Legislature(2001 - 2002)

05/07/2002 01:43 PM TRA

Audio Topic
* first hearing in first committee of referral
+ 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                                                              
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                                                              
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                                                              
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                                                              
[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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                                   
     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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