHIE, Alaska Municipal League (AML), thanked the
committee for taking action on the bill.
MR. MIKE SCOTT, representing the Municipality of Anchorage and
the AML, thanked members for introducing the bill and said a
statewide transportation package is an AML priority.
There being no further testimony, SENATOR WARD moved CSSB
372(TRA) from committee with individual recommendations.
CHAIRMAN COWDERY announced that without objection, CSSB 372(TRA)
moved from committee.
SENATOR TAYLOR asked if the funding for the three roads in
Anchorage will amount to $88 million, while the road resurface in
Ketchikan will amount to $600,000.
CHAIRMAN COWDERY noted the bill also contains $5.5 million for a
road in Sitka.
SENATOR TAYLOR said that road was supposed to have been built
already as it was funded once in the past.
SENATOR ELTON said his eyes must be getting old as he didn't see
any Juneau projects listed.
CHAIRMAN COWDERY announced that with no objection, the bill moved
from committee.
HB 528-STATE REIMBURSEMENT CAPITAL PROJECT DEBTS
APPROP: POWER PROJECTS BONDS
CHAIRMAN COWDERY announced that he would appoint a subcommittee,
chaired by Senator Ward, to work on HB 528 and HB 175.
The committee took up CSHB 271(JUD).
CSHB 271(JUD)-CAP ON AVIATION ACCIDENT PUNITIVE DAMAGES
CHAIRMAN COWDERY asked if anyone wished to testify on CSHB
271(JUD).
MR. KIP KNUTSON, representing the Alaska Air Carriers Association
(AACA), informed members that the AACA is in support of CSHB
271(JUD) because of the situation occurring in Alaska regarding
insurance premiums for air carriers. The industry believes the
aviation infrastructure is in peril because of steadily rising
insurance costs. CSHB 271(JUD) attempts to change that
environment. He acknowledged it is frustrating for all involved
that there is no solid answer as to what impact this legislation
will have on insurance rates. CSHB 271(JUD) contains a tool used
by plaintiffs when they approach an air carrier. Most air
carriers carry liability insurance but do not insure for punitive
damages. During a negotiation, a plaintiff often comes forward
and says he or she will sue for punitive damages as well as
liability. Because carriers do not have insurance for punitive
damages, they are more motivated to persuade the insurance
companies to settle at a higher amount or to the limits of their
liability policies to avoid punitive claims, whether those claims
are legitimate or not. He said that procedure is not easily
verifiable with statistics but he could provide attorneys who
would validate that is the practice.
MR. CHRIS KNIGHT informed members he is staff to Representative
Halcro who chaired a House Labor and Commerce subcommittee on
this issue last year. He said the subcommittee studied a number
of aviation industry issues. That industry is plagued by high
insurance rates. After studying several options, the subcommittee
drafted this legislation.
REPRESENTATIVE ANDREW HALCRO, District 12, told members that the
House Labor and Commerce subcommittee spent a great deal of time
last year looking at problems in the aviation industry in Alaska.
That industry is, beyond question, in peril. The subcommittee
identified three areas that need assistance to stabilize this
industry to protect rural communities and our neighbors in the
business that depend on it.
The first area is in regard to industry reforms in education and
training. Those reforms are being achieved through the Medallion
Program. The University of Alaska has made a tremendous
investment in flight simulators for training and is doing a good
job to increase enrollment in that area. He explained a
consortium of private aircraft companies created the Medallion
Program to recognize and award excellence in operation,
maintenance, and flight safety procedures. That consortium has
worked with the Federal Aviation Administration to design
voluntary improvements in flight safety.
REPRESENTATIVE HALCRO said the second area of concern relates to
insurance pooling and access to aviation insurance markets. An
insurance pool would have to be capitalized to the tune of $20 to
$30 million so that small aviation companies can band together.
The State of Alaska does not have that money to spare.
REPRESENTATIVE HALCRO said the third area of concern has to do
with tort reform, which is one of the most important components
of controlling costs. Attorneys in Alaska have used the threat of
punitive damages to get a higher settlement. CSHB 271(JUD) will
identify and limit the exposure of aircraft companies to punitive
damages. He noted the legislation has tremendous industry
support, as well as support from the Division of Insurance. He
recounted a case in Barrow a few years ago in which the insurer
believed its exposure was a couple of million dollars. The
exposure ended up being significantly higher because the judge
allowed the plaintiff to pierce the ceilings in the limits. He
explained that CSHB 271(JUD) will provide the industry with
serious help. He said he believes tort reform is a responsible
and reasonable step to address the needs of the aviation industry
in Alaska.
SENATOR TAYLOR asked Representative Halcro to explain how
punitive damages played into the Barrow case.
REPRESENTATIVE HALCRO said it had nothing to do with punitive
damages but it set a precedent. He noted the insurance company
was under the impression that it had exposure of Y but:
they went to court and the judge allowed, through the
suit, the judge allowed them not to be liable for Y but
actually pierce those limits and said oh, you can sue
for other damages. So it was just - what the case did
was the case highlighted the fact that there needs to
be some understanding with regards to the law so when
these insurance companies that are few and far between
writing for this industry, sit down and look at
evaluating a policy and look at issuing a quote, they
understand what their risk exposure is for this market.
And that lawsuit drew seriously into question what
exactly their risk was at the end of the day if there
was an accident.
SENATOR TAYLOR replied, "In essence, the answer to my question
is, punitive damages in this bill has absolutely nothing to do
with the Barrow case, does it?"
REPRESENTATIVE HALCRO said that is what he just said.
SENATOR TAYLOR noted the Barrow case "was a lousy job done by the
people writing up the releases for the insurance company when
they thought they had settled the case." The company found out it
had not taken care of the rest of the heirs, who were then
allowed to bring litigation against the company. That is why the
exposure extended. He said everyone doing aircraft litigation
knows better after the case and, as a consequence, they draft
their releases. He said he knows for a fact that Alaska Airlines,
in settling Flight 261 fatalities, is drafting its releases in
such a way that it includes all of the heirs and living members
of each family so that it knows it has a complete settlement. He
maintained that whatever aberration was caused by the Barrow case
has already been resolved within the industry and everyone now
knows how to settle such cases.
SENATOR TAYLOR asked Representative Halcro what he based his
assumption on regarding the use of the threat of punitive damages
to get higher court settlements. He indicated that Mr. Lohr of
the Division of Insurance did not mention that aspect of the
problem in his letter.
REPRESENTATIVE HALCRO said the fact is the out-of-court
settlements are sealed so no empirical data is available to show
that because of punitive damages, the awards were higher.
However, testimony from insurance carriers is available.
SENATOR TAYLOR stated the legislature enacted a significant tort
reform bill before Representative Halcro came to the legislature.
Every single insurance company that supported the bill told the
legislature at that time that tort reform would result in
dramatic reductions in rates. That has not happened. The
legislature heard two years of testimony about specious lawsuits
that were filed, for example, people were being awarded millions
of dollars over spilled cups of coffee. The legislature wanted
verification so it required a document to be filed with the
Judicial Council when a case is settled, containing the amount of
the settlement and attorneys' fees. Those documents are not
sealed and they are reviewed to determine whether specious suits
are being filed.
REPRESENTATIVE HALCRO said the Judicial Council reported that
half of the eight awards for punitive damages were for amounts
between $15,000 and $100,000. Four sets of punitive damage awards
exceeded $100,000. The highest three awards ranged from $2.6
million to $150 million. He told members that as someone who grew
up in a family business, he has seen these types of lawsuits. He
and others in the private sector see tort reform as a very
reasonable and practical approach to creating an environment that
is not only safe to do business in, but encourages free market
development. He pointed out when you have testimony from small
aviation companies whose livelihoods are in their fleet and they
provide specific examples of where their insurance premiums have
gone up, he believes it is in the legislature's purview to
"tweak" the rules to provide a better level of fairness. He added
that the National Institute of Occupational and Safety Hazards
(NIOSH) averages show that people are compensated 3.2 times more
for aircraft accidents than they are for automobile accidents. He
said considering the importance of the role that aviation plays
in Alaska, legislators should respond to this dilemma rather than
carry on a dialog arguing the merits of tort reform.
SENATOR TAYLOR suggested there is no dialog between he and
Representative Halcro on tort reform because that is not what the
bill does, according to Representative Halcro's response about
the Barrow case.
REPRESENTATIVE HALCRO said with regard to the Barrow lawsuit, he
meant to link tort reform to the uncertainty that exists in the
aviation insurance industry and the reason it is so difficult to
find underwriters in this market.
SENATOR TAYLOR said he was asking about the bill before the
committee, which he is limited to. He asked which insurance
companies in Alaska are providing punitive damage insurance.
REPRESENTATIVE HALCRO deferred to Kip Knutson. He suggested that
AIG might offer punitive damage insurance.
SENATOR TAYLOR commented that to his knowledge, one can't buy
insurance for punitive damages because punitive damages are
awarded for conduct so malicious or egregious that, except for
the fact that there is no criminal law against that conduct,
someone should be thrown in jail. He said he did not know that
insurance companies were willing to write insurance policies so
that people could act egregiously and recklessly. He said he
would appreciate an explanation of how insurance companies are
writing punitive damage policies.
MR. KNUTSON told members that just a handful of companies manage
to get some of that risk underwritten. ERA Aviation has insurance
for punitive damages, but it is by far the exception in Alaska.
He said the weakness in this whole discussion is that most
carriers are uninsured, therefore their businesses are on the
line when punitive damage claims are brought. That is why the
owners and insurance companies are anxious to get this issue
settled. He said that just defending against a punitive damage
claim is enough to bankrupt a small business.
SENATOR TAYLOR asked Representative Halcro if his information
about litigation came from the Alaska Judicial Council. He asked
the number of lawsuits in which punitive damages were requested
since this information began to be compiled.
REPRESENTATIVE HALCRO read:
An Alaska Judicial Council report prepared for the
period of June 1, 1999 through December 1, 2000 shows
that of the 2,354 civil cases with judgments of $1 or
more reviewed by the Council, only eight of the
judgments included punitive awards, although parties in
488 of the cases requested them.
REPRESENTATIVE HALCRO repeated the Judicial Council noted that
half of the eight punitive damages were for amounts between
$15,000 and $120,000, and four sets of award exceeded $100,000,
the highest three awards ranged from $2.6 to $150 million. He
said the concern is that although air carriers don't settle on
punitive damages, it is the mere threat of punitive damages that
increases the settlements because there is no cap to the damage
award.
SENATOR TAYLOR said pursuant to CSHB 271(JUD), the cap would be
based on the number of employees.
REPRESENTATIVE HALCRO said that is correct and the intent was to
protect the smaller carriers who are providing the most critical
services.
SENATOR TAYLOR indicated that a total of eight judgments were
awarded from 2,350 cases.
REPRESENTATIVE HALCRO replied, "Those are the ones that were
specifically settled. The threat is the one where most of these
were settled and I'm sure that those are not noted in the
Judicial Council's..."
SENATOR TAYLOR interrupted to say they were threatened in 488
cases but they do not know how many of those resulted in any
judgment at all. He surmised that half of those cases may have
been thrown out.
REPRESENTATIVE HALCRO said they also do not know how many were
successful in negotiating a settlement. He said one could follow
that same logic along the lines of those who settled at a much
higher rate.
SENATOR TAYLOR remarked:
I just have a hard time understanding how, if you took
the same egregious conduct - let's assume that we got
Alaska Airlines flight 261 and either as a matter of
policy or neglect they just quit greasing the jack
screw in the back of the plane and the jury decides
that that may have been intentional, that they may have
decided to cut back on maintenance. I mean who knows
what the facts are going to turn out there? And then
the jury has to find a whole standard under Alaska law
of conduct, which is egregious conduct and reckless and
disregard of life and so on. So the jury finds that
very high standard and then the jury is going to be
instructed - yea, the conduct was really, really bad
and the company ought to be punished over and above
what the civil award is. We're talking about punishment
money here. The company ought to be punished but if
they were really egregious and had fewer than - what?
10, yea, 100 employees, 500 employees, then apparently
we go to the size of the aircraft itself. If it is
really rotten conduct and they really ought to be
punished, they only get to be punished up to this
amount if they were flying in a small plane but the
very same conduct you get to punish them a whole lot
more if they were in a 737-400, huh? I don't understand
how the difference in conduct - how the difference in
award has anything to do with the egregious conduct
that may be involved - or you just don't care what the
conduct is, you just want a limit.
REPRESENTATIVE HALCRO said he certainly would not simplify it
like that. He said the intent of the different levels is to
protect the smaller carriers because they seem to have a harder
time obtaining affordable coverage. He asked to explain the
challenges facing the aviation industry and the reason why
punitive damages come into play. He said, unlike other industries
where proving negligence is more clear cut, studies show that 90
percent of the accidents in Alaska result from flying
uncontrolled into terrain. When pilots take off the weather is
fine but halfway to their destination the weather changes.
Certainly it is questionable as to whether that is punishable
conduct on the part of the pilot who made the decision to fly. He
noted that is the reason the subcommittee looked into education
and training. However, the fact is, aviators find themselves in
some very difficult conditions due to changing weather and the
unique geographic attributes of Alaska. Therefore, talking about
punitive damages in a case where someone flew a plane into the
side of a mountain is different because of the challenging
environment in which the industry conducts business. He said
there is a higher threshold of risk in getting on a small plane
in rural Alaska than there is in getting on a 727 in Anchorage.
He said this bill does discriminate against the larger air
carriers but it is for a good public policy reason because the
intent is to protect the small carriers. In addition, it mirrors
FAA regulations.
SENATOR TAYLOR asked if there has been a single case in Alaska
involving an airplane accident and punitive damages.
MR. KNIGHT told Senator Taylor there is not one case that is
documented, but he spoke with six trial lawyers.
SENATOR TAYLOR interrupted Mr. Knight and repeated his question.
MR. KNIGHT replied, "Not that I could find in the building."
SENATOR TAYLOR asked the same question again.
MR. KNIGHT said there are none.
SENATOR TAYLOR asked, if there are no cases in the entire history
of the state in which punitive damages were ever awarded, how
this legislation is supposed to act as the savior of the aircraft
industry on a liability that has never been found in the history
of this state and for which only one carrier can even get
insurance.
REPRESENTATIVE HALCRO said it is not so much the application of
these punitive damages, it is the threat of them. The threat is
not documented but through individual testimony he has heard over
the course of this bill, that threat is not only very prevalent
but also a very harsh reality for the aviation industry right
now. He suggested Senator Taylor discuss the matter with Bob
Jacobsen (ph). He said he would not argue court facts with
Senator Taylor but he would argue that people in the industry see
an important application for this legislation.
SENATOR ELTON thanked Representative Halcro for providing
extensive backup materials to committee members. He referred to
an Associated Press story from February 2002 in members' packets
and noted that an airline author and former insurance broker was
quoted in that story. That person essentially said that one of
the problems facing the smaller airline industry is that
insurance companies were able to afford to take some losses
because they were making profits on the stock market. Senator
Elton said he assumes that because the stock market is down,
there is a profit consequence to the insurance industry. The
legislature will be adopting punitive damage limits if CSHB
271(JUD) is adopted, but he is curious what will happen when the
stock market starts to go up again. He noted insurance company
profits could go back up and a percentage of those profits may be
passed on to the consumer. However, Senator Taylor alluded to the
fact that after tort reform was enacted by the legislature,
insurance company profits went up and stayed up but premiums did
not decrease. He asked Representative Halcro if he thought about
a sunset provision for this legislation.
REPRESENTATIVE HALCRO said he had not but he was not opposed to
discussing one. With regard to the insurance industry, he said
the Division of Insurance reported that in 1998 insurance
companies lost $1.30 for every dollar they wrote in premiums and
they were allowed to recover those losses through gains in the
stock market. He said he believes at this point in time the
legislature needs to do whatever it can to help the aviation
industry. He said he looks at the number of communities that are
solely served by air and the number of small airlines that no
longer carry passengers and only haul cargo because of the
expense. He noted that health and safety issues are involved and
that the legislature needs to give this industry the benefit of
the doubt. He said he would not oppose adding a sunset date to
the bill.
SENATOR ELTON asked how the subcommittee came up with one bill
when it addressed a broad array of issues.
REPRESENTATIVE HALCRO said the [House] Judiciary Committee
discussed the option of tying the liability cap to the Medallion
Program to create an incentive within the industry. However,
according to the Department of Law, the legislature cannot set
policy and tie it to "a Chamber of Commerce criteria" as there is
no connection or enforcement. He said the industry is embracing
the training changes right now and he does not believe it is the
legislature's role to get involved in requiring more education.
He repeated the reason the subcommittee did not incorporate any
of the other issues into legislation is because they felt it
would be very difficult to tie a public policy call to private
industry action doctrine.
TAPE 02-23, SIDE B
2:30 p.m.
SENATOR ELTON said that Alaska's airline industry has significant
problems and this legislation takes a very narrow view of how to
address those problems. He expressed concern that he has not seen
a benefit to insurance consumers that resulted from the work that
was done on tort reform five or six years ago.
SENATOR WILKEN said he was having a little trouble "connecting
the dots" and asked Representative Halcro to explain the sentence
on his sponsor statement that reads, "In any liability case
resulting in compensatory damages (loss of work, life, future
wages, etc.), punitive damages are always used as a hammer to
leverage higher damage awards." He asked how that can be if, as
Senator Taylor stated, there are no punitive damage awards for
aircraft accidents in Alaska. He then asked if a cap would drive
up the cost of travel.
REPRESENTATIVE HALCRO repeated that, according to the Judicial
Council, a handful of cases were settled with punitive damages.
However, the problem is the threat of those punitive damages.
Because there is no existing limit on punitive damages, attorneys
say if a company doesn't agree to settle for a certain amount,
they will take the case to court. This bill will put a ceiling on
how much one can claim in punitive damages. He said he does not
see how this bill would increase the cost of air service; he sees
how it will help because insurance coverage will be more
affordable.
SENATOR WILKEN said if this bill takes effect, companies will
still insure for compensatory damages but there will also be
another bucket of money that the lawyers can collect from - the
punitive damage coverage. He said the bill will open up the
ability to get that money and someone will have to pay for that,
which will drive up the cost of transportation. He said he still
fails to see the need for the bill.
SENATOR TAYLOR said that a subtle distinction was missed in the
previous exchange. He commented:
A lawsuit is brought for compensatory damages. That's
the only thing Senator Wilken has insurance for. He
can't buy punitive damages insurance and I'd really
like to take a look at what ERA's punitive damage
insurance really protects them from because I've never
heard of it before. I've only been around the state
about 40 years now but I've never heard of it. You
can't buy it as far as I know. Gary certainly can't buy
it. I can't buy it. My air carriers, especially the
small guys that are going under in Ketchikan that I
really think need to have some help and I want to help
them, they can't buy punitive damage insurance because
it doesn't exist.
So here's what happens. An air crash occurs. You're
running the company. You get sued. You get sued for
compensatory damages and you have coverage for that. In
fact you're required by our laws to have up to $150,000
a seat coverage for that. So you've got the coverage
and you call up your insurance man and say Mr.
Insurance Man, please defend me. That's why I bought
this policy. And the insurance company comes in and
says, Gary, we can defend you and we will defend you in
the compensatory aspects of the case but you must
understand, we reserve our rights to be limited only to
our policy - you guess at a million dollars coverage or
whatever - we reserve our rights and we will not be
liable for, nor will we pay any defense costs for,
allegations against you for egregious, horrible conduct
called punitive damages. You have to cover that on your
own.
Here's what happens to you. The plaintiff's side comes
to you and they say, Gary we'd be willing to settle
with you for policy limits. You know, two people killed
and the rest of them maimed up for life. We're willing
to settle for the 150 grand - the policy limits. But
your insurance company refuses to settle for that
amount and if we have to go to trial we are going to go
after punitive too, which means now your life is
hanging in jeopardy because the insurance company has
refused to settle within policy limits. That's what's
happening, Andrew. That's what happens every day out
there. For the area of your life you're not insured for
that they can still come after you on, either excess,
more compensatory than what you bought coverage for, or
for punitive, yes, that will be threatened.
At that point you turn around and you threaten your
carrier back and you say look, I paid for this policy
for you to cover us and now because you guys want to
settle for a nickel on the dollar with them, and you
want to force them to trial, if you force them to
trial, I could lose the whole farm. So you write them a
letter that says you either settle for policy limits,
or I'm going to sue you on breach of the contract that
we have between you and I with the insurance company.
At this point, the insurance company starts getting a
little cold feet because they know you'll settle with
the plaintiff. You'll give them an offer, a judgment.
You will then hand over your contract of insurance to
the plaintiff and say, you go sue these guys. They
wouldn't represent me and they jeopardized my life and
my family here when they should have settled.
This is a bunch of whining by the insurance industry
who loves to be able to jeopardize the Gary Wilkens and
the Robin Taylors and keep us hanging out on the edge
of the limb so they can negotiate a lower settlement
with the plaintiff. Been there, done that on both sides
because I represented more insurance carriers than I
ever represented plaintiffs so I know exactly how that
system works. It does have an effect.
All this is going to do is provide the insurance
carrier with a cap. That's how that system works. It
does have an effect. All this is going to do is provide
the insurance carrier with a cap beyond which - I
should say provide Gary with a cap beyond which he's
still going to go bankrupt anyhow. They come in and
they threaten $300,000, $500,000 per seat and you're
only carrying $150,000 per seat insurance. Gary's still
in exactly the same position, Representative Halcro, as
he was before. His whole equity in his business could
be lost because his insurance company wants to offer 50
cents on the dollar to walk away without paying full
policy limits.
REPRESENTATIVE HALCRO responded that is a good anecdotal story
but the Division of Insurance's numbers show that these carriers
are not settling for a nickel on the dollar. He noted in 1998,
insurance carriers paid out $24 million when they only took in
$14.7 million in premiums. That fact, as well as the other back-
up information received from the Division of Insurance, clearly
proves that this is an industry that is not getting away with
settling for a nickel on the dollar. This is an industry that has
suffered real losses that are translating into higher premiums.
The operators are saying those premium increases are affecting
their businesses.
SENATOR TAYLOR said he hopes he and Representative Halcro can
agree on one thing, that being that in each of those given years,
when the settlements were finally resolved with compensatory
damages only, a lot of people were killed. That is why those
numbers are so high. There is not one single award of punitive
damages in Alaska. He noted a basic compensatory policy includes
both haul coverage and liability so a good portion of that number
is for haul coverage. He stated:
Where in the world we can solve this problem by merely
limiting, as I used the example, Gary's individual risk
over and above what his current policy provides him,
the leverage is still going to be there and it's still
going to be significant and the insurance company's
still going to get the same letter back. It's going to
say, please defend me, quit holding me hostage.
REPRESENTATIVE HALCRO noted that Senator Taylor just admitted
that punitive damages are used as leverage. He said the problem
is that one has to take a look at the unique application to this
industry. He responded:
I mean you get a plane load up in weather and halfway
there some weather socks in and you know, you're
looking at compensatory damages and then all of a
sudden it's well, you know, you've got a 28 year old
pilot that flew into the side of a mountain because of
bad weather, that's punitive damages. You know that's
going to be - that's punitive damages. That needs to be
punishable and there are certainly those of us that say
that, you know, along with risk needs to come a little
bit of flexibility when it comes to regards of
exposure. I mean, you know, this is being used as a
leverage and this is hurting real people who own real
businesses out there.
CHAIRMAN COWDERY asked if anyone else wished to testify. [There
was no response.] He announced that he would hold CSHB 271(JUD)
for further work. With no further business to come before the
committee, he adjourned the meeting at 2:44 p.m.
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