HOUSE BILL 158 "An Act relating to civil actions; amending Alaska 1 Rules of Civil Procedure 49, 68, and 95; amending Alaska Rule of Evidence 702; and providing for an effective date." JEFF FELDMAN, ATTORNEY, ALASKA TRIAL LAWYERS, ANCHORAGE, testified in opposition to HB 158 noting that he most often represents defendants. He decisively stated that HB 158 was a "fundamental attack on the system of justice in Alaska". He explained that the purpose of his testimony to Committee members would be to delineate the differences between the "myth" and the "reality" of the proposed legislation. 1. There is not a litigation explosion. The rate of lawsuits has not increased for decades, declining since 1990. 2. There are not "runaway verdicts". That claim is exaggerated. The average personal injury award is $48 thousand dollars. 3. There are not outrageous punitive damage awards. From 1965 through 1990, there were only 353 cases nationally. He added that punitive damage awards in the medical malpractice cases are rare. 4. There is not a medical malpractice crisis. He noted that there have been fewer than a dozen verdicts since statehood. Unjustified medical malpractice awards are uncommon. 5. The proposed tort reform will not cure the current ills. Mr. Feldman maintained that HB 158 is a piece of special interest legislation which affects and benefits wrongdoers, whose conduct could injure or kill Alaskans. He stressed that insurers and outside corporations would be the ones to benefit from the proposed legislation. Mr. Feldman outlined the purposes of the civil justice system: 1. That fair and just compensation for injuries sustained by innocent victims should be provided. 2. The system ought to deter negligence and conduct that causes unreasonable risk and harm to others. 3. The legal system should punish and deter those who act outrageously and cause injury or death. 2 To date, these decisions are being made by juries after considering all of the evidence and facts, rather than being determined by the Legislature, whose information is based on generalities, not specific information. He voiced his confidence in the Alaskan jury system. Mr. Feldman added that HB 158 would affect catastrophically injured Alaskans, with no action toward nuisance or frivolous law suits. The legislation would strip injured Alaskans of a right to compensation and would usurp the power of citizen justice, thus providing a handful of windfalls to wrongdoers. The legislation will lessen the accountability and response for negligent and reckless conduct, while making Alaska an anti-victim state. Mr. Feldman continued, the proposed legislation would lock the courthouse doors to victims through an eight year Statute of Repose. HB 158 would strip juries of their right to decide cases on evidence and would place caps and limits on damages resulting from economic, non-economic and punitive damages. Mr. Feldman added, not only would HB 158 cap and limit damages, it would also make them more difficult to obtain. He continually emphasized that the windfall protection would be advantageous to the wrongdoer. Mr. Feldman summarized how the Statute of Limitation could affect victims. If victims were not able to obtain compensation from wrongdoers, the State will have that obligation through Medicare and/or Medicaid requirements to financially support those who cannot obtain adequate compensation. Mr. Feldman criticized that the proposed legislation is not a reform, it is an immunity for special interests and will benefit the wrongdoers, the insurers, the large outside interests and manufacturers, and professionals who commit malpractice. The legislation would lessen responsibility of exposure to liability and would benefit the strong over the weak. REPRESENTATIVE BRIAN PORTER redefined the philosophical differences found in the legislation. He pointed out that the vast majority of the HB 158 defendants were small business people. Representative Porter provided the Committee with a list of businesses and associations who support the legislation. [Attachment #1]. (Tape Change, HFC 95-50, Side 2). MIKE LESSMEIER, ATTORNEY, STATE FARM INSURANCE COMPANY, ANCHORAGE, testified in support of the legislation. He ascertained that the bill would not put "money into the hands of insurance companies". He added that the insurance 3 companies would reflect rates based on a determination of the State laws and the lost experience. He pointed out that the vast majority of cases do not proceed to trial. Mr. Lessmeier surmised that there are windfalls in the system which need to be rectified and that there are areas of disputes which need to be eliminated. He proposed that HB 158 would address those concerns. Mr. Lessmeier pointed out that the "author of judgement" portion of the legislation would encourage a quicker settlement and would help to make the system more predictable. In response to Representative Martin's comments, Mr. Feldman acknowledged that the legislation would affect Alaskans who were injured in the future. Representative Porter spoke in support of Amendment #1. [Copy on file]. Representative Mulder MOVED to adopt Amendment #1. Representative Brown OBJECTED. Representative Porter remarked that Amendment #1 would correct a drafting error on Page 10, thus clarifying that Workmens' Compensation would not be affected by the legislation. Mr. Feldman explained the "collateral benefits" and the impact that amendment would make on the definition. A collateral benefit would provide relief to the collateral party from being required to pay that portion of damages covered by another source of recovery. The proposed amendment would not allow for that amount to be recovered by the patient. The bill states that the amount the "wrong doer" would pay, would be reduced by the collateral benefit. Mr. Lessmeier responded that the provision was identical to a provision already contained in the medical malpractice law. He added, the provision would remove the litigation over collateral benefits. Mr. Feldman explained to Committee members the reimbursement system currently being used. Under the proposed law, the jury would hear evidence of the collateral benefit and would therefore return a verdict for a determined amount of money which then the plaintiff would receive. The plaintiff would continue to be contractually obligated to reimburse the insurance company. That scenario would create the contract obligation which the client would be part of. Mr. Feldman emphasized that the amendment would create an adverse economic effect on the plaintiffs. Mr. Lessmeier disagreed, stating that if the plaintiff does 4 not recover funds, they would not have an obligation to reimburse them. That obligation to reimburse exists only if the funds are "recovered". The amendment would change the law providing that there was no subrogation right. The only article recovered would be established in the last sentence of Subsection (b), Page 10. Mr. Feldman criticized Mr. Lessmeier stating that his information was incomplete and that he represented only the insurance companies of Alaska's interest. Mr. Feldman provided an example, in a typical situation where an injured party settled a claim for its value, the lawyer would surmise that the injured party's medical claim could not be collected resulting from medical sources no longer could be collected. Because of a provision within the policy, the insurance company would request a cut of damages. Mr. Lessmeier replied that issue had not yet surfaced in the medical malpractice collateral source provision that currently exists. There is no way in which an insurer could enforce a subrogation against an insured. Representative Grussendorf asked if an overly insured person could be held responsible. Mr. Feldman responded that the provision of the bill would exclude from the non-recoverable portion of collateral sources, benefits paid under life insurance. Co-Chair Hanley summarized the amendment's intent in excluding Worker's Compensation. Representative Brown asked which other payments would not be reimbursed under the collateral payments section. Representative Porter indicated that Medicaid was a collateral source under federal law. Representative Brown WITHDREW THE OBJECTION. There being NO FURTHER OBJECTIONS, Amendment #1 was adopted. Representative Brown MOVED to adopt Amendment #2. [Copy on file]. Representative Mulder OBJECTED. Representative Brown stated that Amendment #2 would delete the "findings" portion of the legislation. Representative Porter agreed to deletion of that portion, although requested that the "purposes" section remain. Representative Mulder MOVED to AMEND Amendment #2, deleting Page 1, Lines 5 through Page 3, Line 7, which would leave the material on Page 3, Lines 8 through Page 4, Line 14. There being NO OBJECTIONS to amending Amendment #2, was amended. Representative Mulder WITHDREW the OBJECTION to adopting Amendment #2. There being NO OBJECTIONS to the amended Amendment #2, it was adopted. Representative Brown MOVED to DELETE a portion of Amendment 5 (Tape Change, HFC 95-51, Side 1). Representative Brown MOVED to adopt Amendment #3. [Copy on file]. Representative Mulder OBJECTED. Representative Brown noted that Amendment #3 would delete the Statute of Repose portion of the legislation. She noted her concern on how that section would affect minors. Mr. Feldman stated that last year the Legislature enacted a Statute of Repose with a 15 year limit. He pointed out that the current proposal would decrease the amount of time by 50%. He thought that would save the building industry probably no more than one or two cases per decade. The existing statute affords some flexibility for the occasional case, although, he pointed out that it would only take one case of a poorly designed building to injure many people, before that statute change would be questioned. He concluded that the provision would not save the building industry a lot of money. Representative Porter advised that companies need to be able to insure for the amount of time specified. The section on Statute of Repose appears in the legislation resulting from a compromise made with the building industry. Although, he added that medical suits would not be covered under the Statute of Repose nor would exposure to hazardous waste, intentional acts or fraud. Mr. Lessmeier spoke regarding the constitutionality of the Statute of Repose. He noted that it would be difficult to predict how a court would address this piece of legislation. The Legislature has the power to enact a Statute of Limitation, to determine when those statutes are upheld and also has the power to enact a Statute of Recourse. Representative Kelly recommended separating the malpractice and design portions of the Statute of Repose. Representative Therriault asked the time limit established by the Statute of Repose as created by the House of Representatives last year. Representative Porter replied that last year's legislation addressed only construction criteria and was established at 10 years by the House, although, raised to 15 years on the Senate side. Both Representative Kelly and Representative Therriault noted their hesitation in changing the time limit as established by the Statute of Repose last year. Representative Therriault commented that he would be comfortable in supporting ten years. Representative Porter then discussed the frustration in trying to prosecute a law suit which had not surfaced in a 6 reasonable amount of time. He pointed out that the Statute of Repose had resulted from the Turner Case and the Supreme Court's exception. Representative Porter explained that at this time, a medical situation arising from a birth injury could be brought to court 20 years later. The recommended Statute of Repose would provide a six year "window" with a two year ability from the time of 6 years through 8 years old. Most experts agree that a problem arising from negligence at birth should appear by that time. Representative Porter discussed the difference between "gross" and "simple" negligence. Representative Porter urged the Committee to adopt the Statute of Repose and agreed to support the change from eight years to the recommendation of 10 years. Representative Mulder MOVED to delete Amendment #3 and then to incorporate the change reflecting the recommendations by Representative Porter. Representative Brown asked if the Discovery Rule would be affected by Section #2. Mr. Feldman explained that the Discovery Rule clarifies when the existing Statute of Limitations claim begins which occurs at the time when notice is given for basis of the claim. The "Discovery Rule" occurs when the facts are discovered. In the Statute of Repose, the clock moves forward regardless of the evidence. Under the Statute of Repose, the function would not need to be discovered. Representative Brown commented that Section #2 would affect both the construction and the personal injury liability. She pointed out that the Discovery Rule would be eliminated without the addition of Amendment #3. Representative Navarre voiced his concern on the OB&GYN aspect of the legislation and how it would affect the deliveries in rural areas. Representative Porter suggested that the problem originates because doctors in those areas must insure for the "eventuality". Mr. Feldman responded that the problem is the bill does not address the Statute of Limitations for birth related injuries, but does creates a Statute of Repose. Current legislation ascertains that if you are less than 6 years old, you have until 8 years old to sue. If the condition is not diagnosable until after that time, this legislation will inflict harm on innocent children. Mr. Feldman thought the solution would be to create a reasonable period of time in which a child could sue. Although, he agreed that doctors should not have to be exposed for two decades for those birth related injuries. 7 Representative Brown urged that the legislation be placed in Subcommittee for further consideration. She stated that this legislation addresses many major policies. Representative Martin disagreed noting that every amendment offered in Subcommittee would again be brought forward in the full House Finance Committee. The Committee recessed at 12:05 P.M. (Tape Change, HFC 95-51, Side 2). The House Finance Committee reconvened at 1:47 P.M. A roll call was taken on the MOTION to adopt Amendment #3. IN FAVOR: Navarre, Brown OPPOSED: Parnell, Therriault, Kelly, Martin, Mulder, Hanley Representatives Grussendorf, Kohring and Foster were not present for the vote. The MOTION FAILED (2-6). Representative Mulder MOVED a verbal amendment (Amendment the Statute of Repose from 8 years to 10 years. There being NO OBJECTION, it was adopted. Representative Brown MOVED to adopt Amendment #4 which would limit the Statute of Repose to property damages, removing the personal injury and death. [Copy on file]. Representative Mulder OBJECTED for purposes of discussion. Mr. Lessmeier stated that extending to ten years would create a longer Statute of Repose than most other states currently have. Mr. Feldman reiterated that without the amendment, those persons sustaining injuries ten years after a built structure was completed, would have no claim. Representative Martin and Mr. Feldman discussed the time limit of the Statute of Repose. Mr. Feldman reiterated that last year the House of Representatives enacted a fifteen year Statute of Repose, whereas this year agreed to cut it to ten years. A roll call was taken on the MOTION to adopt Amendment #4. IN FAVOR: Brown, Grussendorf, Navarre, Foster OPPOSED: Parnell, Therriault, Kelly, Martin, Mulder, Hanley Representative Kohring was not present for the vote. 8 The MOTION FAILED (4-6). Representative Brown MOVED to adopt Amendment #5. [Copy on file]. Representative Mulder OBJECTED. Representative Brown explained that Amendment #5 would delete hazardous "waste" and insert "substance". Representative Porter stated that he did not object to the language change. Representative Mulder WITHDREW the OBJECTION. Representative Martin OBJECTED to the language change of the Amendment. Representative Mulder and Representative Porter recommended including a definition in order to establish a parameter for the court system. Representative Porter suggested leaving the current language and then providing a more inclusive definition on the House floor including substances not defined in "hazardous waste". Representative Brown WITHDREW Amendment #5. There being NO FURTHER OBJECTIONS, it was withdrawn. Representative Brown MOVED to adopt Amendment #6. [Copy on file]. Representative Therriault OBJECTED. Mr. Feldman voiced concern regarding cases where a juvenile would be involved resulting from birth related injuries. Mr. Lessmeier pointed out that the intention of the legislation was to create a time limit and he felt that ten years was a sufficient length. Representative Brown commented that the minor's rights would be removed before the minor was old enough to realize that there was a problem. She pointed out currently a "blanket" law exists in order to protect those rights. Those rights would be dramatically changed in the proposed legislation. Representative Parnell asked if the minor child would have the "right of action" against the parents for negligence. Mr. Feldman replied that in Alaska to date, that claim has not been used. Mr. Feldman added, the problem referenced by Representative Brown was a problem which exists most often in rural Alaska. Representative Porter pointed out that the requirements to provide insurance for expensive coverage has had an adverse impact on physicians who operate in areas which have small populations. Representative Navarre countered, there would not be a reduction in the cost of insurance resulting from this legislation. Representative Porter replied that according to testimony received from the insurance industry, with the passage of the legislation, the rates would decrease. Representative Martin understood that rural Alaskans were 9 medically covered under the U.S. Public Health Service and the Native Corporations. Mr. Lessmeier commented that there would be a different Statute of Limitation with respect to those claims made against the federal health care providers, and that HB 158 would not change that situation. Heated discussion followed between Mr. Lessmeier and Representative Navarre regarding the possibility of the proposed legislation lowering insurance premiums. Mr. Lessmeier commented that the insurance companies which provide a vast majority of that business in Alaska are physician owned companies, owned and managed by doctors. Mr. Feldman stated that Section #3 would keep some of the claims out of the system. The solution he recommended, would explain that claims for malpractice for juveniles expire after the incident. That would create a new Statute of Limitation, thus providing an appropriate amount of time to evaluate if the concern was valid. He also suggested that insurance companies prorate their premiums in accordance with the number of deliveries that the OB&GYN perform per year (i.e. the number of risks taken each year). Representative Porter emphasized that HB 158 was not intended to be an insurance reform bill and that it was a tort reform bill. Representative Navarre stated that tort reform would not address the problems resulting from the OB&GYN crisis now existing in Alaska and more specifically the rural areas. (Tape Change, HFC 95-52, Side 1). Representative Porter thought that any birth related problem would be detectable within a six year time limit. If a child had a required treatment or examination by a doctor between the ages of 0-6 years, the two year Statute of Limitation from the date of accrual, that time would be extended to age six and then for an additional two years. He added, otherwise, the standard two year accrual would be the existing law. Mr. Feldman pointed out that the referenced statute requires that any injury that is sustained prior to age six would have to be brought forward by age eight. Representative Mulder voiced a potential conflict of interest as his wife is a lobbyist for an insurance company. Representative Mulder MOVED to amend Amendment #6 to include a provision which would amend Section #2, Lines #16 and #18, changing it to 8 years of age. Representative Brown 10 OBJECTED. Representative Navarre explained that the appropriate way to address Representative Mulder's concern would be to rescind the previous action. Representative Brown stated that birth related injuries should not be subject to the two year accrual time. Representative Porter stated that the two year Statute of Limitation based on accrual as it relates to injuries, would be different than a two year Statute of Limitations, which would specify that from the date of the incident, two years after and at that time would be barred from filing a case. Representative Porter noted that he would not object to returning to eight years of age, providing that in all cases a bar exists from 0-8 years of age. Representative Mulder MOVED TO RESCIND action on Amendment amendment. There being NO OBJECTION, it was so ordered. Representative Brown WITHDREW Amendment #6. There being NO OBJECTION, it was withdrawn. Representative Mulder MOVED TO RESCIND action in adopting the previous Amendment #3a. There being NO OBJECTION, it was rescinded. Representative Brown MOVED to adopt Amendment #6. There being NO OBJECTION, it was adopted. Representative Brown MOVED to adopt Amendment #7. [Copy on file]. Representative Porter stated that if there was a specific minor disability, Section AS 09.10.140(a) would provide an exception to the Statute of Limitation for minors, mentally incapacitated or disabled, and cases of sexual assault. Without that limitation, the rule would return to the twenty year period of time in order for a minor to bring that case to fruition. Mr. Feldman recommended adding language at the end of Section AS 09.10.140(a): "unless the action was two years or a period provided by AS 09.10.055, which is the Statute of Repose, whichever is longer". That language would provide for eight years for the juvenile claims to be brought forward and would then reserve two years for everything else to be addressed. Representative Porter did not agree that the two year Statute of Limitation should be accrual time. He thought there should be a limit to detectable problems, and that the Statute of Limitation based on accrual would address that concern. Co-Chair Hanley asked the difference between "accrual" and "occurrence". Mr. Feldman responded that the law clarifies that when you acknowledge the fact, that you then give rise to a claim. Mr. Lessmeier suggested that the Statute of Limitation could be waived, and then the doctor must be 11 notified within two years in order to be given the opportunity to defend himself. A maximum time limit then would be in place. Mr. Lessmeier added that under the change proposed, the Discovery Rule would work for eight years. He thought that was a reasonable length of time. Mr. Feldman disagreed. The doctor would have no motivation to waive the Statute of Limitations. The damages could not be proved after that period of time nor could the scope of harm. He added that this would be particularly difficult when projecting the long range harm to a juvenile. He concluded that the current language will create a clear conflict in statute. Representative Mulder questioned if the language change recommended in the amendment would return the statute to the definition used twenty years ago. Mr. Feldman acknowledged that there are currently three statutes at issue and that there is conflict among those three statutes. A roll call was taken on the MOTION to adopt Amendment #7. IN FAVOR: Brown, Grussendorf, Kelly, Navarre, Foster OPPOSED: Martin, Mulder, Parnell, Therriault, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (5-5). Representative Navarre MOVED to adopt Amendment #8. Co- Chair Hanley OBJECTED for discussion purposes. Representative Navarre stated that Amendment #8 would remove the non economic damages. Representative Porter noted that current law provides a rate of $500 thousand dollars for non economic damages which would not include disfigurement or serious physical injury. He noted that the intention of capping was to bring certainty and yet still be fair. (Tape Change, HFC 95-52, Side 2). Representative Mulder pointed out that the provision and the workmen's compensation would establish a certainty, thus, creating a downward pressure on premiums. Representative Navarre stated that within the workers' compensation laws, retraining is provided, although it is not in statute. He stressed that the caps serve to discriminate against larger families. Mr. Feldman reiterated the need to trust in jury decisions. He pointed out that Alaskan juries make decisions 12 reasonably. Representative Kelly asked if the cost of non economic damages would compensate for pain, suffering and medical costs. Mr. Lessmeier replied that the medical costs would originate from the economic damages and that they would be allocated through various categories. The base amount allocated would be for the non economic damages resulting from the "pain and suffering" of the loss. Representative Kelly noted concern with that concept. Representative Porter commented that the portion referenced for amending was an integral section of the legislation. He pointed out that many states have established lower caps than in Alaska. Representative Brown cited many problems with the referenced section. She asked how many cases have occurred since 1986. She stated that the language of the legislation would limit the recovery of the most severely injured people and that the money they received would make a difference in the quality of their life. Mr. Lessmeier thought that the issue was in regard to cap/no cap. He explained that a "lottery" system currently exists and that the proposed system would make available a lesser amount of coverage to more people. Mr. Lessmeier added, the cases in which the most time is spent in litigation are those cases with unlimited exposure. Representative Parnell questioned the problem with the current cap. Mr. Lessmeier directed attention to the ineffective limit. Mr. Feldman strongly disagreed. He pointed out that the language states "severe physical impairment or disfigurement" and that it would not allow recoveries greater than $500 thousand dollars. He added, the language would not make compensation more widely available, whereas, the language would fix compensation for the most severely injured. Representative Porter restated that exposure was the problem. He added, the legislation would provide compensation for subjective attempts for closure and predictability in compensation. Representative Navarre argued against the proposed cap limits. Representative Parnell asked what non economic damage awards for disfigurement have exceeded $500 thousand dollars. Mr. Feldman was not aware of any cases although assumed that there have been some. Mr. Lessmeier rebutted that there have been cases in Anchorage which have exceeded the $500 thousand dollar cap. Representative Navarre reiterated that Amendment #8 would remove the new language and would leave the cap as established in the 1986 legislation. That language would 13 allow for the juries to determine the reasonable monetary settlement granted. Representative Martin voiced in support of the defense noting the public demands the concern of settlement of costs be resolved. Representative Kelly requested assurance that persons seriously injured would be adequately compensated at the $500 thousand dollar limit. Mr. Lessmeier advised that the punitive damages would not be part of the compensation. The economic damages would provide compensation for the economic loss including the medical expenses past and future and the vocational rehabilitation. The maximum for pain and suffering non economic damages would be $500 thousand dollars. The economic damages would be left to the juries discretion which would then be dependant upon the proof. A roll call was taken on the MOTION to adopt Amendment #8. IN FAVOR: Grussendorf, Navarre, Brown, Foster OPPOSED: Kelly, Martin, Mulder, Parnell, Therriault, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (4-6). Representative Navarre WITHDREW Amendment #9. [Copy on file]. There being NO OBJECTION, it was withdrawn. (Tape Change, HFC 95-53, Side 1). Representative Navarre MOVED to adopt Amendment #10. [Copy on file]. Co-Chair Hanley OBJECTED for purposes of discussion. Representative Porter argued against the proposed amendment indicating that the caps would apply to an incident and not an injury. Representative Brown countered that adopting the amendment would create a more fair situation, thus allowing the jury the opportunity to determine the severity of the person's injury. A roll call was taken on the MOTION to adopt Amendment #10. IN FAVOR: Navarre, Brown, Grussendorf, Foster OPPOSED: Kelly, Martin, Mulder, Parnell, Therriault, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (4-6). Representative Brown referenced Amendment #11. [Copy on file]. She MOVED to amend Amendment #11, changing Line 4 to 14 "Page 7, line 27, through page 8, line 8:", there being NO OBJECTION, it was incorporated. Representative Brown MOVED to adopt the amended Amendment #11. Representative Mulder OBJECTED. Representative Brown informed Committee members that the amendment would address the punitive damages and would establish the amount of those damages at three times the amount compensatory or $300 thousand dollars, whichever is greater. She thought that with the additional language of the proposed amendment, would force large companies to make appropriate adjustments while not sacrificing safety. Representative Brown summarized that the changes in the legislation would undermine that attempt and did not agree with the intent to place the cost of those damages into the general fund. Mr. Feldman noted that there would be a change in the standard of proof in Section A. The language would require that the intent be clearly defined. From a lawyers perspective, it would be impossible to prove that someone intended to create harm. By leaving that standard of proof in place, there would not be punitive damages in Alaska which would be bad public policy. Representative Mulder asked if the language would be raising the standard. Mr. Lessmeier understood that the standard would not be raised. He added that the language originated from a recent supreme court case decision, suggesting that whenever a person is subject to punitive damages, they are also subject to criminal penalties and would be required to be compensated fully for the harm. Representative Porter replied that the standard malice and conscious deliberate acts would be reflected in the supreme court case. He explained that the problem results in that it would not be reflected in statute. The statute states that punitive damages may be established by clear and convincing evidence. Mr. Feldman did not agree with Representative Porter's definition of clear and convincing evidence. He advised that the current law in Alaska allows for punitive damages. The language states: "Outrageous, such as acts done with malice or bad motives or a reckless indifference to the best interest of another". Punitive damages are available under existing law when the conduct is "outrageous". The statute establishes the example but not the category of conduct. Representative Brown urged Committee members to adopt Amendment #11 to remove the limit. Representative Porter read AS 917.92.020, the statute on punitive damages, AS 917.92.020. "Punitive damages may not be awarded in an action 15 whether in tort, contract or otherwise, supported by clear and convincing evidence." Representative Porter advised that he wanted to place the case decision into statute, in order to establish it. He summarized that the settlements were not reflected. Representative Navarre stated that the language was discriminating against small business. A roll call was taken on the MOTION to adopt Amendment #11. IN FAVOR: Navarre, Brown, Grussendorf, Foster OPPOSED: Martin, Mulder, Parnell, Therriault, Kelly, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (4-6). Representative Brown MOVED TO AMEND Amendment #12 by inserting "such as" on Page 7, Line 25, following the current language "outrageous conduct". [Copy on file]. There being NO OBJECTION, it was adopted. Representative Porter commented that the language in the bill was intended to replicate the standards set and then to define them. He added that the case law definition is the "conscious act of delivery on another person". Representative Navarre asked if the language established in the 1986 law was higher then existed before that law. Mr. Feldman replied that punitive damages currently are awarded frequently. He added, that to be able to prove by clear and convincing evidence would be more difficult and abstract. Representative Brown pointed out that current language in the bill would allow drunk drivers not to be prosecuted. Mr. Lessmeier replied that the supreme court has specifically ruled that when a person has voluntarily consumed alcohol, they would be held at the same standard of one who had not. (Tape Change, HFC 95-53, Side 2). Representative Brown MOVED TO AMEND Amendment #12 by deleting "of" before the word "malice". There being NO OBJECTION, it was deleted. Representative Porter noted that being under the influence of alcohol would not relieve a person from a specific intent. Representative Brown asked if enough alcohol had been consumed would the person then be considered incapable of performing a conscious act. Mr. Lessmeier explained that jury instruction regarding alcohol, 16 would be that voluntary consumption of alcohol would not relieve a person of the consequences of their action. A roll call was taken on the MOTION to adopt Amendment #12. IN FAVOR: Martin, Mulder, Navarre, Parnell, Therriault, Brown, Grussendorf, Kelly, Foster OPPOSED: Hanley Representative Kohring was not present for the vote. The MOTION PASSED (9-1). Representative Brown WITHDREW Amendment #13. [Copy on file]. There being NO OBJECTION, it was withdrawn. Representative Navarre MOVED to adopt Amendment #14. [Copy on file]. Co-Chair Hanley OBJECTED for purposes of discussion. Representative Navarre interjected that the amendment would provide for the windfall to go to the injured party. Representative Mulder asked if an award given to an injured party was subject to income tax. Representative Navarre stated it was not. Mr. Feldman advised that the U.S. Congress decided that those persons suffering from injury deserved a tax break. Personal injury recoveries are not taxed. The legislation would shift the benefit from the injured party or the wrong doer. Mr. Lessmeier replied that in a federal court decision, federal awards have been reduced. He suggested that the legislative intent could make the cost of the system less for all involved. Representative Porter added that Lines 22-23 would cover the contingency that federal government could change the law addressing those awards. Representative Mulder asked if an award had been established, and payment was provided for over a twenty year time span, and then the federal government changed the tax law, would the original decision be adjusted. Representative Porter explained that it would be. Discussion followed among Committee members regarding the change possibilities which would result from that decision. Mr. Feldman noted that currently that mechanism does not exist. Mr. Lessmeier voiced doubt that Congress would have the authority to make a retroactive change. Mr. Lessmeier stated that language within the bill had resulted from past wage loss awards which were reduced. Those awards were reduced by the amount that person would have had to pay for federal income taxes. He felt that it should be the same for future awards. Representative Porter 17 stated that awards for future wage loss in the federal system would be reduced by the amount the person would have to pay for income tax. Representative Brown asked if current federal law would take into consideration the future earnings. Mr. Lessmeier stated they would. Representative Brown argued that if Congress instigated a tax break, the injured party would be taxed in the future. Mr. Lessmeier reassured Representative Brown that decisions made by the U.S. Supreme Court are reasonably predictable. Representative Navarre noted that if the taxed amount was received in a lump sum, there would be no future threat to being taxed. The federal government historically has retroactively taxed income. He stressed that there would be a risk involved. Mr. Lessmeier was not aware of the federal intent. He suggested that the law indicates that the status quo be maintained. Mr. Lessmeier advised that the language of the amendment would identify the current windfall in the system and would then remove it. Representative Navarre countered that the legislation would further reduce the potential limits of settlements. A roll call was taken on the MOTION to adopt Amendment #14. IN FAVOR: Navarre, Therriault, Brown, Grussendorf, Foster OPPOSED: Mulder, Parnell, Kelly, Martin, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (5-5). Representative Brown MOVED to adopt Amendment #15. [Attachment #15]. She stated that the amendment would delete a portion of the legislation which would allow either party to request or require that the award be made in periodic payments. She advised that could create difficulty for the injured person and would force the injured to be in contact with the person who injured them for the rest of their life. This would create a risk for the injured person. Representative Brown requested removing that portion of the bill. Representative Parnell voiced concern that the current wording of the legislation would remove the injured party's ability to decide how to use their settlement. Representative Porter responded that some people make poor decision when windfalls are received. He stated that the first $100 thousand dollars would be a lump sum received regardless. Within the remainder of the funds due, the time 18 distributed would then become a public policy decision. He added, the vast majority of cases are "medium sized" resulting from small business' making inadvertent errors and then finding themselves subject to liability. He felt that the current language would allow appropriate security by the business' being able to spread out the payment. Mr. Feldman stressed that people who have received awards deserve to receive the amount of that award. With an authorized insurer, a security would not be required to be posted. The injured plaintiff should not bear the risk that the insurer could go bankrupt. He emphasized that real people suffer consequences and that the transitions are not easy and often require special expenses. A roll call was taken on the MOTION to adopt Amendment #15. IN FAVOR: Navarre, Parnell, Therriault, Brown, Grussendorf, Kelly, Martin, Mulder, Hanley, Foster OPPOSED: Representative Kohring was not present for the vote. The MOTION PASSED (10-0). Representative Navarre MOVED to adopt Amendment #16. [Copy of file]. Representative Navarre noted that the amendment would guarantee through the courts that the funds were available. Representative Porter stated that he did not object to the amendment although the it would further limit the flexibility of the plaintiff. There being NO OBJECTION, it was adopted. Representative Brown MOVED to adopt Amendment #17. [Copy on file]. Mr. Feldman questioned whose insurance benefits would be protected from "final benefits". He emphasized the collateral insurance benefits program should benefit the injured. Representative Porter thought that the provision included on Line 14, would address that concern. Mr. Feldman asked how the measure could be considered for medical insurance. Representative Porter responded that the amount would be determined by the amount contributed to secure the claimant's right which would be the amount paid. He added, if a claimant had paid insurance for a certain number of years, they should be eligible to collect on those costs which in turn should then reduce the claim. Representative Brown expressed confusion on the current language and how it would affect a persons compensation. (Tape Change, HFC 95-54, Side 2). 19 Mr. Feldman advised under current law, the portion of medical expenses covered are collectable from the wrong doer. Mr. Lessmeier pointed out that Subsection (c) on Page 10, would address Representative Brown's concern. That section clarifies that a person would not have to pay the money back. Representative Brown asked if that would override the contract which is currently in existence. Mr. Lessmeier pointed out that the amendment would change the current law. Representative Brown stressed that regardless of the intent, contracts would continue. She did not think that the language of the legislation would invalidate existing contracts. Mr. Lessmeier responded that an insurance carrier can not subjugate or recover something from you which you have not recovered from the third party. The legislation would provide language clearly guaranteeing "no risk". He added, the decision would be a policy issue. A roll call was taken on the MOTION to adopt Amendment #17. IN FAVOR: Brown, Navarre, Foster OPPOSED: Parnell, Therriault, Kelly, Martin, Mulder, Hanley Representatives Grussendorf and Kohring were not present for the vote. The MOTION FAILED (3-6). Representative Navarre MOVED to adopt Amendment #18. [Copy on file]. Representative Mulder OBJECTED. Representative Navarre noted that Amendment #18 would provide evidence of liability insurance. Representative Porter commented that the amendment would establish the outer limits of an award. He did not support the amendment. Mr. Lessmeier added, the amendment would address collateral sources which could be readily quantifiable and would reflect what has been paid; he added, the other issue would be the admissable liability insurance intended for the purpose of valuing the injury. Mr. Lessmeier pointed out the basic tenant of the law is that the amount of the injury would not be determined by a person's ability to pay. Representative Navarre thought that when giving information to the jury, that all information should be revealed. He explained that evidence of other collateral sources could serve to prejudice a jury in terms of what the court should do. Representative Brown agreed that the concern was an issue of fairness. Mr. Feldman acknowledged that the amendment would "even" the playing field. Mr. Lessmeier stated that a distinction 20 should be made as in some instances it could be relevant information; collateral benefits should be introduced, whereas, when a liability policy was introduced, it would not be relevant. Mr. Lessmeier thought that the amendment would lead to making each person's financial standing "discoverable". Mr. Feldman disagreed, stating that the plaintiffs insurance should not be exposed at the time of the jury trial. He suggested that no one's insurance should be used as an item of evidence in the case. A roll call was taken on the MOTION to adopt Amendment #18. IN FAVOR: Brown, Grussendorf, Navarre, Foster OPPOSED: Therriault, Kelly, Martin, Mulder, Parnell, Hanley Representative Kohring was not present for the vote. The MOTION FAILED (4-6). Representative Navarre MOVED to adopt Amendment #19. [Copy on file]. Representative Mulder OBJECTED. Representative Navarre stated that Amendment #19 would allow the defendant to bring evidence into the case in order to allocate the faults to defend themselves. He stated that this could reduce the liability of the defendant. Representative Porter commented that amendment would put back into law what the voters thought they had accomplished in 1988 by eliminating joint liability on an initiative vote. Representative Navarre argued that was not the intent of the 1988 Ballot Initiative. He emphasized that the change would allow insurance companies or large companies who can afford attorneys to drive small companies out of business or make them incur legal fees which are prohibitive. The entire effort would be mounted by the defense to deflect potential liability away from themselves. He added, without the amendment, additional burden or proof would be on the plaintiff. Mr. Feldman stated that in existing law, we are not living in a world to be tagged for more than the proportionate share of fault. The reasonable behavior would be to file a case if someone was at fault. He added, the existing formulation of rules would avoid inconsistent verdicts, save multiple trials and avoid defenses. Representative Therriault questioned why all involved should be named. Mr. Feldman stated that filing suit on everyone who is liable 21 based on information and should be identified. Representative Parnell inquired if an "empty chair" scenario would happen. Mr. Feldman argued that it was absolutely possible. Representative Parnell asked if everyone who could possibly be at fault could then be sued. Mr. Feldman stated that everyone at fault would be sued. Representative Porter pointed out that in a criminal case, there exists a presumption of the innocence; the plaintiffs must bring the charges forward and establish the proof that the claim is valid. The amendment would allow that authority to shift. The defendant is required to bring in someone to defend themselves. Mr. Lessmeier stated that the original initiative clarifies that each party is responsible for damages only equal to his/her share of the fault. Voters understood that this would repeal the law regarding reimbursement from other parties. The voters intended that a party be responsible for his or her percentage of the fault. Mr. Lessmeier concluded that the amendment would create a second tier of litigation. The intent of the initiative would specify that any party should be held responsible for his/her percentage of fault and not for anyone else's. Representative Navarre disagreed, pointing out that Page 11, Section 15 would remove that understanding. He added, that language remaining would place a double burden of proof on the plaintiff. (Tape Change, HFC 95-55, Side 1--Tape malfunction) Representative Navarre discussed the true allocation of fault. Mr. Lessmeier clarified that other parties when liable could be joined at the outset of the case. Representative Navarre questioned the reasoning of the importance of who submits other defendants. He thought that it would be important that potential liable parties not be excluded. Representative Navarre stressed that it would be difficult for the plaintiff to know who the defendant would implicate. Representative Brown questioned if employers would be immune under the workers' compensation laws. Mr. Lessmeier explained that under current law the third party is responsible. Mr. Feldman asserted that provisions in HB 158 would result in multiple cases with inconsistent results. He stated that whichever party that allocates the blame would then bring the other party into that case. 22 Representative Therriault questioned who would bare the expense of joining parties. He noted that some defendants may try to bring in a party even if their liability is not justified. He stressed that it is easy to make allegations. A roll call vote was taken on the MOTION to adopt Amendment IN FAVOR: Navarre, Brown, Grussendorf, Foster OPPOSED: Kelly, Martin, Mulder, Therriault, Hanley Representatives Kohring and Parnell were absent from the vote. The MOTION FAILED (4-5). Representative Brown MOVED to adopt Amendment #20. [Copy on file]. Representative Mulder OBJECTED. Representative Brown spoke in support of the amendment. She asserted that the plaintiffs would be penalized if they were not able to guess the outcome of a case. She maintained that HB 158 would provide defendants with "a lot of clubs." Representative Brown WITHDREW Amendment #20. HB 158 was HELD in Committee for further consideration.