Legislature(1993 - 1994)
02/21/1994 01:15 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
ACTION NARRATIVE TAPE 94-26, SIDE A Number 000 The House Judiciary Standing Committee was called to order at 1:28 p.m. on February 21, 1994. A quorum was present. Chairman Porter announced that the committee would continue the hearing on HB 292 and invited testimony from individuals on the invited participants list. Chairman Porter indicated that the list was representative of different sides of the issue. Number 146 DICK CATTANACH, Contractor, Alaska Liability Reform, presented testimony via teleconference in support of HB 292. He expressed belief in an urgent need for tort reform in the state of Alaska and averred that HB 292 would address current unfairnesses in the liability laws of the state. MR. CATTANACH noted that in Alaska "only murderers and contractors" suffered lifelong liability and asserted the six-year statute of repose incorporated in HB 292 could provide a fair and just limit for civil liability actions. MR. CATTANACH maintained that HB 292 would (a) close current loopholes in civil liability laws; (b) impose needed limits; (c) reduce litigation expenses; (d) increase the percentage of claim dollars going directly to victims (whereas the percentage of award monies absorbed by litigation and other costs is currently as high as 50% in civil actions); and (e) clarify liability law for all parties. Number 345 REP. NORDLUND asked why a six-year statute of repose was selected especially for buildings when the useful life of the building may extend beyond six years and defects in a building might not be discovered until the seventh year. He asked what was magical about the six-year date, especially in terms of construction, and also how many other states have a six-year statute of repose for structures. Number 336 MR. CATTANACH detailed the process of constructing a building and explained the accountability of the parties involved. He noted the obligation of architects and engineers to be licensed by the state and pointed out the construction industry employs professionals whose work is continually subject to the review of state inspectors. MR. CATTANACH asserted that problems which manifested themselves after a lapse of six years were likely to be a result of poor or insufficient maintenance. Number 419 REP. NORDLUND posed a question concerning possible design flaws, asking if it was true that if, [in] the seventh year... a building roof was to collapse, and it could be determined that it was definitely the fault of the architect, that there was a design flaw, and the architect said it was 100% at fault, an injured party could not bring suit against the architect? Number 430 MR. CATTANACH replied that if it was a design flaw, and it did not meet specifications, he believed that suit could be brought. REP. NORDLUND asked how this could be so. MR. CATTANACH responded that the owner, having given specifications -- if the architect did not follow those specifications, and was aware of that, then the statute of repose would not protect him. Number 440 REP. NORDLUND commented, "You said that the bill limits the, makes a change to the percentage of dollars that would go to an injured party. I don't see that in the bill. I see that there's a limitation on the overall amount that an injured party could collect. I don't see that there's any change in the percentage of dollars that the injured party would collect. What section is that in?" Number 446 MR. CATTANACH replied that these percentages were not dealt with specifically in a section. He said the intent of the bill was to add certainty to the system. MR. CATTANACH said, "If an insurance company knows that they're going to have to pay out an amount, that's certain, then it does them no good to contest that. And if they don't contest it, then the legal profession doesn't get involved... then the injured party is not going to have 1/3 or 40 percent of their claim, of their payment, going for legal fees. They will get basically what they've got coming because the insurance company is going to pay direct. So that we increase the amount that will be going to the injured party. Not only that, the injured party will be getting that money sooner." Number 474 JEFF FELDMAN, an Attorney and President of the Alaska Academy of Trial Lawyers, testified via teleconference against the HB 292. MR. FELDMAN stated that HB 292 would affect every single Alaskan citizen and declared that this bill would drastically damage the rights of Alaskans to obtain justice in the court system. He asserted that HB 292 principally benefits insurers and out-of-state manufacturers and corporations and severely limits the rights of individuals to pursue legal remedies for their damages. MR. FELDMAN expressed concern over the timing of the hearing and opined it prevented in-depth analysis of HB 292's complexity and precluded a larger attendance by citizens. Number 316 CHAIRMAN PORTER responded that the purpose of the committee hearing was to bring committee members up to speed on the bill and said that six previous public hearings on the bill been held and noted that MR. FELDMAN had previously testified at several of these hearings. CHAIRMAN PORTER refuted the inference that the hearing was designed to eliminate participation by the public. Number 524 MR. FELDMAN asserted that the eighteen amendments had not been brought forward previously as a subject for discussion. He testified concerning the sections on wrongful death and noneconomic damages and stated that he believed these two sections "effectively strip Alaskan juries of their right to decide significant issues that are presented for court cases" and deny Alaskans the possibility of a jury trial on these issues. MR. FELDMAN detailed his objections to HB 292 at some length. He asserted that this bill "strips Alaska victims of their sacred right to seek justice in court." MR. FELDMAN urged that the bill be defeated. Number 673 MICHAEL LESSMEIR, Attorney, presented testimony on behalf of State Farm Insurance in support of HB 292. MR. LESSMEIR noted that State Farm was not a participant in the introduction of HB 292 but wished to express belief that the legislation "will do good things for Alaska." He asserted that the purpose for legislation of this kind "is to make the system better for everybody. It is to take the lottery aspect out of the system. What we have now is a system where one is fortunate or unfortunate. So if you are unfortunate enough to be injured by someone but yet fortunate enough that they have a level of insurance that's high enough to compensate them, that's the lottery aspect of it, and that's the luck aspect of it. I think the purpose of this kind of legislation is that you allow more people to be compensated; in other words, people who wouldn't otherwise be compensated. If you take windfalls out of the existing system, what you do is you go further to guaranteeing a level of recovery that's fair for everybody. And that, to us, is really what you ought to look at in terms of this legislation." He specifically addressed and analyzed a number of provisions of the bill as being very good for Alaska. Number 812 REP. NORDLUND asked how placing limits on the time that somebody can recover damages, as well as placing limits on the amount they can recover for damages, opens up the process for more people to have access to the tort system. Number 819 MR. LESSMEIR responded by saying that everyone would have access to the tort system regardless of changes made by this bill. He said that "the effect of these changes is whether the person that you happen to sue has money or has been able to afford insurance to insure them against the loss. And the effect of these changes is to reduce the cost of obtaining that coverage by making the litigation predictable, by making insurance more affordable, by making it more available. The idea is that if you do that your chances of being one of these, an unfortunate person that is injured, by perhaps that is not covered by insurance or less -- that's the philosophy." Number 831 REP. NORDLUND commented that he felt it was debatable whether the bill would have any effect on insurance rates. Number 837 MR. LESSMEIR asserted that the bill would have an effect on insurance rates, but the question was when, because the true effect of the bill would not be experienced until 1996 or beyond when the statute of limitations for certain extant cases had run out. He added that the true effect would not be seen until the provisions had been litigated and applied by the courts. REP. DAVIDSON questioned MR. LESSMEIR'S comment that "$500,000 is better than nothing" in view of the reality of the lives of severely disabled victims. Number 866 MR. LESSMEIR replied that the bill would help minimize the risk that "the person who is injured will be hurt by someone that is not covered by insurance." TAPE 94-26, SIDE B Number 000 REP. DAVIDSON requested clarification. Number 007 MR. LESSMEIR stated that passing certain levels of limitations would make insurance more affordable at those levels, and more people would be covered, and there would be fewer persons injured by uninsured parties. He asserted that this is the justification for a cap. REP. DAVIDSON challenged this assertion and expressed a belief that a victim's compensation should not be automatically limited in this way, but should rather be commensurate with his needs. He did not see how a generalized cap on award amounts could logically be reconciled with an individual's real needs. Number 038 JOHN DEISCHER, Vocational Rehabilitation Specialist, Vocational Management, presented testimony via teleconference in opposition to HB 292 and asserted that damages should be awarded based on injury and not statutory provisions. [Portions of this testimony was inaudible.] He recounted how his professional and personal experiences had caused him to arrive at the conclusion that awards need to be made on a case by case basis. MR. DEISCHER also expressed concern that the legislation contained no provisions for the prevention of injuries. Number 250 ROGER HOLMES, Attorney, Bliss & Holmes, presented testimony via teleconference in support of HB 292. He drew a correlation between malpractice costs and insurance premiums and asserted a need for tort reforms to reduce overall inflationary trends of health care costs. MR. HOLMES noted that malpractice premiums had risen at a rate 20 times greater than the state of California, which had instituted tort reform laws. He expressed optimism that HB 292, patterned after the California legislation, would prove effective in reducing litigation costs. He also suggested it would take time for the full effect of changes to be realized. Number 442 TIM DOOLEY, Attorney, Alaska Academy of Trial Lawyers, testified via teleconference against HB 292. He analyzed the low proportionate cost in real terms of litigation in the context of gross revenues of corporate entities and concluded that these costs were proportionately too low to justify the proposed caps on awards. MR. DOOLEY drew attention to the need to protect the existing legal mechanisms which address and challenge outrageous or abusive behaviors. He counseled caution in removing from society the leverage to maintain higher standards of behavior imposed by the existence of punitive damages awards. Number 603 LINDA HALL, President of Alaska Independent Insurance Agents & Brokers, testified via teleconference in support of HB 292. She expressed the belief that punitive damages awards were jeopardizing the availability of insurance. She cited a need to expand market availability and encourage more insurance companies to do business in Alaska. MS. HALL asserted Alaskans' need for access to a greater pool of insurance carriers and the presence of healthy competition. Number 645 BILL ASHTON, Executive Director of the Alaska Health Project in Anchorage, which provides information on environmental and occupational health for Alaskans, presented testimony via teleconference against HB 292. He requested that the committee consider to what degree the bill would actually reduce malpractice and litigation costs and whether it would allow for reasonable compensation. He asserted that the high level of worker safety in the United States relative to other nations is a result of checks and balances in the system which recognizes the needs of individuals to be protected. MR. ASHTON emphatically recommended a strong emphasis on prevention as well as protection. He expressed concern that HB 292 did not address sufficiently the importance of prevention and advised caution in promulgating any tort reform legislation which might affect the needs of Alaskans. Number 704 PHIL HINDELBERGER, General Counsel for Norcal Insurance Company, testified from an offnet site in support of HB 292. He shared his experiences of tort reform in California and asserted that similar reforms in Alaska would result in similar benefits, including the lowering of medical malpractice costs. MR. HINDELBERGER asserted that tort reform would reduce insurance costs. He invoked examples of states which have not undergone tort reform and noted their spiraling litigation associated costs. Mr. HINDELBERGER provided supporting literature, including a legislator's guide to medical malpractice published in California which details the history and results of tort reform measures in that state. He reminded legislators that the full effects of reform would not be realized for some years. Number 791 REP. DAVIDSON asked in what year Norcal had purchased Micah, and inquired whether Norcal had so achieved a species of insurance monopoly. REP. DAVIDSON asked if, subsequent to this acquisition of Micah, Norcal had issued any dividends to stockholders in Alaska. MR. HINDELBERGER responded that dividends had been paid. He denied that Norcal was a monopoly and made reference to other insurance companies in Norcal's field. Number 803 REP. DAVIDSON requested further clarification concerning Norcal's purchase of Micah, "a company that was put together through the legislature." Subsequent to purchase, he asked, "...[Y]ou did collect enough in dividends for your members that you could return a, could I say, sizeable dividend to those people? Does that mean, then, that there were not that many cases you had to pay out? And thereby, you could afford to pay a sizeable dividend?" Number 810 MR. HINDELBERGER replied, "I don't think I used the word sizeable, I think that's strictly your word. Dividends could be paid... in the amounts of several hundred dollars." He cited efforts made with local divisions and hospitals which had rendered further stability to the claims picture. Number 820 PAULA JACOBSON, Alaska Academy of Trial Lawyers and a registered nurse, testified via teleconference against HB 292. She stated that her experiences as a health care professional and as an attorney enabled her to bring a broad understanding of all sides of the legal issues involved in HB 292. She asserted that HB 292 does not constitute a "doctor vs. lawyer" issue. MS. JACOBSON stated that the bill "is of particular significance to those Alaskans who seek health care services. In other words, just about all of us." She identified 27 on the civil liability of hospitals as a particular cause for concern and noted that it revoked the accountability of hospitals with regard, for example, to hired contractors of an institution. MS. JACOBSON stated that the "proposal has terrible and far-reaching consequences;" most significantly, in absolving hospitals of responsibilities which need to be undertaken on behalf of patients. TAPE 94-27, SIDE A Number 000 MS. JACOBSON cautioned against significant insurance inequities which were likely to arise as a result of the bill. She urged the committee to consider the ramifications of a measure which could eradicate means of remedy for injuries sustained by Alaskans. Number 082 ROBERT LOISELLE, President, Klukwan, Inc, testified in Juneau in favor of HB 292. He stated, "Tort reform is an important issue to our corporation. We pay over $1,000,000 in insurance premiums each year and the premiums keep rising from year to year. We believe that victims need fair and adequate compensation, but we also believe that the situation has gotten out of hand in recent years, driven by aggressive and sometimes greedy attorneys. Corporations are particularly at risk since they are often viewed as being able to afford large settlements. I can assure you that our shareholders do not agree with this statement. The current situation also encourages litigation where other methods of dispute resolution would be quicker and less costly. Our society wastes a tremendous amount of resources on needless litigation each year. Anything that we can do to curb this trend will have real benefits for our society. Again, we urge you to support HB 292, a positive step towards reform of our legal system, and we sincerely appreciate your consideration of our comments." Number 127 DR. DONALD LEHMANN, President, Alaska State Medical Association (ASMA), testified via teleconference in support of the HB 292. He condemned the present tort system as being unfair and unjust and urged reform. DR. LEHMANN noted that he practices rural family medicine, is board certified and has never been sued, and yet his malpractice premiums are approximately $30,000 per year; significantly higher than, for example, the premiums borne by a plastic surgeon in Anchorage. Dr. Lehmann maintained that "we should be able to do better than having the tort system resemble the Publishers' Clearinghouse Sweepstakes." He asserted the number of rural hospitals and the extent of their services had been reduced due to high costs of malpractice insurance and that independent practitioners were being forced to go uninsured and/or to reduce their services due to the enormous costs of premiums. He pronounced HB 292 "a good bill, comprehensive and fair" and urged its speedy passage. Number 200 MICHAEL SCHNEIDER, Alaska Academy of Trial Lawyers, testified via teleconference in opposition to HB 292. He specifically addressed 3 of the statute of repose provision and asked that the record "be very clear that we think it's unfair, it's unreasonable, it's bad law for Alaska, it's bad law for Alaskans." He clarified the distinction between a statute of repose and a statute of limitations. He asserted that the provision would "allow professionals to engage in wrongful acts, the horror of which is later visited upon Alaskans; only by then, Alaskans' rights will have disappeared completely." MR. SCHNEIDER analyzed and detailed the perceived flaws of the proposal and presented hypothetical examples of how the flaws might affect Alaskans. Number 395 DAVID HIGGINS, Attorney, Brobeck & Phleger, testified in favor of HB 292 from in Los Angeles. He identified himself as a tax lawyer by trade and said that he had drafted the provisions of the internal revenue code that makes periodic payments exempt from tax when they are paid for personal injury. He stated that he had acted as an advisor to the committee which drafted the Uniform Periodic Payments Judgment [tax?] on which the Alaska bill is based. He stated that this law, containing a periodic payment provision, or bills like it, are now law in 37 states, and it constitutes part of the present health care reform and legislation. Attorney Higgins discussed the role and the positive ramifications of periodic payments in tort reform legislation. Number 495 STEVE BORRELL, Executive Director, Alaska Miners Association, Inc., testified via teleconference in support of HB 292 on behalf of the association. He maintained that the time "had come for comprehensive reform in Alaska and this bill will accomplish what is needed." He expressed belief that the bill would reduce insurance costs to businesses in Alaska. MR. BORRELL stated that the "Alaska Miners Association supports fair compensation for injured persons, but we do not support the current system that encourages the use of civil liability laws as a profit opportunity...." Number 553 BRAD THOMPSON, Director, Division of Risk Management, State of Alaska Department of Administration (the self-insurance providers for the state and its agencies), testified in Juneau in support of HB 292. He noted that, unlike 33 other states, Alaska has no cap of compensatory damages awarded against the state, leaving the state and private industries in the state open to liability judgments and exposures against state agencies. MR. THOMPSON said, "We see that this Bill 292 will reduce future loss and future claims expense. Several liability is the strongest section that -- frankly, when the '88 initiative passed, I thought we did have certainty that we would no longer be paying for obligations of others. And as previous speakers have mentioned, it's been five years, and we're still arguing it. "Prejudgment interest rate -- this is again part of another bill that the governor has submitted to peg the interest rate at a prevailing rate, not at some predetermined rate that will be inequitable, either too high or too low. "Reduction of future wages -- there should be consideration for income taxes. I think that's just a fair method to calculate future wage loss. Likewise, the restriction of prejudgment interest on future damages. "It must be remembered that probably 90 - 95% of tort actions are settled -- they don't go to judgment. So when you sit down and weigh and calculate what are the exposures, what is your liability risk, and then you also try to calculate and pencil out the total amount of damages that could be brought against you, you have to weigh in and add in all of these add-ons, and they're significant. The state has, on average -- I looked at the last nine years -- we spend, or incur, losses of about $7-10 million a year in liability claims against state agencies. We have unfunded liabilities now projected by a casualty actual of $80+ million. That's out there. And those need and will be resolved in future years. If this legislation passes the future claims... will be limited in magnitude...." Number 601 REP. NORDLUND requested clarification of the collateral benefits section of the bill and the subrogation clause, saying, "I am trying to understand, if a person is damaged, and if a judgment has been rendered, and under the provisions of this bill, and the person has disability insurance [through] the state of Alaska, under the provisions of this bill, all money will be collected first from the state, and that amount would offset the damages that were owed by the wrongdoer. Is that correct?" Number 611 MR. THOMPSON replied, "I think, Mr. Chairman, the answer to the question relies on whether that program has the right of subrogation by law or by contract. And I believe the current version of the bill allows and considers those claims -- should the plaintiff be responsible to pay those back, they can be considered.... There is no right of subrogation, then they should not be brought forward. The state's disability program through PERS, I believe, does not have a right of subrogation. Some disability insurance programs have no such right." Number 625 REP. NORDLUND explained his criticism of the subrogation section of the bill, saying, "Mr. Chairman. I think that if a person has the foresight to provide disability insurance, which is basically kind of a gamble, they've been paying premiums all along, and they undergo an unfortunate injury, they should be allowed to collect those damages, and collect that benefit. And the collection of that benefit shouldn't relieve the wrongdoer of their responsibility to pay those damages." Number 634 CHAIRMAN PORTER interjected the point that one of the amendments of HB 292 touches on this issue. He thanked participants in the hearing for appearing and suggested options for the remainder of the hearing. He said, "We've got some amendments we could take up now, or we could wait and take them all up at one meeting." CHAIRMAN PORTER explained his idea of the provision under discussion. He said, "It is definitely -- that issue is a policy call, in terms of restricting the rights of subrogation other than what federal law requires. And basically, it's a policy call that, in effect, kind of establishes in this area of insurance coverage, a form of no-fault insurance. What it says, basically, is in the typical example of -- I'm in a traffic accident in which I am not at fault, and I have medical injuries, and I've got insurance, and my medical injuries. I sue the person that's [injured] me and in effect I'm suing his insurance company. And we go to court. And under this provision, I am not allowed to receive compensation that would take the place of what I've already received from my own insurance company. Nor can my insurance company go after, if I receive more money, which I might.... what money I received nor sue the insurance company of the defendant that provided the balance of that. The idea being that I've got an insurance company, this guy's got an insurance company. If I've paid for my premiums, then I am entitled to that. I can, as a matter of fact, ask the court, and they can consider, and generally do, I can ask the court's consideration to make up the difference of what I paid into that policy, my premiums, and if I had a substantial depletion -- in other words, I've got a maximum for life of $100,000 coverage, or something -- and they just paid me $50,000, I can ask the court to consider that I just lost that value in that policy, also. But all we're really doing -- and it is a policy call -- when we say that my insurance can subrogate against his insurance, is guaranteeing another court trial where the two insurance companies fight it out. And Chris is sitting back there saying, we don't want more court trials, so -- that's what that whole thing is aimed at. It's a policy call." Number 686 REP. NORDLUND reiterated the role of insurance companies in promoting safety in the workplace; the fact of liability exposure encourages insurance companies "to take measures to make sure that the company or whomever they are insuring are going to do a better job. But if they don't, ultimately, have to pay, in a situation like you described, then I think they lose that incentive." Number 693 CHAIRMAN PORTER pointed out that insurance companies may insure both plaintiffs and defendants; therefore, achieving a balance is in their best interests. He said, "That's the whole idea of no-fault insurance. Statistically, over time, payments will average out among companies.... if there is an award, both companies should be inspired to enhance safety. Is that fair?" Number 706 MR. THOMPSON concurred with Chairman Porter's comments and offered further clarification regarding workers' compensation, "truly a non-fault system." He noted that prior claims experience affected premium calculations. He said, "If you as a private contractor, general contractor, have a good loss record, with very little or no claims experience, and you are actively involved in maintaining that low loss record, you will have a lesser premium in future years than someone with a prior loss experience." CHAIRMAN PORTER announced that discussion would be continued in the next meeting with discussion of the amendments. He again thanked participants and expressed belief that a good balance of testimony and exposure to the issues had been achieved. REP. NORDLUND asked if an overall explanation of HB 292 would be forthcoming in addition to discussion of individual amendments, since the committee had not gone through the bill section by section. CHAIRMAN PORTER agreed that this was fair and said that the next meeting would begin with such a presentation. The committee meeting was adjourned at 3:45 p.m.