HOUSE BILL NO. 158 "An Act relating to civil actions; amending Alaska Rules of Civil Procedure 49, 68, and 95; amending Alaska Rule of Evidence 702; and providing for an effective date." REPRESENTATIVE BRIAN PORTER, testified in support of HB 158. He stressed that HB 158 is a comprehensive piece of legislation. He maintained that the intended effects of the legislation can only be obtained if the package remains intact. He emphasized that the legislation is designed to reduce costs associated with defense of medical practices in order to reduce medical insurance and overall health care costs. He maintained that high medical costs have resulted in a lack of health care services to some areas of the state. He asserted that the legislation will provide more services to more people. Representative Porter maintained that the legislation will reduce overall liability insurance costs for business. He stated that the legislation will help small businesses stay in business longer. Representative Porter added that the legislation is aimed at reducing the cost of litigation, increasing the likelihood of fair claim settlements, and allowing more people to be covered by insurance due to a reduction of insurance costs. Representative Porter stated that the legislation does not address workers' compensation claims. Representative Porter noted that there are three types of compensation available to injured persons: * Economic Damages; * Non-economic damages; * Punitive damages. Representative Porter explained that economic damages are 2 subjective costs and losses such as wages lost or anticipated to be lost, hospital costs or property damages. Economic Damages are not capped or limited. The legislation would place a $300.0 thousand dollar cap on non-economic damages. Serious injury cases can be expanded to $500.0 thousand dollars. The current cap is $500.0 thousand dollars. Representative Porter noted that non-economic damages include pain and suffering and loss of consortium. Punitive damages are awarded in cases where the action or omission was so outrageous that there is a determination that the defendant needs to be punished. The rationale is that the action or omission is so serious that it affects all the people in the community or state. Punitive damages would be capped at $300.0 thousand dollars or three times the total compensatory damage whichever is greater. Compensatory damages are a combination of economic and non-economic damages. Under the legislation 50 percent of punitive damages would go to the state and 50 percent to the plaintiff. Representative Porter observed that the state of California experienced a slower growth in insurance rates after initiating tort reform. From 1976 to 1992 insurance costs grew by 83 percent in California. From 1976 to 1992 the national rate in insurance grew by 333 percent. From 1976 to 1992 insurance costs grew by 1,620 in the state of Alaska. DON LEHMANN MD., PRESIDENT, ALASKA STATE MEDICAL ASSOCIATION testified via the teleconference network from Anchorage. He testified in strong support of HB 158. He described the current tort system as a lottery, with awards based on chance and emotion, rather than on true injury and reason. He asserted that victims seek recompense beyond reason. He maintained that the current system is broken. He spoke in favor of changes contained in section 3, Statute of Limitations. He noted that several liability is not extended to hospitals. He spoke in support of section 24, Civil Liability of Hospitals for Non Employees. He maintained that the single most important measure contained in the legislation is the cap on non-economic losses. BRUCE RIZER testified via teleconference, from Anchorage. He spoke in opposition to HB 158. He stated that his 11 year old son, Bart, was killed at Alyeska Ski Resort while skiing. He reviewed provisions in sections 6 - 10. He questioned if $500.0 thousand dollars would be enough to take care of a paraplegic for the rest of their life. He maintained that an injured person who is unable to care for themselves would become the ward of the state, creating a 3 greater burden on the state. He maintained that non- economic damages should be determined by the judge and jury after all the facts have been heard. He observed that punitive damages are seldom awarded. He asked why a person who exhibits "outrageous" behavior should be protected. He asserted that facts have been misrepresented in regards to punitive damages awards. He observed that the legislation will make it more difficult for a person who has caused death or injury to an Alaskan to be penalized. He recommended the deletion of "malice or conscious act" from section 7. He spoke against the cap on punitive damages. He asserted that victim's rights are diminished by section 8. He observed that most people do not have enough money to pay an attorney by the hour. He discussed a case in which a woman was badly burned by a cup of McDonald's coffee. He observed that the women received third degree burns across her buttocks and thighs. The coffee was 170 degrees. He noted that there has been a 1,000 percent increase of businesses suing businesses. He stated that personal injury verdicts in Alaska are 8.1 percent lower than the national average. He alleged that the legislation will protect corporate profits and will not promote safety. PATTY RIZER testified via teleconference, from Anchorage. She relayed her frustration with the legislative process. She emphasized that punitive damages provide strong incentives for businesses to follow the rules. She pointed to misinformation in testimony by supporters of the legislation. RHONDA SCOTT testified via the teleconference network from Anchorage. She testified in opposition to HB 158. She stated that the current system is fair. She spoke in support of maintaining the current system of punitive damages. She referred to the Ford Pinto case. She noted that punitive damages awarded in the case equaled one month's profits for the company. She emphasized that the Ford Company knowingly built a dangerous car they knew would result in death and injury. She maintained that a cap would not have allowed a punitive damage award large enough to give the company the right message. She stated that the proposed cap to punitive damages implies that a jury is not capable of making good decisions. She stressed that the cap needs to be large enough to give a company the incentive to change. She spoke against allowing 50 percent of the award to go to the state. KEN CASTNER testified via the teleconference network from Homer. He spoke against the cap on punitive damages. He suggested that each individual in a class action suit would be forced to file suit separately in order to recover a reasonable amount under the $300.0 thousand dollar cap. 4 CHRIS MOSS testified via the teleconference network from Homer. He spoke against the cap on punitive damages. He maintained that the cap does not allow for "proper punishment". He asserted that the bottom line is profit. He stated that large punitive damage awards send a message. JOSEPH MALATESTA, PRIVATE INVESTIGATOR, KENAI testified via the teleconference network. He testified in opposition to HB 158. He asserted that the legislation should assists wrongdoers. He spoke against the cap on punitive damages. He suggested that under the cap there would have been 12,000 separate cases filed by fishermen after the Exxon Valdez oil spill. He maintained that medical practices provisions should be addressed separately. He asserted that the legislation limits rights of injured individuals and benefits business. ROBERT COWAN, EXXON VALDEZ PLAINTIFFS' COMMITTEE testified via the teleconference network. He spoke in opposition to HB 158. He stated that under the legislation the Exxon Valdez case would have been under state court jurisdiction. He objected to changes in section 7. He questioned if Exxon would have been held liable for the Exxon Valdez oil spill if HB 158 were enacted. He observed that the punitive damage judgement against Exxon for the spill was upheld and found to be reasonable by the court. He spoke against the provision to divide punitive damages between the plaintiff and the state. He spoke in opposition to sections 14 and 15. (Tape Change, HFC 95-49, Side 1) Mr. Cowan asserted that individuals injured on the job would be adversely affected by the legislation. He maintained that the legislation is a "unilateral disarmament on behalf of the people of the state of Alaska." He asserted that legislation limiting insurance costs was the major reason that insurance rate increases were limited in the state of California. PETE ERHART, ATTORNEY, EXXON VALDEZ PLAINTIFFS, KENAI testified via the teleconference network. He spoke in opposition to HB 158. He alleged that the legislation favors "the big guy over the little guy". He maintained that the judicial system is the only place where individuals can seek redress against larger interests. He referred to section 10. He maintained that the section would allow companies to limit payments to plaintiffs. He asserted that the legislation is designed to "protect special money interests at the expensive of ordinary folks of the state of 5 Alaska." ROSS MULLINS, CHAIRMAN, PRINCE WILLIAM SOUND FISHERMEN'S PLAINTIFFS COMMITTEE, CORDOVA testified via the teleconference network. He spoke in opposition to HB 158. He noted the adverse effect of the Exxon Valdez oil spill has had on the fisheries and fishermen. He asserted that many fishermen are bordering on bankruptcy. He expressed concern that changes in section 7 would deprive future oil spill victims the right of seeking redress from large corporations in court. He recommended that the punitive damages section be amended. DORNE, HAWXHURST, CDFU, CORDOVA testified via the teleconference network. She spoke in opposition to HB 158. She questioned if a corporation or individual who committed a "reckless" act would be liable for punitive damages under HB 158. DANIELLA LOPER, STAFF, REPRESENTATIVE PORTER clarified that a corporation or individual found to be "reckless" would not be liable for punitive damages under section 7. Ms. Hawxhurst expressed objection to the changes in section 7 regarding punitive damages. She stated that under the cap Exxon would only have been liable for $857.0 million dollars in punitive damages. She observed that the figure is equal to two and a half months of profit. She asserted that the cap would send the companies the message that it is cheaper to be reckless than to act responsibly, and that it is okay and legally acceptable to be reckless. She suggested that civil justice should be developed by the courts on a case by case basis. MICHAEL O'LEARY, PRINCE WILLIAM SOUND PLAINTIFF'S COMMITTEE, testified via the teleconference network from Cordova. He spoke in opposition to HB 158. He maintained that the legislation would take corporations off the hook for being reckless. He questioned why powers of the jury are being limited. He maintained that the cap on punitive damages would not prevent corporations from making life threatening decisions based on profit alone. He asserted that the legislation will hurt individual citizens of the state. He suggested that medical malpractice legislation be considered separately. JAMES MYKLAND, CORDOVA testified via the teleconference network. He spoke in opposition to section 7, Punitive Damages. He questioned if Exxon would have been held liable for the Exxon Valdez oil spill if HB 158 had been enacted prior to the spill. He pointed to damage to the herring fisheries in Prince William Sound. He asserted that the 6 herring fisheries may take 20 years before it is recovered to pre-spill conditions. He urged the Committee to delete section 7. ROBERT STEPHENSON, FAIRBANKS testified via the teleconference network. He spoke in opposition to HB 158. Mr. Stephenson was seriously injured by a propane fire. He recounted his experience. The accident was a result of improper practices and unlawful activities by businesses. He urged the Committee to consider the injured people who want a chance to be compensated. PHIL HENDINBURGER, GENERAL COUNSEL, NORCAL INSURANCE COMPANY testified via the teleconference network. He testified in support of HB 158. He noted that NORCAL has insured half of the country's physicians for the past several years. He felt tort reform would generate a real savings for health care costs. He referred to tort reform in the state of California. He asserted that tort reform in the state of California has had a dramatic impact on the cost of malpractice premiums for physicians and hospitals. He discussed the effects of the Medical Injury Compensation Reform Act (MICRA). He maintained that MICRA has resulted in reduced insurance premium costs in California. He stated that insurance has become more affordable, as compared to other states who have not enacted similar reform. Over the 17 years that the California tort reform package has been in effect, insurance costs grew by 83 percent, while the U.S. costs, excluding California, have increased by 413 percent. Alaska experience shows that premiums have increased by 1620 percent over the same 17 year period. He asserted that California has saved several billion dollars by instituting the Medical Injury Compensation Reform Act. He stated that in California, an Obstetrician/Gynecologist (OB/GYN), will pay $30,000 a year for medical malpractice insurance. A comparable OB/GYN in Alaska will pay $65,000 per year for the same insurance. He suggested that the enactment of similar reforms in Alaska will result in a significant decrease in the rate of medical malpractice premiums and health care costs. In response to a question by Representative Brown, Mr. Hendinburger estimated there would be a thirty percent reduction in health care costs once the tort reform provisions are applied. He stated that Proposition 103 passed by the California did not impact medical malpractice premiums. In response to a question by Representative Navarre, Mr. Hendinburger noted that medical malpractice costs per delivery would be $600.0 hundred dollars in California and $1,200 in Alaska. Representative Navarre noted that a 7 portion of the cost is attributable to the type of facilities available in Alaska. He noted that hospital facilities in Alaska are under utilized. Representative Grussendorf suggested that the medical malpractice provisions should be addressed in separate legislation. He noted that the California legislative body used a two prong approach. BERNE MILLER, JUNEAU CHAMBER OF COMMERCE spoke in support of HB 158. He asserted that civil liability is one of the business community's most expensive hidden costs. He observed that liability costs are passed on to customers. He spoke in support of dedicating 100 percent of punitive damages to the state. BOB WARD, ALASKA MINERS ASSOCIATION read a letter to the committee by Steve, Borell, Executive Director of the Alaska Miners Association in support of HB 158 (Attachment 1). DAVID CROSBY, ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION testified in support of HB 158. (Tape Change, HFC 95-49, Side 2) Mr. Crosby discussed section 24, Civil Liability of Hospitals for Non Employees. He referred to the Jackson versus Power(1998) Alaska Supreme Court decision. He noted that the court ruled that a general acute care hospital has a nondelegable duty to provide emergency room services, and that the hospital is vicariously liable for the negligence of an emergency room physician. He asserted that the Jackson decision runs counter to the modern trend of apportioning liability according to fault. He maintained that the Jackson case ensures that municipally owned and non-profit hospitals are named as "deep pocket" defendants in cases involving physicians' negligence. He stated that since 1987, five jurisdictions have discussed the Jackson ruling without its adoption. In response to a question by Representative Brown, Mr. Crosby clarified that nurses would not be covered by the legislation. He emphasized that hospitals cannot control how a doctor practices. He stressed that the hospital must determine if the doctors on staff are generally competent. Doctors are considered independent contractors. Nurses are employees of the hospital. Hospital staff is expected to directly supervise their nurses. He explained that if the hospital has been negligent in permitting an incompetent doctor to practice then the hospital would be liable. 8 BOB NESTEL, INSURANCE AGENT, ANCHORAGE testified via the teleconference network. He asserted that there has been a lack of insurance expertise among the drafters of the legislation. He noted that NORCAL paid dividends to their customer doctors. JIM FORBES, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified via the teleconference network from Anchorage. He stated that the Administration has concern about the provisions of CSHB 158 (JUD). He stated that studies show that the claims made in section 1 have not come to pass upon the adoption of tort reforms. He cautioned the Committee from comparing the California experience to one that may occur in Alaska in regards to health care provisions. He pointed out that California has an elected Insurance Commission. He noted that California has a higher degree of managed care facilities. He stated that the Administration is concerned that the Legislature might pass a bill that makes radical changes to the legal system without adequate information to support the findings. He stated that the legislation takes away substantial safe guards that benefit ordinary Alaskans, and builds protective walls around large outside based insurance companies and manufactures that do not return any direct benefits to the state of Alaska. He questioned if the bill would promote quicker settlements of claims in the legal system. He estimated that section 19, Prejudgment Interest, would slow claims. He noted that the Administration is concerned that the cap on non-economic damages in section 6 discriminates against large families. He expressed concern that the legislation discriminates in favor of people with higher incomes. He observed that there will be discrimination and denial of access to the legal system under the legislation. Mr. Forbes suggested that sections 14 and 15 would make it difficult for plaintiffs to prove a case. He stressed that if a person's ability to prove a case is inhibited then their ability to recoup economic damages is drastically affected. Mr. Forbes stated that the cap on punitive damages would make Alaska a more dangerous place to live. He observed that government regulators cannot ensure product safety. He stressed that the punitive damage system is a privatized manner of enforcing safety. He maintained that the punitive damage system works. He stated that without fear of punitive damages some companies will engage in cost benefit analysis. The cost of paying off injured people will be calculated into their profits, rather than improving product safety. He pointed to the Ford Pinto case. In response to a question by Representative Martin, Mr. 9 Forbes clarified that the Governor has not offered specific amendments. In response to a question by Representative Brown, Mr. Forbes stated that the legislation may have constitutional problems. He noted that studies do not support the assertions made in section 1. He added that the Statute of Repose section could be found unconstitutional. Co-Chair Hanley questioned Mr. Forbes' reasoning that the legislation would not be constitutional. Representative Martin recommended that a severability clause be considered. MIKE LESSMIER, ATTORNEY, STATE FARM INSURANCE COMPANY testified in support of HB 158. He noted that the State Farm Insurance Company has approximately 32 percent of the automobile liability insurance market in the state, and approximately 43 percent of the homeowners market. He suggested that windfalls exist in the system which need to eliminated. He suggested that section 9, Damage Calculation, is a windfall. He stated that section 18, Prejudgment Interest, is a potential windfall. The legislation would float the interest rate on judgement. Section 19 would provide for no prejudgment interest on future damages. Mr. Lessmier asserted that there are hidden costs associated with the punitive damage provision. He emphasized the number of cases that are actually defended from punitive damages claims. He stressed that the defense of these cases is at a tremendous cost to the system. He maintained that a reasonable Statute of Repose would make risk and potential liability more predictable. Mr. Lessmier referred to the 1988 Tort Reform Ballot Initiative. He noted that the intent of the initiative was to make each party liable for damages only equal to their share of fault and to repeal the law concerning reimbursement from other parties. He observed that the Alaska Supreme Court concluded in Benner versus Wichman that fault can only be apportioned among parties to the action. Judgement could be entered against a third-party defendant. He maintained that a defendant could be required to pay more than their percentage of fault. Mr. Lessmier observed that the cost of health care has risen beyond the rate of inflation. Representative Navarre noted that the increasing rise in health care costs can be attributed to many factors. RICHARD CATTANACH, VICE PRESIDENT, UNION COMPANY, ANCHORAGE testified via the teleconference network. He spoke in support of the Statute of Repose provision. He asserted 10 that the current Statute of Repose is unreasonably long. He noted that a lack of maintenance can be attributed to the cause of construction related injury or damages. He observed the difficulty associated with defense of old cases. He referred to the punitive damages provision. He asserted that punitive damages are used to extort money from a defendant because punitive damages are not covered by insurance. He stressed that the settlement of a dubious claim may be advisable given the high cost of defense even if the defendant is victorious. He read a letter by George McGovern regarding tort reform which was published in the Wallstreet Journal. He noted that Mr. McGovern argued on behalf of tort reform. CHARLES COE, ATTORNEY, ANCHORAGE testified via the teleconference network. He pointed to misinformation regarding medical malpractice cases. He suggested that a paralegal review three years of cases for the state of Alaska to see the actual results. (Tape Change, HFC 95-49, Side 1) Mr. Coe maintained that individuals are being forced to file suits before the outcome of their injury is determined due to the requirement that cases must be filed within two years of the occurrence. He urged the Committee to hold the legislation for further study. He questioned the constitutionality of having the state as a recipient of punitive damage awards. RICHARD RITTER, MEMBER, ALASKA PROFESSIONAL DESIGN COUNCIL LEGISLATIVE LIAISON COMMITTEE. He testified in favor of the Statute of Repose provision included in section 2. He noted that a six year Statute of Repose for architects and engineers was enacted in 1967. The Statute of Repose provision was declared unconstitutional in 1988. The Court expressed concern that the statute shifted liability and violated the equal protection clause. He noted that a fifteen year Statute of Repose was adopted in 1994. He observed that there are only two states with a fifteen year Statute of Repose. He stressed that a recent study by Victor O. Schinnerer and Company found that 95 percent of all claims are filed nine years after project completion. The study found that one hundred percent of claims are filed within eleven years. He asserted that a fifteen year Statute of Repose is excessive. In response to a question by Representative Brown, Mr. Ritter explained that buildings are designed to last 25 years. He stressed that the Statute of Repose does not protect against gross negligence. He emphasized the difficulty plaintiffs have in proving cases where records 11 are old. He pointed out that designers have no control over maintenance. He noted the expense of proving innocence. He spoke in favor of reaching a balance that protects the rights of plaintiffs and guards against unmerited suits. JOHN HOLTZ, SUPERINTENDENT, SITKA SCHOOL DISTRICT recounted his experience with the tort system. His son was injured while commercial fishing due to the negligence of a fish unloading company. He noted that the insurance company tried to settle at a minimum amount. He asserted that insurance companies play "hardball" in the hopes that most victims will settle with a pittance. He maintained that the legislation would hand a club to insurance companies to beat up on victims. He asserted that the legislation will inflict serious damage on victims. He pointed out that the legislation is omnibus. He emphasized that the bill addresses fifteen different items that ought to be addressed in separate legislation. He maintained that the legislation will force victims to walk away from obtaining their day in court. He observed that prejudgment interest on damages encourages insurance companies to settle quickly and reasonably. PHIL THINGSTAD, LOCAL 1281, ANCHORAGE testified via the teleconference network. He spoke in support of tort reform. CHRISTY TENGS-FOWLER testified via the teleconference network from Haines. She testified in support of HB 158. She is a small business owner with a bar and restaurant which has been in her family for 43 years. She referred to an incident where someone used fake identification to buy alcohol from their liquor store. A few hours later, he totalled his pick-up and died in a crash. She observed that he had been carded by eight different employees and had been drinking alcohol in the presence of his parent in her establishment and in other establishments. The family of the deceased sued them. After two years they settled the case because they could not afford to continue litigation. She emphasized that everything they had saved for her father's retirement was spent on attorney fees and settlement costs. She stated that she lives in fear of being sued. AL TAMAGNI ANCHORAGE testified via the teleconference network. He suggested that section 10 be amended to read: "In an action to recover damages, the court, at the request of any party elected to receive or pay future damages, enter judgment ordering an amount awarded a judgement creditor for future damages, that $100.0 thousand dollars be paid to the maximum extent feasible by periodic payments rather than a lump-sum payment." He stressed that the amendment would 12 define who the parties are. Mr. Tamagni recommended that AS 09.17.040(a) also be amended. He stated that periodic payments can be set up without the use of an annuity contract through treasury bond trusts. He stressed that the exclusion for self insured municipal entities should be retained. Mr. Tamagni also recommended that section 12, AS 09.17.040(f) be amended. He stated that the Internal Revenue Service has allowed periodic payments to be adjusted upward to as much as 10 percent based on the national Consumer Price Index. He recommended that "for Anchorage" be deleted on page 9, line 22 and the national Consumer Price Index be used. Mr. Tamagni observed that the state of Alaska is exempted from punitive damages. He observed that some insurance carries require that in order to collect prejudgment interest plaintiffs must hire an attorney. He suggested that prejudgment interest should be a mandatory payment by any insurance carrier in regards to economic losses. TOM DOOLEY, ATTORNEY spoke via teleconference from Anchorage. He testified against changing the current law in regards to punitive damages. He stated that since 1961 only 17 out of 51 punitive damage awards were upheld by the Alaska Supreme Court on appeal. He reviewed amounts awarded in punitive damages over the past 14 years, in the state of Alaska. He asked why individuals who have malice or conscious disregard for another person are being protected. He observed that plaintiffs must be advised that under Rule 82, the loser pays attorney fees for the other side. He noted that it is uneconomic to take a case that is fifteen years old. He stated that the legislation will make it uneconomic to bring forth a punitive damage lawsuit. He stressed that doctors can withhold documents from plaintiffs until a suit is initiated. He observed that some suits are initiated in order to allow documents to be obtained under penalty of perjury. He suggested that legislation requiring that documents be available upon patient request with an affidavit of authenticity would reduce suits. Mr. Dooley noted that the Association of Retired Persons did not support HB 292, which contained many of the same provisions in the last legislative session. (Tape Change, HFC 95-49, Side 2) Mr. Dooley noted that out of 3,500 hundred cases, 192 cases alleged punitive damages in the complaint. Juries did not award punitive damages in the majority of the cases. He 13 emphasized that the state of Alaska has not experienced a problem with high punitive damage awards. He observed that only two states provide that attorney fees are paid by the losing party. PAM NEAL, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE spoke in support of HB 158. She observed that the tort litigation system has been criticized by the public and policy experts. She maintained that protection from frivolous lawsuits should be the right of every citizen and business. She asserted that litigation is an expensive mechanism for compensating injured parties. She stated that the Alaska State Chamber of Commerce believes that business within the state is being jeopardized by present tort law, particularly in the area of punitive damages. She stressed that punitive damages should have a preset standard and should only be assessed when malicious intent or willful neglect is proven. She compared criminal and administrative law to the tort litigating system. Representative Navarre questioned if punitive damage awards should go to the state. He stressed that there would be no incentive for attorneys to submit claims for punitive damages, if 100 hundred percent of the award went to the state. He suggested that every jury or judge be charged with the responsibility of determining, in civil liability cases, if punitive damages are warranted. Ms. Neal emphasized the expense in time and money to defendants of punitive damage complaints. Representative Navarre noted that some cases of wrongdoing are not brought to court due to the high cost to the plaintiff. Representative Brown noted that there has been significant tort reform in the state of Alaska over the last ten years.