HOUSE JUDICIARY STANDING COMMITTEE February 24, 1997 1:12 p.m. MEMBERS PRESENT Representative Joe Green, Chairman Representative Con Bunde, Vice Chairman Representative Brian Porter Representative Norman Rokeberg Representative Jeannette James Representative Eric Croft Representative Ethan Berkowitz MEMBERS ABSENT All members 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 PREVIOUS ACTION BILL: SSHB 58 SHORT TITLE: CIVIL ACTIONS &ATTY PROVIDED BY INS CO. SPONSOR(S): REPRESENTATIVE(S) PORTER,Cowdery,Bunde JRN-DATE JRN-DATE 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 02/21/97 (H) JUD AT 1:00 PM CAPITOL 120 02/21/97 429 (H) COSPONSOR(S): BUNDE 02/24/97 (H) JUD AT 1:00 PM CAPITOL 120 02/26/97 (H) JUD AT 1:00 PM CAPITOL 120 02/27/97 (H) JUD AT 10:00 AM CAPITOL 120 WITNESS REGISTER JOHN WHEATLEY, Vice President of Policy Support Industry Alliance 4220 "B" Street Anchorage, Alaska 99503 Telephone: (907) 563-2226 POSITION STATEMENT: Testified in support of SSHB 58. JUDY BRADY, Executive Director Alaska Oil and Gas Association 121 Fireweed Street Anchorage, Alaska 99503 Telephone: (907) 272-1481 POSITION STATEMENT: Testified on SSHB 58. STEPHANIE GALBRAITH, Attorney Municipality of Anchorage 632 West Sixth Avenue Anchorage, Alaska 99501 Telephone: (907) 343-4545 POSITION STATEMENT: Testified in support of SSHB 58. LEONARD EFTA P.O. Box 353 Kenai, Alaska 99611 Telephone: (907) 283-7670 POSITION STATEMENT: Testified against SSHB 58. SUSAN ROSS P.O. Box 198 Kasilof, Alaska 99610 Telephone: (907) 262-5479 POSITION STATEMENT: Testified on SSHB 58. ROSS MULLINS, Chairman Prince William Sound Fisherman Plaintiff Committee P.O. Box 436 Cordova, Alaska 99574 Telephone: (907) 424-3664 POSITION STATEMENT: Testified against SSHB 58. JACK HOPKINS P.O. Box 343 Cordova, Alaska 99574 Telephone: (907) 424-7632 POSITION STATEMENT: Testified against SSHB 58. DICK CATTANACH, Chairman of Legislative Committee Associated General Contractors 8101 Old Seward Anchorage, Alaska 99501 Telephone: Not provided POSITION STATEMENT: Testified on SSHB 58. DR. DAVID JOHNSON Ketchikan Medical Clinic 3612 Tongass Avenue Ketchikan, Alaska 99901 Telephone: (907) 225-5144 POSITION STATEMENT: Testified in support of SSHB 58. GLENN C. SMITH, Manager Scott Wetzel Services, Inc. 3000 C Street, Suite 110 Anchorage, Alaska 99503 Telephone: (907) 561-1725 POSITION STATEMENT: Testified in support of SSHB 58. CHERI SHAW, Executive Director Cordova District Fishermen United P.O. Box 939 Cordova, Alaska 99574 Telephone: (907) 424-3447 POSITION STATEMENT: Testified in opposition to SSHB 58. COLIN MAYNARD, Engineer Alaska Professional Design Council 510 L Street, Suite 200 Anchorage, Alaska 99501 Telephone: (907) 274-2236 POSITION STATEMENT: Testified in support of SSHB 58. STEVE BORELL, Executive Director Alaska Miner's Association 501 W. Northern Lights, Suite 203 Anchorage, Alaska 99503 Telephone: (907) 276-0747 POSITION STATEMENT: Testified in support of SSHB 58. AL TAMANGI Structured Financial Associates 1205 E. International Airport Road Anchorage, Alaska 99501 Telephone: (907) 562-7421 POSITION STATEMENT: Testified in support of SSHB 58. JAMES JORDAN, Executive Director Alaska State Medical Association 4107 Laurel Street Anchorage, Alaska 99508 Telephone: (907) 562-2662 POSITION STATEMENT: Testified on SSHB 58. FRANK DILLON, Executive Director Alaska Trucking Association 3443 Minnesota Drive Anchorage, Alaska 99503 Telephone: (907) 276-1149 POSITION STATEMENT: Testified in favor of SSHB 58. MIKE BURNS, President Key Bank of Alaska 101 West Benson Anchorage, Alaska 99510 Telephone: (907) 564-0250 POSITION STATEMENT: Provided testimony on SSHB 58. CHARLES WALLS, President Alaska Villages Electric Cooperative 4831 Eagle Street Anchorage, Alaska 99503 Telephone: (907) 561-1818 POSITION STATEMENT: Testified in support of SSHB 58. MIKE LESSMEIER, Defense Attorney State Farm Insurance Company One Sealaska Plaza, Suite 303 Juneau, Alaska 99801 Telephone: (907)586-5912 POSITION STATEMENT: Testified in support of SSHB 58. MIKE SCHNEIDER, Attorney at Law Law Offices of Michael J. Schneider 880 North Street, Suite 202 Anchorage, Alaska 99501 Telephone: (907) 277-9306 POSITION STATEMENT: Testified in opposition to SSHB 58. BOB VALLIANT, Hospital Administrator Alaska Hospital & Nursing Home Association 4409 Cloverdale Juneau, Alaska 99801 Telephone: (907) 789-5865 POSITION STATEMENT: Provided testimony on SSHB 58. MIKE BARCOTT, Attorney at Law Faulkner, Banfield, Doogan and Holmes 1647 Second Avenue East Seattle, Washington 98112 Telephone: (206) 292-8008 POSITION STATEMENT: Provided testimony on SSHB 58. ORIN SEYBERT, President Peninsula Airways Representing Alaska Air Carriers 6231 Collins Way Anchorage, Alaska 99502 Telephone: (907)243-7701 POSITION STATEMENT: Testified in support of SSHB 58. NEIL MACKINNON, President National Federation of Independent Business 1114 Glacier Avenue Juneau, Alaska 99801 Telephone: (907) 586-1254 POSITION STATEMENT: Testified in support of SSHB 58. PAMELA LABOLLE, President Alaska State Chamber of Commerce 217 Second Street, Suite 201 Juneau, Alaska 99801 Telephone: (907) 586-2323 POSITION STATEMENT: Testified in support of SSHB 58. ACTION NARRATIVE TAPE 97-25, SIDE A Number 001 The House Judiciary Standing Committee was called to order by Chairman Joe Green at 1:12 p.m. Members present at the call to order were Representatives Con Bunde, Jeannette James, Norman Rokeberg, and Chairman Joe Green. Representatives Eric Croft and Ethan Berkowitz joined the committee meeting at 1:17 p.m. and Representative Brian Porter arrived at 1:20 p.m. SSHB 58 - CIVIL ACTIONS & ATTY PROVIDED BY INS CO. Number 055 CHAIRMAN JOE GREEN indicated the committee would hear SSHB 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." He set a deadline of 5:00 p.m. for members to submit proposed amendments on SSHB 58, and noted there might be an exception for an extenuating circumstance. Number 115 JOHN WHEATLEY, Vice President of Policy, Support Industry Alliance, testified via teleconference from Anchorage. He said the alliance has over 300 member companies and individuals supporting petroleum, mining and resource development in the state of Alaska. He stated Alaska is competing for investment dollars in a global basis and we must continue to send a message that we are open for business. This can be done by stabilizing the economic climate through fiscal restraint and stabilizing the legal climate through comprehensive tort reform. MR. WHEATLEY said the cost of personal litigation of liability insurance has a dramatic impact on large and small businesses. The ever increasing private liability personal injury suits and the unpredictability of damage awards has caused costs to soar. Tort reform legislation will help control these expenditures while assuring appropriate compensation for persons injured through the fault of others. Over the years, the tort litigation system has been increasingly criticized by many public and private sectors. Efforts to institute change to reduce opportunities for abuse have been hindered by fears that a change in the system would not allow just compensation for injury. MR. WHEATLEY said the alliance believes tort reform should: Limit non-economic damages; prohibit punitive damages unless malice or a concrete act showing deliberate disregard for another person can be shown; limit punitive damages; allow jurors to be informed about awards already collected by claimants for state injuries; allow courts to decide each of the shares of damages; provide monetary sanctions against any attorney in civil cases for filing frivolous, unnecessary and/or legally deficient pleadings; bar damage suits if injuries were received while committing a felony; and establish guidelines for the qualification of expert witnesses. The alliance believes the ability to recover costs in damages is manyfold, it should be protected. Punitive damages should be capped by a multiple of actual damages and assessed when willful negligence or malicious intent is proven. If the intent of punitive damages is to punish rather than award, it would follow that a portion of punitive damages could be allocated to the state. Government officials must continue to search for ways to reduce costs for doing business in Alaska, including comprehensive review of liability laws affecting the economics of business. Comprehensive review of tort reform is a positive step toward improving the business climate in Alaska. He expressed their support for SSHB 58. Number 358 JUDY BRADY, Executive Director, Alaska Oil and Gas Association (AOGA), testified next via teleconference from Anchorage. She said AOGA is a trade association whose 19 member companies account for the majority of oil and gas exploration, production, transportation, refining and marketing activities in Alaska. She said AOGA believes that Alaska should adopt reforms to its civil justice system. The civil justice system gives juries and judges discretion to impose unlimited punitive damage awards without adequate guidelines and criteria necessary to insure the constitutional protection of due process. The civil justice system, in some instances, discourages investment in the state. MS. BRADY said a variety of reforms have been suggested and AOGA believes the most important is limitations on punitive damages which would make it clear that awards, beyond those necessary, compensate claims for real damages and would need to be justified by clear and convincing evidence about rates and conduct. This amount would be capped so that juries and judges cannot impose a financially ruinous or undue award. Judgment should be proportionate to fault. It's unfair to require a defendant to pay a much larger share of damages [indisc.--simult.speech] fault. Number 505 STEPHANIE GALBRAITH, Attorney, Municipality of Anchorage, testified next via teleconference from Anchorage. She said she is in support of SSHB 58. She said she would like to suggest some things that would greatly assist the municipality. Changing the statute of limitations to property claims to two years, instead of the current statute of six years. That six year period has been a problem for the municipality, in particular for the Anchorage Police Department. Handling adjoining property and claims that can be up to six years old is difficult because witnesses and evidence are gone at that point. She said the municipality strongly supports changing the statute of limitations to two years which is consistent with almost all other tort claims. MS. GALBRAITH said, in addition, the municipality supports limits on non-economic damages and punitive damages. They also strongly support language that any person responsible for damages may be assessed for a percentage of fault regardless of whether that person is named in a particular lawsuit. It is very expensive and time consuming to file third party complaints and this would be a method to make sure that fault is proportioned fairly without uncontrolled [indisc.]. The municipality also supports change of prejudgment interest, which, as it currently stands ends up developing a windfall towards many claims. Number 661 REPRESENTATIVE ETHAN BERKOWITZ asked how many times the municipality was involved in civil actions last year as a plaintiff, as opposed to being involved as a defendant. Number 669 MS. GALBRAITH said she did not have that exact number, but it is a very small number and on fairly small claims in terms of recovering damages for property. Number 700 REPRESENTATIVE BERKOWITZ referred to her suggestions about limitations and asked her how many cases the municipality had involving the statute of limitations. Number 723 MS. GALBRAITH said there were 250 property claims against the city. REPRESENTATIVE BERKOWITZ asked how many claims would be affected if it were changed from six years to two years. MS. GALBRAITH responded a small percentage of claims would be affected. It may not be a small number, but it is significant in terms of dollar amounts. Number 795 LEONARD EFTA testified via teleconference from Kenai. He feels the jury should decide what is fair and what is not fair. His understanding is that less than one-tenth of 1 percent of lawsuits have been frivolous. Mr. Efta referred to the sponsor statement and said over 50 percent of the lawsuits that go on to lawyers [indisc.], and according to the bill, the lawyer will still get his share and now the state will take 50 percent of it too. The claimant will end up with maybe 10 percent. It appears that SSHB 58 is intended to protect the insurance companies [indisc.] and doesn't think it will help him. He opposed SSHB 58. Number 869 SUSAN ROSS testified next via teleconference from Kenai. She read the section of SSHB 58 regarding legislative intent and then compared that intent with quotes from the Governor's Advisory Task Force report of civil justice reform located on page 7. She said SSHB 58 appears to address the wrong problem, the problems are: Excessively high attorney fees, and excessively high insurance premiums that have not been reduced in spite of 16 very historical court reforms since 1967. Number 1061 ROSS MULLINS, Chairman, Prince William Sound Fisherman Plaintiff Committee, testified next via teleconference from Cordova. He said he did not understand why SSHB 58 was necessary when even Representative Porter agreed that only about 5 percent of the cases procede to trial and of that 5 percent only 1 out of 20 has a punitive damages award. Out of 2,000 cases, 1,900 were settled out of court, 100 go to trial and approximately 5 of them result in punitive damages being awarded. He assumed that the trial cases are those with the most seriously injured and damaged plaintiffs. It is unclear whether the punitive award often exceeded the punitive caps, as proposed in SSHB 58. If they did, this would have been brought forth and it wasn't. It seems likely these punitive awards are not of serious consequences. To fix punitive caps does not serve the best interest of the citizens of Alaska. Today's dollar is worth approximately 38 cents of a 1970 dollar. A fixed cap of any kind will only serve the interests of a liability over time as the value of the dollar diminishes, the cap's value would also be diminished. MR. MULLINS said this bill will clearly reduce the financial risk of doing business with the major oil corporations and their insurers, particularly wrongdoers who have a potential capacity to devastate the natural environment and common property resources in Alaska, and of those Alaskans who depend on them for their livelihood, except with the commercial fishermen. He questioned if this is what we want in Alaska. The possibility of large punitive damage awards is a great motivation and explains why the major oil companies are seriously attempting to improve their marine transportation operations. When the cost of compliance rises above the possible consequences, then he feared that we would no longer see big oil complying with what is best for Alaska and its citizens. MR. MULLINS said SSHB 58 is similar to the bill vetoed last year by the Governor. Maybe the legislation had a different provision regarding punitive damages, but it would have had a retroactive effect in a case where final judgment had not been entered. It was vetoed, in part, due to the opposition expressed by the Exxon Valdez plaintiffs out of concern for the causal effect of the bill on the Exxon Valdez verdict. In an attempt to avoid another veto, the current bill now states that it has a separate effect only, and it does not apply to the Exxon Valdez litigation. This change does not reduce the threat of SSHB 58. It is obvious that state law, regarding punitive damages, does not apply by its own force in an award of punitive damages in a federal maritime action. Instead, this state law would apply by [indisc.] the interstice of federal maritime law to indicate public policy regarding punitive damages. We could count on Exxon's counsel to prominently display the current bill's [indisc.] damage limitation, if enacted, in support of their public policy argument. This bill would have as much effect, or nearly as much effect on appeal, as would the vetoed bill. MR. MULLINS referred to a chart of the ocean survival of pink salmon at the [indisc.] hatchery right in the path of the oil spill. Prior to 1989, they were averaging returns of 4 to 8 billion fish a year, with ocean survivals between 4 and 8 percent. Since 1989, ocean survivals have dropped down to about 1 to 1.25 percent and we are returning less than 1.3 million fish per year. The long term effects of the Valdez oil spill is continuing to have an affect on the facilities and fishermen, and cannot be remedied by punitive caps that are of a paltry nature and do not necessarily reflect the major environmental consequences of large oil spills when they occur. He said those spills are inevitable over time. Number 1332 REPRESENTATIVE ERIC CROFT clarified that he is getting significant changes from Exxon because of the threat of punitive damages. Number 1340 MR. MULLINS said one of the reasons that the oil industry is making major efforts to work with their SURGE program, and with the commercial fishing industry in attempting to upgrade their transportation facilities, is largely due to the threat of a large award such as the one that occurred from the Exxon Valdez spill. He said we need to show companies that it costs more to be careless then it does to do business straight. He said SSHB 58 would put the state right back to where the state was pre-1989. Number 1457 JACK HOPKINS testified next via teleconference from Cordova. He said he is opposed to SSHB 58. The common man has very few tools to work with in this world, and said this bill appears to take one more tool away from him. Number 1490 DICK CATTANACH, Chairman of Legislative Committee, Associated General Contractors (AGC), testified next via teleconference from Anchorage. He said AGC represents approximately 600 construction members in the state of Alaska. He referred to Section 8, Statute of Repose, 1999 and 1992 and said Shinaner [Ph] Management Services, Inc. reviewed four studies that measured the claims that were brought on construction projects, and it indicated that the vast majority of the claims were filed within six years of substantial completion of the construction project. He said claims filed more than six years after substantial completion almost always involved users of projects. Due to the complexity of the construction process, it is unrealistic to expect parties involved in the design and construction of any project to defend state stale claims brought many years after their involvement when the project has ended. This section of the statute does not impose an unfair burden on the injured party because it allows them to seek redress from the owner, or the occupier of the project, who are the parties most likely to be responsible for the injury, and the one in the best position to have prevented it. Number 1575 MR. CATTANACH said that section of SSHB 58 provides protection to some injured parties by tolling the time period if the cause of action was the result of an intentional, or fraudulent action, which contributed to the cause of action. The matter of Frederick W. Triem, the Alaska Supreme Court held that a five year statute of limitation governed the filing of attorney grievances. This reflected the judgment that five years is the outer limit of time in which responding attorneys are able to defend themselves against charges, given the loss of memory, evidence and witnesses over time. He did not believe that anyone would argue that the construction industry does not face the same problem as the legal profession does in defending themselves against suits. He questioned why the construction industry had a longer period of time before they are free from litigation. MR. CATTANACH said that according to reports through legislative research, the eight year period was exceeded by only four states. Statute of reposes are commonly three, four and five years, and the proposed time frame of eight years seems to be more than adequate to provide the detection of any construction and design defects to allow property owners to take action to remedy them. He provided written testimony to the committee since he would not be able to review the second area of concern, punitive damages, due to time constraints. He did say, though, that 95 percent of businesses in the state of Alaska are classified by the state as small businesses. Punitive damages are not covered by insurance, and therefore must be borne by the parties themselves. This is an undue burden, not only do businesses have to pay damages awarded, but also pay for the defense of the award. Number 1675 REPRESENTATIVE CROFT clarified that Mr. Cattanach was referring to a five year statute of limitations for grievances. MR. CATTANACH responded that in the matter of Frederick W. Triem, the Alaska Supreme Court held the five year statute of limitations for the filing of attorney grievances due to the fact that attorneys would not be able to fairly defend themselves against charges given the loss of memory, evidence and witnesses that occur over time. Number 1710 REPRESENTATIVE CROFT asked Mr. Cattanach if he understood that this was a statute of limitations with a discovery rule. What he's asking for is an absolute bar after 8, something that attorneys have never gotten to his knowledge. MR. CATTANACH stated that this was not an absolute bar if there is any proof that any defects were intentional, or that there was a fraudulent action. Number 1740 REPRESENTATIVE CROFT asked if Mr. Cattanach wanted the same standards that the lawyers have. MR. CATTANACH responded that what's fair for one should be fair for all. Number 1750 REPRESENTATIVE NORMAN ROKEBERG asked Mr. Cattanach if he thought it would be fair to draw a distinction between construction and design, in regards to statute of repose. Clearly, if there was a construction defect it would probably come to light sooner than a design defect. He asked Mr. Cattanach if these should be approached differently in this statute. MR. CATTANACH spoke from his experiences with dealing in areas that do have building codes, and consequently, they do have municipal or borough oversight. He thought they should be the same. The designers design the project, the contractor builds it according to plans and specifications. All of these must meet the building codes that are in place at that time. There are state and local inspectors who make sure that these projects are built according to design. Plans must go through a plan review, and under the city of Anchorage, this is a very rigorous review. They make sure that the design professionals do, in fact, comply with the building codes. He felt that a similar statute of repose for both parties is only appropriate. Number 1818 REPRESENTATIVE ROKEBERG asked if Mr. Cattanach was suggesting that the city plan reviewers can verify the structural integrity of a design based on their review of blueprints. MR. CATTANACH stated that it was his understanding that the municipality, whether they like it or not, go over the structural design, and actually recompute all of the calculations. In fact, he responded, yes. Number 1848 REPRESENTATIVE BERKOWITZ questioned Mr. Cattanach's position. He clarified his position that the cost of defending suits is too high, and that the punitive damages place an undue burden on businesses through insurance. MR. CATTANACH stated that this was the second part he didn't get to testify on, but clarified by personal example. His firm was involved as a second party two years after the first party was sued, in a particular case. The plaintiffs found that the initial defendants didn't have deep enough pockets, hence his firm was named. The initial request was for $225,000. The insurance company refused the case as blameless and denied the claim. The attorney was very aggressive and boosted the claim to $500,000 and stated that they believed punitive damages also applied. His firm is small. Once punitive damages are assessed, they come directly out of the firm's pocket, not to mention costs to litigate, all totaled, this added up to about $50,000 to $100,000. Their instructions to their insurance company were to settle, no matter what the costs were within the policy limits. This is why they don't see a lot of punitive damages going to court, since people can't afford the risk of losing everything they've worked all their lives for, just to say they've won. Number 1941 REPRESENTATIVE BERKOWITZ asked how many construction cases there were that fell within the proposed statute of repose. Mr. Cattanach indicated that most cases take place within the first six years. He asked for a breakdown of cases within the six year period, within 8 years and then outside of 8. MR. CATTANACH stated that he would provide that information to the committee within the next day or two. Number 1974 DR. DAVID JOHNSON, Ketchikan Medical Center, testified by teleconference from Ketchikan on behalf of the State Medical Association in support of SSHB 58. He addressed three sections which particularly relate to medicine. The first, Section 6 regarding statute of limitation, and the concern about changing this to eight years, especially for children under age six, would be unfair. He stated that there is a suspicion that there are seminal birth injuries that lurk undiscovered for years, and show themselves much later. He noted that this has not been shown to be true, most bad things that happen at birth are evident at birth. They believe the language proposed is the safeguard of the school system, as well as other physicians caring for a child, and certainly they trust parents to make these judgments regarding an impaired child. They support this language. Number 2046 DR. JOHNSON stated in regards to the section on noneconomic damages that there was nowhere in law a Faustian bargain trading an injury for any amount of money. This rapidly becomes something arbitrary. In jurisdictions where limitations have been enacted conspicuously, California, with their Medical Injury Compensation Reform Act (MICRA) reforms, the single thing which made the most difference on liability insurance premiums was injecting predictability, which is to say, a limitation on what is essentially unlimited, mainly, non-economic damages. They applaud the attempt to make some type of definition here. Number 2082 DR. JOHNSON referred to Section 29 and 30 that address the expert advisory panel. This is something that's been a difficulty for all parties. The way it is currently being administered in the courts makes it difficult for them, as an association, to do their job in choosing people to serve on these panels. They thought the questions, as posed, sharpen the questions that were written twenty years ago. They do believe the expert advisory panels have a place and role, as well as helping to accomplish the legislative intent at the beginning of the bill. Number 2113 REPRESENTATIVE BERKOWITZ referenced Section 35 regarding civil liability of hospitals, which basically exempts contractual emergency room physicians. He asked if Dr. Johnson would share his comments on that section. DR. JOHNSON responded that what Section 35 does, is shift liability from a hospital to the hospital medical staff in those cases where the hospital medical staff is not employed by the hospital. There are a number of ancillary issues raised in a proposal like this, and it's something of more interest to them. Hospitals are released from their liability, but there is the section that specifies the amount of professional liability insurance, the physician must carry this in order to qualify. DR. JOHNSON noted that there was a variety of arrangements for physicians working for hospitals, government entities, state or federal, various of the private or non-profits, such as the native corporations and physicians in private practice, that there are a number of ways that physicians are paid. He felt that this had the potential for being a confusing issue, but it's a policy call on whether hospitals or physicians ought to be liable. In general, before Jackson v. Powers, it was generally held that each party was responsible for their own actions. This case created an agency relationship between the hospital and the physicians. This legislation is trying to change that back to hospitals being liable for themselves, and physicians liable for themselves. He noted again, that this is a very confusing issue and there were a number of ancillary issues raised in Section 35. Number 2210 REPRESENTATIVE CROFT stated since Dr. Johnson is a pediatrician that he was particularly interested in the doctor's input on discoverability of childhood illnesses. He asked if there were any childhood injuries, whether birth, mental or physical that are difficult to discover until later. DR. JOHNSON stated that "any" was a big word, and in answer to this "any" question, he noted that someone could think of one, but added, "are there many? No." He used the example of brain damage from a childbirth accident, a child that has seizures on the basis of a birth injury. If they don't have seizures in the neo-natal period, their later seizures are not related to the birth injury. In general, as a practical matter, there aren't things that lurk and would be hidden past the child starting school. Number 2281 REPRESENTATIVE CROFT asked if there were any forms of childhood traumatic injury that would only show up in mental slowness. He noted that seizures seem to be an obvious, and good example, but he asked if there are injuries that show up only as "Johnny not being as bright as the other kids." DR. JOHNSON responded that describing these two injuries earlier, or assuming that if there is a big variance in a family, it's from an injury and he didn't think there is data to support this. He would have to say, no, there's no evidence for an isolated injury that's visible in no other part of a child, except one certain aspect; birth injury doesn't cause the inability to learn calculus, for example. Number 2322 REPRESENTATIVE CROFT stated that this never happens, that it doesn't just show up in a mental slowness. DR. JOHNSON stated again, if he's asking any, or many, he would say as a practical matter, there is no data that he knows of in the pediatric or the neurological literature that has a causal relationship between some specific trauma earlier, and any specific learning disability later. Number 2343 REPRESENTATIVE BERKOWITZ referred to Section 5, subsection (c) on page 4, which tolls the statute of repose upon the discovery of a foreign body. It seemed to him that lawyers are trying to out diagnose doctors, and he wondered if there is any other medical procedures that could cause a problem down the road, other than leaving a foreign body inside a human body. DR. JOHNSON responded that in terms of lurking for years and years, and causing problems, and then all of a sudden being a problem, something that's left as a foreign body, generally if it's going to cause problems, will do so relatively soon. It's mere presence there is an affront and clearly an error. The reason there is an exception for this type of situation isn't that it will somehow lay there, and then at a later time cause a problem. If it's there, by definition it's an error, which needs to be addressed. The degree of injury created by it is another issue, but it's precisely listed in this section as something which isn't covered in a statute of limitations. Number 2428 REPRESENTATIVE BERKOWITZ stated that he was concerned that this might be a narrow definition, and there might be something other than leaving a foreign body in a person that can cause problems down the road. He wondered if in this situation a problem could eventually surface. DR. JOHNSON stated that by and large, if something bad is happening, it doesn't start and stop being bad. It's just bad. It stays this way. If it's not bad early on, the likelihood that it will become bad later on is, in his experience, doesn't happen. I can't say always or never. He added that there aren't lurking time bombs within us. TAPE 97-25, SIDE B Number 000 DR. JOHNSON stated that this is a continuous thing. Significant trauma is not discontinuous, but rather continuous. As a practical matter, covering 99.99 and on, no it's not going to be something lurking undiscovered that will later rear it's ugly head. REPRESENTATIVE ROKEBERG asked in his 27 years of practice as a pediatrician, has he ever personally had a case that came before him where after a child reached 8 years of age that he discovered some malady as a result of something which happened earlier. Number 039 DR. JOHNSON responded no. REPRESENTATIVE ROKEBERG referred to Section 35 regarding emergency room physicians, and asked if the provisions of this would, in any way, make more difficult the hiring of emergency room physicians in the state of Alaska. Number 047 DR. JOHNSON responded that he thought the requirement for a half million dollars insurance coverage will potentially be a problem, particularly in smaller hospitals. He knows there are some hospitals who require physicians to carry liability insurance, others do not. He wasn't sure what the limits of each of them require in each specific case. REPRESENTATIVE ROKEBERG referenced a letter submitted by the Association where they would like to see a recommended ceiling of $250,000 on non-economic damages. He asked if Dr. Johnson agreed with this. Number 080 DR. JOHNSON stated that the reason for the $250,000 is that this is the number included in the MICRA reforms he mentioned earlier; the program in California which has been in operation for quite a number of years. Whatever number is picked, the key from the insurance side is that a predictable number can be funded. It's an unpredictable number which can't be funded and $250,000 happens to be the number that's micro legislation. This is a pure judgment call. REPRESENTATIVE PORTER clarified Section 35, and wanted to point out that it only addresses and affects doctors who actually contract with hospitals for emergency room activities, not the full gamut of other doctors, services, et cetera, of the entire facility. Number 131 DR. JOHNSON noted that he did realize this. He stated that there had been different definitions, and the key is to look at how it's actually defined. Emergency room physician definition, if it was somebody who was contracting with the hospital for services in the emergency room. He will sometimes see his patients in the emergency room from time to time, and he's called there as a consultant to the physicians who are there. If the legislation is going to specifically address coverage of physicians contracting to provide coverage in emergency rooms, and if they were to make a specific definition assigned to the emergency room, or some such confining language, this would certainly address that part of his concern. The key is how it is defined in terms of responsibilities. He noted they needed to distinguish between those physicians assigned to the emergency room, and those that use these facilities periodically. REPRESENTATIVE BERKOWITZ stated on his experience that frequently young residents moonlight in the emergency rooms and are paid as contractors. This provision would work against this situation. Number 212 DR. JOHNSON said he didn't think this was happening at all in Alaska. They don't have a full-time residency program in Alaska. When they do, though, it will be in Anchorage. There are residents who come to the state, from time to time, as part of their training program, but they all have relationships with practices. He didn't think moonlighting in emergency rooms is an issue in Alaska. Number 249 GLENN C. SMITH, Manager, Scott Wetzel Services, Inc., testified by teleconference from Anchorage on SSHB 58. This firm administers and adjusts claims for both self-insured and insured. He stated he was in favor of SSHB 58. He noted in the course of a year, he and his staff handle approximately 1,500 to 1,700 claims in the areas of general liability, auto liability, products liability, protection, indemnity and workers compensation. They have a 4.51 claim [indisc.] on an average, and they have opposing efficiency of about 1.19 to every claim they bring in. He said in light of this, he shouldn't have any business, but he does. The reason for this is primarily in the area of $5,000 to $15,000 claims that goes on year after year. Normally when he evaluates a case, he does so on the special damages, the type of injury, et cetera. MR. SMITH stated that his job is to investigate, evaluate, and to negotiate a claim to conclusion. This is very difficult to do within 4.5 months if they don't get medicals for a year, and the facts strand that should be resolved in 8 weeks, according to the medical profession. When an claim for an alleged slip and fall is submitted, they will at least get a photo of the scene and maybe a witness's name to resolve the issue. The $5,000 to $15,000 claim, that's evaluated for $50,000 because of the cost of trial being $20,000 to $35,000, definitely affects the small business man and also the insurance company. If anyone doesn't think that those costs aren't being passed down to the consumer, either from the small business person or the insurance company in the way of increased premiums, then they're sorely mistaken. Number 365 REPRESENTATIVE BERKOWITZ asked how much will insurance rates come down if this bill is enacted into law. MR. SMITH responded that he didn't think insurance rates would come down at all, for the reason that they are trying to base this same piece of tort reform on something that's based nationally. He noted that they needed a constituent tort reform nationally to affect the rates. He felt as though the underwriters, and the companies in Alaska, will look seriously - many excessive insurance companies insure for punitive damages. Some primary carriers don't. The question is loaded. If Representative Berkowitz is referring to one that provides punitive damages, it is definitely going to affect the rates. Anyone would have a good argument to do so. Number 408 REPRESENTATIVE CROFT stated that they were trying to get an understanding about underwriting. He asked how this bill helped settle the $5,000 to $15,000 problem case. MR. SMITH responded that the Rule 82 language is much stronger than the previous. He said that he didn't think he'd still collect his actuals from the plaintiff. He explained that the plaintiff would be able to collect the actuals from most of the defendants that he handles, since it's a deep pocket versus shallow pocket, but the fact that it's a level playing field up to the point of bankruptcy was encouraging to him. Number 438 REPRESENTATIVE CROFT clarified that this would cut down on frivolous law suits, not the caps which give them more of a hook on these $5,000 to $15,000 cases. MR. SMITH responded that in the $5,000 to $15,000 scenario, they were paying more because of the threat of litigation. Perhaps now that the playing field is somewhat level, from the standpoint of the prevailing party, there will be more consideration given to resolving of cases before trial and mediation [indisc.]. Number 465 REPRESENTATIVE CROFT asked what section of the bill helped him to solve these cases. MR. SMITH stated that he would send this information to Representative Croft. Number 505 REPRESENTATIVE PORTER noted that the Section they were looking for dealt with the offer of judgment. He asked if it would be a fair statement to make that they have limited insurance availability in this state because of the limited amount of companies that want to write here. To the extent that passage of this legislation and it staying in effect, he said, would cause greater competition, i.e., more people, more insurance companies desiring to come to the state, and asked if the competition might have a positive affect on rates. MR. SMITH responded, yes. He's been in the insurance business for 22 years in Alaska, and he said that 50 percent of the companies doing business today were here in the 70's, largely to different things like that. Number 553 REPRESENTATIVE BERKOWITZ asked how these rates were set. If Alaskan insurance buyers have very little affect, it would seem to him that the market is driven by what goes on in places in California. When California enacted its reform, he asked if this had any effect on driving down rates in Alaska. MR. SMITH responded that he didn't believe so; however, there are experienced ratings used by underwriters, and a local underwriters, such as a company that is down south and Alaska, he thought sure would take into consideration tort reform legislation. They would have to include this in their equation. Whether or not they would see an immediate decline in the rates, he couldn't say. He doubted this very seriously. Number 614 CHERI SHAW, Executive Director, Cordova District Fishermen United, (CDFU) testified via teleconference from Cordova. She also spoke in her capacity as chairman of the Tort Reform Committee for the United Fisherman of Alaska. She stated that she would speak for both organizations and wished to reiterate portions of her previous testimony. She noted she would fax the same testimony for the committee's convenience. MS. SHAW stated that neither organization, as previously outlined, support SSHB 58, and stressed that they most vehemently protest the punitive damage portion of the bill. She stated that it was important that the committee include an amendment that exempts natural resource torts. Future damages to natural resources resulting from oil transportation in Alaska's waters, or industry disasters, should not be subjected to the proposed punitive damage caps. Long range reoccurring damages cannot be assessed or confined to the parameters contained in SSHB 58. MS. SHAW noted that if SSHB 58 is enacted as written, the Exxon Valdez award and appeals process would be jeopardized. The thousands of Alaska victims, who are a party to this court case, will be extremely disadvantaged and could lose the punitive damages that were awarded them. She reiterated their distress about giving over 50 percent of the punitive award back to the state. This would be unfair to the victims of any punitive award and should not be considered. Representative Porter himself stated that the victims were not receiving their fair share of punitive awards due to court costs and attorney fees. This would only lessen the award intended. MS. SHAW stated that the final question she wished the committee to consider is, "does the state of Alaska have a history of frivolous law suits driving this legislation to be passed?" She noted they would be happy to work with the committee on amendments to address their concerns. Number 715 REPRESENTATIVE ROKEBERG stated for the record, that the state of Alaska has literally case loads full, reams, boxes, full of vexatiously litigated natural resource suits in the state. He asked how, in Ms. Shaw's opinion, this legislation would jeopardize the Exxon Valdez cause of action presently being litigated. MS. SHAW responded that the Exxon attorneys would be able to say that the legislature passed a bill capping punitive damages awards, and that their sentence goes against public policy. Exxon would use this in any way possible to either accomplish lowering the punitive award accessed, or having it thrown out all together. She didn't think that the effective date of July 1, for this bill, would deter them from this. Exxon has filed in the appellate court and have two years worth of appeals to go through. Number COLIN MAYNARD, Engineer, representing the Alaska Professional Design Council, testified from Anchorage via teleconference in support of SSHB 58. He read a written statement into the record. "My name is Colin Maynard. I am a professional engineer representing the Alaska Professional Design council, commonly known as APDC. APDC is a consortium of professional societies representing architects, engineers, land surveyors, building code officials, and landscape architects. The ten member organizations have a combined membership of over 1400 and represent approximately 5000 licensed professionals. APDC is very supportive of tort reform in general and SSHB 58 in particular. "Our legal system needs modification. Over 90 percent of civil suits never get to a court hearing. Most cases are settled, with little to no consideration to actual fault, to avoid the expenses of discovery, trials and the seemingly capricious decisions of juries. Suits are filed against all possible defendants, regardless of fault, to ensure there are plenty of pockets to chip into the settlement. Some people use the court system as a means of legal extortion by filing frivolous suits with the hope of a quick settlement. Millions of dollars are spent in the so called "discovery process' which almost always results in the defendants throwing in their insurance to stop the bleeding and make the case go away. Existing sanctions against frivolous suits are rarely used because they require that the plaintiff first lose at trial, a trial that rarely happens. Summary judgment is also very rare because appellate courts have almost always overturned such decisions, making trial judges wary of issuing such orders. SSHB 58 includes two sections which will help the situation for design professionals: "The fist reduces the Statute of Repose for construction related suits from fifteen years to eight years and expands it to cover all suits. Over 95 percent of cases associated with construction are brought within eight years after substantial completion, over 98 percent within ten years. We believe that an eight year statute is more reasonable for four main reasons. First, almost all of the cases brought after eight years are related to maintenance problems, rather than design or construction problems. The owner of the building would still be available for suit, since his lack of maintenance is an on-going problem. secondly, it is impossible to defend, or prosecute, a case fifteen years after substantial completion due to the lack of witnesses, fading memories, and lack of documentation. Most of us would have a hard time remembering what we did fifteen days or months ago, never mind fifteen years. Thirdly, we will not have to store fifteen years after they retire. Errors & omissions insurance for design professionals is on a claims-made basis; that is, it covers you for claims made during that year. therefore, the longer a period you have to cover, the higher the premium. The firm in which I am a principal had a premium of nearly $20,000 in our first year, with no "tail" to cover. If you add a 15 year tail to that, you get a considerably higher premium. It is not unheard of to have a premium of over a hundred thousand dollars with a deductible of a hundred thousand dollars for a million dollar policy. If we can limit the "tail" for which we have to insure to eight years, we will make a considerable reduction in our insurance bills. "The second section in which we have an interest is the section regarding alternative dispute resolution. It is time to develop a system which identities patently frivolous and meritorious suits early, so we can to get them out of the system. With this in mind, APDC is urging that an alternative dispute resolution method be included in any tort reform action by the legislature. A mandatory mediation or independent early evaluation system would reduce the number, and costs, of frivolous suits. Fewer, smaller, and shorter cases should provide relief to an overtaxed court system. A bill which would have established mandatory mediation in suits against design professionals passed the House last year, 37-3. The trial attorneys who testified on that bill said that they would support mandatory mediation if it was mandatory for all suits." This concluded Mr. Maynard's written testimony. Number 955 REPRESENTATIVE CROFT referred to Mr. Maynard's statement regarding capricious decisions of juries, and he knew that at times this was frustrating, but he asked what other mechanism they could use to decide these issues, but with a jury. MR. MAYNARD noted that there are currently no guidelines for juries. He referred to an article regarding a jury which awarded $50 million in punitive damages, on the first appeal this judgment was reduced to $5 million, the second appeal reduced it to $350,000. He added that if they could set limits on what our society believes is a reasonable limit on punitive damages, as guidelines to juries, to help them decide within those parameters. To have no parameters established, they're just shooting in the dark. Number 999 REPRESENTATIVE CROFT asked for clarification, if Mr. Maynard meant to propose to constrain their discretion by a cap, and asked about a proposed minimum. MR. MAYNARD said that, essentially, what they already have is a minimum. If economic damages are $300,000, they'd be limited to $900,000; three times the economic damages. He added that it's only for the cases that are less than a $100,000, that the $300,000 would become effective. Number 1038 STEVE BORELL, Executive Director, Alaska Miner's Association testified via teleconference from Anchorage in support of SSHB 58. He stated that the Alaska Miner's Association has over a 1,000 members from all parts of the industry, including small suction dredges, all placer miners, independent miners and prospectors, suppliers and major international mining companies. He stated that the time had come for full and comprehensive reform of Alaska's tort law. This bill would accomplish much of what is needed. MR. BORELL stated that some of the specific points of this bill he wished to mention, is that this organization supports fair compensation for injured persons, but they do not support the current system that encourages abuse of the law. They also support a change to ensure that each party is liable, only to the extent for which that party is responsible. They also support the change to ensure that a person cannot receive an award for an injury received while conducting a criminal act. Lastly, this area of law is a major factor in the general and wide spread distrust and contempt for the legal system in our country. For the courts, for the attorneys of this country included, these changes are reasonable. Reasonable limits within this bill will help restore the public faith in the legal system. Number 1111 REPRESENTATIVE BERKOWITZ referred to Mr. Borell's references to abuses of the law, and asked him to give instances. MR. BORELL pointed out that they had just heard several of them with the case of the $5,000 to $15,000 claim situations. Number 1132 REPRESENTATIVE BERKOWITZ referred to Mr. Borrell's indication for the need of civil justice reform. He asked what Mr. Borrell thought would be the prerequisites for "meaningful." MR. BORELL stated that people need to be treated fairly. He noted that it's not fair for a small, or large business man, to be totally exposed to whatever punitive damages can come along without some guidelines would be one example. Number 1160 REPRESENTATIVE BERKOWITZ asked Mr. Borrell about his feelings for mediation, or the expedited discovery process. MR. BORELL said he was acquainted with Senator Leman's proposal from last year, and said he wasn't sure this was in the proposed legislation or not. This seemed to be an extremely good approach to the matter. Number 1183 REPRESENTATIVE BERKOWITZ asked if he would feel more comfortable with a bill that included mediation, or an alternative dispute resolution, as well as expedited discovery. MR. BORELL responded that both were necessary, but whether or not the sponsor feels as though this should be in this bill, he left to their judgment. Number 1213 AL TAMANGI, Structured Financial Associates testified via teleconference from Anchorage in support of SSHB 58. He said he'd like to visit Sections 12, 13 and 14, as well as the area of periodic payments. He thought that Section 13 was very important, and allows the defendant to make an offer of periodic payments as an [indisc.] to the jury, which currently cannot be done because of this restriction. He felt that number two, a plaintiff by [indisc.] presentation, must be advised of his or her options to either receive a partial lump sum, future lump sum, and future periodic payments on a tax exempt basis. This eliminates the potential for dissipation of the award, and insures the steady income stream on a tax exempt basis, as well as eliminating dependency on social programs. MR. TAMANGI continued that these payments can begin to meet the needs of any individual claimant. Most importantly, it allows a person to retain their pride and dignity for their lifestyles. It also mandates that the injured party is made aware of their choices under Section 104 (A) (2) of the IRS code. Currently, it is estimated that about 95 percent of injured parties are not advised, or properly advised, on this issue. In most cases, it would amount from thousands to millions of dollars in increased tax benefits. It would certainly eliminate potential legal malpractice cases which are currently escalating, particularly in this state where insurance rates for attorneys are going up substantially. MR. TAMANGI stated that Section 13 is excellent, as it allows claimants to choose between a structured settlement funded by the United States public obligations, or an annuity from someone's life insurance company, or a combination of both. Additionally, it mandates diversification from affiliated companies [indisc.] for independent payment choice. Section 14 [indisc.] the following change, inflation [indisc.] change in the consumer price index for [indisc.] customers for all items as published by the Bureau of Labor and Statistics, United States Department of Labor or [indisc.] thereof. This allows a judgment to be made on a United States basis, whereever and whenever [indisc.]. He then noted an Internal Revenue Service ruling which allowed these increases under this description to be exempt from gross income under Section 42 of the Code. MR. TAMANGI referred the committee to the Alaska Judicial Council's report given to the Task Force on page 12, addressing the length of time it takes for someone to get their case resolved. He said this time period was despicable. Number 1398 JAMES JORDAN, Executive Director, Alaska State Medical Association testified via teleconference from Anchorage on SSHB 58. He referenced the written testimony submitted to the committee and noted that he would not verbally testify. He noted that he would answer any questions, and mentioned an article entitled, A Surgical Fix for Medical Malpractice, in the American Academy of Actuaries, January/February 1997 edition. A report is referenced in this article, and he has been in contact with the American Academy to try and receive it. He said he would supply this article to the committee. REPRESENTATIVE BERKOWITZ asked if it was Dr. Jordan's expectation that it will be easier for doctors to do business if this civil justice reform is enacted, i.e. cost of business to be lower, disputes will be easier to resolve, et cetera. Number 1473 MR. JOHNSON noted that if California was any example, you would say, yes. REPRESENTATIVE BERKOWITZ stated that medical insurance rates seem to be generated nationwide, rather than Alaska specific. Number 1501 MR. JOHNSON delineated that the professional liability insurance marketplace is quite different than other forms of insurance in the state of Alaska. Primarily, the two major carriers for medical malpractice coverage for physicians in Alaska base their premiums only on Alaska experience. These two companies are Medical Insurance Exchange of California (MIEC) and NORCAL. The latter operates in the State of Alaska essentially by virtue of having assumed the assets and liabilities of the medical insurance company in Alaska MIEC, which was the quasi-state funded medical malpractice company that was in operation until the late 1980's. REPRESENTATIVE BERKOWITZ asked what would happen to rates if they enacted this legislation. Number 1560 MR. JOHNSON stated that he couldn't say. He is not an actuary, but if measures were adopted similar to California, that the experience in California is that their medical malpractice insurance rates were some of the highest in the nation. Now, they are not. REPRESENTATIVE BERKOWITZ asked if medical fees would come down if insurance rates came down. Number 1600 MR. JOHNSON responded that this would depend on the other costs of business. Number 1618 FRANK DILLON, Executive Director, Alaska Trucking Association, advised members that the Association was a 38 year old trade association that represents companies who operate trucks in Alaska. It was a 300 member company that represents approximately 15,000 employees. MR. DILLON advised members they were in support of SSHB 58, both in its detail, and its concept. He pointed out that the association felt attorneys were becoming far too intrusive in all respects, noting that one needs an attorney to go into business, to buy a house, to get married and to get buried. Mr. Dillon wondered if it was really necessary to have that level of expertise, in terms of the legal affairs that were crafted, by the most part, by non- attorneys; i.e., state legislators. MR. DILLON advised members what they were seeking, in the form of tort reform, was a manner whereby they could lessen the burden involved in terms of treating people and seeking justice without the need to pay outrageous attorney fees in order to get to the appropriate level of justice. MR. DILLON gave an example of what his association believed to be a grievous case in terms of liability. One related to a company in the state of Alaska which was involved in an accident at an intersection in Fairbanks. The witness to the accident saw that it was clearly a noncommercial vehicle that caused the accident. A ticket was issued to the noncommercial vehicle's driver, and subsequent to the settlement, everyone thought things were fine. Some time later, the manager of the company received an insurance claim for over $5,000. Mr. Dillon explained that the person who had witnessed the accident, even though the accident was caused by the noncommercial operator, felt that he had suffered a trauma as a result of the accident, causing him to fear commercial vehicles, so he sued the commercial vehicle operator. The settlement was for only $5,000 and considered not significant enough to report it to the company. Mr. Dillon pointed out that the only time the company became aware of the settlement was when it was reviewing its insurance claims. MR. DILLON apprised members of another settlement case involving a company called Ryder Transportation out of Florida, which was a multi-national company that operates in all the states and most Canadian providences. This particular case involved a truck driver who was found to be not medically qualified to continue driving truck because of federal regulations. The truck driver was laid off. The truck driver subsequently sued the trucking company for not having been retrained, and was awarded punitive damages in the amount of $18 million. Mr. Dillon pointed out that that was a result of Ryder Transportation complying with the federal rules. MR. DILLON continued, pointing out that the association understood there were a number of complications in the proposed legislation, SSHB 58; however, definitely believed in its concept because attorneys, from both the left and the right of the spectrum, oppose it. Number 1841 REPRESENTATIVE BERKOWITZ asked Mr. Dillon how the $5,000 claim issue in Fairbanks would have been affected by SSHB 58. MR. DILLON stated that he was not sure that the specifics of SSHB 58 would address that situation, but went on to say that his intent was to eliminate as many lawyers from the process of business and normal life as possible. Number 1911 MIKE BURNS, President, Key Bank of Alaska, advised members he was a member of the Governor's Task Force on Civil Justice Reform. He noted that as a member of that task force, he was Chairman of the Damages Subcommittee. MR. BURNS explained that the two major goals of the task force were to protect the fairness of the system, and to increase the predictability of the state's judicial system. In Mr. Burn's opinion, the biggest issue the task force dealt with related to the economy between some very voluminous statistical data on judicial process and judicial decisions, versus the perceptions of a very broken system. Mr. Burns felt it was important to note that the perceptions of the system were driven by settlement activities, not by judicial decisions. MR. BURNS pointed out that the commission had spent a great deal of time on many of the issues contained in SSHB 58; however, they only supported and brought forth issues which received a two-thirds vote of all members of the commission. He noted that the commission consisted of a very diverse group of individuals, ranging from pro- change to no-change advocates of tort reform. Mr. Burns advised members the commission was able to reach consensus on a number of issues, of which a prime example was the discussion and vote taken on the matter of punitive damages. The vote was 17 for and 2 against. Mr. Burns stated that one member voting against was one of the strongest pro-change members of the commission, and the other negative vote was one of the strongest anti-change members of the commission. He felt the commission did a fairly decent job of trying to define the middle ground, or common ground, in the area of punitive damages. MR. BURNS hoped the work done by the commission would be of help, and useful to the committee, adding that a change was definitely needed in the arena of tort reform. Number 2073 CHAIRMAN GREEN asked Mr. Burns what his position would be if an upper limit of punitive damages could be resolved which would penalize the perpetrator, not necessarily to the benefit of the injured, and half of the proceeds paid to the state. MR. BURNS advised members he was only speaking on behalf of himself, not the commission per se; however, he felt it was very appropriate that the state receive half of the proceeds. REPRESENTATIVE ROKEBERG asked Mr. Burns if the subcommittee he served on considered the issue of collateral benefits in terms of damages, and offsetting collateral benefits to the claimant. MR. BURNS responded that the commission did consider that issue. He noted that he would have to refer to the report which he did not have in front of him. Mr. Burns reiterated that a two-thirds vote was required to bring an issues forward; however, there had been many issues that had a simple majority vote, in favor, that did not meet the two-thirds requirement. He could not recall where the issue of collateral benefits fell, although he could find the information and provide it to the committee. Number 2187 REPRESENTATIVE PORTER referenced the issue of apportionment of fault, and asked if the committee recommended that but it could not be brought forward because of the lack of a two-thirds vote. MR. BURNS reiterated that he was Chair of the Damages Committee, and they did not consider that issue, although he thought that apportionment of fault did receive a majority vote, but not the required two-thirds vote. Number 2241 CHARLES WALLS, President, Alaska Village Electric Cooperative (AVEC), advised members they were in support of SSHB 58, adding that overall, the proposed legislation was long overdue. He stated with respect to the electric utility business that the issue of public liability, or strict liability, was addressed by most other states to exempt electric utilities from that sort of liability by recognizing that electricity was a service, not a product. Mr. Walls expressed that Alaska did not provide that protection. He advised members that AVEC had an ongoing case stemming from a house fire, in one of the villages a couple of years ago. where a child perished. Mr. Walls advised members that one of the plaintiffs arguments related to strict liability. claiming that AVEC provided a dangerous product and should be responsible, or liable, if someone is injured as a result of using the product of electricity. MR. WALLS advised members that that line of thinking would quickly relate to unaffordable electric service and put AVEC out of business, among other things. Mr. Walls referenced a handout reflecting a proposed amendment by Chairman Green which addressed that very point. He spoke in favor of Chairman Green's proposed amendment, not knowing whether it had been introduced at that point or not. CHAIRMAN GREEN advised members that the amendment would not be introduced until Wednesday, February 26th, as well as any other proposed amendments to SSHB 58. TAPE 97-26, SIDE A Number 000 MIKE LESSMEIER, Defense Attorney, State Farm Insurance Company, advised members that he was speaking on behalf of State Farm Insurance, and that most of his practice had involved trial work which was defense related over the past 18 years. Mr. Lessmeier advised members that State Farm Insurance rates, in the state of Alaska, were determined by Alaska experience, which he felt was important to understand. He referenced the questions posed by Representative Berkowitz relating to medical reforms in the state of California, MICRA, California Medical Injury Compensation Reform Act, and expressed that those medical reforms had nothing to do with the rates charged in Alaska by different companies based on different law. Mr. Lessmeier felt it was important for members to consider California's experience compared to Alaska's experience, noting that there had been testimony comparing the two experiences several years prior in a tort reform debate. Mr. Lessmeier advised members he was speaking strictly from memory; however, believed it was over a 10 or 15 year period that California's rates increased by 160 percent. It was his recollection that in Alaska, over that same period of time, the rates had increased by approximately 1600 percent. Mr. Lessmeier pointed out that MICRA had a significant benefit in California, particularly when compared to Alaska. MR. LESSMEIER advised members that another point he wished to emphasize was that when looking at issues, such as punitive damages, it would be important to not look just at verdicts. He pointed out that punitive damage claims are raised in many cases and were incredibly expensive to defend, and were unpredictable, with few of them actually leading to verdicts. Mr. Lessmeier noted that of the last six cases he tried, three cases included punitive damage claims. He explained that punitive damage cases were expensive because they were basically, "bet your company" cases, and a small business person would have everything on the line. For a large entity, the potential financial exposure was unlimited. Mr. Lessmeier advised members there was a punitive damage case in Juneau a year ago which awarded $18 million. He noted that that case was set aside; however, huge awards had been realized in Anchorage as well. MR. LESSMEIER referenced a study that had been conducted within the last year that addressed the issue of punitive damages which reached a number of conclusions. Law suits claiming punitive damages take one-third longer to resolve than suits without punitive damages. Another conclusion of that study found that business and government defendants were four times as likely as an individual defendant to face a claim for punitive damages. Mr. Lessmeier advised members that a third result of that study found that punitive damages played a significant role in out-of-court settlement processes, where the vast majority of law suits are settled. Punitive damage demands tilting the playing field in favor of the insured parties, and increase the out-of-court settlement amounts. MR. LESSMEIER continued, noting that the study reflected that if one looked at jury verdicts, they would only be looking at the tip of the iceberg, and it would be necessary to consider the rest of the iceberg because that would be where the action was at, when talking about the effect of reforms on claims. Mr. Lessmeier advised members that they felt the punitive damage provision was a very important provision in SSHB 58 that presented a reasonable limit. He noted that it would not solve every problem, that there would always be an exception to the rule; however, reiterated that it was a reasonable limit. MR. LESSMEIER referenced the issue of several liability, pointing out that in 1988 the voters voted on that issue, and what they were told in the ballot initiative, was that each party would be liable only for damages equal to his/her share of fault. It would repeal the law concerning reimbursement from other parties. Mr. Lessmeier advised members that five years later a decision had been reached by the State Supreme Court that changed what the voters were, in effect, told what they were voting on. Now, a defendant, in order to ensure that he or she is responsible for only his/her percentage of fault, would have to sue someone else. Mr. Lessmeier expressed that if that was not done, the individual could be held responsible, potentially, for more than the actual percentage of his/her fault. Mr. Lessmeier noted that approximately 75 percent of the voters approved of they were told and understood what they were voting on. MR. LESSMEIER asked that the House Judiciary Committee go back and implement the will of the voters, adding that that should be an easy decision to make. Number 363 MR. LESSMEIER advised members that the third issue he felt important, in the proposed legislation, was the provision on offers of judgment. He felt that litigants ought to be responsible for the decisions they make. The proposed legislation presents a staggered provision for litigant responsibility based on when offers of judgment are made, which he felt was a good idea. Mr. Lessmeier pointed out that it provided an incentive for people to make reasonable offers early on in the process, and rewards or penalizes the party, based on the decisions they make. Mr. Lessmeier expressed that that was something that would put teeth into the responsibility of making decisions. MR. LESSMEIER referenced Section 48 of SSHB 58 advising members he referred to that as the "truth" section of the proposed legislation. He advised members that under the current state court system, if someone came into court and lied, there would be no damage that the case would suffer, other than the damage to one's credibility. He noted that currently there was no disincentive to play the lottery game, which some people do. Mr. Lessmeier pointed out that Section 48 basically reflects that if someone goes to court and provides false testimony, that the individual would lose the claim. He did not feel anyone would oppose that concept. Number 453 MR. LESSMEIER referenced a new provision in SSHB 58 that dealt with independent counsel, and the appointment of independent counsel. He stated that that was a significant problem, and one that Mike Barcott would address during his testimony before the committee. MR. LESSMEIER advised members he would provide two experiences that his firm had encountered with what is called CHI [Ph] Counsel, which involved independent counsel that the insurer is required to pay. In one of the cases, State Farm Insurance paid over $1 million in defense costs, and in another, they paid close to $500,000 in defense costs. Mr. Lessmeier advised members that Section 39 of the SSHB 58 went a long way to resolve the problem of paying for the defense of their insured defendants Number 517 CHAIRMAN GREEN expressed that through prior testimony, as well as testimony provided at the present hearing, there had been the frequent question theme regarding the current system causing high insurance rates, and if that was correct, he asked Mr. Lessmeier what would happen if a reasonable and understandable cap were placed on those rates. If a cap was not established, testimony reflected that the rates would increase, and Chairman Green questioned why the rate would not decrease if a cap were imposed. MR. LESSMEIER felt that one issue necessary to understand was that SSHB 58 would affect only causes of action that accrue after the effective date. He pointed out that there were many years of causes and claims within the system currently, that would not be affected by the proposed legislation. Mr. Lessmeier noted that there were causes of action that the proposed legislation would apply to; however, most of the cases for the next several years would be causes of action that accrued under the old system which SSHB 58 would not affect in any way, shape or form. MR. LESSMEIER continued to point out that if SSHB 58 should pass the legislature, one would not know which of the provisions the court would ultimately put into effect, or how the court would interpret the law. He advised members that the legislature passed the initiative in 1988 where the insurers thought they were getting pure several liability; however, five years later the Supreme Court decided differently. Mr. Lessmeier advised members that he had lunch with the Chairman of the Board of the Medical Indemnity Company of California, who stated the insurers had litigated every provision in the MICRA, California Tort Reform, for 10 years. Each provision was challenged by the trial lawyers, which results in a situation where you do nothing and the problem continues, or you do something, with the hope that, ultimately, the problem will be solved. MR. LESSMEIER advised members there were a couple of different companies in the state called Mutual Companies. NORCAL [Ph] was one of those companies, and State Farm Mutual Automobile Association was another. Mr. Lessmeier advised members that they had given money back when their experience was better than what they thought it would be. He felt that what would be found was that insurers who do business in Alaska would recognize that the challenge was to make their product affordable, adding that insurance was a fact of life for many people; you cannot drive a car without it, along with many other things, so many aspects of society need affordable insurance. Mr. Lessmeier advised members if insurance was not affordable, it would not be available. MR. LESSMEIER advised members that State Farm would base their rates on their experience. It was his belief that the NORCAL's, the MIAC's, and many of the other professional liability groups that evaluate their experience based on Alaska claims, would do the same. That was one of the things that was the benefit of competition. He noted that as long as there was a healthy environment there would be better competition, and what that would hopefully lead to would be more affordable insurance for everyone. Number 734 REPRESENTATIVE BERKOWITZ advised members that what he was concerned and frustrated with was that they were only seeing the tip of the iceberg, and the legislature was being asked to pass, he felt, some rather sweeping legislation without having access to all the underlying facts. He noted that they had talked about punitive damage cases that had actually been settled in court, and asked what kind of evidence Mr. Lessmeier could provide that it would have an affect on the settlement phase. MR. LESSMEIER advised members that he could provide a study that came out in 1996, entitled The Role of Punitive Damages in Civil Litigation: New Evidence from Law Suit Filings. He pointed out that it was the most comprehensive study of 1000 cases, that were not Alaska cases, although he was sure the experience was the same. Mr. Lessmeier reiterated that punitive damage claims take longer, are more expensive to defend, and the play a significant role in the settlement process. REPRESENTATIVE BERKOWITZ asked if the California Legislature required any commitment from the insurance industry, with the California experience and the reforms that went though, prior to enacting its legislation. Number 835 MR. LESSMEIER did not believe so; however, could not be completely positive. He pointed out that that question was always posed, and he felt it was an unfair question because the legislature would be requiring the insurance industry to do something based on a belief that could not be given. Mr. Lessmeier explained that the legislature could enact a law, but they could not guarantee that it would not be challenged, nor could the legislature guarantee that the Supreme Court would not overturn the law, which he felt was part of the problem. He expressed that whatever was done or intended by the legislation, there would be no guarantee that that was the way it would ultimately be applied. MR. LESSMEIER advised members that the opponents of the proposed legislation were very talented people, and Mr. Schneider would be speaking to members, who passionately believed the proposed legislation was wrong, and would be fighting it, tooth and nail, every step of the way. Mr. Lessmeier reiterated that the problem was that they did not know how the proposed legislation would be applied or interpreted. Only experience would provide that. Mr. Lessmeier repeated that State Farm would base their premiums on the Alaska experience, whether it's good, or whether it's bad. Number 924 REPRESENTATIVE CROFT pointed out that Mr. Lessmeier stated several times that the Supreme Court did not implement the will of the voters in 1988; Benner v. Wichkman, 874 P. 2d 949 (Alaska, 1994) decision. He asked if Mr. Lessmeier would explain how he felt Mr. Benner was wrong. MR. LESSMEIER advised members that under Benner, fault was allocated only to the parties to the action. If there was a third party that had not been brought, in who would bear a percentage of the fault, that fault would, instead, be born by the people that were parties to the action. He stated that under Benner,there were two affects to that; one was a defendant may bear more than his or her percentage of the fault, or more than his or her share of the fault. A person may be responsible for damages that someone else may have contributed to or caused, and secondly, that defendant would be forced, in order to implement the intent of the initiative, to incur the expense and the risk of bringing someone else into the action. Mr. Lessmeier advised members that those were things that were beyond the scope of that initiative. He further stated that what the people were told in that initiative was that it would make each party liable, only for damages equal to his or her share of the fault. Number 1012 REPRESENTATIVE CROFT asked if the initiative made clear who should bring in the "potential" liable party. MR. LESSMEIER stated that it did not, that what it said was that the new law would let the court enter judgment against each person at fault, but only in an amount that represented that person's share of the fault. He pointed out that the problem with that was that the burden would fall on the defendant to do that, and if the defendant did not do that, he would run the risk of paying for damages that would be more than his or her percentage of fault. Mr. Lessmeier thought that was clear, and stated that the reason the Supreme Court decided Benner v. Wichman the way it did was because it chose to place an interpretation on parties, which was certainly different than the people that presented the initiative intended, as well as different than what voters intended. REPRESENTATIVE CROFT presented a hypothetical situation where he sued Mr. Lessmeier, thinking he was the one that did it, and no other; however, Mr. Lessmeier thought Representative Berkowitz did it. Whose job would it be to bring Representative Berkowitz into the picture? MR. LESSMEIER's response was that he felt it should be the plaintiff's responsibility. He explained that he, himself, should only be responsible for his percentage of fault, noting that the percentage of fault that a jury assessed against him should not be dependent upon who was a party to the accident. It should be dependent on nothing, other than his percentage of fault. That was what Mr. Lessmeier believed, and that is what he believed the voters were told in Ballot Measure Number 2 in 1988. Number 1123 REPRESENTATIVE CROFT asked if what Mr. Lessmeier was saying was that the proper procedure would be for him to bring Representative Berkowitz into the case even though he did not believe he was involved in the accident. MR. LESSMEIER advised members that the proper procedure was for the plaintiff to sue the parties that the plaintiff thinks are at fault, and for a defendant to be responsible for his or her percentage of fault, regardless of who the plaintiff chose to sue, or who was present in the court room. He pointed out that that was the proper procedure, in his personal view, but was not the procedure given under Brenner v. Whickman. CHAIRMAN GREEN asked if that was the way Mr. Lessmeier was interpreting the intent of SSHB 58. Number 1202 MR. LESSMEIER stated that what was being proposed in SSHB 58 would implement what he believed was the intent of the voters in 1988. REPRESENTATIVE ROKEBERG asked Mr. Lessmeier if he could provide committee members the information he had on the 1988 ballot initiative, as well as the study he referenced earlier. MR. LESSMEIER responded that he would provide that information. REPRESENTATIVE ROKEBERG referenced Section 15 relating to collateral benefits and asked if it wasn't customary for insurance companies to segregate the awards that occur to victims. He asked how that section would harm insurance businesses, and how would it help or harm an individual that might be involved. Number 1339 MR. LESSMEIER advised members that it was his belief that provision was modeled after the medical malpractice law, which had a provision where there was no subrogation, unless it was a federally funded program. He expressed that what that did was simply reduce a lot of litigation and a lot of dispute over things that one, basically, self insures for. The policy call made under Section 15 was, to the extent that one has insurance that covers something, that the insurance companies would not argue about that; there would be no secondary litigation, in terms of subrogation, one would just bear his own cost or loss. Mr. Lessmeier stated that he felt, on balance, that would be fine and the benefit would be the reduction of potential litigation and potential dispute. REPRESENTATIVE ROKEBERG followed up by asking what reason an individual would have for buying disability income insurance if it was an insurance disincentive. MR. LESSMEIER pointed out that a person would not know if he was going to be hit or injured through the fault of someone else. Number 1383 MIKE SCHNEIDER, Attorney at Law, Law Offices of Michael J. Schneider, advised members he disapproved of the testimony provided by previous speakers. He expressed that someone once cautioned that people should be careful with their wishes because they might come true. Mr. Schneider stated that with the political reality being what it was, the republican majority might get what it wished, in terms of the miserable piece of public policy members were presently considering. MR. SCHNEIDER asked members of the committee to think hard and long about the public trust they had been given, and consider the comments made by Mr. Burns, who runs a bank; who was not a trial lawyer and not a flaming liberal. Mr. Schneider noted that Mr. Burns pointed out very carefully, in his comments, that the issue at hand was a matter of perception, and that perception was that the wheels were off the cart. He noted that hundreds of years ago the perception was that the world was flat. MR. SCHNEIDER advised members that only the insurance industry would come before the legislature and suggest that one could take a system, substantially alter it, as was done in 1986, and dramatically alter it again, as with proposition two, and conjure up an innocuous Supreme Court decision to say how it all did not count; insurance companies did not change their rates, they never will change their rates, and would find a reason not to change insurance rates, no matter what. Mr. Schneider stated that the rate roll-back that member's constituents thought they might get someday was a "fairy tale". MR. SCHNEIDER advised members that legislation, such as SSHB 58 and the Governor's bill, was a slap in the face to the people that elected their state representatives, and a slap in the face to Alaska juries, that despite the perception, had no history of doing funny, odd, terrible things to litigants in front of them. MR. SCHNEIDER referenced Scott Whetsell [Ph], who spoke about frivolous law suits of $5000 to $15,000 claims, and asked if that was a trivial sum to the people that elected their state officials. Mr. Schneider pointed out that the legislature was about to change rules, and rule was a concept of broad application, which meant that everything done to dissuade the few frivolous suits, would also do a great deal to dissuade the widows, the orphans, the businesses, and others who were justified to bring their claims to the courts; with no empirical evidence that a problem existed that needed to be addressed, as well as no pay back to the public in the form or reduced insurance rates for the rights people will give up if SSHB 58 passes. Mr. Schneider hoped members would vote against the proposed legislation. Number 1500 CHAIRMAN GREEN pointed out that Mr. Schneider attacked the proposed legislation and implied that only because there had been consideration that $1,500, in comparison to the millions that were at stake as insignificant, and reminded Mr. Schneider that there was a small claims court. Chairman Green asked that in the future, if Mr. Schneider testified in front of the House Judiciary Committee while he was Chairman, to confine his comments to the merits, or non-merits of a case, and to not get derogatory. REPRESENTATIVE CROFT asked Mr. Schneider to explain how apportionment currently worked, and how it would work under the proposed legislation. MR. SCHNEIDER advised members that presently fault was apportioned between people brought before the court. Under the scenario presented by Representative Croft earlier, Mr. Schneider stated, quote: "Something happens to you, you sue me because you think I'm at fault; appropriately I believe. If I think Representative Berkowitz is at fault, it's my burden to bring him into the case. The bottom line being, that fault will not be apportioned to anyone who is not before the court to help in the process of sorting out what happened; what didn't happen. And to bring some sort of reality to the dispute, everybody's got a dog in the fight, so everybody's going to fight hard, and theoretically, a better assessment of the truth will come of it all." MR. SCHNEIDER expressed that in the proposed bill, it was all the kings horses and all the kings men sort of proposition, in which an individual would not have to be brought before the court and could be accused of fault whether there or not. He noted that there could be a trial going on about someone's fault that the person never heard of, which would present a number of problems. Mr. Schneider stated that one of the problems, more-or-less, flew in the face of the sponsor's mission statement which was to make litigation more simple, cheaper and more efficient. He pointed out that that goal would not be reached with the provision of law proposed in SSHB 58, in his opinion. CHAIRMAN GREEN asked Mr. Schneider to elaborate. He provided a scenario in which there was an action against "A", and "B" was somehow partly at fault, however he was not present at court. If the court said "A" was only 50 percent at fault, and either "B" or someone else was equally at fault, SSHB 58 would provide, as he understood it, that the information brought out in the court hearing would not be usable against "B" because those facts would have to be brought forward in order to go after "B". MR. SCHNEIDER agreed with that scenario, adding that that part did not bother him too much because that was not the problem with the proposed legislation. He explained that the big problem with SSHB 58 was that presently if a person wanted to make an argument that someone was at fault, the person has the burden, even though fairly minimal, to show fault and actually sue the individual. Mr. Schneider pointed out that for the plaintiff to make sure his argument was not frivolous, the individual has to bring the person into court, and if the argument turns out to be frivolous, the individual would be stuck with Rule 82, attorneys fees, which was appropriate because it gets rid of frivolous litigation and frivolous claims. MR. SCHNEIDER continued pointing out that under the language in SSHB 58, the defendant could make all the frivolous arguments about people's conduct as he wished, with impunity. He did not feel that promoted judicial economy, minimized the expense of litigation or promoted the search for truth, in any given set of facts. Number 1787 REPRESENTATIVE PORTER asked if it would be fair to say that it would not be impossible for Mr. Lessmeier to say that he had heard other plaintiff attorneys say that there was a disincentive to name a defendant, who was judgment proof, in favor of one or more that had a deep pocket. MR. SCHNEIDER agreed with that, adding that it made no sense. REPRESENTATIVE PORTER understood that SSHB 58 would allow both the plaintiff and the defendant to discuss parties that were not present; that the problem that would be presented to a plaintiff or to a defendant in naming another actual party to the suit, thereby having the cost and the exposure, would be eliminated if they were allowed, as they are by law in employment kinds of cases, to discuss whether they really thought they were totally at fault, or partially at fault, when someone else might have been. MR. SCHNEIDER, in due respect, advised Representative Porter that his position was misplaced because he truly believed the Representative was ascribing a level of professionalism to the defense in the cases that are not witnessed in every day experience. Mr. Lessmeier pointed out that when someone wants to broaden a debate, in a court of law, that good rules currently existed for that purpose. He stated that if someone wanted to stand up in a court of law to accuse someone of doing something, it is made known by placing that individual's name in the caption of the pleading. And because there are anti-frivolous litigation rules in the state of Alaska, that have existed since the mid 1970s in the form of Civil Rule 82, the plaintiff would bear a burden, or pay a price if his or her arguments were frivolous. It was Mr. Schneider's strong belief that if the legislature wanted to minimize frivolous litigation that allowing people to stand up and say whatever comes to them in their opening statement, and then call witnesses behind that, was not the way to accomplish their intent. MR. SCHNEIDER stated that as a plaintiff attorney, he would be defending claims that he had never seen or heard of. He would have had no chance to prepare for the cases, and would be hearing arguments he had never heard before. He advised members they would be chasing fairies around the court room until everyone was dead tired, and that would generally assist defendants. Mr. Schneider pointed out that it would not help the regular working people that he represents, and would not make the process cheaper. Number 1952 REPRESENTATIVE ROKEBERG asked if there was a vicious litigation statute in the state of Alaska. MR. SCHNEIDER stated that the answer to that was, "kind of." He advised members that during his 22 years in the state there was a rule of court called Civil Rule 82, which had changed over time, and the most recent change was an attempt to define what happens when a person loses, because it was a loser pays rule. Mr. Schneider pointed out that that was a kind of rule that contained frivolous litigation. He added that another thing, as a practical matter, that contained frivolous litigation and had always existed, was the contingency fee. Mr. Schneider expressed that a third of zero was nothing, and as a plaintiff's lawyer taking those cases on and lose the case, the attorney would not be paid for his work. The case would have to have some merit prior to accepting representation of the client. REPRESENTATIVE ROKEBERG thought the answer to his question was no, and he did not think the citizens of the state should have to know the rules of court, although should know what the statute says. In terms of the allocation of fault, Representative Rokeberg asked how a tort claim was handled in federal court. MR. SCHNEIDER explained that if there was a tort action in federal court, you would generally apply state rules of law, and federal rules of procedure, adding that state law rules were applied even when suing the federal government. He further stated that the case would get federal procedural treatment; however, would get state rule of law application whether a federal defendant or not. Number 2052 REPRESENTATIVE BERKOWITZ pointed out that Mr. Schneider referenced Civil Rule 82 several times, and asked his opinion on Civil Rule 11. MR. SCHNEIDER advised members that Civil Rule 11 existed to slap attorneys that misbehave, file frivolous cases and aggravate judges. REPRESENTATIVE BERKOWITZ asked Mr. Schneider how many times he had seen a frivolous case come through during his years of practice. MR. SCHNEIDER's response was, "not very many times." He advised members that he had seen suits that he did not think were particularly meritorious, or generally found to be that way; however, he had seen a number frivolous defenses because one could make those by the hour and get rich by doing so. Mr. Schneider expressed that plaintiff attorneys had to chose their battles, if they want to survive, and that allows a degree of creativity, but the economics of that situation catch up with the attorney if he/she is too creative, too often. CHAIRMAN GREEN pointed out that Mr. Schneider was a plaintiff's lawyer and 95 percent of the cases were settled out of court. He asked if there had ever been a situation where one might take a case, fully intending to settle it out of court, as the plaintiff's attorney, knowing that the case was either small enough that the defendant might not want to take the trouble to go to court and therefore, the plaintiff would be the winner, defacto, because the defendant would settle for above the zero times one third. MR. SCHNEIDER felt the answer to Chairman Green's question would be yes, "but". Mr. Schneider stated, quote: "Like with some of the examples that you heard earlier, just ask yourself this. If you have a $15,000 dollar case and State Farm can't afford to litigate it, or doesn't want to pay to litigate it -- I don't really want to get into comparing balance sheets here, but State Farm is a lot bigger than mine. I mean, if anybody can't afford to deal with a case, it's the regular citizen, and the regular citizen's regular lawyer. Does that mean there's never an abuse, there's not a nuisance value settlement? No, it doesn't mean that. But it means that that playing field is not tilted in favor of regular citizens and their regular lawyers at all; never has been. That tilt is not -- was not improved in '86; was not improved as a result of proposition number two. If I make that guess about, you know, will State Farm -- you know, will Mike roll over and pay me some money for this little case. If I make that guess wrong very often, I do not lead a happy or profitable existence. I just -- I -- I don't. The idea that this is just a one-way street and we're just out here picking cherries and milking the situation, is not good." MR. SCHNEIDER advised members that every single case he accepts he wants to settle. One of the reasons for that was that the jury system was a conservative institution in the state of Alaska, and always had been. He stated that it was a firing offense, in most defense firms, not to demand a jury, adding that he rarely demanded a jury trial. Mr. Schneider pointed out that the proposed legislation calls the plaintiff's discretion and judgment into question, and he did not feel that was right. Number 2184 CHAIRMAN GREEN stated that the people who make up State Farm's rate payers involved the ordinary citizen, and Mr. Lessmeier wanted to keep their costs at a minimum. MR. SCHNEIDER felt that was a very excellent point, and one that might be overlooked in the present debate. He stated that the committee would hear from fishermen, who were tort reformers and always had been historically, because they believe the myths and the perception that the wheels were off the cart and that their rates had something to do with claims. Mr. Schneider advised members that the fishermen woke up one morning to find oil on their beach and that was when they recognized that there was another side to tort reform. Mr. Schneider pointed out that it would be hard to explain votes for the proposed legislation in the face of another event like the Exxon Valdez oil spill, or another mass tort. He added that it would be hard for members to explain to their individual constituents when they ask for an explanation as to why a bill was supported that made a difficult situation more difficult for them, with no guarantee of anything back to the public. Number 2258 BOB VALLIANT, Hospital Administrator, Alaska Hospital and Nursing Home Administration, advised members that prior to presenting his prepared comments he would like to address the issue that appeared to be at the front of everyone's mind, which was, would the proposed legislation, or the improvement of the business environment in the state reduce insurance rates. He pointed out that he was the one who paid the insurance bill for the hospital he worked at, and this year he would buy liability insurance at levels three times higher than he did eight years ago. Mr. Valliant advised members that that had been precipitated by NORCAL coming in and buying out MICA and the addition of a competitor under the market place, Western Indemnity. He noted that Western Indemnity came into the market place approximately three years ago. MR. VALLIANT advised members that he truly believed that if the business environment improved so business people could compete fairly, that the competition would result in a decrease in rates. The competition created in the market place, because of Western Indemnity's participation in the industry, did not decrease the hospital rates, but did not allow the hospital to increase rates at the same rate other institutions were increasing their charges at. Mr. Valliant advised members that, consequently, the hospital he worked at was the lowest cost provider in the state. MR. VALLIANT felt that insurance rates would not go down the following year if SSHB 58 should pass, but in the long term, he felt it would be good for business and that competition would regulate the price of the insurance in the market place, and all would benefit from that. MR. VALLIANT read the following statement into the record: "On behalf of the Association, we would like to go on record supporting the legislation before you. House Bill 58 contains two provisions that our 33 member hospitals and nursing homes recognize as critical components in any tort reform legislation. First is the provision of relief from civil liabilities for hospitals for non- employees. The hospital and nursing homes take great care in credentialling both employees and non-employees to ensure that certain standards of care are maintain. We believe there's a duty by non-employees to maintain a certain level of responsibility for their own actions. And that hospitals and nursing homes should not be held liable for those negligent acts of non-employees over which it exercises little or no control. The second provision also addresses individual responsibility we feel pretty strongly about, and that is that the practitioner has to maintain a given level of liability insurance coverage. Hospital and nursing homes become deep-pockets for uninsured, or under insured practitioners who are sued. Therefore, mandated, minimum liability coverage for practitioners, as a prerequisite to immunity from Jackson v. Powers for hospitals makes sense to us. Finally, our gravest concern is that the Alaska Supreme Court decision, in the Jackson Powers Case, will be expanded to include institution liability for not just contract practitioners, which that particular case involved was a contract relationship that was expanded into an agency relationship by the court. But that they will expand that even farther to include any practitioners that respond to the emergency room to provide coverage in one of our hospitals." MR. VALLIANT referenced page 17 of SSHB 58, and the definition of an "emergency room physician", advising members that, to him, that would mean anybody that a hospital allows to practice in the hospital that responds to the emergency room would have immunity from the decision of Jackson v. Powers if they maintained the $500,000 liability insurance. Mr. Valliant advised members that if he was interpreting that definition incorrectly, he would like to know. MR. VALLIANT urged that members vote for and move SSHB 58 out of the House Judiciary Committee. Number 2470 REPRESENTATIVE BERKOWITZ pointed out that there were a number of civil justice proposals floating around the legislative body. TAPE 97-26, SIDE B Number 000 REPRESENTATIVE CROFT referenced Jackson v. Powers, noting that Section 35 of the proposed legislation included a statutory notice of limited liability. He asked Mr. Valliant where he would post that, and how would his hospital notify people, coming into an emergency room, of that provision. MR. VALLIANT advised members that it could be posted in the emergency room, at the admitting desk, or they could hand it out as a part of the admitting packet at the admission counter. He believed there was also a requirement to post a notice in the newspaper on an annual basis. Mr. Valliant advised members that his hospital required mandatory insurance presently, so it would not pose a real problem for them. He stated that for hospitals where they did not require that insurance, he would anticipate they would have to publish all the names of the medical staff that had immunity because they were carrying the $500,000 limit of liability insurance. REPRESENTATIVE CROFT asked Mr. Valliant if a person entered a hospital and requested to be treated by an employee, if that could be done. MR. VALLIANT's response was that his hospital had no employees. He noted that the hospital in Wrangell, Alaska had only employed doctors. He stated that the employed physicians were covered under their own personal insurance policies. Mr. Valliant advised members that if he were an administrator of a hospital where it was not mandatory, that SSHB 58 would provide the option of allowing a hospital to say if one wishes to practice in the hospital's emergency room, he or she would have to take the responsibility of being adequately insured. Number 093 REPRESENTATIVE PORTER asked if Mr. Valliant knew how many hospitals might be affected by not having that insurance requirement, and if there were some, would it be a burden to the medical service provided in a particular community. MR. VALLIANT stated that from his knowledge of the hospitals in the state, the ones in the Anchorage area would be the only ones affected because they do not require liability insurance for their practitioners. He felt most of the other hospitals in the state were covered either through employment relationships with their physicians, or through board mandated coverage. Mr. Valliant advised members that the association's position was that they felt it was a personal responsibility of the physician to provide for his own insurance coverage. REPRESENTATIVE PORTER noted that previous testimony reflected that both the Providence Hospital and the Columbia Hospital require their emergency room contract doctors to have insurance, and asked if Mr. Valliant was referring to other doctors that might be on staff. MR. VALLIANT agreed, adding that while the contractor might be exempt from Jackson v. Powers, there would still be many more physicians on the medical staff that respond to the emergency room. He advised members that his fear was that if there was another case that went to the Supreme Court, that the Supreme Court could carry the Jackson Decision one step further, and say that the hospital was vicariously liable for their family practitioners who get called in to see their patients on week ends, and pediatricians called in as consultants, et cetera. Number 219 MIKE BARCOTT, Attorney at Law, Faulkner, Banfield, Doogan and Holmes, advised members he would testify on two provisions of SSHB 58, Sections 39 and 40 which dealt with independent counsel. (Mr. Barcott utilized large charts to explain and emphasize his testimony, so his portion of these minutes may appear vague). MR. BARCOTT pointed out that those sections were necessary as a result of the Supreme Court Decision in CHI [Ph]. Mr. Barcott hoped and suspected that there would be no controversy in the House Judiciary Committee regarding those two provisions. MR. BARCOTT advised members that the situation those provisions addressed dealt with the instance in which a plaintiff sues a defendant, in this case, injury negligently caused as count one, and injury negligently, or intentionally, caused as count two. And three additional claims for which there clearly was no insurance coverage, and was never intended that there be insurance coverage in those cases. MR. BARCOTT explained that an insurance company would typically issue a letter stating they cover count one. As to count two, Mr. Barcott expressed that the allegations were negligently or intentionally caused, and the insurance company would typically issue a Reservation of Rights letter that would reflect they do not cover intentional injuries; would provide a defense, but if it was determined the injury was intentional, the insurance company would not pay the judgment on that case. MR. BARCOTT stated that under the CHI of Alaska v. Employers Reinsurance, Incorporated, 844P.2d 113 (Alaska, 1993) and under the statutes enacted since that time, allow that defendant to select independent counsel, whomever they would like to defend the law suit. MR. BARCOTT advised members that under current practice in the state of Alaska, the independent lawyer would defend claims for which there was insurance coverage, or may be insurance coverage, and also under current practice, defends the remainder of the lawsuit for the insured. CHAIRMAN GREEN asked if that was choice, or if it was required. MR. BARCOTT explained that the law was unclear on that issue in Alaska. He stated that that issue had not been litigated to the Alaska Supreme Court. Mr. Barcott expressed that it had been litigated in California who had determined that they did not have to pay for all of that, and Mr. Barcott advised members they were hoping, with the passage of SSHB 58, that it would eliminate three years of fighting in the court system. He noted that the problem had been a horrendous abuse by independent counsel, explaining that those were lawyers who had not worked for insurance companies before, and who bill extraordinary amounts for the defense of those types of claims. Mr. Barcott stated that independent lawyers had no fiscal responsibility to anyone, and were working just to make the litigation expensive, which in turn makes the cost for the insurance carrier extraordinary. He explained that those attorneys typically engage in extensive motion practice, extensive discovery practice, as well as extensive deposition practices to make the plaintiffs jump through extraordinary hoops, and no one, who has any control, is watching the purse in those instances. MR. BARCOTT advised members that he had been involved in litigation where the charges from independent counsel had approached $100,000 a month. He noted that he had talked with Mr. Lessmeier, and State Farm, his client, had had a very similar experience. Mr. Barcott expressed that he had prepared his chart prior to speaking with Mr. Lessmeier, only to find out that he had very much the same situation with a State Farm case. MR. BARCOTT stated that Section 39, SSHB 58, makes clear what he hoped the courts would do if they addressed the issue, which was that the independent counsel would not get paid by the insurance carrier for the defense of those claims. That the insured being sued would be responsible for the defense of those claims, and hopefully, the fiscal check of having to pay their attorney would cause them to act reasonably in that process. MR. BARCOTT advised members that Section 40, SSHB 58, would allow the insurance carrier to deal with the plaintiff to settle the two charted claims, and eliminate other charted claims, and would leave claims for which insurance was not purchased for the entity to defend itself. Mr. Barcott stated that Section 40 would not be implicated unless the plaintiff and the insurance company were willing settle. Mr. Barcott stated that the present problem involved the question of bad faith. If the insurer should deal with a plaintiff directly, Mr. Barcott could tell members from a close personal experience, that there would be the threat of bad faith litigation, and the lawyers who were turning those fees do everything they can to prevent the settlement to those kinds of claims. Number 462 REPRESENTATIVE BERKOWITZ referenced the comment made by Mr. Barcott that defense counsel act unreasonably during certain phases of the litigation, and that phase being the phase that insurance companies would like to get out of paying for. He asked if the claim of unreasonable defense attorney behavior apply to the first two phases on the chart. MR. BARCOTT stated that if it involved independent counsel, it could certainly apply to the other two charted phases, but he went on to say that the Supreme Court and the legislature have said that individuals who have purchased insurance are entitled to independent counsel when there was a Reservation of Rights letter submitted. If there was no Reservation of Rights letter, and the insurance carrier had appointed its own selected counsel, those claims of unreasonable behavior would not happen that often because the insurance carrier and the lawyer have a long standing relationship. Mr. Barcott stated that the attorney would want to have a long standing relationship with the insurance carrier in the future, and if it should get carried away, that would be his last case for that company. He added that independent counsel were not subject to those kinds of constraints. All they were getting from the insurance company was a pay check with no expectation of future assignments. Number 521 REPRESENTATIVE PORTER asked what the sanctions were for bad faith representation. MR. BARCOTT advised members that the sanctions for bad faith representation would be a lawsuit, and presently, that lawsuit involved claims of actual damages, plus punitive damages. Mr. Barcott referenced the $18 million verdict mentioned by Mr. Lessmeier, and advised members that that was a bad faith case against an insurance carrier where the actual damages amounted to approximately $150,000, and punitive damages of $18 million. He noted that the punitive damage verdict was taken away by a federal judge who determined there was not sufficient evidence to support it. CHAIRMAN GREEN thanked Mr. Barcott for the charted diagram, and asked that Mr. Seybert come forward and address the committee. Number 565 ORIN SEYBERT, President, Peninsula Airways, and representing Alaska Air Carriers Association, advised members that the association currently had approximately 130 members of virtually every air carrier in the state, from Alaska Airlines to the smallest "Mom and Pop" operation. He noted that they collectively serve over 200 rural communities not on the road system, who were totally dependent on the services for everything. MR. SEYBERT advised members the association had a very serious problem that had developed over the last two or three years which had to do with the lack of insurance underwriting capacity. Mr. Seybert pointed out that it was not so much the price, but the fact that the association was no longer able to get reasonable limits of liability insurance at any price. He expressed that it was a nationwide problem that related to commuter accidents in 1994. Mr. Seybert stated that most airlines carried $20 million, smooth combined single limit policies, and now, his company was limited to $1 million per seat. He noted that his company was fortunate to have that, as most carriers in the state were operating at $500,000 a seat, which did not go very far in this day and age. Some of the small carriers have only $150,000 a seat in liability coverage, with no assets, so it would not make any difference what the judgment was because that would be all that could be recovered. MR. SEYBERT stated that the accident in Nome three years ago had four young Native Corporation leaders and executives on the aircraft. The carrier at that time had $20 million worth of coverage and the underwriters had reserved the entire $20 million for those four people. A result of that accident, Mr. Seybert stated, was that the British Aviation Insurance Group (BAIG), who wrote most North American commuters, ceased writing coverage approximately 2-1/2 years ago. He expressed that Lloyds of London would not provide coverage, adding that he made a trip to Europe 6 months ago and visited six different aviation specializing underwriters in London and Paris, and none of those companies would help at any price. MR. SEYBERT advised members that they had only two underwriters in the world, one being USAIG in New York, who had made it clear that they could care less whether they wrote the policies or not. The other company was Aviation Insurance Group (AIG) in Atlanta who have a monopoly on the market. Mr. Seybert advised members that the limit of liability insurance available was the big problem. MR. SEYBERT advised members that their renewal, on September 30th, cost Penn Air over $3 million on $30 million in sales; 10 percent of the company's costs were going to insurance coverage and they still only have the $1 million per seat coverage. MR. SEYBERT advised members that in August, Penn Air lost an airplane with one passenger. The passenger was a master mariner, a highly skilled, licensed, marine pilot, who was highly compensated, young and with a family. Mr. Seybert explained that the first letter Penn Air received from the plaintiff's attorney estimated his pure economic future value at $2.8 million. Mr. Seybert pointed out that he could not argue with that, except that he should have been able to buy enough insurance to protect himself. He noted that the letter also stated that the attorney felt he could easily get $10 million or $12 million in punitive damages, noting that Penn Air would be liable for everything over $1 million. MR. SEYBERT advised members the association's primary concern was the cap placed on punitive damages. He advised members that was necessary, and they strongly supported SSHB 58. Mr. Seybert advised members that Alaska had the perception, or the fact, of having nearly the highest jury punitive damage awards in the nation, second only to Alabama in the record of extremely high punitive damage awards. He noted that air carriers were very concerned about any of the association's cases going to a jury because the cases mostly involve technical details, and the average jury person does not understand technical details of aircraft operations. MR. SEYBERT advised members that he began looking at the association's customer base, pointing out that if they were at risk, they should begin identifying customers who have the potential of costing the air carrier that much money. He pointed out that they had refused service to a couple of customers because of the risk involved. Mr. Seybert advised members that in the case of Dutch Harbor, his company was the only source of transportation for those people, so they would be limiting the ability of those people, who were very important to the seafood industry in the state, to do business. MR. SEYBERT expressed that if SSHB 58 passed, underwriters would come in, make more coverage available, at more reasonable rates, and the bottom line was there would be more coverage and more money available to a person who gets injured or killed in an aircraft accident. Number 906 CHAIRMAN GREEN referenced the example provided by Mr. Seybert, and stated if the person's family was awarded $2.8 million, and there was a three times economic damage limit on punitive damages, that it would come fairly close to the $12 million the attorney said he could get. MR. SEYBERT thought economic damages were separate from the punitive damages. CHAIRMAN GREEN said they were separate, however they were used as a guide to establish the limit on punitive damages. MR. SEYBERT thought there was a $300,000 or $500,000 limit on punitive damages, regardless. REPRESENTATIVE PORTER advised members that what the bill provided was limit of $300,000 on punitive damages, or three times the compensatory damage; which ever was greater. MR. SEYBERT stated, with that response, it would not help his company that much. Number 1062 REPRESENTATIVE BERKOWITZ pointed out that a settlement was somewhat like a poker hand where one would be betting on the outcome. MR. SEYBERT agreed, but stated that a jury trial involved a much bigger poker hand. REPRESENTATIVE BERKOWITZ pointed out that Mr. Seybert had stated that he was not sure SSHB 58 would assist with his problem, and asked him if there were modifications to the proposed legislation if he would support the legislation. MR. SEYBERT advised members that it was necessary for the aviation industry to have limited punitive damages, and stay with straight economic damages. Number 1103 REPRESENTATIVE PORTER pointed out that the provision of punitive damages in the case described by Mr. Seybert, that he did not think there was a chance of getting into that level of exception. He stated that SSHB 58 would limit the absolute cap of the punitive damage award, in that case, to $6 million. REPRESENTATIVE BERKOWITZ spoke to the case referenced by Mr. Seybert and asked if it was a case where the air carrier was conceding fault, but could not get the insurance coverage needed. MR. SEYBERT advised members that they fall under the strict liability statute and are required to compensate, whether at fault or not, but are unable to get the coverage needed. He explained that it was because of the perception of the underwriters that they are at such potential risk because of the excessive punitive damage amounts. REPRESENTATIVE PORTER stated for the record, that if questions were being posed regarding a particular case, it would be in Mr. Seybert's best interest not to answer. REPRESENTATIVE BERKOWITZ advised members he would not do that, and that he was posturing his questions carefully to that effect. Number 1218 NEIL MACKINNON, President, Alaska Laundry and Cleaners, and Chairman of Leadership Council of the NFIB, advised members that the Alaska Chapter of the NFIB had 4400 members, making it the largest small business advocacy group in the state. Each year the NFIB polls its entire membership on a variety of state legislative and regulatory issues. Mr. MacKinnon pointed out that the federation used the poll results to set its legislative agenda and promote the positions approved by the majority. MR. MACKINNON advised members that the NFIB Alaska ballot results had shown overwhelming support for a number of the provisions contained in SSHB 58. The NFIB supports placing reasonable limits on non-economic and punitive damages. He noted that when there were no limits on damages, the unpredictability of what a jury might award often forces insurance companies to settle out of court too soon for too much money, which drove up the cost of liability insurance. MR. MACKINNON pointed out that the cost of personal injury cases, and the unpredictability of unlimited damage awards, placed a large impact on small business entities. He expressed that NFIB Alaska believed SSHB 58 would assist in controlling those costs, while assuring appropriate compensation for persons injured through no fault of their own. Mr. MacKinnon stated that the proposed legislation would make the civil justice system more fair, efficient, and less costly. MR. MACKINNON stated with respect to his own business, Alaska Laundry and Dry Cleaning, that they had been in business in Alaska for over a century. He noted that after closing his books for the past year he was well aware of the cost of liability insurance, and applauded the efforts to bring some sanity to tort reform which would hopefully slow the rise of insurance premiums, if not reduce them. Mr. MacKinnon expressed that he did not expect to see a decrease in premiums, but expected they would not increase. He felt increased competition in the insurance industry would result in maintaining a reasonable insurance rate. MR. MACKINNON pointed out that beyond the cost of insurance, there were costs incurred in trying to tort proof a business. He stated that it was a real shame when many business decisions were driven by exposure to liability and noneconomics. Mr. MacKinnon advised members that where a fear of frivolous lawsuits overrides the desire to expand services and products, the only winners in the present system were the shyster lawyers, and a few of their clients. He noted that the rest of the public only gets to pay for the outrageous awards. Mr. MacKinnon asked that members bring sanity to the system and pass tort reform this year. Number 1395 PAMELA LABOLLE, President, Alaska State Chamber of Commerce, advised members there were approximately 700 business members and 35 local chambers that work with the State Chamber to develop their legislative priorities. Ms. Labolle noted that through Chamber members, they employ approximately 70,000 Alaskans. MS. LABOLLE advised members the Chamber strongly supported tort reform legislation, adding that they had filed an initiative on the subject. She pointed out that the Chamber's greatest concern was in the area of punitive damages. Ms. LaBolle advised members that they felt the single greatest cure for some of the ailments that face business would be fixing the punitive damage problem. MS. LABOLLE advised members the Chamber was in support of placing parameters on when punitive damage claims could be assessed. She stated that it should involve willful actions and actions that would ordinarily be punished because that was, in fact, what punitive meant. Ms. LaBolle pointed out that punitive damages should be a representation, or statement from society, that certain things were unacceptable, and a person or entity should be punished if doing those things. MS. LABOLLE stated that the fine, or penalty that had been established as punishment, should be awarded to society, not the claimant because the wrongful actions were actually a crime against society. Ms. LaBolle expressed that three times the amount of the award, or $300,000, which ever was greater, should be the cap placed on punitive damages and should include malicious intent or willful neglect. MS. LABOLLE advised members that the Chamber was not supportive of the change in the punitive damage arena that produces another level, under certain circumstances, because they felt that would put one right back into the ball game they were attempting to get out of, which was ongoing litigation. MS. LABOLLE advised members that approximately 85 percent of the members of the State Chamber of Commerce were small businesses, and even the minimum $300,000 cap set out in SSHB 58, was a large chunk for a small business. MS. LABOLLE stated that the Chamber would suggest deletion of Section 10 (c), but fully supported the remainder of SSHB 58. Number 1777 CHAIRMAN GREEN agreed with Ms. LaBolle that Alaska was mainly made up of small businesses and it would be very difficult for those businesses to survive a large punitive damage award. He questioned whether there would be merit to a sliding scale punitive damage claim. MS. LABOLLE felt that when it came to criminal law, and the establishment of penalties, that it involved penalizing the person who committed the crime, not a level of punishment dependent on who the perpetrator was. She stated that the Chamber was not concerned with who caused the problem, or how deep the pocket was, but a system of equal justice. Number 1913 REPRESENTATIVE BERKOWITZ noted Ms. LaBolle's opposition to Section 10 (c), pointing out that there were certain crimes which carried very severe penalties, such as life in prison in the state of Alaska. He asked Ms. LaBolle if she felt life in prison would be appropriate if there were certain civil problems that were particularly egregious. MS. LABOLLE advised members that her problem with that section was the inability to fully understand its intent. She noted that she was not an attorney, and most of the Chamber members were not. Ms. Labolle pointed out that the language "wrongful conduct or omission arose in connection with a commercial activity", would affect anybody in the organization, as well as "motivated by financial gain". She expressed that the Chamber was not attempting to protect anyone for committing a wrong doing; however, once a wrong doing had been determined, how large of a penalty would be imposed, and how would one know when it would be best to settle out of court. Ms. LaBolle advised members that was the worst part about punitive damages, because it was daily forcing people to settle out of court even if they had not done anything wrong. REPRESENTATIVE BERKOWITZ advised members he had been looking at the 16 punitive damage cases that had been awarded in the state of Alaska, and stated that the lawyers who were throwing in the towel early, were not playing hard enough. MS. LABOLLE advised members they would not see the claims that were being settled out of court, adding that it was a punitive damage threat that was driving people to tell their insurance companies to settle the case because everything a person had earned, or hoped to earn, would be on the line for the small business person. MS. LABOLLE pointed out that the Chamber conducted a survey in 1996 of 500 registered voters which revealed that two out of three Alaskans thought the system was broken, and they want it fixed. REPRESENTATIVE BERKOWITZ expressed that he grew up in a small family business and they weathered their share of what he termed "extortion", rather than frivolous suits, of which some they paid and some they fought. He felt that was a judgment call that small businesses need to make on a case by case basis. Representative Berkowitz pointed out that when he said "throwing in the towel on punitive damages", that people have the expectation that the claims are all huge, when in fact some were as small as $100. Number 2251 REPRESENTATIVE PORTER pointed out that if what Representative Berkowitz was referencing was the task force information, that their gathering of information consisted of one year's worth of statistics. He stated that the Judicial Council that gathered the information indicated they did not have the time to include all the cases in 1995. REPRESENTATIVE BERKOWITZ noted that the information he was referencing included statistics from 1985 to 1995; but if it involved only one year he would retract some of what he said. CHAIRMAN GREEN closed testimony on SSHB 58, adding that the committee would again consider the proposed legislation the following Wednesday. Number 2328 ADJOURNMENT CHAIRMAN GREEN adjourned the House Judiciary Committee meeting at 4:18 p.m.