CSHB 158(FIN) am (CIVIL LIABILITY)  CHAIRMAN ROBIN TAYLOR called the Senate Judiciary Committee meeting to order in the Sitka Centennial Hall at 1:00 p.m. He stated the only action the committee would be taking on CSHB 158(FIN) am would be the taking of public testimony for the record. Number 010 JOHN HOLST, Superintendent of Schools, Sitka School District, stated his strong support for tort reform and then related the story of an accident his son, who was a fisherman, had in 1991. In the accident his son suffered a back injury and in the process of trying to get his back taken care of, Mr. Holst's son was assured by the company responsible for the accident that the related medical costs would be taken care of. However, within a month after back surgery was completed, he was informed by the company and their insurance carrier that they had not authorized payment and they would not be paying his expenses. They did say that if he wanted to settle his claim and sign off on it, they would pay the hospital bill and the doctor bill. In the meantime, Mr. Holst's son attempted unsuccessfully to go back to work as a fisherman and eventually had to sell his fishing boat because he was unable to meet the payments on it. Because he had been unsuccessful in reaching a settlement with the negligent company and its insurance carrier, and because the two- year statute of limitations was about to expire, the son hired an attorney. In January 1995, there was jury trial in Ketchikan, and the insurance company and their representative did everything in their power to force his son into settling for something less than he should have settled for; simply paying for the old bills and no compensation to take care of any kind of future costs. After the trial, jurors said they could not understand how this case ever gone to trial because the negligence was absolutely clear and the responsibility was absolutely clear. When the trial was over, the son had received a fairly sizeable judgment and he will be involved in a settlement hearing with the judge in Ketchikan this week. However, Mr. Holst said he does not anticipate any kind of settlement and that the case will go to the Supreme Court. He added that during this whole process that has gone on for over two years, his son has been harassed by the insurance company. Speaking to CSHB 158(FIN) am, Mr. Holst said he applauds the concept of trying to do something in a positive way to correct errors and problems in the system, but the bill is attempting to correct too many different problems. He said it is important to realize the rules of the game are already set up in favor of the defense attorneys and the companies and he thinks the bill will tilt the slant even more in favor of the insurance companies. Number 225 REED REYNOLDS, President, Sitka Community Hospital, said when analyzing the increase in health care costs since 1955, which is the year he got involved in the health care field, inflation explains a big piece of it, labor costs explains a big piece of it, but malpractice also explains a piece of it. He said the legislation affords the opportunity to take a progressive step and support a reduction in the malpractice cost, hopefully without distorting the appropriate benefits to people that are injured. Mr. Reynolds pointed out that their current hospital board has not had an opportunity to review the legislation and take action on it formally, but in the past, previous boards have examined the tort reform issue and have supported it. Mr. Reynolds said the legislation is a step in the direction of reducing health care costs and it is something that needs to be done without unduly damaging those who properly should have claims. Number 335 KAY HAWKES, Administrator, Sitka Community Hospital, said noneconomic damages, no matter what they are, should be paid. He has been an hospital administrator for approximately 30 years and in all cases where, in fact, they think a mistake has been made, they believe those cases should be settled immediately and there shouldn't even be a law suit. However, they believe noneconomic damages should be limited and there should be some kind of statute of limitation on how long people come back and say that the hospital made a mistake. Mr. Hawkes noted that almost every case that he has been involved in for 30 years were not from mistakes or accidents, but they were because someone didn't get the results they wanted. Mr. Hawkes also believes there should be some kind of a structured payment so that the individual who was injured has a real chance of benefiting from any settlement that was made. MR. Hawkes said that although CSHB 158(FIN) am is not perfect, it does correct some of the bad problems in liability insurance. It is going in the right direction, but it needs some modification. Number 402 SENATOR TAYLOR asked Mr. Hawkes if the problem in liability insurance he was referring to was the cost of medical malpractice insurance. MR. HAWKES responded that over the last 30 years liability insurance has increased astronomically, but he also pointed out that insurance rates over the last three years have come down since MICA went out of business. Number 515 PETE HALLGREN, a Sitka attorney, directed attention to the section of the legislation relating to noneconomic damages. He does not believe the current statute on noneconomic damages, which went into effect in 1988, is very useful. However, he said CSHB 158(FIN) am goes into a great deal of detail and he feels it makes the limit more reasonable and sets some sort of semi-objective standard for noneconomic damages. He urged the committee to give consideration to instituting the limits on noneconomic damages as set out in the bill. Number 635 SENATOR ADAMS asked Mr. Hallgren if was comfortable with the limits in that section of the bill. PETE HALLGREN acknowledged that he thought the limits were reasonable. He also pointed out that a provision in the bill provides that those will be adjusted annually for the consumer price index so they will go up based on the inflation rate. He said he finds that a good way to handle things because a number of statutes become outdated, particularly if inflation goes up. TAPE 95-37, SIDE B Number 025 HARLAN KNUDSON, President, Alaska State Hospital & Nursing Home Association, voiced support for CSHB 158(FIN) am. He applauded the debate that went on in the House of Representatives on the legislation, but he said his keen disappointment was the failure, particularly from the health care side, to explain to the legislature and the public what the problem is and why these laws have to be changed. Mr. Knudson said the problem is not the availability of liability insurance and it is not the cost of insurance, except for the cost of liability insurance to that small rural physician who would like to deliver babies. He believes there is the need for tort reform for two reasons. The first reason is that the legal system itself costs too much money; it is very expensive to retain lawyers and litigate. That expense impacts directly on the cost to health care. The second reason is that the legal system is unfair. There are a lot of small liability problems, $100,000 and less, that are never brought to court because there isn't enough money in the legal system to make it pay, so there is a segment of the community being shut out of the legal system. Mr. Knudson said during the seventies, eighties and early nineties, there was a very affluent health care system, but if the caps on the Medicaid program that are being considered by Congress go through, it will remove, over the next seven years, approximately $560 million out of the federal contribution in the state of Alaska. He emphasized the need to look at all of the drivers of health care costs. Mr. Knudson said the only model legislation on tort reform is California's and the California components for tort reform are contained in this legislation. Data from California shows that by having a cap on noneconomic damages controls the cost of care about 23 percent. If you open collateral sources, there is an impact of about of 11 to 18 percent on controlling liability costs. Also, there is a about an 8 percent savings if there is a statute of limitations. There haven't been any tests on structured settlement, but it makes sense to have a large settlement structured out over a period of time so that the individual will have the economic resources that will be needed, he said. Mr. Knudson briefly discussed the demise of MICA. The federal government, through a tax reform law, restructured the way the IRS looked at the reserves of nonprofit insurance companies such as MICA. Also, a huge change went on in the commercial and nonprofit physician-owned liability company, by moving from occurrence coverage to claims-made coverage. Mr. Knudson expressed appreciation for the continued dialogue on tort reform in the state and his willingness to continue working with the committee during the interim on the problem. Number 205 SENATOR TAYLOR said the reason MICA was created by the Alaska Legislature was because nobody would sell insurance at a decent rate to doctors and hospitals. He said we also required every single licensed doctor and hospital in the state to buy insurance through that agency, however, the first thing the medical profession did to help us out after helping them was to sue us to break MICA because another carrier came in through the back door and was now offering premiums lower than MICA. So all of the good doctors who could get cheap insurance from somebody else bailed out of MICA, which left us with every hospital and doctor in the state that couldn't get cheap insurance. At the end of 13 years, MICA had a reserve of over $7 million, but the reason it went out of business was because these doctors were going to have to pay personal income tax on that amount of money that they made off of malpractice coverage. Number 265 SENATOR TAYLOR said everybody he knows that has got claims made coverage buys a tail, so it is exactly the same coverage as occurrence coverage. HARLAN KNUDSON agreed, and he said he thinks every thinking person buys a tail, but because the insurance premiums have leveled, you will gradually see, as claims made matures, that that tail is going to get more expense. [BETWEEN TAPE NO. 315 & NO. 415 THERE WAS NO RECORDED TESTIMONY. IT STARTS AGAIN IN THE MIDDLE OF THE FOLLOWING PERSON'S TESTIMONY] Number 415 DONNA ROBLINS, testifying in Sitka in support of tort reform, said without tort reform, there will be even greater disenchantment with our judicial system. Each branch of government, the legislative, the executive and the judicial must represent the people with justice and equity or we have no effective government. She said tort reform is an idea whose time has come, and she urged that it be supported by the committee. Number 500 RICHARD ROGERS, a resident of Sitka, stated his support for tort reform and for the legislation, although some areas of it are unclear to him. He said he wasn't sure if he necessarily agreed with the amounts for noneconomic damages, but he does support limitations. He also suggested it would be far better if there were a limitation on the size of the settlement before the structured settlement was put into place. He urged that the legislation be passed in some positive form. Number 632 PAULA SCOTT, a Sitka insurance broker, urged support of the legislation. She said she is not an expert on tort reform but she believes it should include: a limit on noneconomic damages such as pain and suffering; evidence of collateral benefits received by the claimant should be presented to the jury; and punitive damages should be awarded only for punishment of a malicious and intentional act, and they should be awarded by a preset multiple of the actual system. She believes Alaskans have the right to recover costs and damages of civil suits, as well as the right to be protected from unreasonable court settlements. TAPE 95-38, SIDE A Number 090 NANCY DAVIS, a 35-year resident of Sitka currently serving on Board of Directors for the Alaska State Chamber of Commerce, referred to resolution adopted by the Alaska State Chamber of Commerce on December 9, 1994, relating to tort reform standard for punitive damages. They believe the state of Alaska is jeopardized by its present tort law, particularly in the area of punitive damages. Reform is needed to ensure that fair and equal treatment is available for all involved. Ms. Davis said people want an equitable system for businesses, insurance companies and individuals alike. She pointed out that some of the wrongful cases are a concern to the small businessman that is trying to make it. Number 125 JIM MCGOWEN, a Sitka resident, addressed a section of the legislation relating to the statute of repose. He said a few years ago banks in Sitka were squeamish about lending money on houses that were built on muskeg and were experiencing problems because of posts that were put down into the muskeg and were rotting. No bank would lend money on a house that was built on muskeg, which meant that if a person had their life savings invested in their property and they wanted to sell that property they couldn't do it. Mr. McGowen said it appears that this particular piece of legislation would put them back in the same situation as before, where people, through no fault of their own, find themselves beset by a problem that they cannot cure. He suggested that enacting a statute of repose on construction claims is not of service to the people of Alaska and it will result in many innocent people being damaged. Number 250 DARLENE MORGAN, testifying from Ketchikan, spoke to working to see that she, along with two million other women affected by silicone or saline implants, be treated in a fair and equitable manner. She has been working with a local attorney and is frustrated by the system and its inaction on this issue. Ms. Morgan noted that after 10 years of medical problems and pain related to her implants she had them removed. Looking back over those 10 years, she realizes that those implants have caused significant damage to her career, and have greatly affected her emotionally and financially. She still suffers pain and she said she has never met a woman who has said that upon removal of the implants she made a prefect recovery. Ms. Morgan said a lot of money has been made by two industries at the expense of women who had silicone or saline implants. But the original mistake was that of the physician by placing something in their bodies that has never been approved by the FDA. Number 375 DENNIS MCCARTY, a Ketchikan attorney, said he has served eight years on the borough assembly and has been closely involved with the community concerns about getting insurance, as well as protecting the citizens. Mr. McCarty believes that in the professional area, the crisis is more in the policing problems of the various professions. He said there a lot of good and dedicated people in these professions, but it is the bad apples that create the problems over and over. He suggested that if there is going to be reform, to look at the policing problems and try to figure out how to get rid of the ones that aren't doing the job. Mr. McCarty spoke to various sections of the bill, but concluded that it is a very bad bill and questioned its benefit. He said there seems to be little if any evidence that the premiums go down if these changes occur. He suggested the legislation should be directed toward helping the professions police themselves, which will take care of many of these problems of malpractice crisis. TAPE 95-38, SIDE B Number 005 ROBERT COWAN, a Kenai attorney testifying from Kenai, stated he was speaking on behalf of the numerous fishermen that his firm represented after the Exxon Valdez incident, as well as other fishermen that could be affected by this legislation. He directed attention to the punitive damages section of the legislation and the language "or reckless indifference to the interest of another person." He voiced his concern of what might have happened if that language had been in statute at the time of the Exxon Valdez incident. He suggested changing "another person" to "other people." Mr. Cowan is also concerned with the language that would limit the amount of punitive damages awarded by a court to three times the amount of compensatory damages awarded or $300,000, whichever amount is greater. Using rough figures from Exxon, he said he could indicate that instead of $5 billion in punitive damages, which a jury found and the judge approved, the maximum amount of recovery would probably have been somewhere in excess of $800,000. That concerns many fishermen as being unfair relief for any future oil spills. There is also concern with the requirement that one- half of the award be deposited into the general fund of the state. He said many people are concerned that the state is intervening in the civil system without playing any function or role in taking money away from individuals that a jury Alaskans have seen fit to award to them. Number 065 JOHN SIVLEY, a 20-year member of Cement Masons Local 867 in Kenai testifying in Kenai, said over the years he has unfortunately witnessed death and injury at the workplace. This has happened as a result of negligence by individuals and as a result of unsafe company practices. He said the purpose section of the bill speaks to reforms that would reduce the risk of injury, but reading through the bill he found nothing that would reduce the risk of injury. The purpose section also speaks to reducing costs, while ensuring adequate and appropriate compensation, but he found nothing in the bill that would provide for adequate compensation. He questioned how the bill ensures that he would be adequately compensated and how it reduces the risk of injury. There being no further witnesses wishing to testify on CSHB 158(FIN) am, Senator Taylor thanked all the participants and adjourned the meeting at approximately 3:30 p.m.