Legislature(1997 - 1998)

03/12/1997 01:45 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
         SB  15 CIVIL ARBITRATION AND PUNITIVE DAMAGES                        
  SENATOR MILLER  moved to adopt CSSB 15(JUD) (version O-LSO169\B,             
 dated 3/11/97).  There being no objection, the motion carried.                
  MIKE FORD , an attorney with Legislative Legal and Research                  
 Services, gave the following sectional analysis of CSSB 15(JUD).              
 Section 1 is the purpose section.                                             
  CHAIRMAN TAYLOR  asked whether Section 1 was from SB 15 or the Task          
 Force Report.   MR. FORD  replied Section 1 was in the Governor's             
 bill which was rolled into SB 15.   CHAIRMAN TAYLOR  clarified that           
 was the Task Force version.                                                   
  MR. FORD  continued.  Section 2 is a housekeeping provision that was         
 added to avoid a single subject problem and fixes the interest rate           
 at the same rate under existing law.                                          
 Section 3 deals with the statute of limitations for certain                   
 property actions and provides a six year time limit for bringing an           
 action for waste or trespass to real property.                                
 Section 4 is a new section of law dealing with contract actions.              
 It was originally a part of AS 09.10.050 but the Task Force                   
 recommended it be pulled out.  The new section provides a three-              
 year time period to file an action on a contract or liability                 
 except as otherwise provided by AS 09.10.040.                                 
  CHAIRMAN TAYLOR  asked for clarification of the exceptions.   MR.            
 FORD  believed AS 09.10.040 pertains to judgments and sealed                  
  CHAIRMAN TAYLOR  questioned whether Section 4 applies to the statute         
 of limitations on architects and engineers.   MR. FORD  replied if            
 the action is characterized as a contract action, it would be                 
 covered by the three-year time period, assuming no other provision            
 of law provides a different time period.   CHAIRMAN TAYLOR  asked if          
 Section 4 reduces the time period for contract actions from six to            
 three years.   MR. FORD  said that is correct.                                
  MR. FORD  explained Section 5 applies the statute of limitations for         
 personal injury to personal property and specific recovery of that            
 property and reduces the current six-year period to file actions to           
 a two-year period.                                                            
 Section 6 raises the standard for recovery of non-economic damages            
 for personal injury by requiring that severe disfigurement or                 
 severe physical impairment be shown, rather than disfigurement or             
 severe physical impairment, to be excepted from the limit under AS            
 Section 7 repeals and re-enacts the punitive damages provision and            
 limits recovery in a number of ways.  Existing law requires clear             
 and convincing evidence to support an award of punitive damages.              
 Section 7 requires clear and convincing evidence of outrageous                
 conduct, conduct resulting from malicious or hostile feelings                 
 toward the plaintiff, or reckless indifference to the rights or               
 safety of others be shown. It also creates a two-tiered system and            
 separates the process of determining whether one is entitled to               
 punitive damages from the amount of punitive damages to be awarded.           
 Number 141                                                                    
  CHAIRMAN TAYLOR  asked Mr. Ford whether each provision incorporated          
 into CSSB 15(JUD) was specifically found in the Task Force report,            
 or whether the Governor or his drafters added other provisions.               
  MR. FORD  could not answer.                                                  
  MR. FORD  emphasized Section 7 is a major rewrite that contains              
 limitations on the amount of punitive damage awards and changes the           
 process of awarding punitive damages.                                         
  CHAIRMAN TAYLOR  stated he included, in SB 15, a provision creating          
 a specific cap on punitive damages in wrongful discharge cases that           
 reflects what is provided under federal law.  He noted the amounts            
 in CSSB 15(JUD) are higher.  He asked whether the wrongful                    
 discharge provision was incorporated into CSSB 15(JUD), or whether            
 the bill needs to be amended.   MR. FORD  said an amendment will be           
  MR. FORD  continued.  Section 8 adds the word "intentional" to               
 clarify that fault includes negligent, reckless, or intentional               
  CHAIRMAN TAYLOR  explained some defenses, argued on behalf of                
 defendants being sued for negligence or recklessness under existing           
 statute, are based on intentional actions because those actions are           
 not illegal.                                                                  
  MR. FORD  explained Section 9 amends the offer of judgment statute           
 to encourage settlements by adjusting the interest rate, depending            
 on when an offer is made, and who offers it.                                  
 Number 201                                                                    
  CHAIRMAN TAYLOR  advised Section 9 will not act as a significant             
 incentive for either side to settle if the amount in question is              
 $50,000, because the interest penalty is small relative to the                
 additional discovery and attorney fees required to carry a case               
 through to trial.  He would prefer to require the party who fails             
 to accept an offer of judgment, after a certain date, to pay actual           
 attorney fees from that day forward.                                          
  MR. FORD  advised Section 10 changes the rate of interest on                 
 judgments and decrees from a fixed 10.5 percent per year to a                 
 floating rate comprised of the five-year constant maturity United             
 States treasury note rate, plus 1.5 percent.  By amending this                
 provision of law, several other provisions of existing law, based             
 on this same rate, were affected, so language was added to clarify            
 existing law continues to apply to all other provisions.                      
  CHAIRMAN TAYLOR  asked if Section 10 affects Section 2.   MR. FORD           
 noted Section 2 was added because of the changes made in Sections             
 10 and 11 and maintains existing law for this type of interest                
  CHAIRMAN TAYLOR  questioned why banks should be allowed to charge an         
 interest rate of 10.5 percent, when litigants cannot get more than            
 the floating rate.   MR. FORD  commented the problem lies in the fact         
 that if the provision is left alone, things other than civil                  
 actions will be affected, such as interest rates for banking.  That           
 will cause trouble under the single subject rule.  This route was             
 taken to maintain that provision as is, rather than try to match              
 the change in AS 09.30.070.  The problem was: does one violate the            
 single subject rule of the Constitution, or does one add provisions           
 that maintain the existing rate in those sections of law.                     
 Number 247                                                                    
  CHAIRMAN TAYLOR  inquired whether a bank will get 10.5 percent when          
 it forecloses while the other litigants are stuck with the floating           
 rate.   MR. FORD  answered Section 10 applies to a rate of interest           
 on a judgment or decree.                                                      
  MR. FORD  explained Section 12 establishes a pilot project intended          
 to determine the effectiveness of an alternative dispute resolution           
 system.  Beginning in January of 1998, certain kinds of cases filed           
 in Superior Court in the Third Judicial District will be funneled             
 through the alternative dispute system.  The project will operate             
 for at least five years.  Section 12 requires the Supreme Court to            
 determine criteria to screen cases and to establish minimum                   
 qualifications for individuals who conduct the dispute resolution             
 procedure.  Section 12 also requires mutual agreement on the choice           
 of a mediator; that fees and costs be equally shared among the                
 parties; and project evaluation methods.                                      
 Number 296                                                                    
  CHAIRMAN TAYLOR  asked how Section 12 meshes with the mandatory              
 arbitration provision (Section 15) in the bill.   MR. FORD  thought           
 the concepts were similar but that Section 12 is narrower in scope            
 because it only applies to the Third Judicial District and will               
 operate for a minimum of five years.  He commented the committee              
 might want to choose either one or the other provision.                       
  CHAIRMAN TAYLOR  asked whether Section 12 has the same penalty and           
 fee aspects as the arbitration provision.   MR. FORD  answered                
 Section 12 replaces existing law which allows arbitration but does            
 not require it.  Both Sections 12 and 15 require arbitration in               
 certain instances but Section 12 contains a number of ways to avoid           
 alternative dispute resolution.                                               
  CHAIRMAN TAYLOR  asked if a person can opt in or out of alternative          
 dispute resolution.   MR. FORD  advised Section 12 includes a                 
 screening structure for cases but he was unsure whether a party has           
 the right to choose not to use that system.    CHAIRMAN TAYLOR  noted         
 Section 12 allows the Court to decide who will use it, while                  
 Section 15 requires mandatory arbitration.                                    
  CHAIRMAN TAYLOR  thought the very selective alternative dispute              
 resolution program sets up a dual system because it only applies to           
 certain cases in Anchorage, while cases under $100,000 elsewhere              
 will be required to use binding arbitration.   MR. FORD  repeated the         
 alternative dispute resolution system is a pilot project, and                 
 although the sections do set up a dual system, they do not conflict           
 with each other.  He repeated it might be to the committee's                  
 benefit to review both sections and choose one.                               
 Number 344                                                                    
  MR. FORD  described Section 13 as a provision that tags the interest         
 rate to the floating rate in AS 09.30.070 and is consistent with              
 Sections 10 and 11.  If judgment is due from the State, it would              
 include the floating interest rate.   CHAIRMAN TAYLOR  commented              
 Section 13 only changes the interest rate, not punitive damage                
  MR. FORD  explained Section 14 fixes the interest rate at 10.5               
 percent per year, whereas it was previously by reference to the               
 fixed rate in AS 09.30.070(a).  Section 14 was added to maintain              
 the status quo without amending the rate to be a floating rate.               
  CHAIRMAN TAYLOR  remarked the section provides an incentive hammer           
 on condemnation awards.   MR. FORD  noted this section will avoid a           
 single subject problem.                                                       
  MR. FORD  explained Section 15 is a mandatory arbitration provision          
 that applies statewide.  Subsection (b) contains exclusions.  To              
 prevent any overlap, an action can be excluded if it falls under              
 the alternative dispute resolution procedure.                                 
  CHAIRMAN TAYLOR  asked if Section 15 provides for costs and                  
 penalties if one fails to accept the arbitrator's award.   MR. FORD           
 said Section 15 provides that actual attorneys' fees and costs are            
 awarded if one rejects an arbitrator's decision, litigates, and               
 loses (page 11, lines 5-7).  He pointed out the pilot project does            
 not contain a similar provision.   CHAIRMAN TAYLOR  noted parties             
 could go through alternative dispute resolution then start over in            
 Superior Court; but that will merely add another layer of                     
 litigation to the system, rather than slow it down.                           
  MR. FORD  indicated Section 16 prohibits recovery of personal injury         
 damages if one was engaged in conduct that constitutes a felony.              
 This language is narrower than previous provisions in that if one             
 is engaged in the commission of a felony and convicted, and the               
 felony substantially contributed to the personal injury or death,             
 no damages can be recovered.  In addition, if one has not been                
 convicted, but the conduct constitutes either an unclassified class           
 A or class B felony, one could also be barred from recovery if                
 substantial contribution to the injury or death is shown by clear             
 and convincing evidence.  The same applies if one is fleeing after            
 the commission of an unclassified A or B felony.   CHAIRMAN TAYLOR            
 questioned how that would apply to a bankrobber who, two days after           
 the robbery, is in a car accident while en route to a bank to                 
 deposit the stolen cash.   MR. FORD  said the court would have to             
 decide whether the definition of "fleeing" would apply.                       
  MR. FORD  continued.  Section 17 requires the Alaska Judicial                
 Council to collect and evaluate specific information and contains             
 an exception for certain kinds of cases.  The information is                  
 considered confidential but disclosure of summaries and statistics            
 is allowable.                                                                 
 Number 420                                                                    
  CHAIRMAN TAYLOR  asked why this information will not be sent                 
 directly to the Division of Insurance.   MR. FORD  replied the                
 Division of Insurance is not equipped to handle this kind of                  
 process; the Alaska Judicial Council has some experience in this              
 area.   CHAIRMAN TAYLOR  asked if the information, once compiled,             
 will be provided to the Division of Insurance.   MR. FORD  said the           
 bill does not contain a specific requirement to do so.   CHAIRMAN             
 TAYLOR  questioned whether the Division of Insurance currently                
 receives information about confidential settlements.   MR. FORD  did          
 not believe it does.                                                          
  CHAIRMAN TAYLOR  asked whether the Division of Insurance is notified         
 by the insurance company of claims filed against the company during           
 a specific year for tax deduction purposes, and of the actual                 
 settlement amount that may occur several years later.   MR. FORD              
 thought the insurance company might have to report allocated                  
 amounts that need to be reserved for particular claims, but did not           
 know whether the insurance company informs the Division of the                
 actual settlement amount.   CHAIRMAN TAYLOR  expressed concern that           
 if information is compiled, it be distributed to those agencies               
 that need it.                                                                 
  MR. FORD  noted Section 18 requires the director of the Division of          
 Insurance to compile and report information on the effects of CSSB
 15(JUD) on the availability and costs of insurance, and the                   
 financial health and profitability of insurance carriers.  The                
 information is supposed to be compiled in a way that protects the             
 identity of individual insureds, and then distributed to all                  
 insurers.  Section 18 also requires an annual report be provided to           
 the Governor and the Legislature, and allows the Division of                  
 Insurance to consult with the Alaska Judicial Council as necessary.           
 Mr. Ford said Section 19 remained in the committee substitute                 
 inadvertently and is unnecessary because AS 18.80.220 was deleted.            
 Section 20 raises the District Court jurisdiction level from                  
 $50,000 to $100,000.  Section 21 amends Civil Rule 16.1, which                
 establishes procedures for motions to set trials and requires a               
 meeting of the parties before the scheduling order has been issued.           
 Section 22 requires that parties, after initial exchange of                   
 disclosure, meet to discuss the nature and basis of their claims in           
 an effort to settle.  There is a proposed discovery plan,                     
 indicating the parties' views and proposals.                                  
 Section 23 amends Civil Rule 41 and adds a new paragraph regarding            
 settlement information consistent with other provisions about                 
 collection of information by the Alaska Judicial Council.   It                
 requires the parties to provide information required under AS                 
 09.68.130.  Section 24 amends Civil Rule 68 and requires                      
 adjustments to the rate of interest to be consistent with the                 
 change to the statutory offer of judgment.                                    
 Section 25 changes the discovery rule that currently prohibits                
 discovery from the date the report of the panel has been filed or             
 80 days have lapsed from the date the case is at issue to 60 days             
 after selection of the mediation panel.   CHAIRMAN TAYLOR  asked if           
 this section applies to medical malpractice cases.   MR. FORD  said           
 it does.                                                                      
 Section 26 amends Rule 95(b) and raises the fine amount the court             
 may impose against an attorney for contempt from $1,000 to $10,000.           
 Section 27 amends District Court Rules and requires, unless agreed            
 by the parties or permitted by the court, discovery be limited to             
 disclosures required under Civil Rule 26(a).                                  
 Section 28 adds a new subsection to District Court Rule 4, and                
 requires that all parties file a joint memorandum to set the case             
 for trial no later than 180 days after service of the complaint.              
 It also requires the court to set the trial to commence within                
 certain time periods.  The intent of this section is to reduce time           
 delays in proceedings in District Court.                                      
 Section 29 is an effort to supply settlement information at the               
 appellate level.  This section is consistent with prior sections of           
 the bill that pertain to collection of information by the Alaska              
 Judicial Council.                                                             
 Section 30 contains repealers.  A number of the repeals deal with             
 the change from voluntary to mandatory arbitration.  The Title 8              
 provisions apply to the loss of one's occupational license for                
 using arbitration as a threat.  The provisions under AS 09.55.                
 pertain to voluntary arbitration and are no longer necessary.                 
 Section 31 repeals conflicting provisions of the Alaska Rules of              
 Civil Procedure.  Sections 32 through 36 are required sections                
 setting out the amendment of Civil Rules.  The first subsection               
 relates to punitive damages, the remainder inform the court system            
 that the Legislature intends to change the rules and how that will            
 be done.  Section 37 is the applicability section which allows for            
 a smooth transition for the incorporation of new provisions.                  
 Section 38 is the severability provision.  Section 39 is a                    
 revisor's instruction to make corresponding changes necessary by              
 the addition of the new provisions in Section 12.  Section 40                 
 requires that the Civil Rule changes be adopted by a two-thirds               
 majority vote of the Legislature for enactment.  Section 41 delays            
 the effective date for Sections 17, 23, and 29 to allow some lead             
 time.  Section 42 contains the generic effective date for all other           
 Number 519                                                                    
  CHAIRMAN TAYLOR  asked Mr. Ford to elaborate on the amendment being          
 prepared that originated in his bill.   MR. FORD  explained Section           
 2 of SB 15 is being prepared as an amendment to CSSB 15(JUD), and             
 limits the amount of punitive damages that can be recovered in an             
 unlawful employment practice case.  The amendment creates a tiered            
 system for the amount of punitive damages that can be awarded                 
 depending on the number of employees working for the employer.                
 That provision is in contrast to Section 7(h) of CSSB 15(JUD),                
 which is the Task Force's idea of how to limit punitive damages in            
 an employment-related civil action.                                           
 TAPE 97-20, SIDE B                                                            
  CHAIRMAN TAYLOR  clarified Section 7(h) of CSSB 15(JUD) provides a           
 limitation of three times the amount of compensatory damages or the           
 sum of $500,000, whichever is greater.  His proposed amendment                
 contains a scale from $50,000 to $300,000 maximum.                            
  CHAIRMAN TAYLOR  moved to adopt his proposed amendment (#1) to               
 delete Section 7(h) of CSSB 15(JUD) and insert Section 2 from SB
 15.  There being no objection, Amendment 1 was adopted.                       
 Number 566                                                                    
  PHILLIP VOLLAND , a private attorney in Anchorage, testified in              
 general support of CSSB 15(JUD).  He clarified he does not agree              
 with everything in the bill, and does not believe everything will             
 work, but supports it because he believes it is the obligation of             
 the Legislature to pass legislation that promotes and protects the            
 welfare of common citizens in Alaska, not legislation that hurts              
 them.  He believes the best legislation is based on fact, not                 
 rhetoric, perception, or fear, and that if something is not broken,           
 it does not need to be fixed.  He also noted successes in life are            
 built on compromise and compromise is needed on tort reform.  Many            
 years ago he worked on the sentencing commission.  The group                  
 represented individuals from opposite sides of the courtroom with             
 divergent opinions and was asked to deliberate on a problem and               
 make recommendations.  Those recommendations reflected compromise             
 based on fact.  The Legislature did not adopt those recommendations           
 but sits at the same crossroad with tort reform.  The individuals             
 who sat on the Governor's Task Force on Civil Justice Reform often            
 litigated against each other and took radically different views as            
 to the necessity of tort reform.  That group studied the problem,             
 and based on facts, understood no explosion in tort cases with out-           
 of-control juries and outrageous punitive damage awards has taken             
 place in Alaska.  The Task Force's recommendations are moderate               
 and, in large part, tinker with the system in an effort to improve            
 it.  Those recommendations are embodied in CSSB 15(JUD).                      
 In response to Chair Taylor's question about whether CSSB 15(JUD)             
 contains only the Task Force's recommendations,  MR. VOLLAND  said it         
 does with the exceptions of Sections 12 and 15, and the changes to            
 Section 12 are not conceptual.  He repeated that although he does             
 not agree with all of the Task Force recommendations, those                   
 recommendations are moderate, thoughtful, based on fact and hurt no           
 Number 519                                                                    
  CHAIRMAN TAYLOR  asked Mr. Volland if he served on the Task Force.           
  MR. VOLLAND  said he did not.                                                
  DOUG WOOLIVER , administrative attorney to the Alaska Court System,          
 commented on the Court System's fiscal note which is based on SB
 15.  Last year when a similar provision was added to HB 158, the              
 Court System asked for a specific exception for small claims cases            
 so that those cases are not sent to mandatory arbitration.  The               
 Court System's fiscal note reflects the fact that those small                 
 claims cases are not intended to be covered under SB 15, now                  
 Section 15 of CSSB 15(JUD).  There were approximately 10,000 small            
 claims cases filed last year, and although a lot of those are not             
 tort cases, many of them are.                                                 
  CHAIRMAN TAYLOR  stated he did not intend to put small claims under          
 mandatory arbitration, and asked Mr. Wooliver to submit further               
 clarifying language to be deliberated by the Finance Committee.               
  MR. FORD  noted he prepared an amendment on that subject last                
 session that he could incorporate into the bill.                              
  CHAIRMAN TAYLOR  asked if any committee member objected to adopting          
 the conceptual amendment (#2),   the substance being to make certain          
 that those cases classed as small claims, whatever that                       
 jurisdiction is now or in the future, will not be required to go              
 through mandatory arbitration.  There being no objection to                   
 Amendment 2, it was adopted.                                                  
 Number 483                                                                    
  MR. WOOLIVER  requested the committee delete the immediate effective         
 date in CSSB 15(JUD) on all the court rule changes, because the               
 court system will need additional time to implement those changes.            
 He asked for either no effective date, giving the court 90 days               
 after signed by the Governor, or a later effective date.   CHAIRMAN           
 TAYLOR  asked if there was any objection to delete the effective              
 dates for the court rules (Amendment 3).  There being no objection,           
 Amendment 3 was adopted.                                                      
  CHAIRMAN TAYLOR  asked Mr. Wooliver why the Court System submitted           
 a fiscal note with additional costs for services it currently                 
 provides.   MR. WOOLIVER  stated the Court System does not provide            
 arbitration services.   CHAIRMAN TAYLOR  countered the Court System           
 provides courtroom services, and the Legislature funds district               
 attorneys, public defenders, and other personnel for civil cases.             
  MR. WOOLIVER  replied about 95 percent of civil cases are settled.           
 If CSSB 15(JUD) is enacted, all cases will have to go to                      
 arbitration, regardless of whether they would have been settled.              
  CHAIRMAN TAYLOR  disagreed because those parties could settle before         
 they are forced to go into the arbitration hearing and believed               
 there is no reason to assume that a higher number will be forced to           
 go into a full arbitration hearing.  This bill will only force                
 settlement to occur faster.                                                   
  MR. WOOLIVER  said the court will have to pay the cost for indigents         
 to go to arbitration, and the fiscal note analysis points out there           
 are over 1,000 cases per year that would fall under the mandatory             
 arbitration provision.   CHAIRMAN TAYLOR  reiterated 95 percent of            
 those cases will settle, according to court statistics.   MR.                 
 WOOLIVER  remarked most cases do not settle within the first month            
 of filing.   CHAIRMAN TAYLOR  commented that is because the Court             
 System provides no incentive to settle during that period of time.            
 Under CSSB 15(JUD) the hammer falls within a short period of time,            
 and the parties' attention will be focussed on an earlier date for            
 settlement.  He noted the Court System is assuming every case will            
 go to trial.   MR. WOOLIVER  clarified the Court System is assuming           
 every case will go to arbitration, but not to trial.                          
 CHAIRMAN TAYLOR  asked what costs are associated with arbitration.            
  MR. WOOLIVER  said the cost of arbitration services is $150 to $175          
 per hour.   CHAIRMAN TAYLOR  asked what services would be required if         
 the parties settle, other than the court services now required.               
  MR. WOOLIVER  replied if a party settles, the court has no expenses.         
  CHAIRMAN TAYLOR  stated someone had to file the complaint and the            
 case had to be calendared and monitored.   MR. WOOLIVER  admitted the         
 court has some costs but the majority of the costs associated with            
 civil litigation is the litigation.                                           
  CHAIRMAN TAYLOR  asked why the fiscal note does not reflect a                
 reduction in costs.   MR. WOOLIVER  replied the Court System does not         
 foresee a significant reduction in costs.   CHAIRMAN TAYLOR  noted            
 the mandatory arbitration requirement in the State of Washington              
 eliminated 50 percent of the civil litigation.  He asked why the              
 Court System will not see any savings if 50 percent of its civil              
 calendar is eliminated.   MR. WOOLIVER  said the bill will not                
 eliminate 50 percent of the cases that go to trial, which is only             
 five percent anyway.  The trials are where the bulk of the Court              
 System's expenses come from.   CHAIRMAN TAYLOR  commented Mr.                 
 Wooliver cited filings, not cases.   MR. WOOLIVER  replied that is            
 because all filings will be required to go to arbitration.                    
 Number 424                                                                    
  PAM LABOLLE , President of the Alaska State Chamber of Commerce,             
 stated she cannot speak to the committee substitute or amendments,            
 but would like to address the provisions the business community in            
 Alaska believes will create tort reform.   Some of those provisions           
 are contained in CSSB 15(JUD); the following are not.                         
 The business community wants an eight year statute of repose.                 
  CHAIRMAN TAYLOR  noted that provision pertains to architects and             
 engineers and was unanimously rejected by the Task Force.   MS.               
 LABOLLE  asserted the Alaska State Chamber has not accepted the Task          
 Force Report as its position.   CHAIRMAN TAYLOR  said he was not              
 suggesting it had, rather that the State Chamber had specific                 
 members, including Representative Porter, sitting on that                     
 committee, who found no objection to removing that provision.   MS.           
 LABOLLE  replied to her knowledge, Representative Porter is not a             
 member of the Alaska State Chamber of Commerce.   CHAIRMAN TAYLOR             
 asked if anyone on the Task Force represented the Chamber's views.            
  MS. LABOLLE  said in some cases, apparently not.                             
  MS. LABOLLE  continued discussing the State Chamber's position.              
 Regarding the limitation of actions against health care providers,            
 the claim should occur before the age of six unless the action is             
 commenced before the person's eighth birthday.  A cap on non-                 
 economic damages should be set at $300,000 or three times the                 
 amount of compensatory damages.                                               
  MS. LABOLLE  announced all of the provisions supported by the State          
 Chamber of Commerce are contained in the initiative on tort reform            
 it is filing.   CHAIRMAN TAYLOR  questioned why the Legislature is            
 wasting its time, since every issue can be decided via initiative.            
  MS. LABOLLE  said the Chamber would prefer legislation.   CHAIRMAN           
 TAYLOR  said legislation requires compromise.                                 
  MS. LABOLLE  explained the initiative establishes that 75 percent of         
 punitive damages would revert to the State.    CHAIRMAN TAYLOR  asked         
 if that was discussed by the Task Force.   SENATOR ELLIS  replied it          
 was discussed extensively and rejected unanimously.  He explained             
 that although some members of the Task Force are members of the               
 State Chamber of Commerce, they were not appointed as official                
 representatives of that organization.                                         
  MS. LABOLLE  stated the Chamber also supports the inclusion of               
 collateral benefits, allocation of damages, civil liability of                
 hospitals for non-employees, and damages resulting from the                   
 commission of a felony or while under the influence of alcohol or             
 drugs.   Regarding the latter,  CHAIRMAN TAYLOR  said that would              
 permit one to run over any and all drunks and not be liable.   MS.            
 LABOLLE  noted the Chamber's intent is to prevent a person who is             
 drunk and hurts him/herself from suing another party.   SENATOR               
 ELLIS  advised that idea was rejected by the Task Force on an 8 to            
 5 vote.                                                                       
 Number 309                                                                    
  MS. LABOLLE  asked if, among the Task Force votes on the provisions,         
 the worst case scenario was two dissenting opinions in one                    
 instance.   CHAIRMAN TAYLOR  said it was 8-5-1, and that vote was on          
 the alcohol and drug impairment provision.                                    
  MIKE LESSMEIER , representing State Farm Insurance, addressed SB 15,         
 because he was unfamiliar with the committee substitute.  He noted            
 although he and Chair Taylor take different positions on tort                 
 reform, there are some areas they agree upon.  One of those things            
 is a meaningful offer of judgment provision about loser pay.  He              
 believes the offer of judgment provision in the committee                     
 substitute is no better than what currently exists.                           
 He expressed the following concerns about the arbitration                     
 provision.  The first concern is who will pay for the arbitrator.             
 Arbitration can be more expensive than a court proceeding because             
 the parties have to hire an attorney and a half.  Also, there is no           
 offer of judgment provision in the arbitration language.  The third           
 concern is the admissibility of the arbitrator's report in court.             
 In the event a party is dissatisfied with an arbitrator's decision,           
 and the sanction is actual costs and attorneys' fees if one loses             
 at the jury trial, the deck ends up being stacked.  There is no               
 reason to further stack the deck with the admissibility of an                 
 arbitrator's report.  A jury is more capable than a single                    
 individual of crafting a quality decision.  The arbitration                   
 provision does not contain a method for challenging the                       
 arbitrator's decision, or does not require that the arbitrator have           
 no connection to either party.                                                
 Number 221                                                                    
  CHAIRMAN TAYLOR  asked Mr. Lessmeier if he ever tried a case on              
 behalf of State Farm before a judge.   MR. LESSMEIER  said he had.            
  CHAIRMAN TAYLOR  stated it is probably rare to not utilize a jury.           
  MR. LESSMEIER  felt the challenge is to create an efficient                  
 alternative to a system that is heavily dependent upon discovery,             
 takes too long, and is too expensive.  He believed the problem with           
 arbitration thus far is its lack of structure.  He spent a lot of             
 time last session drafting an arbitration provision that was                  
 modelled on the Washington provision that addresses these concerns.           
 In regard to the current medical malpractice law,  he said one can            
 conduct discovery, regardless of whether one receives a panel                 
 report, within 80 days of the filing of an answer.  The Supreme               
 Court determined the stay on discovery only lasts 80 days from the            
 filing of an answer.                                                          
  CHAIRMAN TAYLOR  asked Mr. Lessmeier if he is opposed to the 60 day          
 time limit in the bill.   MR. LESSMEIER  said it does not matter,             
 since the Supreme Court has ruled, as a matter of constitutional              
 law, that the parties may conduct discovery regardless of when that           
 report is issued.                                                             
  MR. LESSMEIER  discussed the issue of punitive damages.  He sees             
 punitive damage claims awarded in a substantial portion of the                
 cases he handles in Southeast Alaska.  A research study, named The           
 Role of the Punitive Damages in Civil Litigation; New Evidence from           
 Lawsuit Filings, determined that anyone who focusses solely on the           
 actual awards is missing the boat.  Each claim is expensive to                
 defend, takes on average one-third longer, and gives the party                
 making the claim significant leverage in the settlement process. He           
 supports efforts to place a reasonable limit on punitive damages              
 and asked that the limit be meaningful.                                       
  CHAIRMAN TAYLOR  asked Mr. Lessmeier if he supports Ms. LaBolle's            
 proposal.  MR. LESSMEIER  responded he would support a proposal that          
 limits punitive damages to three times economic damages or                    
 $300,000.  CSSB 15(JUD) contains a cap that is not a cap: the                 
 reason being the exception could be said to swallow the rule.                 
  CHAIRMAN TAYLOR  explained the amendment narrowly applies to                 
 punitive damages for cases involving people suing for wrongful                
 termination and an unlawful employment practice.   MR. LESSMEIER              
 commented State Farm supports a cap of $300,000 for all cases.                
  MR. FORD  clarified CSSB 15(JUD) contains a cap of three times               
 compensatory damages   or $500,000, whichever is greater, however             
 there are exceptions.  Subsection (g) provides an exception for               
 conduct motivated by financial gain.                                          
  Number 103                                                                   
 CHAIRMAN TAYLOR  asked Mr. Lessmeier if he believes the jury should           
 not be allowed to take into consideration that a person was engaged           
 in criminal conduct with the intent to make a profit and did so.              
  MR. LESSMEIER  replied a persons' conduct does not have to be                
 criminal for punitive damages to be awarded and the language in the           
 bill is much broader than that.  Every business is in business to             
 make a profit so one could make the argument that every business              
 activity is designed to make a profit.   This bill could create               
 endless litigation over whether this exception should apply.  In              
 his view, the exception will swallow the rule, resulting in a cap             
 that is not a cap.                                                            
  CHAIRMAN TAYLOR  questioned how one could come up with a cap that            
 encompasses the most outrageous conduct that could be contemplated.           
  MR. LESSMEIER  said with any tort rule, one can find a situation             
 that does not fit.  He believes society is better off in general,             
 if some outer limits are applied.  The State of Washington's                  
 arbitration provision is very effective.  That state does not have            
 punitive damages.  He repeated the cap must be meaningful.                    
  MR. LESSMEIER'S  final comment was in regard to the fact that                
 insurance rates will change as a result of legislation that is                
 passed because State Farm determines statewide rates by its loss              
 experience in Alaska.                                                         
  CHAIRMAN TAYLOR  asked Mr. Lessmeier if he disagrees with the                
 definition of what constitutes punitive conduct on page 3.   MR.              
 LESSMEIER  replied he thinks that was an intent, on the part of the           
 drafter, to codify existing law, and he does not disagree with it.            
  CHAIRMAN TAYLOR  said he agrees with Mr. Lessmeier that more                 
 complaints contain punitive damage claims and that the punitive               
 damage claim is used to leverage other aspects of the case for                
 discovery purposes.  He noted Mr. Lessmeier has not informed the              
 committee of any cases he has had in which punitive damages were              
 awarded against State Farm.                                                   
 TAPE 97-21, SIDE A                                                            
 Number 000                                                                    
  JEFF BUSH , Deputy Commissioner of the Department of Commerce and            
 Economic Development, and a member of the Governor's Task Force on            
 Civil Justice Reform, testified on behalf of the Administration.              
 He expressed support for the committee substitute since much of it            
 incorporates sections from the Task Force's recommendations.  He              
 commented the procedures committee of the Task Force spent a great            
 deal of time on the issue of collection of information by the                 
 Alaska Judicial Council.  The language in the bill was crafted                
 after a great deal of work, mostly by the Judicial Council in                 
 consultation with the Division of Insurance.  He assured the                  
 committee the Task Force recommendations were discussed thoroughly.           
 Mr. Bush stated the Administration's basic premise on the issue of            
 tort reform, is that the problem lies in the fact that for every              
 dollar paid by an insurance company into the system for claims,               
 about 40 cents ends up in the victim's pocket.  The goal was not              
 how to reduce the amount the insurance company pays, but how to               
 reduce the 60 percent siphoned off by the system and place it back            
 into either the insurance company's pocket or the victim's pocket.            
 CSSB 15(JUD) addresses the issues of how to speed up the settlement           
 process and make it less expensive to the parties.                            
  MR. BUSH  discussed specific provisions in CSSB 15(JUD).  The                
 Administration disagrees with the Chamber of Commerce on the                  
 statute of repose, because the victim, who is at no fault, would              
 lose his or her right to recover for injuries simply because of the           
 passage of time.  If a house collapsed after the eight year statute           
 of repose was up, the victim would have no remedy to recover for              
 injuries.  The caps on punitive damages provision in the committee            
 substitute is a compromise among almost everyone who has worked on            
 this issue.  Caps on non-economic damages are more problematic                
 because they hurt people with severe injuries because if one does             
 not have over $300,000 in non-economic damages or pain and                    
 suffering, the cap will not apply anyway.  That approach does not             
 deal with inefficiencies in the system, and merely takes money out            
 of the pocket of an injured party and puts it back in the pocket of           
 an insurance company.                                                         
 Regarding the mandatory arbitration section,  MR. BUSH  said he               
 raised the same questions with the Court System regarding the cost            
 of implementing alternative dispute resolution.  He stated he does            
 not understand why the Court System recognizes the cost of such a             
 program but refuses to recognize the savings.  Every empirical                
 study available says that court costs almost break even using                 
 alternative dispute resolution.  He suggested the problem with the            
 section, as written, is that it creates some potential                        
 inconsistencies when meshed with the rest of the bill.  The Task              
 Force essentially rejected mandatory arbitration, and in exchange,            
 adopted the proposed alternative dispute resolutions (early neutral           
 evaluation and mediation), and for the $100,000 or less cases, an             
 expedited District Court case process which requires District Court           
 cases to go to trial within 270 days.  Instead of setting up a                
 mandatory arbitration system for $100,000 cases, the Task Force               
 decided to create a quick, expedited process run through the                  
 District Court.  The committee substitute now has a District Court            
 provision with a 270 day process that will apply to the identical             
 cases subject to mandatory arbitration.  He was unsure how those              
 two provisions will interplay.                                                
  CHAIRMAN TAYLOR  said his fear is that nobody will go to District            
 Court because parties can get an automatic appeal to Supreme Court.           
  MR. BUSH  replied that is why no one goes to District Court today,           
 but the incentive to use it, provided in alternative dispute                  
 resolution, is that one will get a decision within 270 days, rather           
 than four or five years, and the amount of discovery is restricted            
 which will lower costs.  This new approach was an attempt to create           
 a process that would fit between small claims and a full-blown                
 Superior Court trial by making the District Court a useful civil              
 court.  He thought the mandatory arbitration is a reasonable                  
 approach, and believed providing multiple processes in the bill               
 could be advantageous, because there will be more places to fit               
 cases, and a comparison of the different approaches can be made to            
 determine which works best.                                                   
 Number 238                                                                    
  CHAIRMAN TAYLOR  asked Mr. Bush to comment on the Task Force's               
 deliberation of the statute of repose for architects/engineers.               
  MR. BUSH  replied the current statute of repose only applies to              
 architects, the proposal in HB 58 applies to everyone and limits              
 the time period for bringing an action to eight years.  HB 58 does            
 contain minor exceptions, for example, for long-term exposure to              
 hazardous waste, or leaving a sponge in a body during surgery.                
  CHAIRMAN TAYLOR  stated some cases still fall under the two year             
 limit; the eight year statute of repose will now apply to those               
 cases that had no previous limit.    MR. BUSH  disagreed, and said            
 the two year limit still applies but Alaska has a discovery rule,             
 so the two year time clock starts ticking when one becomes aware of           
 an injury.  The time frame is two years that can be extended up to            
 eight.  The Task Force changed the proposal to a ten year statute             
 of repose that would not apply to children, so it tolled during               
 minority.  It also tolled for incapacitated people.  The Task Force           
 vote on that provision was 10-7 in favor, but a total of 14 votes             
 was required to pass anything out of the Task Force, so it did not            
 go forward.  Other than the "under the influence of alcohol or                
 drugs" provision discussed earlier, it was the only vote that ended           
 up with a majority vote but not the required two-thirds.                      
 Number 238                                                                    
  CHAIRMAN TAYLOR  asked about the Jackson v. Powers provision.   MR.          
 BUSH  said that was withdrawn from consideration by unanimous                 
 consent, after debate.   CHAIRMAN TAYLOR  asked about the provision           
 allowing children to sue doctors until age eight.   MR. BUSH  replied         
 the first time he saw that provision was in HB 58, last fall.  It             
 has been viewed as a statute of limitations change; it is not, it             
 is a statute of repose for children that is more restrictive than             
 the eight years.  He advised if a child is injured by a doctor at             
 age five but the injury does not become apparent for several years,           
 the child loses his/her cause of action at age eight.  If the same            
 thing happened to a 25 year old adult, that adult could bring a               
 cause of action until age 33.                                                 
  CHAIRMAN TAYLOR  asked about the Task Force's deliberation of the            
 non-economic damage cap of $300,000 as opposed to $500,000.   MR.             
 BUSH  answered that provision never came to the Task Force; the               
 committee that considered it recommended the change incorporated              
 into CSSB 15(JUD), which changes it to apply only to severe                   
 disfigurement, and that provision passed.                                     
  CHAIRMAN TAYLOR  inquired about collateral benefits.   MR. BUSH  said        
 that was debated during several of the meetings but did not come to           
 a vote because it was not a recommendation that made it out of                
  CHAIRMAN TAYLOR  asked about allocation of damages.   MR. BUSH               
 replied allocation of fault was rejected on an 8-9 vote (the                  
 provisions as proposed in the initiative).   CHAIRMAN TAYLOR                  
 questioned the provision for damages resulting during the                     
 commission of a felony, or while under the influence of alcohol or            
 drugs.    MR. BUSH  explained the felony provisions are contained in          
 the committee substitute, that provision was adopted by the Task              
 Number 269                                                                    
  SENATOR PEARCE  asked whether a recommendation that did not come             
 from a subcommittee was allowed to go before the entire Task Force            
 for a vote.   MR. BUSH  explained the following rules were                    
 established at the first meeting: a two-thirds vote (14) was                  
 required to adopt anything by the Task Force; to get a proposal               
 recommended by a committee required three or four votes; and any              
 member could propose any provision to the full Task Force even if             
 the provision was rejected by a committee.                                    
  CHAIRMAN TAYLOR  noted a Task Force committee voted unanimously to           
 not report changes to collateral benefits, as proposed by the                 
 Alaska Chamber of Commerce.  He asked about the provision                     
 pertaining to changes to periodic payments.   MR. BUSH  said that was         
 not taken up by the full Task Force as that provision was                     
 unanimously rejected in committee.                                            
 Number 300                                                                    
 CHAIRMAN TAYLOR  discussed Amendment 4, and explained it inserts a            
 new bill section that would apply to bodily injury, sickness,                 
 disease, or death of an insured, or damage or destruction of                  
 property of an uninsured, even if the limits of liability bonds and           
 policies that apply have not been used up by payments or judgments            
 or settlements.                                                               
  MR. LESSMEIER  encourage the committee to not adopt Amendment 4 in           
 the context of tort reform because the issue of                               
 uninsured/underinsured motorist coverage is complicated.  Two                 
 federal district court judges have ruled differently on this issue,           
 and the cases are on appeal to the Ninth Circuit Court of Appeals.            
 The question has been certified to the Alaska Supreme Court.  State           
 Farm believes there is a problem that needs to be solved, but the             
 problem needs to be treated in separate legislation.  One of the              
 policy calls the legislature will need to make is whether to return           
 to a pure difference in limits coverage, or a coverage which is               
 pure excess.  If uninsured/underinsured motorist coverage remains             
 as excess coverage, whenever a person buys that coverage, he/she              
 will not know exactly what coverage he/she has because the amount             
 of coverage owned by the uninsured or underinsured motorist is                
 unknown.  The excess coverage will become very costly because the             
 possible payout is unknown.  State Farm advocates returning to a              
 pure difference of limits coverage and that language be adopted in            
 statute about the mandate offers, so that State Farm clearly                  
 understands what the form of the offer is.                                    
  CHAIRMAN TAYLOR  asked if Amendment 4 will resolve the stacking              
 question.  He noted if two motorists are insured, the total of both           
 policies would be used to pay for total damages.   MR. LESSMEIER              
 said he has not had time to study this proposal but repeated State            
 Farm would like clarification of what it is supposed to do, since             
 two federal judges have ruled differently on this issue.  He                  
 cautioned the committee to not act on this amendment in a hasty               
 manner because it may create more litigation.                                 
  CHAIRMAN TAYLOR  said he thinks stacking policies to pay for damages         
 to be good public policy.   MR. LESSMEIER  said insurance companies           
 can sell more coverage under difference in limits.  That coverage,            
 for a $100,000 policy, would be cheaper than pure excess coverage             
 of $50,000.  In a difference in limits situation, an insured will             
 always know what their total amount of recovery is going to be.               
 The policyholder will not know the amount of recovery under a pure            
 excess policy.  He explained if a person has $50,000 in pure excess           
 coverage, and the other motorist is uninsured, the maximum amount             
 the policyholder can collect is $50,000.   CHAIRMAN TAYLOR  countered         
 if the other motorist was insured for $100,000, and the                       
 policyholder had damages of $200,000, the policyholder would                  
 collect $150,000, if the policies were stacked.   MR. LESSMEIER               
 responded that pure excess coverage is more expensive, which                  
 creates the risk of depriving consumers of choice at a certain                
 level.  State Farm believes it is better to give the consumer                 
 choice at the low end of coverage.                                            
  CHAIRMAN TAYLOR  said since this bill will receive an extensive              
 review by the Finance Committee, Mr. Lessmeier will have an                   
 opportunity to take up the issue at that time.  There being no                
 objection to the adoption of Amendment 4, it was so ordered.                  
 Number 410                                                                    
  CHAIRMAN TAYLOR  proposed Amendment 5 regarding civil action for             
 claim settlement practices.    MR. FORD  explained Amendment 5 allows         
 a person who claims a violation of the insurance trade practice law           
 to file a civil action and provides qualifications on how to file.            
  CHAIRMAN TAYLOR  offered Amendment 5.  There being no objection,             
 Amendment 5 was adopted.                                                      
  CHAIRMAN TAYLOR  proposed Amendment 6.   MR. FORD  explained it adds         
 a new provision to the motor vehicle statutes that requires motor             
 vehicle liability policies to pay penalties if the insurer denies             
 coverage for medical treatment, and the claim is later determined             
 to be covered.  The penalties are listed in paragraphs 1 and 2, and           
 include actual costs plus interest from the date the claim is                 
 received by the insurer, and attorneys' fees, or 50 percent of the            
 claim, whichever is greater.                                                  
  CHAIRMAN TAYLOR  said some carriers routinely deny small medical             
 claims and wait for the insured to sue.  The State of Oregon has              
 enacted provisions to double the award, in such situations.   There           
 being no objection to Amendment 6, it was adopted.                            
  CHAIRMAN TAYLOR  expressed concern about Amendment 7 because it may          
 reverse a policy set out in the Van Been case and asked committee             
 members to study the amendment further.                                       
 Regarding the rate rollback requirement in Amendment 8,  CHAIRMAN             
 TAYLOR  announced that amendment may be offered in the Finance                
 Committee, as well as Amendment 9.                                            
  CHAIRMAN TAYLOR  noted Amendment 10 pertains to punitive damages for         
 unlawful practices and was previously adopted.                                
 There being no further amendments,  SENATOR MILLER  moved CSSB
 15(JUD) as amended and accompanying fiscal notes out of committee             
 with individual recommendations.  There being no objection, the               
 motion carried.   CHAIRMAN TAYLOR  adjourned the meeting at 3:55 p.m.         

Document Name Date/Time Subjects