SENATE JUDICIARY COMMITTEE August 25, 1995 9:00 a.m. Fairbanks, AK MEMBERS PRESENT Senator Robin Taylor, Chairman MEMBERS ABSENT Senator Lyda Green, Vice-Chairman Senator Mike Miller Senator Al Adams Senator Johnny Ellis COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 158(FIN) am(ct rls pfld)(efd fld) "An Act relating to civil actions; amending Alaska Rule of Civil Procedure 95." PREVIOUS SENATE COMMITTEE ACTION HB 158 - See Judiciary minutes dated 5/3/95, 8/21/95, 8/23/95, 8/24/95. WITNESS REGISTER Dr. Hugh Fate 750 Farmers Loop Fairbanks, AK 99712 POSITION STATEMENT: Testified in support of CSHB 158(FIN) am Bill Robertson, President Fairbanks Chamber of Commerce 709 2nd Ave. Fairbanks, AK 99701 POSITION STATEMENT: Read resolution in support of CSHB 158(FIN) am Nelson Parrish 536.5 4th Ave. Fairbanks, AK 99701 POSITION STATEMENT: Opposes CSHB 158(FIN) am Virgil Hornsby P.O. Box 81891 Fairbanks, AK 99708 POSITION STATEMENT: Has concerns with CSHB 158(FIN) am John Rosie 531 4th Ave. Fairbanks, AK 99701 POSITION STATEMENT: Opposes CSHB 158(FIN) am Valerie Therrien 779 8th Ave. Fairbanks, AK 99701 POSITION STATEMENT: Testified in opposition to CSHB 158(FIN) am Robert Bruce Stevenson Fairbanks, AK POSITION STATEMENT: Testified on CSHB 158(FIN) am Michael Lawson P.O. Box 73774 Fairbanks, AK 99707 POSITION STATEMENT: Has concerns with CSHB 158(FIN) am Karl Kirchner P.O. Box 95 Kasilof, AK 99610 POSITION STATEMENT: Has concerns with CSHB 158(FIN) am Phil Squires P.O. Box 1231 Kenai, AK 99611 POSITION STATEMENT: Opposes CSHB 158(FIN) am ACTION NARRATIVE TAPE 95-45, SIDE A Number 001 CSHB 158 CIVIL LIABILITY(FIN) am  CHAIRMAN ROBIN TAYLOR called the Senate Judiciary Committee meeting to order in the Fairbanks Legislative Information Office conference room at 9:00 a.m. He explained that because the legislature is in between sessions, the only action that could be taken on HB 158 was the taking of public testimony for the record, but that it is his intention to hold additional hearings in January when the legislature is back in session. Number 020 DR. HUGH FATE, representing the Fairbanks Chamber of Commerce, stated their support for HB 158. Dr. Fate said that under the present system, where tremendous awards are granted in punitive damage cases, the cost to the small businessman and the cost to the health profession is escalating. If the state of Alaska is to have any kind of a health plan, it will have to deal with this issue, and the cost of this issue, relative to punitive damages, will escalate until either the third- party insurers, or the state of Alaska, or even the public just simply will not be able to afford it. Number 040 SENATOR TAYLOR asked how punitive damages can become a cost to the state or the insurance industry when it is uninsurable. DR. FATE responded that if the state has to take on some type of health plan, such as the federal government has advocated, the cost of health care, whatever kind of a plan it is, basically, it's an insurance plan. So the cost of that plan escalates regardless of who sponsors the plan, who supports the plan and who administers the plan, and the cost keeps going up if punitive damages are left the way they are. He added that the way it works isn't the punitive damage coverage; it's the health insurance coverage. His own insurance health insurance has gone from approximately $3,600 to $7,200 because of this very reason. If the awards are so exorbitant, the people who supply the insurance spread this across the board among those people who have not had these problems as far punitive damages or placing the blame. He also pointed out that this comes at a time when the state can ill afford to escalate its cost. SENATOR TAYLOR noted the only point he was trying to make is that as concerns what might be termed "excessive awards" or "compensatory or noneconomic damages," both of which are covered in this legislation, but as concerns punitive damages itself, and from the testimony the committee has had in the last several days on Section 6, it appears to be almost identical language to what the Supreme Court came down with recently in a case involving a bad faith claim of an insurance company. DR. TATE questioned if the Supreme Court decisions, even though they form a legal precedent, would codify that precedent in such a manner that there would be no question as to what punitive damages would be in the future. SENATOR TAYLOR responded that he thought so, and he noted that the legislation goes further by placing a cap upon what amount of punitive damages can be awarded. Number 130 BILL ROBERTSON, President, Fairbanks Chamber of Commerce, read into the record Resolution 95-081 passed recently by the Fairbanks Chamber of Commerce in support of HB 158. Number 160 SENATOR TAYLOR referred to the collateral benefits section of the bill on page 7, and, as a hypothetical, said that if an employee who is covered under a businesses health care program is severely injured by a drunk driver and all of his medical bills and other compensation are paid by the employer's carrier, when he sues the drunk driver and it goes to court, under this provision the drunk driver gets to deduct those medical bills and other compensation from the amount he owes the employee. He questioned why anyone would want a provision that would help out the wrongdoer and give them the advantage of the employer's carrier, and he pointed out that he hasn't found anybody who has an answer to that question and that is why these hearings are being held. Number 250 NELSON PARRISH, a Fairbanks attorney practicing personal injury law for approximately 25 years, said he believes the problem with HB 158 is that it once again assumes that the present civil justice system needs fixing, based on the assumption that injury victims are receiving outrageous awards over and above what is due them. However, he does not believe there is any basis to say that with respect to what is going on in Alaska. He said there just seems to be a perennial rush by special interest groups to limit the right of injured people to be fairly compensated for injuries inflicted by the negligence of another. The medical profession doesn't want the government to have anything to do with regulating its business, limiting its fees, etc., but on the other hand, every year they heavily support bills like this that will regulate the right of injured people to seek fair compensation for what has happened to them. He believes the real purpose of the legislation is simply to frustrate legitimate claims. Number 305 SENATOR TAYLOR asked Mr. Parrish of all the people who come through his door seeking his assistance on a personal injury type claim, out of 10 people that come through the door, how many does he normally take under the current system. MR. PARRISH responded that in medical negligence, the medical profession would be astounded as to the amount of people that are displeased with the service that they receive, although most of them don't have a legitimate claim. He added that in the medical negligence arena, it is probably close to one in one hundred that he would take. In other arenas, it is probably closer to one in ten to twenty. He said from his experience over the years, the claims that have been brought up and have actually received compensation have been pretty justified, and Alaska's Supreme Court has not been reluctant to slash awards. Referring to the noneconomic damages section of the bill, MR. PARRISH said the limitation on noneconomic damages is totally nonsensical and unreasonable. Also, in referring to the punitive damages section of the bill, from his experience, there haven't been very many punitive damage awards, and what punitive damage awards there have been have been severely restricted by the Supreme Court. MR. PARRISH also commented that there has been tort reform in one form or another since 1986, and if somebody in the room has seen their rates go down as a result of it, he'd like to hear about it because his rates just keep going up. SENATOR TAYLOR responded that Harlan Knudson, on behalf of the Alaska Hospital Association, testified in Sitka that hospital medical malpractice rates have gone down by more than 25 percent since 1991. When looking into it, it was found that NORCAL, a company that bought out MICA's assets, had been gouging and ripping off our hospitals and doctors at such a rate that another company came in and started underselling them and they then went back down to the lower company's rates. He pointed out that these same things are happening in the air carrier industry, to bar owners, etc. Number 631 SENATOR TAYLOR asked Mr. Parrish if he could think of anything that could be put into the bill that would make the system work and that would create a more equitable distribution of the cost of the injury, or would ensure adequate and appropriate compensation for persons injured. He added that has been asking this question during these tort reform hearings and, so far, he hasn't had anybody come forward with an answer to that. Most people have responded that this bill does exactly the opposite of that. TAPE 95-45, SIDE B Number 050 VIRGIL HORNSBY of Fairbanks said he was recently in a building fire and sustained a substantial amount of back injuries. However, he is not finding any recourse against insurance companies, against the juveniles that started the fire and against other things. He said he a teamster, but he may not be able to drive trucks again or operate heavy equipment, which means he may have to train for a different field and that is something he cannot afford right now. He voiced his concern with the insurance companies, the lawyers, the doctors and the whole system, and he said it seems to him that if this bill passes, it's going to protect all those areas while leaving the people that are in need of assistance without any. Number 170 JOHN ROSIE, an attorney practicing in Fairbanks since 1972, said he participated in the discussions on tort reform in 1986 and 1988, and he finds that nine years later we haven't received any greater access to insurance markets, there isn't an entry of new companies into Alaska that issue insurance policies, and every aspect of his insurance portfolio has gone up. He said he is being told that because our insurance industry is so tied into a mutual retention system that what affects the market in Florida from hurricanes, from the midwest in floods, etc., that all these destructions go across a mutual system so there is national rating and the premiums go up in Alaska even though we've had none of those disasters. He questioned what the purpose of this legislation is when the problem has nothing to do with individuals in Alaska causing the problem. Mr. Rosie spoke to specific cases he has represented where people have been severely injured and how grossly unfair the noneconomic damages caps are for those types of cases. He also pointed out that subsection (f) of the noneconomic damages sections provides that multiple injuries sustained as a result of a single incident shall be treated as a single injury which would mean that even if there was more than one individual injured in an accident, the total paid would still be $300,000, or $500,000 if there was a death. Number 297 SENATOR TAYLOR said it was his understanding that for a juvenile, especially the younger child that has no work experience, there is not an economic loss other than a projected possible work life. He asked Mr. Rosie if he could clarify what this legislation would do under that circumstance. MR. ROSIE responded that he didn't know, but in his experience when he has represented children that have either been killed or have been severely injured, you try to get a projection of what they may or may not earn. However, it is subject to all kinds of holes and ridicule, because he gets his economist and the other side gets their economist, and they deal with national averages and never have any consensus on any kind of experience. Number 350 MR. ROSIE also spoke to some other cases and the effect the noneconomic damages section would have on them. Number 480 SENATOR TAYLOR noted that there is a provision in the bill that speaks to who shall be qualified to testify as an expert in a medical case in Alaska, and he pointed out that it is only those people licensed in Alaska that are qualified. MR. ROSIE said he has had two medical negligence cases that were submitted to medical review panels that are required by statute and the medical review panel never met on them. Number 590 VALERIE THERRIEN, an attorney in private practice in Fairbanks, as well as a member of the North Star Borough Assembly, stated her opposition to HB 158. She also stated she is a member of the Fairbanks Chamber of Commerce, and she does not think they always represent all of their membership. Ms. Therrien said over the course of the years she has been involved in many personal injury cases and that she made the unfortunate mistake of spending over a year in a medical malpractice case. Her client had to have corrective surgeries for an earlier procedure he had done which had caused serious problems. It ended up that they had to dismiss the case because the insurance company and their attorney had scared the client and his wife so bad that they were afraid they would lose what little assets they had if they proceeded with the case. She said it is a good example of how they never even got to the board to review the case and they couldn't even find a panel of doctors that was willing to say they were unbiased in this situation. Ms. Therrien said if this bill is intended to actually help people, it's not, and she suggested that a way to help the system would be to reform workers compensation. TAPE 95-46, SIDE A Number 001 Ms. Therrien stated that since the workers comp law was reformed, there are no incentives in it and there aren't any attorneys in town who are willing to take workers comp cases, Ms. Therrien, speaking to the collateral benefits section of the bill, pointed out that a lot of the time one of the only ways that an attorney can really get his or her costs incurred and his or her attorneys fees is to subrogate the insurance interest, and if that is taken away for the attorneys, there is no way they can go ahead and work on the cases. Ms. Therrien also noted she was involved in a wrongful death case against the University of Alaska and she was amazed at the costs that the attorney charged the university to try to get them to just settle. She believes that unless there are some incentives put in for limiting the amount of defense attorneys' costs and fees, that the system will never be remedied. Ms. Therrien said she has some personal experience with clients, as well as herself, where, after filing a claim, they get dumped and then cant get house insurance, liability insurance or medical insurance. She suggested another way to try reform the system is to make sure that in instances like this where an individual's insurance is cancelled because of another's negligence, that there be some type of pool of other insurance available for those people. SENATOR TAYLOR commented that the cancelling of an individual's insurance because of another individual's negligence is a complaint that he has heard over and over again from constituents since he has been in the House and Senate. Ms. Therrien also spoke in opposition to the statute of limitations in the legislation, especially as it relates to children, as well as the caps for noneconomic damages. Number 315 ROBERT BRUCE STEVENSON of Fairbanks said injuries he received in and accident and the award that resulted fall within the limitations proposed in the legislation. However, his award was not the result of the jury system, but, rather, a settlement that was reached. He then spoke to the injuries he sustained on the job in an accident approximately 7 1/2 years prior as the result of a propane explosion at Eielson Air Force Base. Discovery showed that the propane tank had been mishandled in the past by employees, and that the propane company was aware of this mishandling. He told of the lengthy and extremely painful treatment he underwent in the hospital for burns to over 40 percent of his body and the long-term effects the accident has had on himself and his family. Mr. Stevenson said there was discussion earlier on state workers compensation, but there is another whole side of this issue that rarely gets talked about and that is federal workers compensation, which is a bigger nightmare than state workers compensation. After returning to work at a different job at Eielson that was not working out for him, he requested a transfer, which was denied by federal workers comp. Only after enduring several months of harassment by the feds, and, only after he had contacted a specialist in burn psychiatry, did they begin to accept the possibility that maybe he should be transferred, however, they never helped him get another job. He suggested a way to make things better in the system would be to have some type of organization that would help injured individuals, even in the hospital, to start to recognize their limitations and talk about doing something else. It took him four years to settle this matter, and he feels it could have been done quicker with less cost to everybody. Number 686 MICHAEL LAWSON of Fairbanks said he received injuries in 1991 that are somewhere between workers comp and medical malpractice. TAPE 95-46, SIDE B Number 001 Mr. Lawson stated that in his case alone, the insurance company has spent $50,000 to fight his case against them. He has been unable to work for four years and has seen over 40 doctors in and out of Alaska. He said the reason he has been off work so long is because he has had to fight the insurance companies, and he noted his attorney is one of the few lawyers that will take a workers compensation case. It's been four years and his case still is not settled. He said his point is that the legislature tried to streamline workers comp and it didn't work, and he does not believe that the caps in this legislation are going to work. Number 118 KARL KIRCHNER, an Alaska commercial fisherman who was involved in the Exxon Valdez litigation and testifying from the Soldotna Legislation Information Office, said he believes tort reform should be about fairness, not scale, and that punitive damages are meant to be a deterrent. He said tort reform should not be about scale because that makes it more unfair on the size of your business; larger companies would get away a little easier and smaller companies would have it a little harder. SENATOR TAYLOR said the question has been asked in other hearings whether or not the overall damages provision as a multiplier would take care of situations such as the Exxon Valdez incident, and the answer given was that since environmental damages have never quantified in a uniform way throughout out the country by courts, the value of a dead duck or an oil beach is a value, more often than not, of ambiance or a value of scene or a value of some recreational value. The attorneys on behalf of Exxon Valdez plaintiffs that he has talked with indicate they felt they could quantify that very well and that there were objective standards for that, but other attorneys have been equally forceful in their arguments indicating that it's a generic sort of thing, and that that type of damage would definitely fall within the noneconomic limiter. If that were the case, then the noneconomic limiter, in this instance, under this law, would be $300,000. For the economic damages, whatever those are, you could get to three times that economic damage factor, he said. Number 175 PHIL SQUIRES, a commercial fisherman and a small contractor in Kenai, stated his opposition to HB 158. As a small businessman he is well aware of the exposure that he has to civil litigation, and he is in favor of tort form, but he does not view HB 158 as being in his best interest or in the best interest of most of the other people of the community. He said he agrees with Mr. Kirchner's comments that it is a matter of scale, and, from his perspective, from his finances, the limits that are in the bill are no limits at all. He said he could be taken to court and financially ruined, while the same amount of money for a large corporation is simply a cost of doing business. Also, he has a problem with the disempowering of the jury by placing the limits on the damages that they can award. There being no further witnesses to testify on HB 158, SENATOR TAYLOR thanked all the participants and adjourned the meeting at approximately 11:45 a.m.