HOUSE JUDICIARY STANDING COMMITTEE February 21, 1997 1:04 p.m. MEMBERS PRESENT Representative Joe Green, Chairman Representative Con Bunde, Vice Chairman Representative Brian Porter Representative Jeannette James Representative Norman Rokeberg Representative Eric Croft Representative Ethan Berkowitz MEMBERS ABSENT All members were present COMMITTEE CALENDAR * SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 58 "An Act relating to civil actions; relating to independent counsel provided under an insurance policy; relating to attorney fees; amending Rules 16.1, 41, 49, 58, 68, 72.1, 82, and 95, Alaska Rules of Civil Procedure; amending Rule 702, Alaska Rules of Evidence; amending Rule 511, Alaska Rules of Appellate Procedure; and providing for an effective date." - HEARD AND HELD Governor's Appointments: Violent Crimes Compensation Board - REMOVED FROM AGENDA (* First public hearing) PREVIOUS ACTION BILL: HB 58 SHORT TITLE: CIVIL ACTIONS & ATTY PROVIDED BY INS CO. SPONSOR(S): REPRESENTATIVE(S) PORTER, Cowdery JRN-DATE JRN-PG ACTION 01/13/97 43 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 43 (H) JUDICIARY, FINANCE 01/16/97 95 (H) COSPONSOR(S): COWDERY 02/17/97 373 (H) SPONSOR SUBSTITUTE INTRODUCED- REFERRALS 02/17/97 374 (H) JUDICIARY, FINANCE 02/19/97 (H) JUD AT 1:00 PM CAPITOL 120 02/19/97 (H) MINUTE(JUD) 02/21/97 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER JIM SOURANT, Legislative Assistant to Representative Brian Porter Alaska State Legislature Capitol Building, Room 216 Juneau, Alaska 99801 Telephone: (907) 465-4930 POSITION STATEMENT: Answered questions regarding SSHB 58. THOMAS B. STEWART, Judge (Retired) Alaska Superior Court P.O. Box 114100 Juneau, Alaska 99811-4100 Telephone: (907) 463-4741 POSITION STATEMENT: Testified on behalf of Governor's Advisory Task Force on Civil Justice Reform regarding SSHB 58. DAVID A. McGUIRE, M.D., Representative Alaska Liability Reform Group 4048 Laurel Street, Suite 202 Anchorage, Alaska 99508 Telephone: (907) 562-4142 POSITION STATEMENT: Testified on SSHB 58. JOEL BLATCHFORD 1983 Waldron Drive Anchorage, Alaska 99507 Telephone: (907) 563-3743 POSITION STATEMENT: Testified on SSHB 58. CHERI SHAW, Executive Director Cordova District Fishermen United; and Chair, Tort Reform Committee United Fishermen of Alaska P.O. Box 939 Cordova, Alaska 99574 Telephone: (907) 424-3447 POSITION STATEMENT: Testified in opposition to SSHB 58; provided suggestions. DALE BONDURANT HC 1, Box 1197 Soldotna, Alaska 99669 Telephone: (907) 262-0818 POSITION STATEMENT: Testified in opposition to SSHB 58. PAUL SWEET P.O. Box 1562 Palmer, Alaska 99645 Telephone: (907) 745-2242 POSITION STATEMENT: Testified in opposition to SSHB 58. STEVE CONN, Director Alaska Public Interest Research Group P.O. Box 101093 Anchorage, Alaska 99510 Telephone: (907) 278-3661 POSITION STATEMENT: Testified on SSHB 58. BONNIE NELSON 20615 White Birch Road Chugiak, Alaska 99567 Telephone: (907) 688-3017 POSITION STATEMENT: Testified in opposition to portions of SSHB 58. ROSS MULLINS P.O. Box 436 Cordova, Alaska 99574 Telephone: (907) 424-3664 POSITION STATEMENT: Testified on SSHB 58. DARYL NELSON 4334 Vance Drive, B-5 Anchorage, Alaska 99508 Telephone: (907) 333-9713 POSITION STATEMENT: Testified in opposition to SSHB 58. ERIC YOULE, Executive Director Alaska Rural Electric Cooperative Association 703 West Tudor Road, Number 200 Anchorage, Alaska 99503 Telephone: (907) 561-6103 POSITION STATEMENT: Testified on SSHB 58. JEFFREY W. BUSH, Deputy Commissioner Office of the Commissioner Department of Commerce and Economic Development P.O. Box 110900 Juneau, Alaska 99811-0800 Telephone: (907) 465-2500 POSITION STATEMENT: Provided Administration's position on SSHB 58. ACTION NARRATIVE TAPE 97-23, SIDE A Number 0020 CHAIRMAN JOE GREEN called the House Judiciary Standing Committee to order at 1:04 p.m. Members present at the call to order were Representatives Green, Bunde, Porter, Croft and Berkowitz. Chairman Green noted that Representatives James and Rokeberg would be late; they arrived at 1:56 p.m. and 2:00 p.m., respectively. SSHB 58 - CIVIL ACTIONS & ATTY PROVIDED BY INS CO. The only order of business was Sponsor Substitute for House Bill No. 58, "An Act relating to civil actions; relating to independent counsel provided under an insurance policy; relating to attorney fees; amending Rules 16.1, 41, 49, 58, 68, 72.1, 82, and 95, Alaska Rules of Civil Procedure; amending Rule 702, Alaska Rules of Evidence; amending Rule 511, Alaska Rules of Appellate Procedure; and providing for an effective date." CHAIRMAN GREEN said the sponsor would explain the bill and questions for clarity would be addressed. However, there would be no debate on substantive issues. Public testimony would be taken that day and Monday, February 24. The committee would then debate and discuss SSHB 58 on Wednesday, February 26. Number 0221 REPRESENTATIVE BRIAN PORTER, sponsor of SSHB 58, read from Section 1, subsection (1), which set forth the legislative intent: "encourage the efficiency of the civil justice system by discouraging frivolous litigation and by decreasing the amount, cost, and complexity of litigation without diminishing the protection of innocent Alaskans' rights to reasonable, but not excessive, compensation for tortious injuries caused by others". He said that was the legislation in a nutshell. REPRESENTATIVE PORTER said Section 2 was not substantive but a minor consistency change. A change existed in Section 23 reflecting the thought of the Governor's Advisory Task Force on civil justice reform, as well as the previous year's bill, that the rate of prejudgment interest should more adequately reflect the marketplace instead of being a fixed rate, which was currently 10.5 percent. The provision in Section 23 provided for a floating rate. Section 2 was a consistency change to leave 10.5 percent interest in a section of the banking code that was referenced to this section, he said. The banking statute was being left in place, with this being a conformity change to what was done in Title 9. Number 0439 REPRESENTATIVE PORTER said the next sections dealt with the statute of repose and the statute of limitations. In layman's terms, a statute of repose is an absolute outer limit on when a case can be brought, based on the length of time since the action took place that supposedly caused injury or damage. SSHB 58 proposed an eight-year statute of repose. Within that eight years, varying statutes of limitations shortened the time period allowed if the plaintiff knew or should have known that the damage or injury had taken place. The bill suggested what those limits should be in several areas. Number 0615 REPRESENTATIVE PORTER said Section 3 reflected suggestions from the task force. It addressed a law that had contained a six-year statute of limitations on several provisions. Section 3 specified what would retain that six-year statute of limitations. "And further limitations will be shown from that law that -- as it had existed in subsequent sections," he added. REPRESENTATIVE PORTER referred to Section 4. Again from the task force, it imposed a three-year statute of limitations, reduced from six years, on contract actions. Number 0666 REPRESENTATIVE ERIC CROFT said some task force conclusions were compromises between doing nothing and having more extreme provisions. He asked whether Representative Porter intended to include the compromises as well as the original legislation. REPRESENTATIVE PORTER said he was on the subcommittee that dealt with the statute of limitations issue. He believed the provisions did not result from discussion of "outer limits" or a "compromise to the middle." He said it was a suggestion by a subcommittee member that was discussed, adopted, and then subsequently adopted by the entire task force. Number 0764 REPRESENTATIVE CROFT asked whether Representative Porter's intention on the statute of repose was to keep the discovery rule intact. For example, if someone had no way of knowing a harm had been done until nine years had passed, would that be barred? Was there any relief for someone who, through no fault of their own, did not know? REPRESENTATIVE PORTER said he hadn't yet explained the statute of repose. However, to that specific question, there certainly could be a situation where someone did not have, for whatever reason, knowledge of an injury or a damage. If the statute of repose had been completed, that would be a bar to filing a case. However, there were exceptions where the statute of repose would not apply. He offered to go through those. CHAIRMAN GREEN suggested he address them as they came up, but only for clarification. Number 0846 REPRESENTATIVE PORTER pointed out the statute of repose is similar to the hearsay rule in that the meat of the law is in the exceptions. He listed exceptions to the eight-year statute of repose from Section 5(2)(b)(1): (A) any prolonged exposure to hazardous waste; (B) an intentional act or gross negligence; (C) fraud or fraudulent misrepresentation; (D) breach of an express warranty or a guarantee. REPRESENTATIVE PORTER said one criticism of a statute of repose is the supposition that people wanting to provide a longer period of time were seemingly barred from doing so. That is not the case, he said. Citing the example of a school roof falling in, he said no such cases on record had occurred within the allotted time period. However, nobody constructing a building was barred from having a contract with the contractor for a longer period of statute of repose if both parties agreed to it. REPRESENTATIVE PORTER believed one of the biggest exceptions was Section 5(2)(b)(1)(E), a defective product. There had been much testimony over the last four years about "some of the more salient products that have come to light after an eight-year period." He cited Thalidomide as an example. Although one could argue for a statute of repose in those cases, an accommodation and compromise existed in this legislation. "We're saying, `Okay, we're not going to fight that battle today,' he said. "Quite frankly, I don't intend to fight it ever, but if someone wants to, welcome." Number 1050 REPRESENTATIVE PORTER said another cause for exception would be if a defendant had intentionally tried to conceal any element that would go to establish the occurrence of the injury or negligence. REPRESENTATIVE PORTER referred to Section 5(2)(c), which he described as somewhat unusual, a sticking point for which accommodation was made along the way. "The old sponge left in the body after surgery" kept coming up, he said. "We toll the statute of repose. Tolling is a nice legal word for meaning that it's null and void, held in abeyance until this thing is discovered, that if there is a foreign body that has no therapeutic or diagnostic purpose found ... in a person's body, that that is an exception to the statute of repose." Number 1132 REPRESENTATIVE ETHAN BERKOWITZ asked whether hazardous waste had a legal definition or was addressed by a body of law. REPRESENTATIVE PORTER replied, "It is an attempt to address another concern that was raised of the more typical kinds of `someone's property leached chemicals into my property and I didn't know about it,' those kinds of things." He said if someone had a better definition, he would certainly look at it. Number 1184 REPRESENTATIVE BERKOWITZ asked whether there was a reason for using the term "waste" instead of "material." REPRESENTATIVE PORTER said there may have been at the time; however, he could not recall one. REPRESENTATIVE BERKOWITZ asked whether a person committing a criminal act would fall outside the statute of repose. REPRESENTATIVE PORTER said, "The exception regarding an intentional act, would, I'm sure, bring that outside." REPRESENTATIVE BERKOWITZ asked, "That would include even if the criminal statute of limitations precluded a criminal action?" REPRESENTATIVE PORTER said yes. The statute of limitations for prosecution would not apply to a civil case. Number 1235 REPRESENTATIVE BERKOWITZ asked whether defective products included products involving "intellectual property" such as an idea. REPRESENTATIVE PORTER replied, "Well, the definition, of course, is an object that has intrinsic value, is capable of delivery as an assembled whole or as a component part and is introduced into trade or commerce. I don't think thoughts would fall into that definition." Number 1270 REPRESENTATIVE BERKOWITZ asked, "If there's an indication of intentional concealment, the tolling period begins at what point?" REPRESENTATIVE PORTER replied, "When the injury, damage, whatever is discovered, or should have been discovered, and that's put in there, obviously, so that you can't just say, `I didn't know' and (indisc.) to prove what's in a person's head. Then the two-year statute of limitations would start accruing, but the statute of repose, the eight-year limitation, would be tolled, so that if this discovery were made ten years after the fact, and it was as a result of an intentional concealment or fraud or something like that, then you would have two years to get it in." Number 1308 REPRESENTATIVE CROFT asked, "The statutes of limitations don't mention it, but do they still contain the discovery rule?" REPRESENTATIVE PORTER said yes. The definition of "from the time of accrual" was not currently in statute, but it fairly reflected the case law. He explained that the statute of limitations begins from the time a person knew or should have known, which was basically the time of accrual. REPRESENTATIVE CROFT said, "So the statute of limitations provisions didn't mean any change in the discovery rule." REPRESENTATIVE PORTER concurred. REPRESENTATIVE CROFT continued, "But the statute of repose provisions do. I mean, that's the point of a statute of repose." REPRESENTATIVE PORTER replied, "By definition; that's correct." REPRESENTATIVE CROFT said, "And my original question from before was: Something that someone has no way of learning, if it doesn't fall into these exceptions, would be barred after eight years?" REPRESENTATIVE PORTER said that was correct. Number 1382 REPRESENTATIVE PORTER referred to Section 6, the limitation of actions against health care providers. He said it provides an exception to the statute of limitations for children from zero to six years old. He explained, "It, by its first statement, notwithstanding the disability of a minor, shortens an exception that currently exists in law that provides ... that the statute of repose, if you will, is tolled for minors, for incompetent persons, and in cases of adult recollection of child abuse when the memory was suppressed and was later recalled as an adult." REPRESENTATIVE PORTER said those three exceptions to the statute of repose were existing law. In this statute, the exception for minors was being changed from eighteen years to eight years of age. As a result, the statute of repose would be in place for these kinds of cases for injuries to children up to six years of age, such as at-birth injuries. "The statute of limitations is tolled, but the statute of repose fits with this," he said. Number 1470 REPRESENTATIVE CROFT asked whether there was a statute of repose previously or simply a tolling of the statute of limitations up to 18 years, the age of majority. REPRESENTATIVE PORTER indicated the statute of repose was repeatedly in and out of the statutes, based on actions by the legislature and the courts. He did not know when the exception for the three kinds of cases was put into law. However, he said, it would have stayed in effect "during this transition of up and down, in and out, statutes of repose, anyway." Number 1503 REPRESENTATIVE CROFT stated, "This has the same effect of the other statute of repose, that if it doesn't fall within an exception, it doesn't matter whether they knew or reasonably should have known of their cause of action; it's an absolute bar." REPRESENTATIVE PORTER replied, "It begs an editorial response, but I will not make one." He referred to Section 7 and said it "basically, again, confirms a reduction that is the final portion of the section that I told you about where everything had had a six-year, and again brings in the suggestions of the task force for recovery of damages for personal property, that -- which sat at two years instead of at six." REPRESENTATIVE PORTER indicated Section 7 retained the language regarding penalties and forfeitures to the state. Litigation had occurred over "what should have been obvious" because the statutes did not provide that an intentional act can be considered a tort. This clarified that negligence or an intentional act can result in a recognized claim for, and award of, civil damages. Number 1598 REPRESENTATIVE PORTER said for the next section, it would benefit nonlawyers to explain the kinds of damages that can be sought in tort cases. He said a tort is a civil wrong that results in injury or damage to someone's property or person as a result of an act committed by, or an omission by, somebody else that was negligent, grossly negligent or intentional. There are three areas of claims: economic, noneconomic and punitive. REPRESENTATIVE PORTER explained that economic damages resulting from the action that caused damage or injury were meant to make the plaintiff whole to the extent that, if the injury required medical attention or other costs, economic damages would provide those costs. REPRESENTATIVE PORTER cited examples such as future medical costs, assistive technology including in-home adjustments to accommodate a wheelchair, retraining for new work and lost future wages. Virtually any cost or reasonable projected cost accruing because of the injury or property damage was included. He said, "There is no limit in this bill, intended or actual, to economic damage recoveries." Number 1750 REPRESENTATIVE PORTER said noneconomic damages and punitive damages were the areas in which SSHB 58 sought to place an "outer limit" or cap. Noneconomic damages were those damages provided to compensate for such things as pain and suffering, physical impairment or disfigurement, loss of enjoyment of life or consortium, and other nonpecuniary damage. Although certainly recognizable, real and understandable, they were subjective and debatable. REPRESENTATIVE PORTER said currently the law provided a cap of $500,000 for noneconomic damages, with exceptions for serious injury or disfigurement. However, there was no definition in the law for those. He noted, ""Consequently, serious injury or disfigurement is a pretty nebulous exception." Number 1848 REPRESENTATIVE BERKOWITZ stated his understanding there was no cap for serious physical injury. REPRESENTATIVE PORTER said, "Right. Or disfigurement." REPRESENTATIVE BERKOWITZ asked whether that included loss of a limb. REPRESENTATIVE PORTER said, "I'm sure that serious injury would include loss of a limb. That's what we're suggesting in our proposal." He noted that serious injury and disfigurement were relative terms. He stated his intention of eliminating ambiguity. Number 1895 REPRESENTATIVE BERKOWITZ referred to Section 8(c)(1), relating to a person who became a hemiplegic, paraplegic or quadriplegic. He asked whether those were not serious physical injuries for which there should be no limits. REPRESENTATIVE PORTER replied, "Well, we're saying that there should be a limit for noneconomic damages. What we're providing in Section 8 is limits to both areas of noneconomic damages. What we're saying is the limit should be $300,000. But in the case of serious physical injury, if you want to put it that way, we'll say what serious physical injury is so there won't be any debate on it. And we say that the cap on that should be $500,000." He indicated that was a change from the current unlimited cap. REPRESENTATIVE BERKOWITZ asked for clarification. REPRESENTATIVE PORTER explained, "Existing law says that there is a cap of $500,000 for noneconomic damages. But in those cases that have serious injury or disfigurement, that cap is removed. ... What we're suggesting is that there be a cap of $300,000 in, if you will, less serious kinds of injuries, and that for the more serious kinds of injuries - and we are providing, somewhat like the theory of Worker's Comp, we're providing what we think very objectively sets out what is a serious injury - but in those cases, the cap moves only from $300 to $500 [thousand], not unlimited." Number 2006 REPRESENTATIVE CON BUNDE asked whether there were instances where damages would be unlimited. REPRESENTATIVE PORTER said there was no limit proposed for economic damages. Number 2034 REPRESENTATIVE CROFT said, "This covers death. So it's a cap on noneconomic damages for a wrongful death." REPRESENTATIVE PORTER agreed. REPRESENTATIVE CROFT asked, "What are the economic damages of death?" REPRESENTATIVE PORTER said the family of a person who was killed could claim all of the things they had just discussed, including medical and burial expenses as well as losses from a deceased breadwinner's inability to earn a living. Any projected wages that would have accrued to the family or that individual would still be a viable claim under economic damages to that person's heirs and dependents. Number 2080 CHAIRMAN GREEN stated his belief that the discussion on the three types of damages was worthwhile. He noted that SSHB 58 did not cover criminal actions. He referred to the O.J. Simpson murder case and said a civil action can be brought for the commission of a criminal act. He asked Representative Porter whether that possibility of a civil action still existed under the bill. REPRESENTATIVE PORTER said, "Absolutely." Number 2129 REPRESENTATIVE BERKOWITZ asked how many cases annually in Alaska would exceed the cap and how many would "brush up against it." REPRESENTATIVE PORTER said that problem was developed and defined by the task force. He believed the Alaska Court System's best estimate was that of all the cases filed, 95 percent settled prior to trial. "The effect of the provisions of the law currently on economic, noneconomic and punitive damages really can't be determined from 95 percent of the cases because they're sealed, closed settlements and are nonpublic," he explained. REPRESENTATIVE PORTER said there was a section that provides that basic data from the settlements, not names but information that could reveal the effect of the law on the results of these cases, would be furnished by the court to the Alaska Judicial Council. That would be compiled so that in the future it could be determined whether it was having the desired effect. REPRESENTATIVE PORTER said within the information they obtained, they looked at one year, which he believed was 1995, to examine the 5 percent of cases that actually went to trial. As he recalled it, one in five had awards for noneconomic damages and one in twenty had awards for punitive damages. He suggested asking task force members about it. However, he did not recall whether or not they had the information about the numbers that approached the proposed caps. Number 2248 CHAIRMAN GREEN advised that Art Snowden from the Alaska Court System had made a presentation earlier that week to a joint committee in the Senate, providing statistics on various cases. He also noted that Chris Christensen, staff counsel for the court system, was currently present. REPRESENTATIVE BERKOWITZ said he could get that information. Number 2267 REPRESENTATIVE PORTER said Section 9 dealt with punitive damages. He believed it was established case law, at least stated by the Alaska Supreme Court, that the intent of punitive damages was not compensation to the plaintiff. Rather, it was to punish a defendant whose behavior was so outrageous as to require sending a message to the individual or company that the behavior should not reoccur; it also deterred anyone in a similar position from doing likewise. REPRESENTATIVE PORTER said, "The language defining what the level of evidence is, the kind of behavior is, is not in statute now but is, we feel, and I don't think there's any argument, that malice or conscious acts showing deliberate disregard of another person basically is taken out of existing case law, where the Supreme Court has indicated their thoughts about what constitutes that level of behavior." CHAIRMAN GREEN suggested the McDonalds case involving burns from too-hot coffee would not fall under punitive damages. REPRESENTATIVE PORTER replied, "Well, the McDonalds cup of coffee was found to be in the punitive damage area." CHAIRMAN GREEN asked, "But if this were to be enacted?" REPRESENTATIVE PORTER replied, "It could be." Number 2365 REPRESENTATIVE CROFT asked, "Are you intending a change in the law or encapsulating the case law that's developed?" REPRESENTATIVE PORTER said it should not represent a change but just encapsulate case law. Number 2372 REPRESENTATIVE BERKOWITZ asked whether "person" meant legal persons, which would include corporations. REPRESENTATIVE PORTER said he understood that punitive damages could be assessed against a corporation. REPRESENTATIVE BERKOWITZ said, "By using the term `person,' there are corporate entities such as partnerships that don't have legal personage, I guess that's the correct terminology. Would these fall outside the reach of this?" REPRESENTATIVE PORTER said the word "person" in the definition was meant to describe the plaintiff, the injured party. Number 2398 REPRESENTATIVE BERKOWITZ read from page 6, line 1, "by the person from whom the punitive damages are sought." REPRESENTATIVE PORTER said "person" in that context would certainly mean the entity as well as the person. He said Section 10 went on to establish the cap on punitive damages. Currently, there was no cap. "This provides that the cap on punitive damages is $300,000 or three times compensatory damages, whichever is greater, so that in a very small type of claim, where a person's actual loss amounted to $1,000 and there was an additional award of noneconomic damages of $9,000, the total compensation would be $10,000. Three times that would be 30 [thousand dollars], so that would not be the limit; the limit would be $300,000. In cases where total compensatory damages, which is the sum of economic and noneconomic damages, when it's substantially higher than that, then the cap would be three times that." REPRESENTATIVE PORTER noted the biggest punitive damages case in recent memory in Alaska involved the Exxon Valdez oil spill. "It was in the federal courts and this law does not affect the federal jurisdiction," he said. "It was actually maritime, which even further isolates it from our laws." He said had that whole case unfolded under this law in state court, the award would still have been capable of punitive damages. TAPE 97-23, SIDE B Number 0001 REPRESENTATIVE PORTER referred to expansion of the limit of $300,000 or three times compensatory damages. He said, "We did this because, again, we tried to look at the work of the task force, recognize some of the philosophies that it incorporated, and to the extent that, in the opinion of myself and many others that are interested in tort reform, did not severely compromise the total package of the bill that we feel is necessary to be able to achieve the goals of reduced costs and insurance." REPRESENTATIVE PORTER stated, "So to that end, this is a narrow exception, admittedly, that would provide four times compensatory damages or $600,000 in those cases where the wrongful conduct, or the omission, ... occurred in the activity of a commercial enterprise, and that the likelihood of death or serious bodily injury from this activity was previously known by the persons responsible, and that it continued in face of actual knowledge that their behavior or their omission actually was going to result in more serious physical injury or death. I have not specifically read the case, but it's my understanding that that basically was what was proven in the Ford Pinto case." Number 0090 REPRESENTATIVE CROFT referred to Section 10 and said, "You mentioned federal jurisdiction. This would still limit damages; all of the provisions of this would still apply in any diversity action in federal court." REPRESENTATIVE PORTER deferred to Jim Sourant. JIM SOURANT, Legislative Assistant to Representative Brian Porter, noted that he is a former federal law clerk and said the answer is yes. "In a federal diversity case, the federal courts look to the substantive law of the state," he said. In this case, the federal court would definitely look to this law. Number 0133 REPRESENTATIVE CROFT commented that he had been a federal law clerk too. He said to Representative Porter, "You mention the goals of punitive damage is send a message, deter others, and you mention the Pinto case. And you chose a method here. How do we know this is enough to send a message? I'll get a message if somebody fines me $10,000; the Ford [company] may not." CHAIRMAN GREEN suggested the question invited debate and was not solely for clarification. He ruled it out of order. REPRESENTATIVE PORTER indicated it would be discussed later. Number 0155 REPRESENTATIVE BERKOWITZ asked, "How many cases, going back to 1995, actually had punitive damages?" REPRESENTATIVE PORTER said he could not remember the total number of cases pulled to represent that 5 percent of the 1995 cases. "The statistic that I'm recalling is that one in twenty of them had punitive damage awards," he said. REPRESENTATIVE BERKOWITZ said it was "5 percent of 5 percent." REPRESENTATIVE PORTER said the data collection for settlements was aimed at determining what effect on settled awards the claim of punitive damages had. REPRESENTATIVE BERKOWITZ asked, "How many of those punitive damage awards brushed up against the limits here?" REPRESENTATIVE PORTER said, "Again, I don't know." REPRESENTATIVE BERKOWITZ asked where this information was contained. REPRESENTATIVE PORTER said, "If it exists, it's contained in the research that was done by the staff to the task force ... and that was done by the judicial council. And as I say, I don't remember whether they gathered that particular information or not." Number 0218 REPRESENTATIVE BERKOWITZ said, "This question of diversity. If there were to be another Exxon Valdez-type case, would ... punitives be affected?" REPRESENTATIVE PORTER said he had heard this debated. Because the Exxon Valdez incident occurred on the high seas, it was a case that brought in the federal Maritime Act. The likelihood of it being diverted to state court was remote. REPRESENTATIVE GREEN noted that Representative James had joined the meeting. Number 0266 REPRESENTATIVE PORTER referred to Section 11. He said periodic payments begin after a judgment is in and an award has been made that takes into account, for example, future earnings. He explained, "Periodic payments provide the principle that the compensation of future earnings might occur over a period of years so as to more closely represent the earnings as they would have come when they were awarded." Representative Porter said the substantive change was allowing either the defendant or the plaintiff to elect for periodic payments, as opposed to existing law, which only allowed the plaintiff to make this election. REPRESENTATIVE PORTER said SSHB 58 also provides that the future earnings would be reduced by the amount of income tax that would have accrued against these earnings at the rate that exists at the time of the judgment. He explained, "Currently, that reduction is not made, and it is felt [it] represents compensation that this person would not have received had they not been injured and worked and received this money as wages." He said it also provided for adjustments when changes occurred to the Internal Revenue Service (IRS) code. Number 0388 CHAIRMAN GREEN responded, "That would apply as our income tax rates ... change, as they have in the past. This type of payment would float with that. What about a single payment? I guess it's not a perfect world. You'd do that based on the current income tax rate, and would that be reduced from single payment?" REPRESENTATIVE PORTER said there was no adjustment suggested, or in the law, for a bulk payment. Quite a bit of a bulk payment would be in the areas of economic and noneconomic awards. He believed those two categories, except for wages, were not taxed. He said, "The medical compensation, the noneconomic damages are not taxed now." REPRESENTATIVE BERKOWITZ asked who would calculate the amount of tax that would have applied. REPRESENTATIVE PORTER replied that it would probably be an agreement between the parties. He said, "I mean, the rates themselves are the rates that are in effect at the time of the judgment; so that's pretty straight-forward. What the level of compensation was going to be, or was projected to be, if the two parties couldn't agree on that would be a decision for the (indisc.)." Number 0540 REPRESENTATIVE CROFT said, "Assuming the entire award is taxable ... and assuming it's all done in a lump sum, they're going to have to pay taxes on it. ... If we reduce the award by an estimated 15 percent tax, do they then pay 15 percent on the remainder? ... Or does the defendant give it to the IRS? Assuming an entirely taxable award, what is the intent?" REPRESENTATIVE PORTER said, "Well, I think that that's the problem. I don't think that's a good assumption. Most of that portion of an award in a lump-sum award is not taxable. Very little of it is. So to the extent that that is, we're just saying, `Okay.' But it is very clear, on long, extended future-earnings awards, that it is a windfall, if you will, to receive, if it's projected that you were supposed to make $50,000 a year for the next 30 years, you would have paid whatever tax on that amount of money for that whole period of time. Currently, ... when you receive a future-wage judgment, that is based on the total amount that you would have earned, and there is no deduction for the amount of taxes that you would have paid." Number 0540 REPRESENTATIVE CROFT said the point was well-taken that most of a judgment is noneconomic and therefore not taxable. "So just taking the part that is taxable, if I say you would have made $100,000 a year, and then the death, you're making zero, and so under the old rule, I'd give you $100,000 a year. Under this rule, I'd reduce it by the estimated taxes. My understanding is, if it would have been a taxable thing, a wage, that person is going to have to pay the tax. So if I give them the $100,000, that does appear like a windfall, but then they pay taxes on that portion." He suggested that was being taxed twice. Number 0575 REPRESENTATIVE PORTER said, "I believe the answer to the question is that that person would not have to pay the tax. That's where the windfall comes in, future economic ...." REPRESENTATIVE CROFT said that was not his understanding but he would clarify it. Number 0591 REPRESENTATIVE BERKOWITZ said, "Say I owe you $100. You'd pay $20 on that in taxes. I would pay you $80 under this arrangement?" REPRESENTATIVE PORTER replied, "Well, under this arrangement, if this was something that you were going to pay me over a long period of time, I would say yes, the theory being that under existing law, because of the nature of the payment, I would not have to pay tax on it. So if you owed me that amount of money, you could get away with paying me less than what I would have earned because actually the only thing that I would have in my pocket, if I were working, would be the -- using your, say $100 and deduct $10, okay? If nothing had happened to me and I would have had this income over the next ten years, my actual net income would have been $90 a year. If the amount of gross pay that I receive is the $100, right now the courts are awarding future economic damages in the area of $100, because that's my gross." REPRESENTATIVE PORTER said under current IRS law, because it is a future-economic-damage award from this kind of case, it would not be taxable. "But to make me whole, really, would only require $90 a year." Under SSHB 58, a defendant would pay the amount required to make the plaintiff whole. Number 0704 REPRESENTATIVE BERKOWITZ asked, "And so I'm paying less than the compensatories I owe you, and the IRS is the one that gets cut out of the loop?" REPRESENTATIVE PORTER replied, "For the specific future earnings section of all of these potential claims, yes. IRS isn't out of the loop because they wouldn't have taxed it in the first place." REPRESENTATIVE BERKOWITZ said, "I'll come talk to you about this." CHAIRMAN GREEN noted that Representative Rokeberg had joined the meeting. Number 0710 REPRESENTATIVE PORTER said Section 12 specifically provides that either party can select periodic payments. He said if the plaintiff is represented by an attorney on a contingent-fee basis, it provides that the "contingent fee is reduced, if it's required, to present value and paid, so that the remainder, then, is put on periodic payment." Number 0773 REPRESENTATIVE BUNDE asked, "But if the attorney wanted to stay part of the periodic pay-out, ... would they be allowed or are they precluded from that?" REPRESENTATIVE PORTER said he presumed they would be allowed, but he did not think that would happen. He did not believe there was a prohibition. He said a settlement was basically either structured or an annuity. One concern in these settlements was what guarantee existed that the money would be there. Therefore, the court was required to make certain there was security in the establishment of these payments. REPRESENTATIVE PORTER said in Section 13, there was an exception from posting security for the state, self-insured municipalities, and insurance companies whose rated financial strength was in the highest two categories, as measured by any two nationally recognized independent rating services. Whether for a structured settlement or annuity, the same criteria were used for a secure annuity. Number 0902 REPRESENTATIVE BERKOWITZ asked, "Section 12 is done at the request of either party?" REPRESENTATIVE PORTER said yes. REPRESENTATIVE BERKOWITZ said, "So even if the injured party wanted a lump sum, the ...? Number 0914 REPRESENTATIVE PORTER interjected, "That is correct." He said Section 14 basically allows the future payments to take into consideration inflation and provides what that rate would be, so that the value of the compensation stays the same. Referring to Section 15, he described collateral benefits as those things that a plaintiff receives in compensation from other sources, rather than from a judgment that the defendant has to pay. He cited the example of the driver of a car being injured because of someone's negligence. Car insurance would pay for repair of the car, medical bills and so forth, depending on the coverage. REPRESENTATIVE PORTER explained, "Currently, the jury at the subsequent trial of the person who negligently hit you is not allowed to hear that these other collateral sources exist and actually have, in many cases, paid some of the costs of the claims that the plaintiff is making." He said after the jury rendered its judgment, the defendant could bring before the judge evidence of other collateral sources. The judge then determined how much the judgment should be reduced, based on what those sources were. Following that, whoever furnished that collateral source often sued the defendant to try to recover that amount, with a whole new trial to establish that negligence. REPRESENTATIVE PORTER said, "Consequently, what we're providing here is one, let's eliminate that step of the subsequent trial and say if a collateral source, other than those that are by law required to seek subrogation, which is the return of that money, just your plain old everyday insurance company, let's just no-fault that. We're not going to require another trial, another filing of the case to get that money back. Let's just say if it's a collateral source and you paid it, this person paid premiums to get that coverage, you provided it, let's call it square, the idea again being that the person is made whole." REPRESENTATIVE PORTER continued, "What isn't covered by insurance, then, certainly is a claim that can be looked at by the court. And we're saying that that information should be provided to the jury, so that they can participate in this and have a full understanding of the facts of the case and do their own reductions, rather than be in the dark, so to speak, about whether this person has other kinds of coverage or not." Number 1190 REPRESENTATIVE PORTER said Section 16 was thorny also. He said there had once been a theory of apportionment of fault, called "joint and several liability," which had unfortunately returned to a degree. "Basically what it meant was that if I'm injured and there are three persons that share some degree of responsibility for my injury, ... all three of those people are jointly or severally responsible for my damages," he said. "If two of these folks that are responsible don't have any money and the third has a whole lot of money, under joint and several, the third probably is going to end up paying everything." He noted that apportionment of fault was a jury question; juries determined the percentage of fault for each person. However, under joint and several liability, if two had no money, the percentage of fault they were apportioned by the jury made no difference. The "deep pocket" paid it all. REPRESENTATIVE PORTER said in 1988, the state had an initiative on the ballot that he believed clearly sought to eliminate joint and several liability. "Unfortunately, some of the wording of the initiative, once it was passed, was taken to court and interpreted to not totally do this, because the wording of it said if you are a party to the suit, you will be apportioned a percentage of fault and that is all that you will have to pay," he explained. "What they should have said, it was later discovered, after that phrase was examined by the court, was `any person responsible will have their appropriate percentage of fault determined by the jury and that's all that they will have to pay.'" REPRESENTATIVE PORTER said consequently, the ability to define who would be brought in as a party to a suit still existed. The ability of a defendant to try to establish the guilt of someone who was not a party to the suit now required the defendant to separately sue to join that other person into the case and have them present so that the apportionment could be made. Representative Porter did not believe it was the intent of the initiative that this would happen. REPRESENTATIVE PORTER said Section 16 incorporated the idea that apportionment of fault to all parties responsible should exist as much as the law can allow, whether or not the plaintiff decides to bring them in. He said most discussion of the bill would have to go towards whether or not this was a good idea. Number 1322 REPRESENTATIVE CROFT asked whether there was a provision that ensures consistency between different suits based on the same cause of action. He said, "I see Section 18 provides that an assessment against a person who is not made a party is not binding on them because they were not a party. Is there any other provision in this that makes that binding? Or it's just successive suits?" Number 1350 REPRESENTATIVE PORTER said, "To a nonparty? No, perhaps a qualification to that would be that, as I'm sure you're aware and many other people aren't, about the relationship between a Worker's Comp case and a tort case is existing law that we're not trying to change." He said by law, if an employee is injured on the job, because of the Worker's Compensation statutes, the employer stands to pay all of the compensation awarded under Worker's Compensation if there was negligence involved in the injury. REPRESENTATIVE PORTER said, "Worker's Comp has limited the scope and areas of awards, but it requires the employer to be totally responsible for the ... negligent injury or damage to employees. Sometimes, these cases get, even understanding that, over into a regular tort case because the theory is that there is this third- party defendant, this other entity that may have shared some of the responsibility for the injury, notwithstanding the fact that under Worker's Comp laws, 100 percent of it was paid over here." REPRESENTATIVE PORTER continued, "So to the extent that that law exists, the employer is not -- well, basically, is still, within what we're providing here, they can't be named, as opposed to `they weren't named for whatever reason.' And while we're saying that they can have a percentage of fault apportioned to them by the jury, it's not something that they will ultimately be held responsible for -- except when they try to get a Worker's Comp lien against the judgment, we're saying that -- we have made some adjustments in that, which we'll see when we get to them." Number 1500 REPRESENTATIVE CROFT asked for clarification. "I sue you, saying it's your fault. You say it's Ethan's fault. Ethan is not a party. The jury believes you, and they say actually, it's zero Porter and 100 percent Ethan's fault." He said his only remedy then is to sue Ethan in a subsequent suit. "By this provision, if I'm reading it correctly, ... it's not a determination of his liability. I've got to establish that in the next action. It's not binding." REPRESENTATIVE PORTER replied, "It's a determination of this jury's opinion of what the percentage of fault that that person who, for whatever reason is not present, is. But it is not a determination that results in that person having to pay anything, because they weren't there, and in some cases we have discussed with Worker's Comp, they can't be there. So when you hear the empty chair position, it's something that happens now, under existing law, on any of those cases where one of the parties that's responsible is an employer." REPRESENTATIVE PORTER said Section 19 is simple, another recommendation of the task force that makes it clear that intentional acts are exceptions to the liability of tort claims. "So if you were injured because of someone else's intentional act, you certainly can file a tort claim," he added. REPRESENTATIVE PORTER said Section 20 basically puts some specificity to expert witness qualification. It was an attempt to obtain an expert as close as possible to "being in the same ballpark with the person who the allegation is against." Number 1659 REPRESENTATIVE BERKOWITZ asked whether this expert witness qualification differed from the evidentiary rules. REPRESENTATIVE PORTER replied, "Yes. Subsequently, we'll be changing the evidence rules." He discussed Section 20, saying "offers of judgment are, after a case has been filed, one party or the other can make a formal offer to settle the case. And what we're trying to do is to inspire reasonable offers and reasonable assessment of those offers and taking them if they are reasonable, consequently eliminating the costs of the process up to and including the trial, which is a cost to both parties and the state and everybody else." REPRESENTATIVE PORTER advised that the task force recommended an increase in the rate of prejudgment interest, with a higher rate of prejudgment interest if a party made an offer that was refused and the subsequent settlement was worse than that offer. He said, "If that offer was made real early, then it would be real expensive to you if that happened, and a little bit less if it was made later and a little bit less if it was made later." REPRESENTATIVE PORTER continued, "We're adopting that same procedure. But we think that the amount of prejudgment interest, especially in light of the fact that cases now, and there's a section in here that makes it clear, don't allow prejudgment interest after the judgment. They actually used to, but cases now have said you can't do that. That really isn't that big an inducement anymore." REPRESENTATIVE PORTER continued, "Consequently, what we're saying is that if this offer is made within a short period of time, from the ability that you would have after a case is filed to get discovery, so you kind of know where you're at, if a short period of time after that the offer is made, 60 days after that, and you don't accept it, and when you finally go to trial, the offer is within 5 percent of -- less than what you would have settled for, you've got to pay all reasonable actual attorneys' fees and costs, from the time the offer was made until the judgment was entered. That is an inducement." REPRESENTATIVE PORTER said, "If the offer is made later than that 60 days after discovery, it goes down to 75 percent. If made just really a short time, 30 days before trial or something, then it goes down to 50 percent. Obviously, it is intended to make people, as early on as possible, assess their positions and make reasonable offers and have them accepted." Number 1862 REPRESENTATIVE PORTER referred to Section 22. He said Rule 82 provides that the prevailing party in a suit is entitled to receive a graduated percentage of their attorney fee costs, based on the amount of the judgment. "And we're saying that there isn't any conflict here in most cases," he said. "The offer of judgment that we're providing ... would be more than Rule 82 fees anyway, and so that that would prevail in those rare instances, if there were one, that a Rule 82 recovery would be more than what the offer of judgment recovery was, that you'd be able to get the Rule 82 recovery." REPRESENTATIVE PORTER said, "Section 23 is basically the provision that we mentioned, that instead of saying that the absolute 10.5 percent for prejudgment interest, we're going to make a floating rate that's based on the three points above the 12th Federal Reserve District discount rate, which is the standard kind of thing." Number 1977 REPRESENTATIVE BERKOWITZ asked, "Why do we have an adjustable rate here and 10.5 percent earlier on?" REPRESENTATIVE PORTER replied, "Well, the attempt is to ... make the rate more favorably represent the value of money at the time that it's going on. 10.5 has been in existence for a long time. Under this, if this were law right now, the rate for prejudgment interest for this year would be 8 percent, which is 2.5 percent different than what that fixed rate is. In a high inflation, of course, it would go up above 10.5 [percent]." REPRESENTATIVE PORTER continued, "But ... the theory is, and this again was something that was looked at and agreed upon by the task force, that a floating rate is more -- I think they had a different standard. We've had this one in the bill for a long time, but it does reflect the task force to the extent that it reflects a floating rate, as opposed to a fixed rate." Number 2040 REPRESENTATIVE CROFT asked if that was on page 2, line 31. REPRESENTATIVE PORTER said yes. REPRESENTATIVE CROFT asked whether Representative Porter was just trying to "not change the 10.5" percent interest in an unrelated section. REPRESENTATIVE PORTER said that was correct. MR. SOURANT identified that as Section 26. Number 2056 REPRESENTATIVE PORTER referred to Section 24 and said two cases, McConkey v. Hart and Anderson v. Edwards, have established that prejudgment interest should not be awarded on future economic damages. He said that seemed somewhat obvious. "Anyway, we're saying that that is the case," he stated. "And basically what we're saying is that existing case law is now memorialized in statute, so that you don't have to go to the law books to look it up. You can actually find it in statute." Number 2108 REPRESENTATIVE BERKOWITZ asked, "Future - we're talking about subsequent to the time of the injury or subsequent to the time of judgment?" Number 2120 REPRESENTATIVE PORTER replied that to the extent they had described future economic damages and future noneconomic damages, if those were awarded, prejudgment interest should accrue from the time of injury until the time of judgment. He described prejudgment interest as "basically the money that I might have earned on the money that you owed me, which we've established here but in theory began the date that I was injured." REPRESENTATIVE PORTER referred to Section 25 and said it consisted of the change applying to Section 23, which addressed the interest rate on judgments against the state. "That just basically brings that floating rate into the same thing that applies to the state," he said. REPRESENTATIVE PORTER said, "Section 26 actually is another area of the law that for some reason had been tied to that fixed rate in the tort area, and we don't want to change that, not that it might not be appropriate, but because of single-subject, we can't change it." REPRESENTATIVE PORTER said, "Section 27, voluntary arbitration, is a conforming amendment, really, in the areas of collateral source, as it addresses medical malpractice cases. You'll see, after we get further into this, that medical malpractice tort cases, for some reason, took off on a different track over the years and had a whole bunch of individual considerations. And what we have tried to do to a certain extent is kind of bring them back in and make them consistent with other tort cases. And to that degree, because of what we've done previously, we're eliminating a section of that." REPRESENTATIVE PORTER referred to Section 28, on medical advisory panels. Again from the task force, it made the advice of medical panels in medical malpractice cases available to cases where the allegation was against a state or municipal health person. REPRESENTATIVE PORTER referred to Section 29 and said it "provides specifically, which the law hadn't previously, and it caused some litigation, whether or not the panel may consider the omission of a health care provider, as opposed to just commissions by the health care provider." REPRESENTATIVE PORTER referred to Section 30 and said it speeds up the discovery process so that the trial and the tort proceedings can get under way. REPRESENTATIVE PORTER referred to Section 31 and said it makes it clear that it is also appropriate to use the advisory panel in cases where prisoners in correctional settings have made "these kinds of allegations." REPRESENTATIVE PORTER referred to Sections 32 and 33. He said they were basically just definitions, not previously included, for the medical malpractice section of the chapter. REPRESENTATIVE PORTER said Section 34, regarding contingent fee agreements, addressed the other ingredient of punitive damages not yet mentioned. Considering that the intent of punitive damages is to punish and not to provide compensation, 50 percent of that award would go to the state. This figure had gone through the negotiation process, he said. TAPE 97-24, SIDE A Number 0001 REPRESENTATIVE PORTER referred to Section 35. He said it was an area of law resulting from a court case that found a hospital liable for the act of an emergency room doctor who was not an employee. Section 35 had gone through much discussion and give- and-take. "And as a result, it basically lays out like this," he said. "Only emergency room doctors, and as a matter of fact, when we get to that section, we will be offering subsequently an amendment to make absolutely sure that we've defined an emergency room doctor appropriately, but we're talking about those persons who contract to provide initial emergency room physician response for the hospital, and that those doctors, assuming the hospital meets these standards of recognizing and confirming that doctor's credentials, posting that they're not responsible for that doctor's acts, and no small other requirement that that doctor carry, which is not otherwise required, $500,000 worth of per-incident liability insurance, that in those situations, then, that the hospital is not going to be found to be responsible for someone who has their own profession, their own standards and is not supervised by the hospital." REPRESENTATIVE PORTER said the hospital is required by law to provide emergency room services. It's a nondelegable duty. "And with that in mind, we feel it appropriate that they not be held responsible for the acts of an individual whose presence they are required to have but don't have the ability to supervise," he said. "In those cases where a medical facility, for whatever reason, chooses to have doctors as employees, then of course they are responsible. One of the general considerations in this was that this should apply to a broader group because the same thing applies to all doctors. But that got into the discussion of `where do you draw the line' and `are hospitals going to try to, under the guise of independent contractor, have their nurses and everybody else not responsible.' So we put it back down to address the case that we were trying to fix and leave the rest of it for a later time." Number 0263 REPRESENTATIVE PORTER referred to Section 36. He said it dealt with "one little addition to existing law." Currently, a person convicted of a felony cannot recover damages resulting from the commission of the crime. However, there had been cases in Alaska, enough to be significant, where a conviction did not occur. For example, a man committing a burglary had fallen through the roof of a building, resulting in his death and therefore no conviction. His estate tried to sue the owner of the building. Representative Porter said, "And so we kind of thought, `Let's not.'" REPRESENTATIVE PORTER said this was a task force recommendation. He believed the task force had also discussed the following section but had insufficient time to put it together. It similarly prohibited a person injured while driving under the influence of alcohol, for example, from suing. CHAIRMAN GREEN suggested less-detailed discussion because of time constraints. REPRESENTATIVE CROFT asked whether that section affected dram shop cases. REPRESENTATIVE PORTER said the explanation of that was lengthy. REPRESENTATIVE CROFT offered to do it later. Number 0412 REPRESENTATIVE PORTER said Section 37 was "the gathering of the information that I mentioned about settlements." REPRESENTATIVE PORTER said Section 38 provides that information be gathered to better enable the Division of Insurance to assess the effect of legislation on insurance rates. REPRESENTATIVE PORTER referred to Section 39, regarding appointment of independent counsel, and said there would be questions. He explained when a person is sued and the suit involves an area that they have liability coverage for, often the insurance company finds itself dealing with three kinds of claims. First are claims they clearly cover and are responsible for. Second are claims for which they do not know whether they provide coverage, because the facts to make that determination do not yet exist. When that happens, there is a "reservation of right" on that particular claim, and the insurance company says, "Well, we'll get involved, but we really don't know whether we're responsible or not." For example, if they do not cover an intentional act, and their client says it was not an intentional act but there is an allegation to the contrary, they might have to wait until the trial establishes whether it was an intentional act. The third area is claims where they clearly deny coverage. REPRESENTATIVE PORTER said case law had established that in the first case, the insurance company was required to provide the defense. In the second, where they had a reservation of right, they were also required to provide a defense. However, because of the reservation that had been established, there was a conflict of interest. Therefore, they had to pay for and appoint independent counsel, who worked for the defendant [misstated as plaintiff], as opposed to the person who was insured or the insurance company. REPRESENTATIVE PORTER said practice had made it "seem apparently required" that they also cover the third area, denied claims. Section 40 provides that if the insurance company pays for independent counsel, the company may then, independent of the plaintiff, reach a settlement with the defendants on the first and second areas of claims. Number 0661 REPRESENTATIVE PORTER referred to Section 41. He explained, "We discussed Worker's Comp cases. And in those cases where there's a third-party defendant, right now the employer can come back and take a lien against the award ... that's received by the plaintiff in the third-party tort case and recover his entire Worker's Comp payment from that award. What we're saying is ... an employer should be able to do that, but only to the extent, now that we have total ... apportionment of fault, you can only do that to the extent that the percentage that was allotted to him in this trial amounts to that amount. And if it's less than that, he doesn't get it." He said that would generate a lot more discussion. REPRESENTATIVE PORTER outlined Sections 42 through 47. He said Section 42 is to improve the existing superior court fast-track procedures. Sections 43 and 44 are court rule changes consistent with previous provisions in the bill. Section 45 is a rule change addressing the collection of settlement information from the Alaska Judicial Council. Section 46 is a rule change consistent with the medical panel section. Section 47 is a rule change but has a new provision, in the previous bill, that "a court now may fine an attorney, and their clients, for infraction of the rules from -- instead of just a maximum of $1,000, it'll go up to $10,000." REPRESENTATIVE PORTER said Section 48 enhances that theory to try to reduce frivolous and intentional misdeeds. It provides that judgment be entered against a party where it could be shown that party made an intentional false statement of a material fact about that particular claim. "Whether it was a legitimate claim or not, if they lied about it, they're not going to get a recovery," he said. REPRESENTATIVE PORTER outlined Sections 49 through 60. Section 49 changes the appellate rules to allow gathering of information regarding settlements. Section 50 is a consistency change. He stated, "[Section] 51 is a confirmation of a repeal of the medical malpractice collateral benefit thing." Referring to the second "Section 51" in the Sectional Analysis, he said, "[Section] 51 is a civil rule change addressing the apportionment of fault section that we dealt with." He said Sections 52 through 60 are conforming technical changes to other provisions. REPRESENTATIVE PORTER discussed Sections 61, regarding alternative dispute resolution. He said, "We went all around trying to figure out what the best approach for this was. And what we've settled on, basically, is this. We have got mixed information at this point on what kinds of alternative dispute resolutions work in what kinds of areas. ... What we're asking here is that the judicial council go out, not reinvent the wheel, but look at existing programs in the federal and other states, and give us an assessment of their applicability here on what kinds of cases, and to do that by next year, so that next year, we can take that information and see if there's enough there to get into the area of alternative dispute resolution in these kinds of cases." REPRESENTATIVE PORTER concluded by saying Sections 62, 63 and 64 are standard closing sections. Number 0944 CHAIRMAN GREEN noted that silence on issues did not necessarily imply acceptance. He called upon Judge Stewart to testify. Number 0962 THOMAS B. STEWART, Judge (Retired), Alaska Superior Court, spoke on behalf of the Governor's Advisory Task Force on Civil Justice Reform. He did not intend to discuss the bill's merits nor compare it with that offered by the task force, but rather to explain the task force's process in arriving at its conclusions. He described himself as a reluctant chairperson, persuaded by Lieutenant Governor Fran Ulmer to take the position. JUDGE STEWART said although he had no hand in selecting members, he believed the task force make-up was significant in looking at the merits of its recommendations. He listed the following members: Bill J. Allen, chairman of VECO; Judith M. Brady, executive director for the Alaska Oil and Gas Association; David H. Bundy, Mr. Allen's attorney; Michael J. Burns, president of Key Bank of Alaska; Charlie Cole, former attorney general; Jeffrey M. Feldman, an attorney who largely represents plaintiffs but represents defendants as well; Roger F. Holmes, an attorney who primarily represents defendants; Julie Kitka of the Alaska Federation of Natives; Julian L. Mason, an attorney who represents more plaintiffs than defendants; Don Slone, an engineer in a private firm with concerns about the effect of judgments involving engineers and architects; Stephan H. Williams, an attorney who largely represents plaintiffs; Mark R. Williams, who was the chief executive of Carr-Gottstein foods; and Dr. Rodman Wilson, who Judge Stewart believed was the executive of the Alaska Medical Society. JUDGE STEWART explained, "There was another member who was a representative of labor organizations, but for personal reasons he was forced to leave the committee before it worked." There were also five ex-officio members, including Bruce M. Botelho, Attorney General; Jeffrey W. Bush, Deputy Commissioner, Department of Commerce and Economic Development; Senator Johnny Ellis; Representative Brian Porter; and Brad Thompson, Director, Division of Risk Management, Department of Administration. JUDGE STEWART noted there was no consumer advocate in terms of an individual who might have suffered injury in a serious accident. "I felt that the attorneys who represent plaintiffs were eloquent representatives of consumer advocates," he explained. "But there was not a consumer advocate as such. The Alaska Public Interest [Research] Group, whose executive is Stephen Conn, appeared at ... most of our meetings, certainly of the entire group and I believe at many of the subcommittee meetings as well, and regretted the absence of a consumer advocate." JUDGE STEWART said in taking the job as chairperson, he felt it was important to obtain better statistical information than was generally available at the time they commenced work in early September. He had wanted data from not only Alaska but the entire nation. "And I thought we should engage the services of people who were conversant in the field at the national level," he said. "And we did get two such persons, Doctor Deborah Hensler (ph), director of the Institute for Civil Justice at the Rand Corporation in Pasadena, I believe, and Professor Theodore Eisenberg (ph), ... a professor of law at Cornell University. Both of these individuals have broad experience nationally in this field." JUDGE STEWART said the Alaska Judicial Council collected what statistical data they could in the limited time available. This was included in the task force report or its appendices. Applying to Alaska cases, it included numbers of cases, sizes of judgments, numbers and sizes of awards of punitive damages, and so forth. "We were unable to get data on settlements, which is a large segment of this whole field, and that's why the task force report made recommendations that an attempt be made to get data on the impact of settlements on this whole area," he explained. JUDGE STEWART said at the outset, members agreed the task force would make positive recommendations only by a two-thirds vote. Members felt there should be a strong majority to support the task force recommendations. He noted, "I, frankly, was in the minority on several issues." Judge Steward acknowledged the issue was difficult and required compromise. "And I felt that the compromises that were reached, even though I didn't agree with the details, I could support as a compromise result by a very substantial majority of people that did a lot of work in this area," he said. "And so I commend to you the recommendation of the task force when you look at Representative Porter's bill and decide ultimately what you wish to do." Number 1331 CHAIRMAN GREEN thanked Judge Stewart for all the effort. He expressed amazement the task force could get a two-thirds consensus on any of those issues. JUDGE STEWART said he was sorry Representative Porter was unable to attend the meetings where the decisions were finally made. He explained that the task force was broken into three subcommittees, on procedure, liability and damages. The subcommittees came up with proposals, which were debated and voted upon by the whole task force at the final meetings in late November. Judge Stewart explained, "We had a statewide teleconference at the outset, conducted from Juneau, and then we had public hearings in Juneau, Anchorage, Bethel and Fairbanks. I attended all of those. There were some 59 or more individuals who testified." He suggested that the committee look at those comments. He said probably the most forceful comments came from the Alaska Public Interest Research Group (AKPIRG), who felt strongly that they represented consumer advocates. CHAIRMAN GREEN noted that Steve Conn from AKPIRG was on teleconference. He then called upon Dr. David McGuire to testify. Number 1453 DAVID McGUIRE, M.D., Representative, Alaska Liability Reform Group, testified via teleconference from Anchorage. A physician in private practice, he had a long-standing interest in civil justice reform. He referred to information he had sent to the committee that day via facsimile regarding the "civil justice case known as Justice, after Timothy Justice." Dr. McGuire agreed with Judge Stewart that it was difficult to obtain information and said the result was "that we have an alternative explanation for all the facts in front of us." DR. McGUIRE said while the Justice case occurred in 1987, it illustrated how two different judicial systems approached the identical problem and what the outcome was under those two different systems. Dr. McGuire cited the facts of Mr. Justice's case, which began at an Anchorage emergency room and continued to Los Angeles County, where Mr. Justice suffered a stroke. It turned out he had a congenital malformation. He sued, arguing the physicians in question should have made a diagnosis and appropriately intervened, preventing the stroke. DR. McGUIRE said in California, then operating under the rules of MICRA (California Medical Injury Compensation Reform Act), Mr. Justice received a settlement of $32,000 per year for 42 years and a number of lump-sum payments. This cost the people of California $578,000. Dr. McGuire said Mr. Justice also sued in Anchorage, where the jury was precluded from knowing about the successful California suit. California facts were not admitted to the jury, nor were the California defendants permitted to testify. The Alaska jury returned a verdict of $1.8 million payable as a lump sum, 3.2 times the award from California. REPRESENTATIVE NORMAN ROKEBERG asked whether people would be allowed to testify again. CHAIRMAN GREEN said they could. He suggested that people fax comments, which he would distribute to committee members. Number 1627 REPRESENTATIVE ROKEBERG referred to Section 35 on page 16. He asked whether Dr. McGuire thought any hospital in Alaska would be able to hire an emergency room physician with those kinds of requirements. DR. McGUIRE replied simply, "Yes." Number 1675 JOEL BLATCHFORD testified via teleconference from Anchorage. He cited a personal story about an operation involving gall bladder removal and exploding intestines. He cited numerous complications and alluded to a lawsuit he had filed. He said no doctor in Alaska would touch him either before or after the lawsuit because of fear. He hoped the legislature could change these doctors' ways so he could get help, because nobody would work on him anymore. Number 1783 CHERI SHAW, Executive Director, Cordova District Fishermen United (CDFU); and Chair, Tort Reform Committee, United Fishermen of Alaska(UFA), testified via teleconference in opposition to the bill. She said, "Neither CDFU nor UFA supports House Bill 58. The punitive damage portion of the bill we find to be the major problem in the drafting. Section 9 states that punitive damages will not be awarded unless supported by clear and convincing evidence of malice or conscious acts showing deliberate disregard of another person by the person from whom the punitive damages are sought." She believed it was almost impossible to prove clear and convincing malice. MS. SHAW stated concern that SSHB 58 would "open the door for Exxon in the appellate court." She recommended inclusion of language making exceptions for damage to natural resources. She said three or four times the amount of compensatory damages, or $300,000 to $600,000, whichever is greater, was insufficient punishment in cases like the Exxon Valdez oil spill, which would affect many people for a long time. She offered to lend support in drafting an amendment. MS. SHAW referred to Section 10(d). She then read the second paragraph of the sponsor statement, which said in 1992 "only about 50 percent of damage awards of some $132 billion nationwide went to the injured party. The remaining 50 percent went to the cost of litigation and attorney fees. From the foregoing, it is apparent that if the tort system is judged as a method of compensating accident victims for their losses, it is both inefficient and unfair. Inefficient because only about half of the cost goes toward any form of compensation for victim. It is unfair because many injured victims receive insufficient compensation to no compensation at all." MS. SHAW asked how, if he saw this as unjust, Representative Porter could draft a bill giving the state 50 percent of the damage award. She asked, "Do attorney fees and litigation costs come from the remaining 50 percent of the victim's share? This seems to be more unfair than the status quo." She advised she would fax her testimony. Number 1935 DALE BONDURANT testified via teleconference from Kenai, saying he hoped he would never be either a victim or the cause of injuries. It bothered him that some would "hand-tie" the jury-by-peers process. He believed the bill limited the responsibility of those with deep pockets while "capping the needs or levels of harm inflicted on the victim." He believed the state's cut of 50 percent made the whole process a gamble weighted against the victim. "The Godfather doesn't even demand that high a cut," he said. "I think this is a very poor bill. It gives more credence to protecting somebody's wealth than it does to consider the harm that a victim has." He believed the determination should be left to a jury. Number 2062 PAUL SWEET testified via teleconference from Mat-Su, concurring with Mr. Bondurant's testimony. He further asked, "If you're going to have contract doctors, what's to say an airlines tomorrow couldn't turn around and have contract mechanics? So the only person you could possibly sue out of 300 deaths in an airplane would be the mechanics and not these airlines." Mr. Sweet said he would fax additional comments. CHAIRMAN GREEN requested that other testifiers fax their comments as well. Number 2118 MR. SWEET asked, "To the tort reform, how far back does the retroactive go? The date of the enactment or all unsolved cases?" REPRESENTATIVE PORTER replied, "The law would only apply to cases filed after the effective date of the legislation." REPRESENTATIVE CROFT noted that unlike the old bill, in SSHB 58 the effective date was July 1, 1997. REPRESENTATIVE PORTER explained, "There was a provision in the previous bill to make one portion retroactive. That is not a part of this bill." Number 2152 STEVE CONN, Director, Alaska Public Interest Research Group (AKPIRG), testified via teleconference from Anchorage. He thanked Judge Stewart for his kind words. Mr. Conn emphasized that despite Representative Porter's assertions that sections of SSHB 58 were similar to task force recommendations, the task force explicitly rejected most of the major components of this bill after substantial debate. "I'm speaking of the statute of repose, which destroys a legal claim before it can be brought," he said. "I'm speaking of the statute of repose that takes the right to sue away from a child when the child reaches eight years old. I'm speaking of the new cap on noneconomic damages, pain and suffering. We are already one of a handful of states that even has a cap. I'm speaking of the definition of punitive damages. The Governor's commission had a completely different definition. So let's be extremely clear here that most of these things in this bill are the ideas of radical people who want to protect those who injure other people." MR. CONN urged the committee to walk through this bill carefully. He said, "It speaks in the prelude about responsibility for our acts as a great Alaskan tradition, and then it begins to shift responsibility away from the guilty, making the innocent pay. Shifting the fault. Shifting the cost. Limiting the times that people can bring a claim. Putting caps on pain and suffering as well as punitive damages, but you notice, late in the bill, making sure that costs that should be paid by the tortfeasor were conditioned by inflation, were conditioned by many other (indisc.) clauses. You didn't see any changes (indisc.) on the cap. This is a reprehensible bill. It needs substantial work." MR. CONN concluded by saying community forums organized by the task force stated loud and clear that they do not want the legislature to prejudge tort cases. Rather, they want juries to decide upon the facts before them. Number 2250 BONNIE NELSON testified via teleconference from Anchorage, saying she opposed much of SSHB 58. She praised the task force for its hard work. "Even though I didn't agree with all of it, it was people working together," she said, indicating she regretted what Representative Porter had done with it. She suggested the bill helped the wealthy instead of helping working people obtain justice. She believed the state should make it easier and cheaper for people to access the jury system. She also indicated she had concerns with Sections 35 and 36. [Much of Ms. Nelson's testimony indiscernible due to poor sound quality.] Number 2349 ROSS MULLINS testified via teleconference from Cordova on his own behalf and as chairman of the Prince William Sound Fishermen's Plaintiffs Committee, which represented several thousand commercial fishermen plaintiffs in the Prince William Sound area. He fully concurred with fellow-Cordova-resident Cheri Shaw. He said the lack of faith in the jury system to make well-reasoned awards to injured and damaged plaintiffs in civil torts is appalling to him. MR. MULLINS referred to Representative Porter's indication that only 5 percent of civil tort cases end in trial. He asked, "Could this mean that with our current system, with no caps on amounts on various types of damages, that wrongdoers, malfeasors, insurance companies, et cetera, are prone to settle to avoid litigation that might result in an unknown level of economic consequence to them?" Mr. Mullins believed if that were true, potential defendants would be less likely to settle out of court and therefore go to trial if these caps were put on. MR. MULLINS asked, "Would not this actually serve to clog up the court system and create a situation resulting in the adage that justice delayed is justice denied? Should even 20 to 30 percent of the 95 percent of cases settling out of court go to trial because of this bill, then our court system would likely be clogged and impeded under the weight of this proliferation." MR. MULLINS referred to Section 21, regarding offers of settlement, and discussed "the draconian shift" of attorney fees and interest to the plaintiff if the result at trial did not exceed the original offer. He believed this might instill such pressure on plaintiffs as to make them unlikely to go to trial, which would deprive them of a fair determination of damages in a forum of their peers. It might increase the number of cases settling out of court. That would happen not because the recipient of the offer felt it was fair and just, which was currently the case, but because of the onerous statutory penalties and pressure brought by this bill. MR. MULLINS questioned the necessity of the bill when even Representative Porter agreed only 5 percent of cases go to trial and of those, one in twenty results in punitive awards. He said out of 2,000 cases, 1,900 settled out of court. TAPE 97-24, SIDE B Number 0001 MR. MULLINS said it was unclear if the few punitive awards exceeded the proposed caps. He referred to periodic payments and said it seemed ludicrous that after a plaintiff made it through years of litigation and a possible appeal, the money awarded could be doled out "by some scheme that deprives that person or entity from determining the best application of any award." He believed this did not show concern for public welfare. He thought it more likely that the interests of the insurance industry were being served by the bill. Number 0060 DARYL NELSON testified via teleconference from Anchorage, saying he was appalled by the bill. He said injured or disabled people would not be able to obtain help. He asked if that was the intention. Mr. Nelson indicated he had presented testimony before the task force. He said he knew a lot of disabled people who would disagree with the bill. "If you pass this, everything's going to go down the tube and you're not going to get anything accomplished," he concluded. Number 0134 ERIC YOULE, Executive Director, Alaska Rural Electric Cooperative Association, testified via teleconference from Anchorage. "There is one issue of particular concern to the electric utility that we would actually like to see included in the tort reform bill," he said. "This has to do with civil liabilities on the electric utility industry in the state of Alaska. Our industry, at least those I represent, are some 34 utilities which provides power to probably 90 percent of the households throughout the state." MR. YOULE said the electric utility industry was very much in favor of individuals recovering damages for intentional and reckless negligence acts or omissions of the electric utilities. However, within the last few years, more and more plaintiffs' attorneys were claiming electricity is a product rather than a service and that the utilities should be subject to strict liability regardless of the merits of the claim. He believed this was very unfair and wanted to see the strict liability specifically precluded by statute. MR. YOULE stated, "Consequently, we would suggest that within the Alaska Statute codes, in the area of AS 09.65, it would be amended to include language that would specifically preclude strict ... liability for certificated electric utilities certificated by the Alaska Public Utilities Commission, but that nothing would preclude individuals from making valid, legitimate claims based on acts of God, recklessness, negligence acts or omissions of the electric utility." He offered to work with the committee to craft acceptable language. Number 0224 CHAIRMAN GREEN asked Mr. Youle to fax his testimony. REPRESENTATIVE PORTER asked Mr. Youle whether the application of strict liability was a function of a statute or a case decision. He requested the cite if it was a case. MR. YOULE replied, "There have been a couple of adjudications within the state that to my knowledge have not actually gone to trial, that raises our concern. I do know, however, that the Lower 48, within the last seven years, ... there have been some specific instances where judgments have been rendered that the utility is subject to strict liability, case closed." Mr. Youle believed he could probably locate those cases. REPRESENTATIVE PORTER said it would be helpful if he could find one or two. MR. YOULE agreed to do so. REPRESENTATIVE CROFT expressed interest in seeing those as well. He asked Mr. Youle whether "you or any other electrical utility in this state" had been found liable on that theory. MR. YOULE replied, "I can tell you I have not. And it is my understanding, and I may be wrong about this, that that has not been the case to date. But I will say that there is one case that is pending that, frankly, we don't even think is going to go to trial, but there is one pending where the judge has, despite the indications in APUC statute, there are indications that he would allow strict liability to be a legal argument." Number 0290 JEFFREY W. BUSH, Deputy Commissioner, Office of the Commissioner, Department of Commerce and Economic Development, came forward to testify. He specified he was speaking on behalf of the Administration. "I'm here primarily to say that we support the Governor's bill and the task force's bill," he stated. "We think the process that that group went through, as described by Judge Stewart, was a good process. It represented a lot of compromise. We all, everyone at the table, had to give a lot. There's a lot of things in it that a lot of people don't like, and there's a lot of things in there that everyone was able to agree on." MR. BUSH continued, "To the extent that the bill before you is consistent with that, we obviously support it. To the extent that it's inconsistent, we don't." He said several sections in SSHB 58, as described by Representative Porter, were new to him. As a person who had followed tort reform for several years, he believed these raised questions not yet addressed. MR. BUSH said, "From Representative Porter's description of what the purposes and intent of some of the sections were, I think he's inconsistent with the language that's actually in the bill," he said. "And I think there actually are several sections, three or four that I can think of off the top of my head right now, where his description was consistent with what I would have expected the bill to say and what I think was the intent, but is not in fact consistent with the language." He suggested those could be worked out later. MR. BUSH commended the task force. He noted there were several volumes of materials collected by the task force, much of which would be useful to the committee. MR. BUSH said SSHB 58 contained a proposal to have the Alaska Judicial Council study alternative dispute resolution procedures. He had supported the concept of alternative dispute resolution the previous session, and it had been his "pet project" at the task force. He encouraged the committee to look at the task force recommendation and the Governor's bill, which proposed a pilot project for alternative dispute resolution. MR. BUSH noted SSHB 58 calls for further studies by the Alaska Judicial Council of the materials that are out there. "The judicial council and the Attorney General's office provided us with lots and lots of materials, because we in fact, as a task force, looked at that very question," he explained. "And I think that the materials that we've collected are virtually all of the significant studies that have been done on alternative dispute resolution in the United States. We have that material. It was looked at by the task force. And based upon that, the task force made a recommendation of a pilot project." MR. BUSH acknowledged the possibility that another group looking at the same materials may come up with another recommendation. However, the task force had debated over alternatives. Unanimously, they agreed that alternative dispute resolution looks like a very good thing. Studies went both ways as to whether it would save or cost money. However, studies of satisfaction rates for both plaintiffs and defendants using the process showed satisfaction between 85 and 95 percent, which was a much higher satisfaction rate than for the judicial system or tort system. "So based upon the satisfaction, we felt that even if it did cost a little bit of money, it was a good project and we should at least go with a pilot project with it," he said. He encouraged consideration of that option. Number 0504 CHAIRMAN GREEN referred to materials Mr. Bush had with him and asked if that information would be available. MR. BUSH replied, "Sure. And I think Representative Porter has most of that material as well, because he was part of the task force." CHAIRMAN GREEN asked whether Mr. Bush would entrust him with that material for the committee's use. MR. BUSH said yes. He noted those were the Attorney General's copies, however. Number 0528 REPRESENTATIVE PORTER advised that he had a duplicate set. He said to Mr. Bush, "To the extent that there are sections that you believe the intent was one thing but the wording is another, I appreciate very much being able to sit down with you any time to go over those and, to the extent that I agree, will change it." MR. BUSH said that would be fine. REPRESENTATIVE PORTER said, "To the extent of the alternative dispute resolution costs, there's no dispute of the suggested costs from the court system. The fiscal note that they would have attached to that provision in this bill would have killed it. So if we're going to fight that battle, I would rather have the benefit of a year's actual study of all this data, instead of it existing and really not having a good grasp of what it all means, and then take it on next year. That's what the intent is." Number 0584 CHAIRMAN GREEN said he knew someone who intended to introduce legislation on dispute resolution. He agreed there was potential for a lot of good coming from it. "This would be a limited pilot, I guess, on architects, engineers and land surveyors," he said. Number 0604 REPRESENTATIVE CROFT noted a conflict for the record, stating, "I said at the initial meeting of this committee that I am an attorney licensed both in Alaska and California. I've had a practice that was pretty much split between plaintiffs and defense work. We represented a number of school districts, so there's no particular tilt that I come at it on. But I guess some of these provisions could help or hurt if I stay in that line of work." REPRESENTATIVE BERKOWITZ said, "Mr. Chair, if I could make a lesser conflict because I am also an attorney licensed in California and in Alaska. My practice, such as it used to be, was primarily in criminal law, although occasionally I'd work for civil attorneys, not often. I have no idea what kind of impact this would have." CHAIRMAN GREEN responded that although the committee was aware of these, it was probably good for the public to know the committee had the expertise of two attorneys. ADJOURNMENT Number 0666 CHAIRMAN GREEN adjourned the House Judiciary Standing Committee at 3:40 p.m.