HOUSE JUDICIARY STANDING COMMITTEE March 2, 1994 1:15 p.m. MEMBERS PRESENT Rep. Brian Porter, Chairman Rep. Pete Kott Rep. Gail Phillips Rep. Joe Green Rep. Cliff Davidson Rep. Jim Nordlund MEMBERS ABSENT Rep. Jeannette James, Vice-Chair COMMITTEE CALENDAR HB 292: "An Act relating to civil actions; amending Alaska Rules of Civil Procedure 49 and 68; and providing for an effective date." HEARD AND HELD FOR FURTHER CONSIDERATION AND ACTION WITNESS REGISTER SUSAN COX Assistant Attorney General Civil Division Department of Law Room 200 - Fuller Building 4th & Harris Streets Juneau, AK 99801 Phone: 465-3603 POSITION STATEMENT: Informational testimony regarding HB 292 MICHAEL FORD Legislative Legal Counsel Division of Legal Services Legislative Affairs Agency Goldstein Building, Room 404 130 Seward Street Juneau, AK 99801 Phone: 465-2450 POSITION STATEMENT: Informational testimony regarding HB 292 DANIELLA LOPER Committee Counsel House Judiciary Standing Committee Alaska State Legislature Capitol Building, Room 118 Juneau, AK 99811 Phone: 465-6841 POSITION STATEMENT: Informational testimony regarding HB 292 PREVIOUS ACTION BILL: HB 292 SHORT TITLE: CIVIL LIABILITY SPONSOR(S): LABOR & COMMERCE JRN-DATE JRN-PG ACTION 04/23/93 1459 (H) READ THE FIRST TIME/REFERRAL(S) 04/23/93 1459 (H) L&C, JUDICIARY, FINANCE 09/10/93 (H) L&C AT 09:00 AM CAPITOL 17 11/22/93 (H) MINUTE(L&C) 01/27/94 (H) L&C AT 03:00 PM CAPITOL 17 01/27/94 (H) MINUTE(L&C) 02/01/94 (H) L&C AT 03:00 PM CAPITOL 17 02/01/94 (H) MINUTE(L&C) 02/03/94 (H) L&C AT 03:00 PM CAPITOL 17 02/03/94 (H) MINUTE(L&C) 02/07/94 2280 (H) L&C RPT CS(L&C) NEW TITLE 3DP 4NR 02/07/94 2280 (H) DP: HUDSON, MULDER, PORTER 02/07/94 2280 (H) NR: GREEN, WILLIAMS, SITTON, MACKIE 02/07/94 2280 (H) LETTER OF INTENT WITH L&C REPORT 02/07/94 2280 (H) -ZERO FISCAL NOTE (LAW) 2/7/94 02/16/94 (H) JUD AT 01:15 PM CAPITOL 120 02/18/94 (H) JUD AT 01:15 PM CAPITOL 120 02/18/94 (H) MINUTE(JUD) 02/21/94 (H) JUD AT 01:15 PM CAPITOL 120 02/21/94 (H) MINUTE(JUD) 03/02/94 (H) JUD AT 01:15 PM CAPITOL 120 ACTION NARRATIVE TAPE 94-30, SIDE A Number 000 The House Judiciary Standing Committee was called to order at 1:30 p.m. on March 2, 1994. A quorum was present. Chairman Porter announced that the committee would continue its review of HB 292. HB 292 - CIVIL LIABILITY Number 012 CHAIRMAN PORTER announced that SUSAN COX of the Department of Law would conduct a brief overview of all sections of HB 292 as per committee member requests. He requested that comments be held until the close of her presentation. REP. NORDLUND noted that MIKE FORD, the drafter of the bill, was also present. Number 080 SUSAN COX introduced herself to the committee, stating: "My name is Susan Cox. I am an Assistant Attorney General, Supervising Attorney, for the section in the Attorney General's Office that handles personal injury defense involving cases with State of Alaska and state agencies and employees as defendants. I am here today at your request to generally cover what is in HB 292, referring to the Labor & Commerce CS that's before you." MS. COX prefaced her discussion by noting she had not studied the amendments specifically before the committee members, but rather would focus on the Labor and Commerce committee substitute in making her comments. She said, "I am also trying to tell you what the bill does and how it compares with the current law without espousing a position one way or the other. I have looked at the bill and tried to group it, not necessarily in going through section by section, but trying to group some of the concepts that the bill approaches...." CHAIRMAN PORTER approved this approach. MS. COX identified for review Sections 4, 5 and 6 of HB 292, pertaining to statutes of limitations and changes in these statutes; and Section 3, regarding the statute of repose. She said, "Section 3, the statute of repose, proposes to add a new statute to the Alaska statutes in AS 9.10.052 that would put a six-year time limit for bringing a suit for personal injury, death or property damage that relates to a product or construction. The six years runs from the time the product is first used for its intended purpose or six years from the substantial completion of construction. This differs from a statute of limitation in that it doesn't matter when an injury may occur. A person may be injured within that six years or after that six years. With the statute of limitation you usually have two years from the time you were injured to bring some kind of action if it's a tort situation. With this statute of repose, the six years, in general terms, would just run from the date the product is used or the building is completed, rather than relate to the time of injury. So, if a building roof collapsed ten years after it was completed, the statute of repose, in broad terms, would prohibit you from bringing suit even if you brought it the very day after your injury. That is the general concept. There are exceptions within the statute of repose, to personal injury, death or property damage caused intentionally or that results from gross negligence, fraud, breach of warranty or guarantee or if there's a shorter period of time allowed by law, and several other provisions in Section 3.... "That's the basic concept with the statute of repose. The only other note I would make without editorializing is that there has been a statute of repose in Alaska law before now, and it was found constitutionally invalid by the Alaska Supreme Court in 1988. This statute here differs in some respects from the version that has been invalidated by the Alaska Supreme Court. I cannot refer you line by line to the differences between this proposed statute and the one that the court threw out. The findings and purposes section, one, of this bill, in number seven, states that one of its purposes is to enact a statute of repose that meets the test set out in that Alaska Supreme Court case... "Section 4 would create a particularized statute of limitation for, essentially, medical malpractice actions involving children. If the injured person is less than six years old when the professional negligence allegedly occurs, that child has until their eighth birthday to bring a lawsuit. That's the general rule in (a) of Section 4. The exception is that if a longer period of time will be allowed under what is Section 6 of this bill... then the longer period of time applies. Essentially, what this does is eliminate the situation we have now where a minor, a child, someone under the age of eighteen, has until two years after they become an adult to file an action relating to things that occurred to them as a child. This would eliminate that tolling effect. If they're under, as I said, under six, they have until their eighth birthday to bring an action, or someone on their behalf, actually. "Section 5 amends AS 9.10.070, which is our general tort statute of limitations, a two-year statute of limitations that applies to tort actions in the state. Section 5 eliminates some language that says, `You have two years to bring an action for any injury not specifically provided otherwise.' I think I understand -- the reason for eliminating that language in that statute is because we were creating in Section 6 a very particular and specific tort statute of limitations, in a new section. That is why the change in Section 5. "In Section 6 we now have a new tort statute of limitations two years from the accrual of an action. This term `accrual' does not just mean that you have two years from the date you were hurt in which to file suit. It includes a concept that the Alaska Supreme Court has recognized called the discovery rule. In other words, you have two years from the date you discover or reasonably should have discovered the existence of all the elements of your claim. So if, for instance, you reasonably did not know that you had been injured or that you had suffered some loss -- say, in a legal malpractice situation where the effects of some malpractice don't actually hit you until some years later -- the time limit for bringing suit is tolled until you reasonably should have known. That discovery concept is built into the use of this term, `accrual of the action' in Section 6." MS. COX reiterated that this eliminated tolling of a minor's or juvenile's ability to wait until two years after they turn 18 to bring suit. She said, "It basically says you have two years to bring suit. So, if, for instance, a child was in a car accident, they would have two years from the time of the car accident -- assuming they knew they were in a car accident and there were injuries at that point in time -- to bring the action, and they cannot wait until their 20th birthday to do so. So those are what I have lumped together as statute of limitation changes." REP. NORDLUND: "So the effect of these changes is to get rid of the two-year discovery rule, is that right?" MS. COX: "No. The discovery rule is, as I understand it, built into the use of the term `accrual of the action' in AS 9.10.075, Section 6." REP. NORDLUND: "But it has to be within that six-year period, doesn't it? After six years, even if you discover... " MS. COX: "We have two different things happening here. The statute of repose in Section 3, with respect to construction and products that cause injury, that six-year, if the statute of repose applies, it doesn't matter when the injury occurred. In other words, you could be injured in the fourth year, or you could be injured fifteen years later, and if it's after the six-year statute of repose, if that statute of repose applies, then you will be prevented from filing any action. "The other three statutes of limitations change the other tort situations where -- it has nothing to do with whether we're dealing with a defective building or a defective product. We're talking about any kind of injury; a car accident, medical malpractice, any kind of tort suit. The general rule would be, you have two years to file suit -- which is generally true now -- from the time you reasonably should have discovered that you have a cause of action. And that will be the same. The changes will be that children's actions will be affected. The time limit will not be tolled until they're 18, and then start running." REP. NORDLUND: "In the sixth year, day one, in which you discovered, you felt, that you had a medical malpractice case. Could you bring suit?" MS. COX: "We're still mixing things up. If you have a medical malpractice situation, the general rule is, you have two years to file suit from the date you were injured. Again, the discovery rule applies. So if there is a surgical tool left in your stomach and you don't know it for years, then your cause of action hasn't accrued until you reasonably should know." REP. NORDLUND: "But what if you had some sort of surgery and you didn't know, and nobody could have known -- even the doctor didn't know -- that there was a problem with it until the sixth year?" MS. COX: "The sixth year doesn't apply. The six-year statute of repose only applies to defective products and defective buildings. It doesn't apply to medical malpractice itself. It's in Section 3." REP. NORDLUND: "...[I]n paragraph three, where it says `the last act alleged to have caused the personal injury, death or property damage,' that certainly could have been an act of malpractice, could it not?" MS. COX: "This section also says that `it does not apply if there is a shorter period of time under another provision of law.' And so, what we have under a normal statute of limitations is only two years." REP. NORDLUND pursued the question of medical malpractice situations which could elude discovery until the two-year statute had run. MS. COX directed him to Section 6 which grants two years from the date "you discover the elements of your cause of action to file suit, and you will always have that, if that's the longer period of time; your two years will run from the date of discovery or when you reasonably should have discovered [the elements of the cause of action]." Number 337 MIKE FORD, Attorney, Division of Legal Services, Legislative Affairs Agency, commented on the discussion of HB 292. "I think that what we are seeing here is an illustration of the complexity of the bill. This is a very complex area of the law. The provisions of this bill are intended to mesh together, and at times it's very difficult to weave through all the provisions and see exactly where you wind up in a particular situation. "The way I would interpret Section 3 of the bill, is that if in fact you have a claim, as Mr. Nordlund has suggested for medical negligence, that this (a) (3) provision could well cut off your claim. I don't see how you could read it any other way. The fact that you have a shorter period of time under another provision of law wouldn't apply because that in fact is not a shorter period, it is a longer period, if your accrual period were to apply. So I think that the six- year statute cuts off claims at six years... if you don't have gross negligence, fraud, or intentional concealment of some injury..." Other potentially qualifying circumstances were discussed. REP. NORDLUND observed a need for caution, saying, "There are situations in which you can be a victim of some medical malpractice, or of some environmental catastrophe, [the effects of] which you are not going to find out until well after six years. Asbestosis is a great example of that. But, beyond those kind of more environmental considerations, simply in medical malpractice, there are situations in which you are not going to know there was anything wrong with you, even the doctor is not going to know there was something wrong, until after the sixth year. And the way I read this bill is that the absolute six-year limitations applies in that situation." CHAIRMAN PORTER agreed with this interpretation. MR. FORD: "I think that was the intent of the Labor & Commerce Committee when it adopted it and that's the way I would read those two provisions. Actually, Section 3 and Section 6, the way they would mesh together. Section 6 gives you a two-year accrual period presuming that Section 3 doesn't apply." Number 392 CHAIRMAN PORTER: "There are three categories of events, if you will, but are brought within, in my reading of Section 3, the statute of repose, the six-year statute of repose. One is product liability, which is on line 1 of page 1; the second is the building construction kind of liability; and third is personal injury. And personal injury is the element of malpractice." CHAIRMAN PORTER, REP. NORDLUND, MR. FORD and MS. COX continued discussion of circumstances pertaining to the six- year statute. CHAIRMAN PORTER: "Exceptions to the six-year statute of repose for these three areas are, `Any act that was intentional or resulted from gross negligence, fraud, fraudulent misrepresentation, or breach of an expressed warranty or guarantee.' In other words, under product liability or on the, let's say the construction liability, if a building owner and contractor want to have an expressed warranty that the building lasts for ten years, then that prevails over the six years. [Another exception is] intentionally concealing facts that would give rise to knowing that, in the six years, you had a claim. And, finally, as this is something that's often used in medical malpractice cases, the exception of, during surgery, leaving a foreign body in a body." REP. NORDLUND: "I think we're clear then that it does apply, the six-year limitation does apply to malpractice." MS. COX: "I am sorry I misconstrued the question. I think the discovery rule then would allow you to bring suit within two years of being injured, but, as you pointed out, the six-year statute of repose would be the outer limit." REP. NORDLUND: "In other words, if, at year five and a half, you discover that there is something wrong with you that is a result of medical malpractice, you have six months to bring suit..." MS. COX: "...instead of two years." Ms. Cox continued with a discussion of medical issues. "We have four sections that I would clump together: "One being, Section 2, the new section AS 8.64.125, which would establish medical practice parameters through the medical board. That section is pretty self-explanatory. "Section 4, which we've already discussed, would create the new statute of limitations for children's actions in the medical malpractice area. "Section 27 relates to hospital liability for nonemployees as long as notice is provided that a health care provider is an independent contractor, and it specifies the type of notice that need be provided in order to kick in. "In Section 22 we have a couple of things. There is some housekeeping on amendments with respect to the uniform arbitration act. The reason that is being changed is because AS 09.55.548 is being repealed, and that pertains to expert advisory panels in medical malpractice cases. "So, those are particular medical malpractice related sections within this bill. Then there is a whole set of sections that seek to amend or in some way modify -- in some instances even repeal and reenact -- portions of previous tort reform efforts that we do have in the Alaska Statutes now. And those would be pretty much Sections 7 through 18 of this bill. In particular, I will try to walk through what these do and how they compare with the current statute, although it will be somewhat evident in some of these sections because you'll see if there's just an amendment, you'll see what the new language is, and what is being deleted. Some of these sections are being repealed and reenacted and you don't see what it is being discarded. "Section 7 clarifies the section in Alaska Statutes on noneconomic damages in a couple of ways. One is that it makes it clear that it applies to wrongful death cases as well as personal injury actions. The Alaska Supreme Court has construed another section in Title IX, Chapter 17, to cover wrongful death as well as personal injury, and this will just make this expressly clear. In 9.17.010 it also states that loss of consortium is one of the types of noneconomic damages that a party may be able to recover. "Subsection (b) is the cap that we have now on noneconomic damages. Those are -- when I refer to noneconomic damages we're talking about pain and suffering... disfigurement, loss of enjoyment of life, and so on. We're not talking about the economic damages that someone may suffer as a result of personal injury, which could be medical bills, lost wages, and so on. There's a distinction. This is limited to the noneconomic damages. We have a $500,000 cap by virtue of previous tort reform law that applies to noneconomic damages. This change proposed here would make it clear that the $500,000 cap applies to all claims arising out of a single injury or death. The previous language said each claim based on a separate incident or injury, and there was some debate. For instance, if a child died and each parent had a loss of consortium claim, did they each get a $500,000 limit on their noneconomic damages, or were they jointly limited to the $500,000? This would make the latter apply. It says all claims arising out of a single injury or death are capped at $500,000 for noneconomic damages. "Two things are done in (c) of Section 7. One is to eliminate what was an exception to that $500,000 cap for disfigurement or severe physical impairment. That exception did exist, it does exist, today, in the law, but those terms were not defined and have not been construed yet to my knowledge by the Alaska Supreme Court. This (c) would eliminate that as an exception to the $500,000 cap, and instead create a different exception, which applies where the defendant is a person who committed or attempted to commit a Class A or unclassified felony. The plaintiff, the person bringing the action, was a victim of that offense; and the action the plaintiff was bringing is based on that offense. That is a new exception to the cap. So essentially, if you've got a scenario where someone is injured while someone is committing a felony, Class A or unclassified felony, then the victim is not limited to recovering $500,000 in noneconomic damages from that defendant." REP. NORDLUND: "So then, Susan, in Section 7, `wrongful death' is added to those kinds of things that come under the cap? Under current law there is no cap for wrongful death?" Number 558 MS. COX: "Under current law, it's a question mark, I guess, is the best way to say it, about whether this cap, this $500,000 cap applies in wrongful death situations. The Alaska Supreme Court has construed another section, I think it was AS 9.17.040... essentially, the Alaska Supreme Court in a similar section didn't say `wrongful death,' it just said `personal injury;' they construed it to include wrongful death even though it wasn't expressly stated. So there is certainly an argument the court would do the same thing with this section today, but this section hasn't been decided by the court, and it's not explicitly stated now. It will be explicitly stated if this is passed. "Sections 8 and 9 both pertain to punitive damages. Section 8 would just add the standard for awarding punitive damages. We already have in law the statement that they may not be awarded unless supported by clear and convincing evidence. However, we don't have a standard evidence of what in the statute. This bill would provide the standard. It is `malice or conscious acts showing deliberate disregard of another person' by the defendant. This test is quite similar but not exactly the same as the test the courts apply now judicially. It differs in that this would require `malice or conscious acts showing deliberate disregard of another. ' The courts talk about `malice' or `outrageous acts' and then give as an example of that standard... `reckless indifference to the rights of others.' This requires conscious acts showing deliberate disregard and that may be a step slightly above the existing judicial standard." REP. PHILLIPS: "Is that wording tight enough there, then, if the courts are going to be applying even a stricter definition? How does the wording we have in there right now compare to what, maybe, we should be including?" Number 589 MS. COX: "Well, all I can comment on that, is that, this is, to me, a slightly stricter -- if there was a continuum, it would be another step up on the continuum, it would narrow, slightly narrow the field in which punitive damages could be potentially awarded -- that would be more interpretation, although reasonable minds could differ. I think it's a little bit more than just semantics. The difference in the words being used, I think, does have some meaning." Number 600 REP. NORDLUND: "So, Susan, when Joe Hazlewood ran the EXXON VALDEZ up on Bligh Reef, that was not a malicious act, it was not even a conscious act. I would say it was a reckless act. It was a grossly negligent act. But, under the provisions of this bill, not only could you not sue for three times -- which is the limit established in this bill - - but you can't sue, period. You can't assess punitive damages on Exxon Corporation for their recklessness in the EXXON VALDEZ spill. That's what the effect of this would be, isn't that correct?" MS. COX: "That's a tough one. Unless you can show a conscious act showing deliberate disregard." REP. NORDLUND: "As much as we know the situation there, he didn't intentionally drive the tanker into the rocks. It wasn't a malicious act and it wasn't a conscious act." MS. COX: "`Malicious' does embrace a field -- and I don't have a case here to use as a litany of what the Supreme Court uses as a test -- but, I think, it is most likely that it eliminates `recklessness' as a standard for punitive damages. But I have to say that the courts do apply a very high test in the first place for awarding or allowing punitive damages should it even be considered by a jury. And they do say they are disfavored in law, and all kinds of good language..." REP. NORDLUND: "So there already are tight standards, and [punitive damages] are not awarded that often?" MS. COX: "Not in my experience, no. They do happen." REP. NORDLUND: "I do not know what the problem is, Mr. Chairman, or why we even have this section in the bill if [punitive damages aren't] used that much anyway. There are a few instances when we want to have punitive damages, and assess them high enough that they are truly punitive for a large corporation." MS. COX: "One thing that Section 8 would do, and I want to make it absolutely clear, it would change from the current law, is the fact that it would put in statute the test for punitive damages rather than moving it to judicial decision, which is where we've been up until now. "Section 9, of course, is new. It creates a new section in the punitive damages statute that would limit punitive damages to three times the amount of compensatory damages awarded or $200,000, whichever amount is greater. That's pretty self-explanatory. We don't have any such limit in case law or statute generally applicable to tort cases. The Alaska Supreme Court has in fact expressly declined to approve or pick a bright line test for punitives that applies a formula or ratio between compensatory damages and punitive damages. So this would be new. "Subsection (c) under Section 9 provides an exception to the punitive damages cap similar to the one I mentioned above on the noneconomic damages cap. If you've got a person who committed or attempted to commit a Class A or unclassified felony, and that was the basis... and punitive damages were sought, the cap would not apply. And that, obviously, would also be new." REP. NORDLUND requested a legal definition of the word "victim" but none was available. MS. COX: "Section 10 would amend a statute that is already on the book relating to damages resulting from the commission of a crime.... This is a situation where the so- called `criminal' is the one who is trying to bring an action for damages related to injuries or death that occurred to that person while they themselves were committing or attempting to commit a felony or fleeing from the commission of a felony. We do have a statute on the subject in the tort reform law already. This changes the phrase `engaged in the commission of a felony' to `committing or attempting to commit a felony or fleeing from' to broaden the coverage. It also dilutes the requirement that the person against whom this is being used has been convicted of the felony. I think you can see just from reading this... it's obvious what the changes are. The one thing this does eliminate is the last sentence of the existing statute that says it `does not affect a right of action under 42 U.S.C. 1983.' I do not know why. But it would propose to take that sentence out of our current statute." REP. NORDLUND: "Just to be clear, then... so, what if a person was fleeing from a felony that they were charged with that they were totally innocent of?" MS. COX: "It raises a good question. They may not be convicted for this to apply. But, of course, we're talking about a situation where that person got injured, then, in fleeing, and they're the ones bringing the suit, then the question is whether they were barred from bringing a suit altogether because of this section. Then the question arises, well, were they, I mean, the factual issue is, were they committing or attempting to commit a felony or fleeing from the commission of a felony? And that would be a factual issue in their suit. And, the one thing that this doesn't specify, is whether that person trying to raise this bar would have to prove that standard -- the commission or attempt at fleeing by a criminal standard, which would be reasonable doubt, or by the civil standard of burden of proof and evidence." Number 698 CHAIRMAN PORTER: "Just for clarification, there is going to be an amendment produced for this to cover that, that it will be the civil standard that we're asking that it has to be established by since this is a civil court. And, you're right, if a person is innocent, they would not be precluded under this. They would have to establish that, by a preponderance of the evidence, that that person was committing or fleeing from a felony. [The reason] we eliminated the conviction was that some people get off felony charges by technicalities and everybody knows that he did it, but because O'Connell was in the wrong place with the search warrant, he escaped. We just don't think that it is appropriate that the person should be protected. They will have to establish, by a preponderance of the evidence, that they were involved in a felony." Number 722 MS. COX: "The other thing, too, that it applies, is if you've got someone who actually dies and can't be convicted, of course, that would address that situation. If the estate wanted to bring an action, then the defense says, `Well, that person died in the commission of a felony.' Up until now, of course, the defendant would not be able to raise that because the deceased had not been convicted of the crime. So this would make it applicable -- the difference, or a difference. "There are several sections in here that amend AS 9.17.040, which has many subsections. The first one, in Section 11, amends (a) which talks about the type of damages awarded by the court or a jury, and here we've got, expressly, death actions included as well as personal injury actions.... The major difference in Section 11 is the addition of paragraph two there, which would say that you would reduce the amount of damages awarded for past or future gross earnings by the amount of taxes that would have been paid on the earnings. And the way you reduce it is you use the tax rate in effect on the date of the injury or death. This is obviously new to the statute. It would also be new law, because, currently, economic damages awarded for past gross earnings are reduced by taxes because the tax rates are readily ascertainable. You know what someone would have paid in taxes, and because the IRS does not tax personal injury recoveries, the courts will allow reductions for taxes on past earnings. However, for future earnings, the courts have declined to reduce earnings damages by the speculative amount of taxes because it would be speculative. They don't know the tax rates that would apply into the future, and so the courts are declining to do that, and they do not deduct taxes on future gross earnings. This bill would require that to be done and uses the tax rates in effect on the date of injury or death. That's the change there. "Sections 12, 13 and 14, I believe, all pertain to periodic payments. I think you've probably heard something about this already -- at least, I know, other hearings have taken this up. The major change in Section 12 to AS 9.17.040 (d) is that damages either party in a case could request that future damages be paid out on a periodic payment basis. Current tort reform law that we have says that only the injured party can request that future damages be paid in periodic payments. So, essentially, plaintiffs can ask that they have their future damages paid out on some kind of schedule. This would change it so that the defendant could ask to do that. The additional sentence that's added to (d) on page 7, lines 29-41, says that if an attorney is to get a contingent fee arrangement, that portion of their judgment is reduced to present value and paid in a lump sum to the attorney so that their percentage of the total recovery is not paid out in periodic payments as well as the amount that the plaintiff is to receive." Number 769 REP. NORDLUND: "I know that it's in the existing law, but, what is meant by `to the maximum extent feasible'? Does that mean that the judgments will be strung out into the future to the maximum extent feasible? Or that the payments, individual payments, are to the maximum extent feasible?" Number 781 MS. COX: "That's a good question. Rep. Nordlund, I have not had to grapple with this, and I don't know that many courts have, because it is there for the benefit of plaintiffs if they want to use it, and I've never encountered a situation where a plaintiff wanted to do so." REP. NORDLUND: "If this passes, they're going to have to grapple with it now. It's not clear what that means, to me, in any event." MS. COX: "Subsection (d), again, pertains to periodic payments and changes the option that the court now has to require that security be posted for periodic payments. It makes it mandatory that the court require security to be posted, rather than just discretionary. Although, it need not be posted if an authorized insurer as defined in the AS 21.90.900 acknowledges its obligation to discharge the judgment. "And then, finally, in the periodic payment package here in Section 14, we have the requirement that the court, in ordering periodic payments of future damages, also specify any increases in future payments for anticipating inflation. The reason a court might want to consider that is that future damages are by law now reduced to present value. If the plaintiff is not going to receive them now, but instead, over a period of time into the future, then conceivably the court may want to build in inflation. "Section 15 has been repealed and reenacted, or would be under this bill. You can't see what the current law is. The section is a bit complicated. I'll do my best to get through it. As it's drafted now, a plaintiff who receives benefits from a collateral source -- such as health insurance, workers' comp, whatever -- cannot recover from a defendant for those benefits unless the source of those collateral benefits expects to recover those benefits back [because] it has a right of subrogation. So, essentially, if there is a collateral source, it's a federally funded program that by law seeks subrogation, [such as] Medicaid, for example, or when a collateral source has a right of subrogation by law or contract -- for instance, workers' comp liens; an employer's lien on an employee's recovery against a third party who caused the employee injury; health insurance... [an insurance company] may have the right by contract to subrogate and get the medical bills paid back if there are recoveries by a third party; and then, finally, except for death benefits paid under life insurance. "So we've got a situation where if there is a right of subrogation by law or contract or federal law or if we're talking about death benefits, then the plaintiff will not be limited to recovery only over and above those things. Where there is subrogation, the plaintiff will be able to seek recovery for those things and the party who has the subrogation rights will still be able to collect that. But, for collateral benefits that a plaintiff is not expected by law or contract to repay to someone under subrogation, they will not be able to recover for those amounts that they have received. I hope I have explained that well enough. "Subsections (b) and (c) go into what is admissible in court, and at what point in time. Whether before a jury makes its findings or after." Number 830 REP. NORDLUND: "Would an example of that be... the state SBS Disability Program -- if a state employee elects to choose disability and pays for it over time and ends up getting injured -- they can't collect that disability payment as well as whatever judgment they received from the defendant?" MS. COX: "It's going to depend on what the contract is. I can't speak to SBS in particular, but... let's just keep it simple and say if I was in a car accident and it had nothing to do with work, I was going to Eagle Crest on Saturday and I got in a car accident and I submitted all my medical bills to AETNA and they paid for all the surgery and so on, and then I decided to sue the car that hit me. AETNA has a right of subrogation by contract with the state of Alaska to get their money back from my medical bills if I ever get a dime from the person who hit me. And that would still be the case under the bill that you're looking at today. Now, I know there have been a lot of different amendments and it wouldn't necessarily be the case under some of the amendments that I've heard about, but that's the way it would be today. "Now, interestingly, in (b) it says `the defendant' -- say the person I sued after my car accident -- can introduce into evidence [the] amount paid to me as a result of social security, disability, workers' comp, health insurance, etcetera, and that that's admissible. But then, in the next sentence, it says, `however, evidence of a collateral source that has a right of subrogation under law or contract may not be introduced.' So, if AETNA paid my medical bills and did not have a right of subrogation, then the defendant could bring that into trial and say, `Susan doesn't really have $50,000 in medical bills that she's going to have to pay AETNA back, so she shouldn't recover that.' The defendant shouldn't have to pay me that. But if I do have to pay AETNA back, if they have the right of subrogation, then it is not admissible. That's what those two sentences do. "So, essentially, if there's a right of subrogation, it's not admissible, as I read this. If AETNA does not expect to get the money back, there's no right of subrogation, then the defendant can admit it and presumably it would not be something for which I would be allowed to recover, because it would be a double recovery... So, the point is to prevent me from recovering my medical bills from the defendant when somebody else has paid them and I didn't. "Subsection (c) says that if there is some other kind of collateral source other than these listed types of insurance that have been introduced into evidence under (b), then, if they're admissible at all, they're admissible after the fact finder has rendered an award. And the court can make adjustments if, for instance, as a result of all this, there is a $1 million limit on my lifetime benefits from AETNA. And if I get darn close to exhausting that, or something, the court can take that into consideration. So even if I didn't have to pay AETNA back, the fact that I'm coming close to exhausting my coverage with AETNA is something that the court could consider under (c), and presumably, reimburse me or compensate me in some way for that. "Finally, (d) says that if a collateral benefit is admissible in evidence -- in others, if the jury or the court gets to hear about it -- then we assume that I don't get to recover for it, because it's admissible, it's not something I get to collect. Then the source that paid me that money, if it was AETNA without a right of subrogation, they can't then after I've already..." TAPE 94-30, SIDE B Number 000 MS. COX continued her explanation of subsection (d): "...then they cannot come in and double-ding me, essentially. That benefit can't be reduced from my recovery at court and then also have me having to pay it back, is what (d) does. It's very difficult to explain, but, the only thing I can say about this version versus what is in existing law is that existing law does not have anything being admissible before a jury renders an award. And to the extent that collateral benefits are admissible, it is done after the jury has rendered an award, with the court." Number 015 REP. NORDLUND: "I'm not sure I really fully understand this yet, but that's OK, I'll try to work my way through it. Let me just ask this question, though. Is there ever a situation in which the wrongdoer would be relieved of their obligation to pay because the injured party had some benefit? In other words, if the injured party was lucky enough to have insurance, disability insurance, whatever kind, and the wrongdoer was lucky enough to injure that person, would that wrongdoer ever be relieved of having to pay the full damages because that person has some other sort of coverage?" Number 030 MS. COX: "Under this section, what you call the wrongdoer, the defendant, would not have to pay for benefits that the injured person has received where the collateral source that paid those benefits has no right of subrogation. So, in the event, for instance, we're in a car accident, and I have AETNA health insurance, and AETNA doesn't expect me to pay them back, and I have $50,000 in medical bills that AETNA has paid, I can't recover that from the person who hit me." Number 044 CHAIRMAN PORTER: "So, in fairness, under existing law, the court could do that very same thing after the award?" MS. COX: "I can't say for sure. I have not focused on the existing collateral benefits section because I am confused by this one, and so, I have not tried to sort out what the existing -- I could look it up..." CHAIRMAN PORTER: "It's my understanding that that is exactly the way it would work, whether it was a jury taking into consideration a collateral source and reducing the award they would give, or the court doing it later, the `wrongdoer' as you say, would still have his total exposure reduced by the collateral source." Number 080 REP. NORDLUND: "I don`t think necessarily that a victim should collect double. But I also don't think that the wrongdoer should be relieved of paying the full damages just because that person happened to be covered by insurance. The public policy question is, `Who pays here?' The person who caused the injury, or the insurance company, who, we all pay the rates for.... My reason for raising these questions is to make sure that if there is truly a wrongdoer, and damages have been determined, and assessed, that that person should be the first to pay." CHAIRMAN PORTER: "Perhaps one way to look at it -- and I'm not saying it's the last word on it, we'll let Susan finish, but just to finish up this point -- the idea, I think, as you say, is to make the person whole that has been injured. Whether that's done with partly a collateral source and partly the defendant is insignificant to the plaintiff as long as he's made whole." REP. NORDLUND: "I agree." CHAIRMAN PORTER: "What you're saying, really, is kind of retributive to the defendant. `He's the guy who caused this and he ought to pay for it.' But that's kind of in the area of punitive damages, not compensation." REP. NORDLUND: "It's just a public policy choice. I agree, that under my scenario, that the plaintiff receives, is made whole. But, who pays? What's a good public policy choice? Who should have to pay for that?" [Several voices responded, "The wrongdoer." It was not clear whose voices were heard.] Number 284 MS. COX: "Mr. Chairman, to make the record better than it was five minutes ago -- looking at, I have AS 9.17.070 here, the current collateral benefits law, and the Chairman characterized it. Now the introduction of any evidence about collateral sources, as I said, occurs after the fact finders rendered an award. But it's only amounts that are from sources that don't have a right of subrogation by law. So in your scenario, if there was no subrogation from that collateral source, then the court can, in fact, reduce the award after the jury has rendered it under the current law, if that source did not expect to recover it back. "Sections 16 and 17 amend AS 9.17.080 (a) and (c), and they definitely resolved -- I mean, it's a policy question how to resolve it -- but they resolved a current split in authority among judges in both the state and the federal court here in Alaska about how to construe this section. The present 080 says that, essentially, the finder of fact is to allocate fault among the parties to an action, and includes third- party defendants, people who have been released, who have settled out of the case, and so on. The problem that arises from this, and this tort reform law that enacted this statute was based on a principle of several liability, the idea that no defendant would pay more than their own percentage of the fault, rather than joint and several liability, which we'd had prior to tort reform -- the problem [has been that] when a plaintiff chooses to sue only those parties from whom they will actually recover money, and leaves out other possible defendants for whatever reason, how do we get to the proper several liability situation if we can't consider the fault of people who haven't been made parties? "There are a couple of ways to look at it. Either the people who have been sued can bring in other defendants, third-party defendants, if you will, to be there when the jury figures out how much everybody was at fault, or you can say that the defendant can raise the issue of other absent parties' fault and have the jury allocate fault to people who haven't even been made parties to the case at all. Those are two possible solutions, and frankly the courts have gone in both directions. "The current law, AS 9.17.080 (a), says that the allocation of fault refers to fault of more than one party to the action. So, some courts have felt that they can only allocate fault to entities that have actually been made parties to the case, who have actively been sued and named and participated in the case. So, that being their interpretation, they have said that defendants could feel that not all of their tortfeasors, or the wrongdoers, as you put it, are there, [and the?] third party and the rest of the gang, so that the jury can have the proper range of people to allocate the fault. Other courts have construed this phrase `party to the action' to include people who aren't technically parties or haven't been actually named and sued, but whom anyone in the case wants to point a finger at. And so the question becomes, at the end of the case when you have a jury verdict forum, and they have to say how much percent was the plaintiff at fault, and each of the defendants, then the question is, do you then list on anybody else that was raised as a potential tortfeasor and have the jury consider whether their fault should be considered? "This bill would amend the statute to take the approach that you can have the jury allocate fault to entities that aren't actively parties to the case. So we could, what we call, point at the empty chair, and say the absent defendant can be considered for purposes of allocating the fault. That's what the amendment in Section 16 at line 26 does. Paragraph two also makes it clear that the allocation of fault in lines 4 through 6 can include other persons responsible for the damages regardless of whether they are or could have been named as a party to the case. This follows an approach currently taken by some of the judges in both the state and federal court. The question of whether that approach is appropriate under the current law is, as I understand it, before the Alaska Supreme Court right now. The last I heard there was still no resolution of that issue from our Supreme Court. "Section 17 would just continue with that thought. If you have somebody who is not a party to the case who has been found some percentage at fault, that percentage of fault only works in the case in which the jury rendered that verdict. And if they are not present, if they are not a party, they are not dinged for some percentage of the damages. So, for instance, if there were three parties to a case, but yet a fourth was pointed out as a potential tortfeasor, and the jury put 20% of the blame on the nonparty, that 20% is nonrecoverable. The plaintiff cannot recover it from that nonparty, and that 20% assessment of fault against that nonparty is not binding on any other case. So if the plaintiffs sought to go after that nonparty, the one that wasn't in the first case, the fact that one jury had found them 20% at fault is not at all binding, and is not even evidence in the second action. And that's what Section 17 would do." Number 284 REP. NORDLUND: "I am sympathetic to what is trying to be done with Sections 16 and 17, but I feel it is a messy way to be doing it -- the whole empty chair concept. Is there a chance that there could be any due process possible violations against being assessed with fault when you're not even there to defend yourself? Even though I know it can't be used as evidence in a further case, it still could perhaps sully the reputation of somebody, or of a business, or something, to be assessed with fault, [they'd have] no chance of defending themselves. Even though they aren't actually paying any sort of compensatory damages." Number 289 MS. COX: "Rep. Nordlund, I don't know that there would be a due process problem. It certainly raises a practical problem that -- I don't know that it rises to a constitutional level, it certainly raises a policy question. Frankly, there are a couple of possible ways this could play out. Depending on the case, the plaintiff, if they perceive that a defendant may be pointing at an empty chair, someone who is not there, in order to reduce that defendant's share of the blame, they may elect to sue the person in the first instance so that they are there and you can have, hopefully, a fair assessment of what that absent party, or would-be absent parties, blame would really be. It's hard to say how this will work out in the future. Right now there is no incentive for a plaintiff to sue anyone who is judgment- proof because there is nothing there to recover -- and the fewer defendants the better among people who have money. If that is an incentive, that won't exist if the empty chair is a possibility." Number 317 REP. NORDLUND: "So there is no way of bringing those people in, there's no way a court can force those people into the courtroom.?" Number 321 MS. COX: "There are a couple of things that can happen. Right now, about half the courts who have considered this question under the current law have said, yes, in order to even talk about the fault of someone else, they have to be made a party. That's the approach that's been taken by some of the courts under our current law. Now, the other half say, you can talk about empty chairs. We've got that split in authority. But, if you talk about their percentage of fault, you have to make them a third-party defendant. Then other questions arise about whether the defendant in a case who wants to bring in this other defendant now is responsible for attorney's fees; if they don't succeed in proving some fault by their codefendant, the third-party defendant, there's a whole bunch of practical questions that arise in that line of cases as well. There is nothing, however, to prevent anyone from making these absent parties, these empty chairs, witnesses, and participating in trial, as long as they can be subpoenaed and evidence about their presumable fault or alleged fault can be part of the case. Obviously, you've got to try to prove it in order to convince the jury to tag them with some percentage of the blame. They just wouldn't have to pay, they wouldn't have any liability, they wouldn't have to pay any percentage of the ultimate damages. But they could be there. I mean, the plaintiff may want them there to say, `I have no fault whatsoever,' so that the defendants with money who are initially named share more of the blame. It's hard to tell." Number 352 CHAIRMAN PORTER: "Just so that it's clear, the establishment of some liability, percentage of liability, by a person who was not named as a party of the suit, for whatever reason, that judgment isn't binding on them, nor can they use, drop this case into another court. There is nothing that precludes that plaintiff from suing that person in a subsequent case." Number 365 MS. COX: "Right, but they'd have to start from square one, and the statute of limitations may be an issue. Normally you have a two-year statute of limitations, and the first case may well be going to trial well after two years from the date of injury. But we run into problems right now with trying to interpret the current law, anyway, in terms of whether we have to third-party in other defendants in order to get the blame appropriately spread around -- I am speaking from the defense perspective here obviously -- or whether we can point at empty chairs. And there is the question of what is the statute of limitations if you need to third-party in other defendants. If you get served after or on the day the two-year statute of limitations runs out, and you're a defendant, what's the statute of limitations where you're bringing other third-party defendants in. I mean, there are a lot of practical considerations -- the previous tort reform law has raised lots of issues that aren't resolved." CHAIRMAN PORTER: "The previous tort reform law that dealt with joint and several liability was an initiative, was it not?" MS. COX: "Well, we had two. We had one in '86 and then the initiative in '87 that went into effect in '89. The second one went to a pure several liability approach, [while] the first one said if you are less than 50% at fault you have to pay twice your own percentage." "Section 18 discusses what the effect of a release is when you've got several potential defendants, and one of them settles a case or executes -- here it talks about a covenant not to sue, or not to enforce judgment, or a release -- a couple of things that it does make clear is it says, and this is a new section, so it would all be new law, it says that the release of the settling party wouldn't discharge any of the other defendants or possibly liable parties unless the agreement provided that. And it does discharge the person who is settling from all liability for a contribution to any other person. In other words, another defendant can't come after someone who settled and say, "You underpaid your share, now I want you to pay me back something." The idea here, as I understand it, would be, that if you signed a release, you are fully released from liability, and no one can come back after you over those events -- but you're not, unless you explicitly say so, you're not settling on behalf of anyone else, either, and the plaintiff can proceed against the others who may be at fault. "The problem with this -- and I am afraid I may not be getting this -- but in Section 18, line 24, it says that a release `reduces the claim against the other possible tortfeasors to the extent of any amounts stipulated' or whatever was paid for it, whatever the greater amount is. So, in other words, if a party settles out for $100,000, then that, theoretically, under this, reduces the claim against the other potential tortfeasors. That's the language used here. And yet in the allocation of fault up in Sections 16 and 17, we already have these settling parties' fault being considered by a jury. All I can say is that I am not clear how this provision, of reducing the claim by the amount of the settlement, jibes with also considering the percentage of fault of the settling party. And maybe somebody else can explain it better than I, or perhaps someone who understands it can suggest a little less ambiguous language. But to say that it reduces the claim means that you reduce the overall damages of the claim, and so if you take $100,000, the settlement, out of the $300,000 verdict, okay, you've done that step, and then the person who settles 20 percent at fault, do you then consider the 80 percent of the other folks after you've done the subtraction, or before you do the subtraction, or...? "This definitely confuses me, and perhaps someone else can better speak to what they are trying to do. Sorry, it's not totally clear to me. What is clear is, in Sections 16 and 17, when you allocate fault, you are to consider people who have been released from liability under the statute that Section 18 would enact. And so you've got a reduction for the settlement amount and consideration of the settling parties' percentage of fault. I'm not sure that I understand the intended interplay between those two things. "There are a number of other provisions in the bill that are kind of general litigation, civil litigation issues. Section 19 would amend the statute regarding offers of judgment. You can see the changes made on page 11, starting at line 10. Currently, if you make an offer of judgment, and the other side doesn't do better than that when they go to trial, then the interest rates involved could be effective, and if I made an offer and the plaintiff didn't beat that offer, then their interest rate could be reduced - - whatever they were awarded, could be reduced by five percent a year. That's what the current law is. If the plaintiff made an offer to me and I didn't accept it and they did better than that at trial, their interest rate could then be augmented by five percent a year. Now we have a statutory ten and a half percent interest rate so you could either see the interest rate going down to five and a half percent or up to as much as fifteen and a half percent, depending on how offers of judgment are used. Section 19 would eliminate the alteration of interest rates altogether and offers of judgment would not affect the interest rates paid on prejudgment interest. The one thing, though, that it would do, is that if the person to whom the offer is made doesn't do better than that at trial, then that person will have to pay the actual costs and attorney's fees incurred by the person making the offer from the date the offer is made. So that would be the change in AS 9.30.065." Number 500 REP. NORDLUND: "Would it be accurate to say that Section 19 originally was an inducement to settle, and it's still an inducement to settle, it's just exchanging -- it's dealing with interest rate for paying attorney's fees?" Number 505 MS. COX: "And the attorney's fees -- this should be considered in conjunction with Rule of Civil Procedure 68 [which] also pertains to offers of judgment. We also have Rule 82, with which you're probably familiar, which provides that a prevailing party can recover attorney's fees. This bill would eliminate Rule 82 at least as it respects personal injury, death and property damage cases, so essentially what you'd end up having is, the only way in a tort case that you would see attorney's fees awarded, is under this provision right here. And they would only be from the date the offer is made, rather than for all of the work involved in the case." REP. NORDLUND: "So who knows if it would be more or less money, when it gets down to it? What's your experience with this? Would this be a greater inducement to settle?" MS. COX: "I think, frankly, the one thing I think it's fair to say, if we see Rule 82 eliminated in the personal injury tort context, then I think perhaps you will see an increase in the use of offers of judgment, because it will be the only way that either side will be looking at recovering any attorney's fees. I would expect, anyway, to see that offers of judgment would be used more often now as a means of at least triggering in a possible future recovery of attorney's fees. "Section 20 would amend the prejudgment interest rate. That's pretty self-explanatory. We have a ten and a half percent statutory rate, and this would be a variable rate that is tied to three percent above a federal reserve discount rate. There are other bills, at least, an other bill that I know of floating around the legislature somewhere that proposes to do the same thing. 9.30.070 would make a change for -- the Section 21 change would say that -- you can't get prejudgment interest on future economic damages, future noneconomic damages, or punitive damages. This would be, as I understand it, a departure in some sense from the current case law. We don't have a statute on this point. Certainly these would be new provisions in statute. "It's my understanding that the courts do not imply that prejudgment interest should not be awarded on punitive damages. The whole concept of prejudgment interest is that you should be made whole... if you're injured on a given date, then you don't have the use of your money from that day forward, and so prejudgment interest goes back to whatever date in which you were deprived of the use of your money. Now that concept has been modified somewhat because we have a statute that says you're only entitled to prejudgment interest from the date you give written notice of your claim. So we've slightly altered that rule by statute before now, and now we're going one step further and saying, for future damages, you would not get prejudgment interest -- I guess, that concept being, you're not being deprived of the use of the money you're going to get in the future anyway, or would have been getting in the future." REP. NORDLUND: "Susan, do you think that this is going to have the effect of having defendants delay proceeding with litigation, going to trial, whatever, more than they are right now?" Number 570 MS. COX: "That would be hard for me to say. I think, right now, certainly with the ten and a half percent interest rate, that's a pretty substantial penalty for delaying. Obviously, under this we would have a floating interest rate. Making it clear that you can't get prejudgment interest on future damages would certainly affect the total damage picture in terms of how much money you were looking at. If you've got a past loss of a minimum time off work and some medical bills and it's only been six months and so you've only got a little bit of pain and suffering, but you're looking at a 20 year old person who's got a lifetime of living with a particular injury ahead of them, whether or not you get prejudgment interest on those future damages would certainly make a difference. "Of course, we've got other concepts in here, built into the future damages. The cap on noneconomic damages and so on. There's a lot of things at play, so I really couldn't say whether this will affect the timing of how fast a case is litigated. I don't want to editorialize. "You've got a couple more general provisions that pertain to civil litigation, or, kind of, general provisions. The 26th I've already alluded to, that's the section that would amend AS 9.60.010 and essentially prohibit that Alaska Supreme Court from adopting a rule to allow attorney's fees to a prevailing party in a personal injury, death or property damage case, unless the statute -- or -- that parties agreed otherwise. That would be a dramatic difference from the current law. "There are a couple of other kind of housekeeping things.... Section 28 would add a new section, 9.65.125, regarding the signing of pleadings. This essentially codifies provisions that are found in Rules of Civil Procedure 11 and 95, I believe. The one thing it would do is require an immediate hearing if the court determined that something was signed in violation of this rule. That would be new. The current rule in civil procedure doesn't require immediate hearing as this statute would, but otherwise it's very similar to current civil rules. "The last little category of items is amendments to the wrongful death statute. That would be Sections 23, 24 and 25. In Section 23, the only change in the AS 9.55.580 (a) would change the term `pecuniary' to `economic' and I imagine that is to make it consistent with what we've got in Title IX, Chapter 17, referring to noneconomic and economic -- I don't see that as a dramatic change." REP. NORDLUND: "What is the difference between pecuniary and economic?" MS. COX: "I don't know that there is one. The drafter may have something to say about it. I think this is just to keep the terms consistent in both... that would be my understanding." CHAIRMAN PORTER: "Pecuniary basically means monetary, money, and one could stretch the definition of pecuniary to include funds received for noneconomic damages. We wanted to make sure that it was clear that this was for economic damages." MS. COX: "Section 24 essentially is, again, doing the `pecuniary' to `economic' change and then makes some housekeeping changes relating to the change earlier in AS 9.17.010, another section, and then alludes to (g), which is the meat of it here in Section 25, which provides -- well, it's two new sections, actually, (g) and (h). [Section (g) provides that] a court `cannot award economic damages in excess of $10,000 if the deceased in a wrongful death action is not survived by a spouse, minor, child or dependant' and it gives a definition of `dependant.' Section (h) provides that that $10,000 cap does not apply. Again, we're back where the defendant committed or attempted to commit a Class A or unclassified felony, and the deceased was a victim and the action is based on that offense. Those are certainly new provisions that do not exist in current law." Number 660 CHAIRMAN PORTER: Since that wasn't in order I haven't been keeping track. Does that conclude the... " MS. COX: "That's it except that there are a number of Sections 30-39, of course, pertain to, make clear that they amend court rules and provide for effective dates and so forth." CHAIRMAN PORTER: "Susan, thank you for much. I apologize that two of our members had to be called off. For the time remaining, what I'd like to do is continue with the amendments that the committee had and go through there as far as we can until we run out of people. If we can get into the ones that you have today, Jim, fine; if not, we'll continue it over for the next one. "So, if you would, please turn in your books to the amendments that we had, I believe -- did we stop at number nine? [inaudible response] Number 675 REP. PHILLIPS moved that the committee rescind its actions in adopting Amendments 5 and 6. There being no objections, Chairman Porter pronounced the previous meeting's actions on Amendments 5 and 6 of HB 292 rescinded. He then began discussion of Amendment 5.5 and invited DANIELLA LOPER to speak. Number 686 DANIELLA LOPER, House Judicial Committee Counsel: "5.5 is a combination of exactly what you voted on in Amendment 5 and Amendment 6. It just makes the steps a little bit more clear. There basically are no language changes. This simply makes [for] continuity [in] the bill." CHAIRMAN PORTER requested that Ms. Loper go over the amendment. MS. LOPER: "Amendment 5.5 basically goes into limiting the noneconomic damages to $500,000. It wants to clarify exactly what multiple injuries are all about, so it says `multiple injuries sustained as a result of a single incident shall be treated as a single injury for purposes of this section.' That was simply to clarify that if [for example] a bullet would go through your arm into your body, it wouldn't be two separate $500,000 claims. It would just be one. "Then, as we move on further, in subsection (c), it basically describes the definition of -- it gives the exception to the $500,000 cap on noneconomic damages and talks, basically, about severe disabilities and defining it. And, so as you can see, that is the definition. The exception to the $500,000 is $750,000 on the disabilities." CHAIRMAN PORTER asked if there were any questions. Number 711 REP. PHILLIPS: "In section (a), `pamaplegic,' is that maybe `one'? CHAIRMAN PORTER: "No, that is one hemisphere, left side or right side." MS. LOPER added, "That is paralyzed." REP. PHILLIPS moved Amendment 5.5. Chairman Porter asked if there was further discussion. Number 715 REP. NORDLUND: "I just wanted to make sure, the way the amendment was constructed, that the $750,000 applies to both (a) and (b)." CHAIRMAN PORTER: "It is certainly the intent. Is there objection?" Number 722 REP. DAVIDSON: "How do we arrive at $750,000?" CHAIRMAN PORTER: "It's a policy question, obviously. It's half again $500,000." Number 725 MS. LOPER: "Most other states have used a $200,000 increase in their noneconomic damages. So it is basically looking at the other states and the way they have done it. Usually it's $200,000 more than the minimum cap." REP. DAVIDSON: "When you say other states -- you're talking Mississippi, Alabama? Or are you talking California, New York...?" MS. LOPER: "I believe that the state here is Michigan." CHAIRMAN PORTER: "No further discussion. Is there an objection to 5.5?" There being no objections, Amendment 5.5 of HB 292 was adopted by the committee. Chairman Porter then referred the committee to Amendment 9 and Ms. Loper continued her discussion. Number 744 MS. LOPER: "This is exactly where we left off. Amendment 9 basically talks about how they are going to construe periodic payments in the court system. Periodic payments have already been instituted in the state of California in their court system. Basically how it works is something like this: they go through the award, and they are taken out of the courtroom -- there is no trial time -- and they get together with basically a structured settlement person. The plaintiff and defendant basically go at it and the structured settlement person basically derives a plan. This is what this amendment is talking about. This amendment basically is trying to say that `the party requesting that judgment be paid by periodic payments shall submit to the court a proposal that contains the periodic payment elements required to be included in the judgment of the court.' And so what they do is they go back into the courtroom, and they say, `Here it is, this is what we've got.' And so the judge says, `Just for the record, blah, blah, blah, blah," and it's over. "So, in order to save court time, we've put this provision in here saying, if it is up to, if it is the defendant who requests this periodic payment, that of course [parties shall] get the whole entire schedule; the party that is requesting the periodic payment should be taking care of everything." Number 770 REP. NORDLUND: "I support what the intent of the amendment is -- to have this worked out outside the court. I do think, though, that you need to say something in this amendment, and I have an amendment to the amendment to propose to help reach this, that there be an assurance that both parties, the plaintiff and the defendant, agree that `this is the periodic schedule that we want, the structured settlement that we want.' Which is what you're saying is what they do in California. They have some intermediary come in and they work it out and they take it into court and they say, `This is what we want.' But it doesn't say that in this amendment." Number 778 CHAIRMAN PORTER: "If I may respond. That isn't what we're saying. What we're saying is that it would be in the best interests of the defendant to consult with the plaintiff when he prepares the schedule of periodic payments that he is going to present to the court. But to say that the plaintiff has to agree to this or it may not be presented -- it just null and voids the idea that both parties get to use periodic payments. Because, as history has told us, most plaintiffs, if not all, want a lump sum payment. They will not agree to the periodic schedule and they will null and void its occurrence. So, I would speak against the amendment to the amendment." REP. NORDLUND: "I understand -- and that's not my intent, to nullify the effect -- just that, if it is a fact there is going to be a periodic payment schedule, and there is nothing the plaintiff has to say about that, then it seems to me the plaintiff [background coughing, inaud.] should still have some say in..." CHAIRMAN PORTER: "You might use the term `consult' perhaps; I can see that, but not `agree'." Number 799 REP. PHILLIPS: "If we add this insertion, we're still going to keep the sentence following, aren't we?" REP. NORDLUND: "Yes, this doesn't delete anything." REP. JAMES: "I need to say that I do not feel, and it has nothing to do with this amendment, because we've already passed that part in the previous amendment -- in that statement that, you are absolutely right, the intent here is for a defendant to put periodic payments onto a plaintiff whether they want it or not -- [well], I have a problem with that, [because that is] what this legislation does when it changes `and' to `a'. That's exactly what that does, it makes the plaintiff have to take periodic payments if the defendant wants to pay them that way. I have a problem with that whole theory. "Just to follow up, I understand that one of the main reasons why a defendant might want to pay in periodic payments, as opposed to in lump sum, is because of the value of the money they can get over a period of time; and also, then, there is the argument that it may be that the plaintiff -- and historically, it's been found that many times large settlements are gone in a few years, and then the plaintiff has nothing to lean on, but -- I think that's the plaintiff's problem, and I really do have a problem with imposing people to handle things the way you want them to and not the way they want for themselves." Number 819 CHAIRMAN PORTER: "Well, I would throw in with your position, Rep. James, if it were not for the fact that it isn't just the plaintiff's problem when that happens, it's the state's problem, because we have [in] many cases seriously injured people who are not able to sustain their own livelihood, who don't have any money, and that becomes a public assistance problem. And that is what has happened in a number of cases." REP. JAMES: "I [indisc.] disagree." Number 825 CHAIRMAN PORTER: "Do we have any further discussion on this amendment which seeks to establish that the party requesting periodic payments establish a schedule for this and present it to the court?" REP. JAMES [?]: "I don't have any problem with that statement in that context." REP. NORDLUND: "Would this be a time to offer my amendment to the amendment?" CHAIRMAN PORTER: "Certainly." REP. NORDLUND: "On the second line after `the proposal agreed to by the adverse party'... " CHAIRMAN PORTER: "It would be between `proposal' and `that' in the second line, interjecting `agreed to'... " REP. NORDLUND: "...`agreed to by the adverse party'. I think that's the best term." CHAIRMAN PORTER: "So the amendment to Amendment 9 would place the phrase `agreed to by the adverse party' between the words `proposal' and `that'. REP. NORDLUND: "Could I ask Mike for his opinion on that, for what the wording would be?" CHAIRMAN PORTER: "To the extent that it does what it is you expect we're trying to do?" REP. NORDLUND: "Exactly." Number 843 MR. FORD: "I might just pose the question of what happens if they don't, or can't, agree?" Number 849 REP. NORDLUND: "Well, in order to stick with the spirit of the original amendment, I would hope that -- well, then, in that situation, the court would impose the periodic payment schedule. Again, it's not meant to nullify the effect of this. It would just be that -- you know, they can either agree to it outside the court or the court will impose it on them. That's my intent." Number 873 MR. FORD: "I think the whole point of this is to avoid the court's involvement. If you add this language I think that you add an additional element that the parties are required to go through an additional hoop. They are now required to get together and try to work on an agreement. If they don't, then we're back where we've started, which is the court is going to have to come up with this statement. To that extent you may have increased the complexity and length of litigation without achieving anything. I understand what you're trying to do, you're trying to get some agreement between parties, but in fact you may never get that agreement. You could ask them to -- I don't like the word `consult' either, but -- you could have them both submit their proposals to the court, if you think there's a difference." MS. LOPER: "That would take up even more court time, if both parties had to submit... " REP. NORDLUND: "Unless it was an arbitration type situation." CHAIRMAN PORTER: "Well, we have an amendment to the amendment as defined. Is there any further discussion on that? Is there objection? Can we have a roll call vote?" TAPE 94-31, SIDE A Number 000 REP. JAMES: [Some text apparently missing.] "I think I understand what Rep. Nordlund is trying to do. I have a problem agreeing that this amendment does what he's intending to do... [and] I have already stated how I feel about the periodic payments arrangement. But I don't think this accomplishes [what Rep. Nordlund is trying to do], so I am going to vote `no' on the amendment to the amendment." CHAIRMAN PORTER: "Can we have a roll call, please?" REPS. Nordlund and Davidson voted "Yes" and Reps. Phillips, James and Porter voted "No." The amendment to Amendment 9 thus failed to be adopted. CHAIRMAN PORTER: "We have before us Amendment 9." REP. PHILLIPS: "Mr. Chairman, I move Amendment 9." CHAIRMAN PORTER: "Amendment 9 has been moved. Is there further discussion? Objection?" Objections were noted and a roll call vote was taken on Amendment 9. Reps. Phillips and Porter voted "Yes" and Reps. Nordlund, Davidson and James voted "No". Amendment 9 thus failed to be adopted. Number 058 MS. LOPER: "The next amendment is actually Amendment 10.5. It replaces Amendment 10." CHAIRMAN PORTER: "We just went over 10, and we'll make this 10." MS. LOPER: "This has to deal with the right of subrogation. Basically, in complying with the ERISA standards as well as workers' compensation benefits. As you can see in Section 15, under the collateral benefits section, we have basically limited the rights of subrogation to simply include whatever the federal law provides and also, as well, workers' compensation benefits." REP. NORDLUND: "What is the effect of this?" MS. LOPER: "The effect basically is this -- on workers' compensation benefits, the right of subrogation would be allowed. On any federal law program, especially ERISA, which we have to abide by, it's a federal law, that includes that as well. On private health insurances it does not include it." CHAIRMAN PORTER: "Further discussion on Amendment 10?" REP. PHILLIPS: "Mr. Chairman, I move Amendment 10." CHAIRMAN PORTER asked if there were any objections to Amendment 10. Rep. Nordlund objected and a roll call vote was taken. Reps. Davidson and Nordlund voted "No" and Reps. Phillips, James and Porter voted "Yes". Amendment 10 was therefore adopted by the committee. Amendment 11 was then addressed by Ms. Loper. Number 129 MS. LOPER explained that Amendment 11 deals with collateral benefits. She said, "When this particular section was reviewed, there was nothing in there that said that `the claimant shall disclose these benefits.' There was [discussion of] the benefits, and what's allowed, and what's not allowed, but there was nothing specific in this section to say, `Look, claimant, you shall disclose these benefits.' And that's basically what this is all about -- clarifying and saying, `A claimant shall disclose the benefits described in this subsection to the person defending the claim.'" Number 147 REP. NORDLUND: "That's different, Mr. Chairman, than the benefits being admissible?" CHAIRMAN PORTER: "In a word, yes. What this seeks to do is [to clarify] what, heretofore, has been presumed, that a plaintiff would not try to conceal a collateral source. What we're saying is, `Let's makes sure.' So you are required to inform the court of a collateral source." REP. NORDLUND: "Unless it can be subrogated [indisc.] these other... " CHAIRMAN PORTER: "In any event. Any discussion?" Brief discussion ensued. REP. PHILLIPS moved Amendment 11. There being an objection by Rep. Nordlund a roll call vote was taken. Rep. Nordlund voted "No" and Reps. Phillips, Davidson, James and Porter voted "Yes." Amendment 11 was therefore adopted by the committee. The meeting of the House Judiciary Standing Committee adjourned at 3:20 p.m.