SENATE JUDICIARY COMMITTEE February 19, 1996 1:30 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator Lyda Green, Vice-Chairman Senator Mike Miller Senator Al Adams Senator Johnny Ellis MEMBERS ABSENT None COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 158(FIN) am(ct rls pfld)(efd fld) "An Act relating to civil actions; amending Alaska Rule of Civil Procedure 95." PREVIOUS SENATE COMMITTEE ACTION HB 158 - See Judiciary minutes dated 5/3/95, 8/21/95, 8/23/95, 8/24/95, 8/25/95, and 2/9/96. WITNESS REGISTER John Suddock Alaska Trial Lawyers Association 500 L St. Anchorage, AK 99501 POSITION STATEMENT: Opposes HB 158, supports amendments Chrystal Smith Department of Law P.O. Box 110300 Juneau, AK 99811-0300 POSITION STATEMENT: Answered questions on HB 158 Mike Lessmeier State Farm Insurance Co. One Sealaska Plaza, #303 Juneau, AK 99801 POSITION STATEMENT: Supports HB 158 Dr. David Johnson Alaska State Medical Assn. Ketchikan Medical Clinic Ketchikan, AK 99901 POSITION STATEMENT: Commented on HB 158 Pam LaBolle Alaska State Chamber of Commerce 217 Second St. #201 Juneau, Alaska 99801 POSITION STATEMENT: Answered questions on HB 158 ACTION NARRATIVE TAPE 96-10, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:36 p.m. All members were present. The committee took up CSHB 158(FIN)am (ct rls pfld)(efd fld) and pending amendments. HB 158 CIVIL LIABILITY JOHN SUDDOCK, representing the Alaska Trial Lawyers Association, repeated his opposition to HB 158 and stated each proposed amendment statistically increases the likelihood that an injured person will not be made whole. The Alaska Trial Lawyers Association believes the bill should be defeated in its entirety but recognizing that might not occur, suggests the following. If the rights of injured Alaskans are being diminished to benefit commercial interests, the rate rollback amendment should be enacted, as other states have done, to provide some balance. The rate rollback amendment is well drafted because at any time during the next four years the industry can file the 10 percent rate decrease to activate the legislation. He counseled against accepting the insurance industry's reassurance that it will reduce rates after the bill passes. MR. SUDDOCK supported the mandatory arbitration amendment for the following reason. Approximately 80 to 90 percent of injury and property damage claims are under $100,000. The amendment would establish a mechanism where those claims, at an early date, after minimal expenditure by the parties, can have an expedited hearing before an arbitrator and be settled. The State of Washington has used a similar system for the past ten years and it works well. There is a perfunctory amount of discovery, and most hearings take one day. If either side is not satisfied with the arbitrator's award, a trial can occur. The penalty associated with going to trial is that if the party moving for trial does not improve his/her position over the arbitrator's decision, that party pays the defendant's attorney fees. He believed that sanction to be appropriate. Number 121 MR. SUDDOCK discussed his reasons for opposing the offer of judgment provision which impose the payment of actual attorney fees of the losing party. If an attorney is representing a plaintiff with a claim against four defendants, there is no way the attorney can accurately predict what the jury awards will be in all four cases. That almost guarantees the attorney will make an error of judgment which will increase client costs because the client will have received an offer of judgment, the attorney will have guessed wrong about at least one of the four offers of judgment, which will require that party's attorney fees be paid. In contrast, if an arbitration occurs first, and the client chooses to take the case to trial but does not do better, the extra cost is acceptable. He did not believe more than 25 percent of arbitrated cases would proceed to trial. This one amendment would place 90 percent of the litigated tort cases in a cost-effective summary proceeding, resulting in an estimated 75 percent of the cases settled. Tort reform should make the procedure more fair, more expeditious, and less expensive for all concerned, rather than cutting the award calculation back until there is very little left for recovery. Number 165 SENATOR TAYLOR noted most mandatory arbitration provisions in other states use a lower limit, such as $50,000. He asked Mr. Suddock's opinion of the $100,000 amount and whether the arbitration amendment meshes with the offer of judgment provision in the bill. MR. SUDDOCK replied he might have set the amount at $50,000 because that is the jurisdictional ceiling for the district court. The State of Washington uses $35,000. He did believe a limit of $50,000 would capture more than 50 percent of the cases, however he projected an additional 25 percent of cases would fall under the $100,000 limit. SENATOR TAYLOR commented part of the dramatic increase in the costs of litigation over the past several years is due to the expansion and misuse of the discovery process. He asked Mr. Suddock if he could recommend any changes to the amendment that would limit or extend the discovery period within the bill to decrease costs. MR. SUDDOCK felt the discovery process should be short. The Alaska Supreme Court has recently gone to an entirely new concept of civil discovery. It can be characterized as requiring the plaintiff to show all of one's cards immediately. It is the ancillary responsibility of the defendant, without formal discovery request, to do the same. Therefore, at the outset of the case, all of the relevant material is voluntarily and immediately exchanged. One deposition is then taken on each side, which rarely takes more than four hours. If there is an injured party, it is reasonable for the defendant or the insurance carrier to be allotted an opportunity for an independent medical exam. That process can be easily completed in 30 days, and will provide approximately 90 percent of the necessary and available information. The other 10 percent of the information is most likely not worth obtaining, however the arbitrator could be given some discretion to grant extra discovery in individual cases. Number 244 SENATOR TAYLOR asked what the time line is in the Washington State arbitration system. MR. SUDDOCK explained there is provision for some attenuated amount of discovery, as described. From the date the arbitrator is appointed, regulations require a trial occur between three and nine weeks, from the date the case was filed. SENATOR TAYLOR observed the amendment requires the court system to appoint the arbitrator and asked what procedure is used in Washington State. MR. SUDDOCK reported Washington has a "strike" system. The court issues a list of five proposed arbitrators from a list of attorneys with some degree of experience in civil practice. Each side can peremptorily strike, or reject, two. In an extreme case, four of the proposed arbitrators could be rejected by the two parties, leaving the fifth person as the arbitrator. If both parties rejected the same arbitrators, the court would appoint from the remainder. In draft language Mr. Suddock proposed, a list of arbitrators would be provided, the right of preemptory challenge would be preserved, and the Alaska Supreme Court would figure out the mechanics. SENATOR TAYLOR commented the same procedure is used to disqualify judges once a case has been assigned. MR. SUDDOCK stated the procedure could become complicated when multi-party cases are involved. SENATOR TAYLOR questioned how successful the Washington State arbitration requirement is. MR. SUDDOCK indicated it appears to be successful since no one is interested in changing it. Number 300 SENATOR ADAMS inquired whether some businesses in the state are waiting for tort reform legislation to pass before processing claims and making payments. He discussed a Chugach Electric Company case in which an electric cable fell off a company truck and hit another driver. Chugach Electric has paid for car repairs but has only paid a small amount of medical fees, only after the situation was publicized in a newspaper. MR. SUDDOCK hesitated to speculate on that case, but asserted there are institutional pressures for a tort feasor to not pay. Lack of payment places tremendous pressure on the injured party to pay medical costs and other expenses while recovering and often creates credit problems for the injured. The defendant takes the position that costs will not be paid in a piecemeal fashion. He believed Chugach Electric would benefit from an arbitration system, because it is far easier for a neutral party to review the situation and determine the award amount. If the defendant agrees, he/she will save the cost of further attorney fees. Number 321 SENATOR ADAMS asked whether there is an insurance crisis in the state, and whether there is a pattern of injured parties receiving excessive awards from the court system. MR. SUDDOCK replied he sees a consistent pattern of undercompensation of victims in cases in the Superior Court of Anchorage and he is unaware of any cases in which a plaintiff received a windfall. He believes almost all Superior Court judges would agree that juries are severely undercompensating plaintiffs. Regarding an insurance crisis, MR. SUDDOCK stated according to industry publications, insurance profits are high and coverage is available. SENATOR TAYLOR informed committee members the committee received a memo, dated February 16, from Ms. Williams of the Attorney General's Office on the legal issues associated with HB 158. CHRYSTAL SMITH, representing the Department of Law, offered to convey questions to Ms. Williams. SENATOR ADAMS asked if the bill is constitutional as written. MS. SMITH could not answer at this time. Number 370 SENATOR ADAMS requested elaboration on the department's position on the statute of repose provision in Section 2. MS. SMITH stated Ms. Williams' memo indicated although Section 4 was intended to solve the constitutional questions, due process problems may exist if an action is barred before the cause of action accrues. Ms. Williams also questioned the definition of "substantial completion" that begins the eight year statute of repose. SENATOR ADAMS questioned whether the Department of Law plans to specify which statutes will contradict court rules and recommend changes to HB 158. MS. SMITH replied she would ask Ms. Williams to respond to that request. Number 390 SENATOR ELLIS referred to page 2 of the memo, regarding actions by minors. He asked for additional research on what the definition of mental disability encompasses, and whether it is a standard definition in Alaska statutes. He questioned whether it includes people born developmentally disabled as well as people with mental illness. He further asked if the state is required to use the definition of mental disability in the American Disabilities Act. He requested information on whether other states have successfully challenged in court a differentiation among children who are mentally deficient, and children who are physically deficient, due to a birth problem, in their rights to bring suit when they reach the age of majority if the parents did not bring suit. MS. SMITH offered to provide the committee with further information. SENATOR TAYLOR expressed concern about the constitutionality of tolling the statute of limitations for mental incompetence but not for minors, who, by definition, are incompetent. It appears to be a significant violation of due process and equal protection rights. His concern is directed to children having to bring suit against their parents because the parent failed to bring an action on their behalf within the time constraints established by the statute of repose. Latent injuries may not appear until a child reaches a certain developmental stage. He noted the possibility that some injuries might not be discernible for diagnosis within eight years. He discussed the need to have these questions answered before enacting the bill, to prevent the Supreme Court from having to determine these issues several years from now at great cost. Number 440 SENATOR ADAMS asked Ms. Smith if the Department had positions on the four proposed amendments. MS. SMITH replied the department has not taken a position at this time. SENATOR TAYLOR asked Ms. Smith to investigate the effect of the implementation of the mandatory arbitration requirement in the State of Washington. MIKE LESSMEIER, representing State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company, testified in response to previous questions raised by committee members. Regarding whether there would be an incentive for insurance companies to delay resolution and payment of claims pending passage of tort reform legislation, HB 158 would apply only to causes of action that accrue after the effective date, therefore would not affect cases currently under consideration. Furthermore, delays are costly, therefore most companies uniformly pay claims as soon as they are owed. Partial payments are made because in previous cases, when an amount being disputed was paid in advance, it was used against the company even when evidence rules admitted in a court of law were contrary. SENATOR ADAMS stated Chugach Electric did not make advance payments. The only time a payment was made was after the story was published in a newspaper. MR. LESSMEIER emphasized the importance of not making decisions on this legislation based on newspaper articles. Number 490 SENATOR TAYLOR agreed that advance payments made by the insured may work against the insured, because that amount of payment might be disclosed at the trial implying some level of liability on the part of the insured. He asked Mr. Lessmeier his view of how the collateral source provision within the bill would impact that argument since that provision allows the insurance company to use the expenses sustained by the injured and his/her family to offset the amount the insurance company is required to pay. He questioned why it should work differently for the insurer and the injured party. MR. LESSMEIER felt the issue raised by the collateral benefits provision to be the concept of self-insuring to a certain degree, which is a policy decision. The issue of admitting collateral benefits was recommended in the only study on excessive claiming he is aware of. The two issues differ in that advanced payments made by the insurer can be used to determine whether there is fault in the case, or when fault is designated, the amount to be compensated. There is a rational basis for allowing the admissibility of one and not the other, if you make the policy decision that it is better to self insure for a percentage of a loss. If that policy decision is not made, the evidence should not be entered on either side. The policy decision is not something State Farm is advocating strongly, it is a different approach. He stated it may be better to take those kinds of cases out of the litigation system. SENATOR TAYLOR questioned how those cases are taken out of the litigation system. He discussed a scenario in which he responsibly maintains a policy of insurance on his family, or self insures. If a member of his family is injured due to the negligence of a drunk driver, a State Farm customer, this policy change would allow State Farm to use the payments made by his insurance policy as a credit toward any judgment awarded against State Farm. He argued why he, as a responsible policyholder, should be held accountable for the negligence and fault of the wrongdoer, and be penalized by a premium increase because he filed a claim. MR. LESSMEIER disagreed with Senator Taylor's premise for the following reasons. First, premiums do not increase if a party is not at fault. Second, society as a whole may be better off if people self insure for a percentage of potential losses. If the legislature does not agree with that policy, that provision should be removed. It is not an issue that can be analyzed by reviewing a single case. All cases and applications that would occur under the collateral benefits provision would have to be reviewed. Number 551 SENATOR TAYLOR discussed the experience of many people whose rates increased after filing claims for injuries sustained as the result of negligent acts of others. MR. LESSMEIER stated that is not common practice, and one which State Farm does not engage in. He reiterated if the legislature does not support the collateral benefits provision, it should be removed from the legislation, as it is not a major part of the legislation from State Farm's point of view. SENATOR TAYLOR repeated he does not believe the victim who was not at fault should have to pay for the negligent party's act. He discussed the historical basis for subrogation. On a global basis, large insurance companies who sue each other have to resolve the costs under subrogation. The provision in HB 158 holds the injured responsible for the collateral sources, does not require the insurer to admit to paying for any portion of the claim, but requires the injured's family to admit to paying a portion of the injured's expenses. MR. LESSMEIER emphasized the advantage of the collateral sources provision, where subrogation does not occur, is that less time and money is spent arguing about who was at fault. Each party bears its own loss. Number 581 SENATOR TAYLOR asked how the collateral benefit provision would be advantageous to an injured party who was not at fault. MR. LESSMEIER indicated to the extent the insurance companies are better able to control costs, clients would benefit. SENATOR TAYLOR asserted if this provision was adopted, and insurance companies reduced their costs, then Senator Adams' amendment requiring a rate rollback would pose no problem. MR. LESSMEIER replied the specific law enacted, and the motivations behind the industry's claims-making practices in Alaska, will affect the industry's loss experience. State Farm's premiums are based on its loss experience in Alaska. To the extent the loss experience can be improved, the money will ultimately be redistributed to Alaskans, or it will not be paid to State Farm initially. State Farm is a mutual company with respect to automobile insurance, and has voluntarily returned money to Alaskans when its experience was better than projected. SENATOR TAYLOR commented the insurance commissioner frequently orders insurance companies to rollback money from companies that overcharge. He commended State Farm for providing the rollbacks voluntarily. TAPE 96-10, Side 2 SENATOR TAYLOR reiterated his belief that the collateral benefits provision penalizes the insured party who is not at fault, because the no-fault philosophy would relinquish responsibility of the at- fault party. MR. LESSMEIER explained the collateral benefits provision applies to medical expenses only, and not to the remainder of damages that could be caused by a drunk driver. In such an example, a claim would be made, and payments would be made, including, most likely, punitive damages. All of those things would have to be taken into consideration and defended. The collateral benefits provision is narrowly confined to medical costs only, and the philosophy behind it is that creating a no-fault approach would benefit everyone. Number 580 MR. LESSMEIER addressed the memorandum from the Department of Law. The only case in Alaska that addresses the statute of repose is the Turner Construction Company Case. The Supreme Court found the purpose of the statute of repose, which is to encourage construction and avoid stale claims by shielding certain defendants from potential future liability, to be a legitimate government purpose. The Supreme Court found the classes created as a result of the statute of repose were not suspect. It found the statute of repose to be unconstitutional because it creates separate classes of people: the potential liability of one class would increase as a result of the distinction made by that statute. He suggested if there is a constitutional problem with the statute of repose in general, the court would not have bothered to analyze the Turner case. By last count, 29 states have statutes of repose, most of them for a similar duration. He emphasized the statute of repose in HB 158 does not suffer from the problem set forth in the Turner decision. SENATOR ADAMS asked Mr. Lessmeier if he could offer any suggestions in case the statute of repose is found unconstitutional. MR. LESSMEIER repeated he thinks this statute of repose is constitutional because it applies across the board, except for classes of claims that were removed in the House after extensive debate, such as product liability and environmental claims. He believed this statute of repose to be as fair as possible. He cautioned that the Supreme Court has reversed at least 50 percent of the cases they review, therefore it is difficult to predict the outcome of an appeal. MR. LESSMEIER discussed Ms. Williams' opinion that Sections 8 and 9 might violate rules of court. He was unsure what rules of court Ms. Williams' was referring to because no rules of court deal with periodic payments. Rules of court have been adopted by the Supreme Court after legislation has been enacted, to implement the substantive rule of law enacted by the legislature. An example is a rule of court on medical advisory panels in medical malpractice cases. The rule of court was designed to implement the substantive law passed by the legislature. Another example is Court Rule 68, which existed before the legislature addressed the subject of offers of judgment. Ten years ago the legislature chose to include in that provision a prejudgment interest penalty. That was then set forth in Court Rule 68. The court reviews the substantive law enacted by the legislature, and incorporates those changes in existing rules or in new rules. The issue is whether legislative changes are substantive versus procedural. Sections 8 and 9 deal with minor, noncontroversial changes to the periodic payment provision so it is unlikely those changes would change a rule of court. Section 17, regarding medical expert witnesses, deals with a procedural rule of court. He did not believe the court has ever determined that an evidence provision adopted by the legislature would be constitutionally prohibited. He felt the only concern about rules of court is in relation to the offer of judgment provision. He personally believed it is the legislature's prerogative to have an offer of judgment provision. Number 484 SENATOR TAYLOR asked Mr. Lessmeier to address Mr. Suddock's concerns about the scenario in which a plaintiff is suing four defendants when the plaintiff does not know who caused what percent of the $100,000 damages. One of the four plaintiffs offers to settle in an offer of judgment of $20,000. How would the attorney advise the plaintiff, and by what information does the plaintiff discern whether that 20 percent is the appropriate amount of liability a jury will find after trial. MR. LESSMEIER stated he would advise his client to investigate the claim thoroughly, to understand the facts, and to make an assessment of that fault based on professional judgment and experience. It is not a precise science, but judgments as to potential liability are made in every single case. SENATOR TAYLOR noted the offer of judgment is limited to ten days. MR. LESSMEIER commented claims are investigated before they are filed with the court. There is a two year period of time in which to investigate a claim before it has to be filed. There is an additional period of time to do discovery. If a plaintiff did not have an adequate opportunity to respond to an offer of judgment of $20,000, and two months after the offer of judgment expires the plaintiff learns new facts, there is nothing to prevent the plaintiff from entering an offer of judgment for the same amount. The amount of exposure would be only for the period of time until the new information was received, entered the offer of judgment, waited for the defendant to accept or reject the offer. Number 447 SENATOR TAYLOR felt the problem is that from the time the offer of judgment arrives, the client must make a decision within ten days. If the offer of judgment of $20,000 is rejected, and the jury finds the defendant liable for $10,000 during the trial, who will pay the defendant's attorney's fees. MR. LESSMEIER verified under HB 158 the plaintiff would have to reimburse the defendant's actual attorney's fees. He explained the provision works both ways: if the plaintiff had entered an offer of judgment of $10,000 and did better after the trial, the plaintiff would be entitled to collect actual attorney's fees and costs. The idea is to provide an incentive that applies equally to both sides to evaluate offers to take reasonable positions. SENATOR TAYLOR stated he does support the idea, but cannot answer Mr. Suddock's question because the playing field is not level. The plaintiff must decide within ten days of receiving four offers of judgment, what amount the jury will decide each defendant is liable for. If the plaintiff guesses incorrectly, he/she will pay the full attorney's fees for any incorrect guess. The same burden is not being placed on the other side. MR. LESSMEIER disagreed because although the offer of judgment must be rejected or accepted within ten days, the plaintiff also has a period of time before filing suit, to investigate the claim. The plaintiff also has the ability to offer his/her own offer of judgment to make the penalty provisions apply to the party being sued. In addition, if the plaintiff learns new facts after rejecting the offer of judgment, he/she is not prevented from making an offer of judgment. Number 402 SENATOR TAYLOR stated the unlevel playing field is caused by the major economic differences between the two parties, especially if a plaintiff is suing a company like Prudential. The larger company can afford to bluff, and go through the trial process. If the plaintiff guesses wrong, and has to pay attorney fees, he/she will probably lose half of the judgment on those costs alone. SENATOR TAYLOR stated it is important to create a loser-pay situation that works effectively to slow down litigation, and is equitable to both sides. Number 381 SENATOR TAYLOR asked Mr. Lessmeier what State Farm's position is on the mandatory arbitration amendment. MR. LESSMEIER responded State Farm's primary concern is the arbitration provision is potentially complicated, but is willing to work with the committee to create an arbitration provision that will work at any level. He asked the committee not to make mandatory arbitration part of the bill as it will delay the movement of HB 158 or kill the bill after many hours have been put into it. He explained State Farm's concern with the proposed arbitration amendment. State Farm's experience is very different from Mr. Suddock's because almost all cases involve plaintiffs who request in excess of $100,000, even for soft tissue injuries. He referred to a pretrial memorandum of a case tried in Ketchikan two weeks ago. State Farm had valued this particular case at $7,500 but the claims presented amounted to $292,000. The judgment was $0. The cases tried in Juneau in the past three or four years have been similar. One case went to the Supreme Court: State Farm evaluated the case at $35,000, the plaintiff evaluated the case at $900,000. The award was $35,500. He has never been on a case that would fall within the mandatory arbitration provision because the request for damages is always greater, therefore he does not believe this provision would apply to very many cases. At present, cases within the $50,000 range can be heard in District Court, without the cost of an arbitrator. State Farm's second concern about arbitration is that it can be much more expensive than simple litigation because if the cost of the arbitrator is split against the parties, both sides have to hire the equivalent of one and one-half attorneys. Often, three arbitrators hear a case. State Farm is also concerned that as drafted, the amendment provides no incentive for one side to take a meaningful position before going to the expense of arbitration. It contains no prevailing party provision and Rule 82 does not apply to arbitration proceedings according to the Uniform Arbitration Act. He discussed an arbitration he was involved in to collect money. Much of the case was not contested, and State Farm won. Because there was no Rule 82 provision, no attorney fees could be reimbursed. State Farm believes there needs to be incentives in the system to encourage people to take reasonable positions. The last concern State Farm has with the mandatory arbitration amendment is with admissibility of the arbitrator's decision when the case goes to trial. There are no rules of evidence to allow that to occur. In the medical malpractice arena, the report of the medical advisory panel can be admitted in court. State Farm favors alternative dispute resolution that is quick as it benefits all parties. MR. LESSMEIER noted State Farm is concerned about the empty chair amendment because the voters were told the effect of the 1988 initiative was that no party would be held responsible for more than his or her percentage of fault. The initiative passed by over 70 percent. This amendment would shift fault back and increases the allocation beyond what a person caused, which is contrary to what the voters wanted. Number 291 SENATOR TAYLOR stated the amendment would allow, if the bill passed in its current form, an empty chair to shift the blame to. MR. LESSMEIER clarified that he believes the committee should implement the intent of the voters which is that no party should be held responsible for more than their percentage of fault. SENATOR TAYLOR asked who would pay for the portion that goes unrecompensed. MR. LESSMEIER replied it is similar to any situation where a claim is barred by a statute of limitations or a statute of repose. If a claim is not filed within a certain time period, it is the policy of this body to dismiss the claim. MR. LESSMEIER addressed the rate rollback amendment. State Farm sets rates in Alaska by the frequency and severity of loss. Tort reform will affect the severity of loss, but not the frequency of loss. State Farm believes it will have a positive effect on severity, but cannot be sure. In looking at California's experience with respect to MICRA, the state litigated every provision in MICRA over a ten year period. They did not know how the provisions would be interpreted and applied for years. State Farm has had that experience in Alaska with the several liability initiative: it took five years to get a decision on that initiative from the Supreme Court, and that decision was contrary to what the voters voted on. The legislature cannot guarantee this bill will become law even if it is passed, because it will be challenged. Second, the director of the Division of Insurance is responsible for ensuring fair and reasonable insurance rates. Additionally, in some markets in the insurance industry, there is good competition. Finally, State Farm is a mutual company, and to the extent it does better, it will give the money back. Number 242 DAVID JOHNSON, representing the Alaska State Medical Association, offered to answer committee questions. SENATOR TAYLOR discussed a situation in which a 14 year old child is in his third cycle of problems with mental illness. Each cycle becomes worse and lasts around three years. The physicians currently involved indicate the problem was caused at birth as the result of the use of forceps. The full impact of the injury will not be known until he reaches his late teens. The problem is severe, and the family has reached its coverage limit and is facing an additional $30,000 in bills for one month. He asked Dr. Johnson what the impact of the statute of repose as contemplated in HB 158 would be upon that family, if the bill passes. DR. JOHNSON stated under the statute of repose, the cause for action must be known at age eight years or after two years, whichever comes last. Therefore if the child's first episode was at age five, the operative amount of time would be age eight. SENATOR TAYLOR explained although the episodes occurred at age five and age ten, the causative factor was not determined until recently, after brain mapping and other procedures were used. DR. JOHNSON responded that without knowing the details of the case, there are two sides of opinions. If the diagnosis is so complicated as to take 15 years to sort out, but first appeared at age five, that is the issue that would be litigated. SENATOR TAYLOR stated the diagnosis has been a process of tracking back and finding that earlier symptoms are related, and develop a pattern, and more clearly indicate the original cause. SENATOR TAYLOR discussed the Jackson v. Powers case and Senator Ellis' amendment which would allow a hospital to be granted immunity for granting privileges to contracting doctors only if those contracting doctors carry a specified amount of liability coverage. SENATOR MILLER announced he and Senator Adams were leaving to attend a free conference committee meeting on SB 123. Number 161 SENATOR GREEN asked if the clock starts with the diagnosis in the case Senator Taylor referred to. SENATOR TAYLOR responded it would not if HB 158 passes. SENATOR GREEN believed the most recent diagnosis would trigger the statute of repose. SENATOR TAYLOR explained under HB 158, eight years is the statute of limitations, or two years beyond the point of discovery if within the eight years. SENATOR GREEN asked for clarification of when the clock would start. DR. JOHNSON responded the tragedy of birth injuries is one of the most emotional aspects of apportioning responsibility. As physicians are taking a more aggressive approach toward operative deliveries in an effort to prevent injuries during labor, they are discovering the majority of abnormal labors are caused by abnormal pregnancies. The stress of labor is the first evidence that a problem with the pregnancy exists. Even though the cesarean section rate has increased substantially, the incidents of cerebral palsy, for example, are not significantly decreasing because the vast majority of those problems are not caused by traumatic birth. While birth is a hazardous process, it is safer now than ever. Diagnoses based on new data and evidence that point to occurrences years ago is often speculative. Such a case would be reportable as a journal article because it would be blazing new territory. In such a case there would clearly be a variety of opinions, and obviously other physicians have had different opinions over the last 15 years. Number 102 SENATOR TAYLOR stated in this particular case, it has taken 15 years for a pattern to develop. He felt this is an example of a situation that would not fall under Section 2 because there is no presence of an undisclosed foreign body, nor were facts intentionally concealed, nor was the last act alleged to have caused the injury within eight years. He believed the statute of repose would not cover a child whose injury was not discovered until age ten, if that injury was the result of a birth complication. Because the parents did not bring the suit on behalf of the child, even though they were unaware of the cause, they could not bring a suit when the cause was discovered. DR. JOHNSON believed that to be an extremely extraordinary case. SENATOR TAYLOR agreed, and noted it is rare for a suit to be filed after eight years. He expressed concern however, that passage of HB 158 would prevent a suit from being filed in such a case. DR. JOHNSON addressed Senator Ellis' amendment. He repeated that the matter is a public policy call by the legislature. Requiring $5 million in coverage would be unaffordable for most physicians if it were available. SENATOR TAYLOR asked what amounts doctors routinely carry. DR. JOHNSON replied there is no routine amount. He reviewed NORCAL's policy limits and associated rates. He was unaware of whether such policies were available to other health care providers listed in the bill. SENATOR TAYLOR asked what level the hospitals carry because both the hospital and independent contractor will be held liable under Jackson v. Powers under existing law. Placing the burden on the independent contractor will eliminate the risk from the hospital. DR. JOHNSON was not aware of the amount of coverage hospitals carry, and reiterated the issue is a public policy call. SENATOR TAYLOR explained the legislature is trying to make that public policy call with no information on the subject. TAPE 96-11, Side One SENATOR ELLIS stated the Hospital Association has taken a position on the amendment and offered to provide the information to the committee. DR. JOHNSON addressed the mandatory arbitration amendment. He believed the issue deserves serious consideration separate from HB 158. He stated it breaks new ground, but needs to be reviewed independent of HB 158. SENATOR TAYLOR responded he is contemplating that approach, however tort reform supporters are requesting systemic reform. He did not believe the amendment does disservice to the bill, and might gain more support for the bill. He agreed that if it appears HB 158 will not be enacted, he intends to submit the amendment as separate legislation. Number 074 DR. JOHNSON commented that this hearing is the seventh on tort reform, therefore to introduce new legislation at this point without giving previous witnesses the chance to address it seems inappropriate. He repeated the Alaska State Medical Association supports mandatory arbitration and would like to see it introduced as a new bill. Regarding the rate rollback amendment, DR. JOHNSON made the analogy of requiring the Permanent Fund Corporation to invest only in stocks that were going to go up. The amendment is antithetical because of the enactment trigger. SENATOR TAYLOR stated the final draft of that amendment will not have that double triggering effect. He likened the amendment to the statute of repose in that a gym ceiling could collapse nine years after it was built, but no injured party could bring suit because the statute of repose has expired. SENATOR GREEN suggested a suit could be brought for gross negligence. SENATOR TAYLOR disagreed. Number 126 DR. JOHNSON discussed the problem with court rules. The fact there is a mechanism by which the legislature can, through a supermajority, directly make rules for the court, in no way means that the legislature cannot make laws that will have to be considered by the Supreme Court in making rules for the courts. It is the Supreme Court's responsibility to look at the Constitution, and statutes as passed by the legislature, and modify the court rules accordingly. SENATOR TAYLOR agreed but noted the subtle distinction is in a mandated rule change versus a substantive law. DR. JOHNSON commented on Section 17. The purpose of this section was to address the issue of junk science. Current laws on medical liability responsibility contain penalties for both frivolous prosecution of claims, and for frivolous defense. The purpose of this section is to establish basic qualifications for medical expert witnesses. This section would require a witness testifying to be a licensed physician. He offered to provide the committee with a simplified amendment to clarify the section. He reiterated the purpose is to establish the medical standard of care, but was misinterpreted by the Attorney General's Office. PAM LABOLLE, representing the Alaska State Chamber of Commerce, informed committee members she is in the process of polling members, as requested by the committee. Number 203 SENATOR TAYLOR stated this issue is bigger than HB 158. The legislature needs to review the public perception that there are outrageous and unfair damage awards. Mr. Suddock's testimony was to the contrary. If, in fact, outrageous and unfair decisions are being handed down in Alaska's court system, the legislative Judiciary Committees are the appropriate bodies to review those claims. PAM LABOLLE clarified she did not use the words "outrageous" and "unfair" in her letter to the committee. She specified her letter stated, "More and more frequently, stories are brought forth from around the country of frivolous lawsuits and outrageous awards for damages." SENATOR TAYLOR stated if that statement is true, he wants information on those types of cases in Alaska. MS. LABOLLE believed HB 158 does address items that bring about some of the frivolous and outrageous lawsuits and settlements, and is a starting point to remedy the problem. SENATOR TAYLOR reemphasized he would be interested to see any back- up information on such cases in Alaska because if they exist, the legislature will do more than pass HB 158. He stated if people are being led to believe such cases are the norm from anecdotal stories around the country, then the public needs to be informed of what is really happening. Such a message conveys to people that we have a corrupt, imbalanced system. If that is true, it is imperative that such cases in Alaska are reviewed. He adjourned the meeting at 3:30 p.m.