Law And Politics Of Tort Reform:
Local and National Developments
Justice & Democracy Forum Series
for Democratic Culture
William S. Boyd School of Law
Friday, April 25, 2003*
Current Legal Issues in Tort Reform
Session 1. 9:00 - 12:00 a.m.
DMITRI SHALIN: Good morning. This is the public forum on tort reform.
I am Dmitri Shalin, Director of UNLV Center for Democratic Culture,
and this is the second event in the Justice & Democracy Forum
series sponsored by the Center and Boyd School of Law. The issue
before us is a pressing one, indeed. We can glean this from a letter
of welcome written by Governor Guinn, as well as from several messages
addressed to this Forum by the members of the Nevada Congressional
Delegation. Here are a few passages underscoring the vital importance
of the problem we are discussing today. Kenny Guinn, the Governor
of the State of Nevada, writes,
It is my
pleasure to welcome you to the Center for Democratic Culture for
the Justice in Democracy Forum, which will address court reform.
This will be an invaluable opportunity for all participants to
discuss issues that are of paramount concern to the citizens of
Nevada. This valuable informational discussion promises to be
an enlightening experience. The concept of bringing together representatives
from the medical profession, construction, insurance companies,
legal firms specializing in malpractice and product liability
and the members of the Nevada assembly should prove to be a productive
and positive step toward finding solutions a serious situation
Reed writes in his note,
It is my
pleasure to welcome you to the Justice in Democracy Forum series,
a discussion on the law and politics of tort reform. Exercises
like this forum serve as an important reminder of what it means
to live in a Democratic society. I would like to commend the Center
for Democratic Culture for their vision in developing a program
such as this. It is important that we as Americans do not take
for granted the freedoms we have in our country to discuss, debate
and even disagree on topics of national importance. The topic,
'The Law and Politics of Tort Reform,' is especially timely. I
understand that rising medical and malpractice insurance rates
are a serious problem in Nevada, as well as elsewhere in the nation.
I am committed to doing everything in my power to ensure that
our doctors have affordable medical malpractice insurance so that
patients can have access to their doctors when they need them
most. Everyone here agrees that there is a medical malpractice
insurance crisis in Nevada. However, not everyone agrees about
the cause of the problem or how to solve it. This is why today's
forum is so timely.
John Porter indicates in his letter that,
of Nevada, Las Vegas, provides a great service in opening a discussion
like this to the public. Through this medium the public gains
access to the leading personalities of those who either directly
reform our tort system, or those to whom the reform applies. Allowing
the people of Nevada to participate in this manner, provides those
directly impacted by tort reform, particularly in light of the
current health insurance crisis, to gain a better understanding
of what is being done to alleviate the situation and what still
needs to be accomplished.
Dr. Carol Harter, who is out of town today, asked me to extend to
you her warm welcome and to reaffirm that this University is committed
to pulling its weight in the community and addressing the needs
of Las Vegas and Nevada. With this I'm pleased to turn the floor
over to Richard Morgan, Dean of the Boyd School of Law, who graciously
agreed to host today's forum. Richard Morgan.
Thank you, Dmitri. Thank you all for attending this important program.
I will be extremely brief because you have very important work to
do today, and I don't want to delay the onset of that work. The
Boyd Law School is extremely pleased to host this program in a sense
of providing our facilities and the expertise of some of my good
faculty colleagues here at the Boyd Law School. The credit, however,
for pulling the program together and for grappling with this very
important issue goes to the Center for Democratic Culture, headed
by Dmitri Shalin. That is the interdisciplinary campus group that
has pulled this affair together. They are to be commended for doing
that. We have had malpractice insurance crises of various types
in this state and, indeed, around this country many many times in
my memory, which goes back a ways. They always, always provoke considerable
debate and controversy about the cause of the problem and the solution,
or solutions, for the problem. I think it is very, very worthwhile
that we've pulled together today people with great expertise and
differing perspectives on the tort reform debate, with a view, I
hope, of making some real progress, solving the problem, not only
now, but perhaps for future years or generations to come. So I commend
you for the work. I welcome you to the Boyd Law School. I thank
you, Dmitri, and your colleagues for your willingness to share this
program with us here at the Boyd Law School and I hope you'll have
a good day. Dmitri, I now turn the program back to you.
Before I turn the floor over to Jeff Stempel, who will moderate
our discussion today, just a few words about the Justice and Democracy
Forum series and why our community does indeed need a forum like
this. You must have heard many times about the woman who scalded
herself with hot coffee that she purchased at McDonald's restaurant,
and the jury that awarded her $2.7 million. You don't hear as often
that award was actually cut to something like $640,000. You hear
such story, and you think well, maybe insurance companies are right
and the noneconomic damages must be capped in some fashion.
Then you hear
the other side of the story, the lawyers who tell you that in states
where such damages have been capped, like in California, people
with legitimate complaints have trouble finding lawyers. A recent
story of Casey Kaiser, a child born premature, is the case in point.
The parents had no problems landing a lawyer, several in fact offered
their services, and things were on track. But the baby died and
one after another the lawyers backed off. Why? Because it's one
thing to represent the case when parents face years of expensive
medical treatment for an injured child and the other thing is when
all they can count on is $250,000 maximum award available to them.
It looks like they may not be able to find any representation.
Y you listen to Nevada home builders who tell you that all they
want to do is to have the right to fix the problem before the homeowners
file a lawsuit, that they want a neutral party to evaluate the damage
and let homeowners decide for themselves whether or not they wish
to be part of a class action suit. It sounds imminently reasonable.
But then you listen to homeowners and plaintiffs and realize that
this is at best half the story. Lawyers representing the other side
will tell you that the Nevada Building Code is substandard, that
licensing requirements for subcontractors are abysmal in our state,
that home builders are pretty slow in addressing the issues at hand.
And so it goes. Each claim meets a counterclaim.
The only way
to settle the dispute, it seems, is to form a lobby and put the
screws on the legislators in the hope of launching a favorable bill.
However, there is no legislative silver bullet, no law that cannot
be subverted, and certainly no piece of legislation that will please
everybody. Yet even an imperfect system can work if there's a goodwill
in the community, if we are willing to listen to each other in good
faith and meet our opponents halfway.
in Democracy Forum is first and foremost an exercising in community
building. It is based on the premise that we can join issues with
our opponents, expand room for the honest difference of opinion
and agree to disagree when no consensus is reached. If we can accomplish
that, we should be able to live with whatever system emerges at
the end of the current legislative season, assuming that we can
come together, review how things work and make pragmatic adjustments
This is my
spiel, and now I am turning the floor over to Jeffrey Stempel, a
distinguished member of the campus and Las Vegas community, an authority
on insurance, tax law, and alternative dispute resolution, and an
organizer of many symposia, in whose able hands I'm happy to deliver
[I'm] not really organized because I'm still passing out the placards
for the first panelists here, and let me introduce them to you by
way of providing -- and self service placards at that. Some ground
rules for today. I'm going to have to assume the role of an augur
or traffic cop because we have such an abundance of resource and
riches with the number of speakers we have here today. And so our
plan is, as you see looking at the program before you -- we have
various segments and a limited number of seats up front. The plan
such as it is that we would change the guard here at the conclusion
of each segment. Each segment will run -- the first two will run
approximately an hour. The third segment has fewer speakers, and
I will drop myself, you'll all be thrilled to know, into the afternoon
session. The third segment will probably be like 45 minute and then
we will hold all audience questions until the end of the morning
segment. I think that's a concession we have to make in the interest
of flowing with time. And so, doing the math, I'm gently asking
all of our speakers to strive for something in the area of 10 minutes
of remarks, and we'll have a few minutes for panel interaction but
not full audience questioning until the close of the morning before
we take our lunch break. We'll try to follow that same format this
afternoon. As many of you have noticed, the proceedings are being
transcribed today. I'm normally the worst offender about talking
too fast and not giving the court reporter time to recover. We will
have -- if we could really keep it to an approximately five minute
break between each segment, that will be helpful both for changing
personnel up here and for giving our court reporter a chance to
recover. The transcript that she did from last December's Judging
Judges program was excellently done, and has been -- is now in the
process of being prepared for the Nevada Law Journal for publication
in a future issue and our intent would be that the proceedings here
today will be published as well, with of course the caveat that
all speakers get to review their remarks before they're memorialized
in print. With that, let me introduce our speakers. To my right
is Scott Canepa, a noted plaintiff's construction defect lawyer
in town. He's a graduate of the University of Nevada. His bio blissfully
left it open whether it was Reno or Las Vegas.
I'm afraid it's Reno, and has attended the University of Southern
California and Cal Western Law School and has been practicing in
this area for approximately ten years. To Scott's immediate left
is Steve Hill, the President and Chairman for the Coalition for
Fairness in Construction and the President of Silver State Materials.
He might have a slightly different perspective on construction defect
matters, and we'll hear from him as well. To Steve's left is Betsy
Gonzalez. Betsy is a graduate of the University of Florida Law School
and has been a long time practitioner in this area, formally of
Beckley Singleton, and now operating her own shop. I think it's
fair to say that most of her experience has been on the defendant's
side of the line as well. On my immediate left, and our first speaker
today, because he has a class commitment later, he may not be able
to stay for the entire completion of this panel, is Bill Robinson,
a member of the faculty from the School of Business and former President
of the UNLV Faculty Senate. He earned his ticket to the proceedings
today by being -- although he would not let anything as much as
sickness or death except for a lawsuit [to him] -- Bill earned his
ticket here by being a plaintiff in a homeowners construction defect
suit. So we have a variety of perspectives, both microcosmic and
macrocosmic. And so, we'll begin with Bill, following with Steve
and then Scott and Betsy, in roughly that order; so we have a little
bit of alternation here as well. With that, Bill Robinson.
Thanks. I'm going to leave at 10:00, but I will be back later if
somebody wants to yell at me for something that I said. Now, I'm
going to mix my damage experience with my economist hat; so it won't
be a total loss for you to hear, you know, sob stories. I live in
a condo complex with 112 units. The original owner of my unit --
I'm the only one that's ever lived in there. About four years after
it was built, every time it rained, we started getting leaks all
over the complex. Every building in the complex was leaking like
crazy. And you know, it doesn't rain here very often, right? So,
you know, that was probably six or eight rains after the place was
actually built. So we went -- the people who were on the board at
that time -- went to the builder and the builder said, "You
know, the day after I sold the last unit, I dissolved the corporation
I used to build this complex, and I have no responsibility for it
in any way."
Well, so we
played around for a couple more years, and the association looked
to me -- the association was about to go bankrupt, which it was.
And I ran for the board on the "Let's go back and do something
about this" platform. I won, and they made me the president,
and we went back to the builder and said, "You've got to do
something, we're spending six or seven thousand dollars a month,
every month it rains, on repairs. Our income is six or seven thousand
a month." And then you can't pay electrical bills, you can't
pay water bills, you can't cut the grass, anything. We were draining
-- the reserves were just being drained -- the association’s
He had sort
of a two-word response. The first word started with an "F"
and the second word was "off." And so we said, "All
right," and we went out and found -- and Mr. Canepa found us,
it was a joint finding. Even though it wasn't required by law, at
that point we took a vote. We got the homeowners together and took
a vote. We agreed to do it. We ended up -- if you go back on the
records we borrowed half a million dollars to do this. I wouldn't
be here if we lost. My head would be on a pike somewhere outside
my complex. We were one of the first people under the changed law,
the Chapter 40 to file. I don't think we were the first but we were
one of the first two or three. The experts that went into our complex
found, for example, that cardboard boxes had been used as construction
materials in what were supposedly waterproof areas of our complex.
They found that the roof had not been constructed properly, the
air conditioners were up on the roof but the roof had not been structurally
designed to hold the weight of the air conditioners. Every time
someone turned the air conditioner on and there was vibration, it
was ripping apart the plywood or cardboard, that was used to construct
the roof. The tiles that were used to construct the roof weren't
up to code and any time anybody stepped on them, they just shattered.
Electrical stuff was wrong in our complex. The list is just endless
of what was wrong with our complex. I keep hearing this, oh, you
know, they just come up with this list of little trivial things.
Well, cardboard and stucco that's half as thick as it should be,
and they cut a hole -- no fire walls. We have eight buildings in
our [complex]. In many of the buildings you can go up in one person's
-- could. Not anymore. But it turned out people had burglar alarms
in their attics because there was no fire wall between all the eight
units. And they would go up into their attic and you could walk
into somebody's house through the little, you know, wooden door
that sits outside your attic. And there was no fire walls in the
walls between our units. It was -- bad. Let's just say it was bad.
When the others
-- when the defense came in and we actually filed the lawsuit and
the defense came in to start on all this -- their experts would
come in, right? They we doing destructive testing. And the pain
you have to go through in destructive testing, let me tell you,
you do not want to do this. I spent many an evening, until midnight,
one or two o'clock in someone's house because the people had gone
in, ripped their ceiling out to do a destructive test, to look for
something in the roof and hadn't fixed it and their kids bedroom
is just covered with the remnants of the ceiling -- it's a disaster.
I got people out at one or two o'clock in the morning, and we're
dealing with all this. Anyway, so we went through the destructive
testing. When the defense came in you'd have two subcontractors
there with their own experts, and many a time I got treated to the
two defense experts sitting there arguing. One of them is saying
this can't be fixed and the other one saying, "no, we can't
fix it. We can do it differently." And I was like, no, they
were up in my attic doing this, and I was like -- because it's not
our side saying it needs to be fixed and the other side saying not.
It's the other side arguing with itself about whether or not they
can even fix what's wrong with my house. Fortunately, it turned
out they could fix what was wrong with my house. But it was a pain
-- unbelieveable pain -- in the whatever. To me, if the guy who
built my complex if he had gone with a gun into 7-11 and stole two
hundred bucks, we could have sent him on an all expense paid trip
to Ely at state expense. If he had been calling people up on a phone
and saying, "I want to sell you a gold pen, and sold a bunch
of people alleged gold pens that turned out to be copper, we would
have sent him on an all expense paid trip to Ely. But he can sell
me a house with cardboard, a house with no firewalls, a house that
doesn't even meet the building code [with] minimum standards, right?
They're not, "This is good." They're minimum standards.
He can sell me a house that doesn't even meet the minimum standards.
It's just -- it's a fraud, right? It's as a big fraud or more extensive
fraud than selling somebody a fake gold pen. He gets to walk around,
and he had no personal liability of any kind. The insurance companies
paid every dime of insurance they had to us because it took that
and it took more.
now getting back in financial shape because we had to drain every
dime of reserves we had, we had to put special assessments onto
our association to cover things we still couldn't fix that were
still wrong because we used up all the insurance. And this guy doesn't
have any personal liability. He gets to walk away. And not only
that, the building industry licenses him to keep building. The insurance
industry gives him insurance to keep building. He's out there building
for other people. If I run my car into the wall three times this
year, my insurance company is going to cancel my butt. A doctor
can slice the wrong thing off three times, and they're still a doctor.
And they still get insurance. And you can build with cardboard and
somehow insurance companies still think you're insurable. And the
state still thinks you're licensable. And I don't get either one
of those. This guy should be in jail. We shouldn't be talking about
tort reform. We should be talking about criminalizing behaviors
of these people, just like we criminalize fraud in other industries.
This is criminal fraud, and this guy should be some gang bangers
girlfriend up in Ely State Prison, and then maybe other people wouldn't
do this stuff to us.
We have in
economics a concept called "asymmetric information," that's
what exists in the housing industry. The buyer always knows less
than the seller. And that leads to what economists call "market
failure." The market is not going to work right because the
buyer does not know, and cannot know, sufficiently about that property
that they're going to buy to match the knowledge of the seller.
That leads to great possibility of abuse by the seller because --
same thing as used cars -- it's no different than the used car business.
Difference in information causes great problems, causes market failure,
[which] means we have a problem. It also leads to something we call
"adverse selection." What that means is this: you have
builders who are building bad stuff, you have builders who are building
good stuff, who's going to make the biggest profit? The people who
are building the crap are going to make the biggest profits because
they are cutting corners. They have low costs. But the buyer can't
distinguish between the two end products, so the . . . builder who
builds cheap makes more money than the builder who builds quality
and it encourages everybody to build as cheaply as they can. It's
called adverse selection, okay?
The way around
that is something called "signaling." The answer to that,
economists say, is signaling. The typical signaling is through warranty.
If the builder of my complex, or any complex, would say, "I
will personally stand behind what I have done, and I will stand
behind it forever -- if I built something that was not up to building
code, not up to standard, I will personally stand behind that forever," then people could build quality and sell quality and everything
would be fine.
I don't want
a coalition for fairness in construction. I want a coalition for
quality in construction. I want the builders saying, "Look,
you built with" -- if I'm a subcontractor -- "you built
that thing with cardboard -- I'm not working for you. We're not
working for you. We're not going to license you. We're going to
do something about our industry to create a quality environment." But that's not what we see. We see we need the right to fix it.
Well, (a) my builder didn't want to fix it in the first place, and
(b) what would he have done if he tried -- if he had known he had
the right to fix it, and thought about for a second? Remember, asymmetric
information. He would have patched my roof and prayed it didn't
rain until the statue of limitations ran out, and then I would have
been screwed. He would have strung me along, never told me there
was cardboard, never told me there weren't fire walls, never told
us the underground electrical was installed improperly, never told
us that just about everything in the complex was installed improperly,
never told us he didn't [have] building permit for some of the things
he built on the complex. Never told us that the fireplaces, a lot
of them -- the flues went up to here and the exit was here, but
there was like a space. He didn't want to put in like 20 feet of
pipe, he only wanted to put in, you know, whatever feet he had And
if he didn't have enough feet, he just kind of left it there. You're
not going to tell us that thing. The only way we could know is to
go -- have somebody investigate and the only way to do that is to
spend money. And if you're not going to get a return, if you're
just going to fix the problem there's no way we could have afforded
to do the testing necessary to find out what was if this guy gets
to fix it and he doesn't have to pay us back for the cost of discovering
what's wrong with our unit. And it's that simple, okay? These people
need to have -- I'll just finish with this. I got one minute. I'm
not sure Scott likes this analogy but my analogy is that lawyers
Scott doesn't like that.
And what I mean by that is there are millions and millions of bacteria
sitting on my hand right now, and they do me no harm because I'm
healthy and my skin is intact and everything is fine. But you cut
my hand, and you don't take care of it then the bacteria come in
and my hand can become infected. If I don't take care of that infection
it's going to spread through my whole body, and then all of a sudden
I have a crisis and I need the legislature to do something about
it. The answer is it's not the bacteria's fault it's my fault that
I didn't fix this problem that occurred in my industry before it
could infect my whole body and cause me this problem. The insurance
company shouldn't have insured these people, the builder should
have gotten rid of them. And if it was clear you had to build by
the codes or build quality or you would not be allowed to build
in the State of Nevada because you couldn't get insurance and you
would not be licensed by the State. We wouldn't be having this forum,
the Governor wouldn't be meeting if people just -- last word I'll
say -- if people just took pride in what they did. If the people
who built that house, instead of saying, "I need to throw up
as many of these as I can, as fast as I can" -- if they took
pride in what they did, we would not be here today. They would say,
"We as the builders, we only want to built the best."
Well, we know that's not true because we're sitting here, because
they're not. And if they wanted to, they would. It's as simple as
that. If they wanted to, they would. The fact that we're here shows
there’s something wrong in the insurance industry and something
wrong in the construction industry, and it's that simple.
And high marks for staying on time as well. Undoubtedly we'll hear
a somewhat different perspective from Steve, and then we'll hear
from Steve, and then Scott, and then Betsy.
I want to thank everybody for the opportunity to come today. I have
a couple of observations, I guess, to start with. One is, as I was
looking through the agenda for today and the list of esteemed speakers
-- I noticed there were probably only two without an advanced degree.
One being me, and the other being our Congressman, John Porter.
Apparently somebody has figured out John doesn't have an advanced
degree and axed him from the program, and I apparently am the only
one left without an advanced degree. It also strikes me that coming
into a law school [and trying] to convince you folks that we need
less law time and less lawyers may be a fool's game. But like Don
Quixote, I have optimism, and I think that if you listen to me with
an open mind, that I might be able to convince you a little of that
The other observation
I have is really what we are talking about here today is not tort
reform. It is a combination of contract and tort law that has become
a special area of law in Nevada, Chapter 40, that deals with residential
construction. The construction industry, in large part, agrees with
what Mr. Robinson said today. We have probably several differences
of opinion. The idea that a house that has many, many components
and is built by people that, if our desire was at a higher level,
we would not make mistakes, I think is obviously on it's face incorrect.
There are mistakes made. Now, I think Mr. Robinson's builder certainly
possibly intended to build that development incorrectly. And the
construction industry has no regard for such people. We don't want
them in our industry. We want them gone. The construction industry
is not in charge of that process. We do not have the ability. We
can put pressure and we have put pressure on the Nevada State Contractor's
Board to enforce the rules that apply to the industry. They have
done a much better job of that over the past few years. That is
an ongoing process that we support, we encourage, and as I will
tell you here in a few minutes, we are asking them to get more involved
in that process. What the construction industry is really looking
at, as far as the reform of this law, is simply that. We want the
law reformed, and we want options for homeowners, in addition to
lawsuits. The trial lawyers have eloquently argued that once we
get into a Chapter 40 notice and lawsuit, that homes do not get
fixed. We agree with that. We think that shows, and is proof that
we need reform, that we need a better option. And that's what the
Coalition for Fairness in Construction is promoting.
Now, it's been
said that there's no evidence of need for change, and I would like
to address that issue. To start with, as I said, homes do not get
fixed once they get into these complex cases, which are either cases
brought by associations or individual homes that number five or
more. There's a list that the NTLA has passed and produced, both
to the Construction Liability Insurance Task Force that the Governor
appointed, of which I was the chair, that shows 120 large complex
cases in which, each time, no offer to repair and no repairs were
made as a result of that lawsuit. Settlements happened later. Those
cases drag on for years, and we would agree that in most, if not
all cases, homes do not get fixed under the Chapter 40 guidelines.
Insurance, as a result of that, has become either ridiculously expensive
-- our numbers show that upwards of 1600 percent increases for predominantly
subcontractors that work in the construction industry. The average
is between 500 and 600 percent increases over the last several years.
And often there is only one quote. Insurance companies have suffered
financially. They are not really building that into their rates,
but they have a smaller pool of funds available to commit to markets.
When they look at the construction liability market in Nevada, they
see a terrible risk profile. They see that they are going to be
sued if they write insurance here, regardless of whether the subcontractor
involved does a good job of building or not. By next year, insurance
will become largely unavailable. We're starting to see that now.
Subcontractors in particular, but also some builders, have gone
out of business. Thousands of people have lost their job and been
uprooted as a result of that. And this is largely correctable.
The price of
housing, as has been publicized, has gone up tremendously. Some
of that is due to these extra insurance costs. Part of that is also
due, and in large part, to land. The problem though with the situation
that we are in is that the best way to solve both of those problem
is to build affordable and efficient housing, which is usually condominium
or town homes. Condominiums and town homes are a tremendous target
for lawsuits. Virtually every complex in town has been sued. So
insurance companies at this point will not, as a matter of course,
insure contractors that work on town homes and condominiums. In
addition to that, because apartment buildings can at some point
be turned into a condominium or town home, insurance companies do
not want to insure apartment building construction either. The magnitude
of this causes this to be a big issue to the State. The construction
industry is the second largest employer in the state. Everybody
wants to buy a house. It is important for communities that people
have homeownership. The national rate for homeownership in Nevada
-- in the country -- is 66 percent. Nevada is 61 percent. California's
has been recently 56 percent and we're heading in that direction.
This does not contribute to many good qualities that homeownership
adds to community. This problem affects everyone.
to change? Better construction is the first topic that pretty much
everybody thinks about. As I said, the idea that an increased commitment
to better quality will solve the problem is naive. This law is written
for when mistakes happen. What do you do when those mistakes happen?
Right now homeowners have very few options. The Coalition has come
up with what we think is a reasonable, responsible, and fair option
for the industry and, more specifically, for homeowners. And that
is we have asked that we be given notice of every problem in every
house and that we be given a maximum of 150 days to solve that problem.
We think this notice will go to an owner of a company and not necessarily
to the customer service representative that many of us have dealt
with. I've bought homes in town. I've been frustrated with customer
service representatives. That this notice going right to the top
of this company will get their attention. We heard testimony that
both in the Task Force and Legislature that homeowners have tried
to work with their builder and we appreciate that they tried to
work with their builders for years before they file suit. We don't
want to have them work with their home builders for years. We don't
want to put them through that process. Give 150 days. Make it a
more formal process. Let us get in, get the problem fixed quickly.
We feel the definition currently in Chapter 40, which is a two line
definition, the first line of which says that . . . a construction
defect is a defect caused by construction. The second line says
that it includes physical damage. That's the only definition in
Chapter 40. We think that it should say that we should build to
Code, that if we cause a problem in a home that we are responsible
for that. We think that there needs to be a bright line between
good construction and problems. So we have offered that definition.
We have also offered to have the Nevada State Contractor's Board
have a representative available or -- a group of representatives
available -- that if the homeowner or the contractor would like
them -- this is a voluntary thing -- to come out on site during
this right to repair process and help mediate this often dispute
between the homeowner and the builder that the Nevada State Contractors
Board be available to do that. We think that brings the sheriff
to town, that the contractors board is the organization that is
responsible for licensing contractors. We feel like having them
available for homeowners, as Dr. Robinson pointed out, that they
may not have the information necessary to help resolve problems
with builders [that] the State Contractor's Board does. So we think
having them as a part of that process, as an option, is very important.
We do think that what homeowners should have is the right to choose
whether or not they get into a lawsuit before they find out they're
in a lawsuit. We think that the costs of these cases are unreasonable
and out of sight. That is something that needs to be corrected also.
I will sum
up by saying that the industry, as we've outlined, feels there are
many problems and there are many ramifications to these problems.
But we also realize that if we can't get in and get homes fixed,
we are not going to solve any of these problems. We do just want
the opportunity in a short period of time to get in, get these homes
fixed, and if we don't fix those homes, the homeowner has every
right and should sue us. Thank you.
I told you the applause would come later. We'll hear from Scott
now for his ten minutes or so. Then Betsy, and then we'll have a
few minutes of interpanel discussion.
Good morning. I guess -- hopefully -- I'm the beneficial bacteria.
My name is Scott Canepa. I represent homeowners who are confronted
with construction defects. Before that I also at one point in my
career represented developers, subcontractors and general contractors
in these types of disputes. So I do have some perspective from each
side of these lawsuits.
I was just going to ask you a question. Now is as good [time] as
any. After your debacle, did your homeowners association make the
repairs to your community?
Yes my community is beautiful.
And I say this for this reason. Mr. Hill and I have had many spirited
debates on this subject both on local televisions programs and programs
including face-to-face with John Ralston. The statement that homes
are not getting repaired is a false statement. Homes are getting
repaired. The problem is that homes aren't getting repaired by the
builders who caused the problems because those builders are refusing
do make those repairs even though they've been given notice and
opportunity to fix those defects. Homes are getting fixed after
builders are refusing to make repairs to homes. Homeowners are suing
those builders, being drug through, in many instances, years of
litigation and forcing contractors either into settlements on the
courthouse steps or judgments. So ultimately there is financial
recourse for the homeowners association to make those repairs.
Mr. Hill made
reference to a list of cases generated by the Nevada Trial Lawyers
Association presented in connection with the Liability Task Force
and hearings at the State Legislature. And it's apparent to me that
maybe they misunderstood the point. The list of cases was meant
to be a list of complex construction defect cases, and that has
a meaning under our statutes -- a complex containing five or more
single family homes or a condominium or town home. NRS 116. What
that list was meant to demonstrate was that these were cases in
which like -- and by the way, Mr. Robinson's homeowners association
is on that list of cases -- these are cases where the homeowners
association gave a full and complete list of the problems in their
community to their builder, gave their builder an opportunity to
make an offer to repair those defects. And in those cases, the builders
made no offers to repair.
It's been brought
to our attention that there are one or two cases on that list that
were noncomplex cases, and I'll talk about that in a little bit.
As to the complex cases on that list, those are situations where
the builder, who was the person who was in charge of the subcontractors,
was afforded complete and full opportunity to come in and fix their
neglect mistakes and instead committed the homeowners to a lawsuit
against them. That cannot be refuted, ladies and gentlemen. And
that was the point of that. And that leads me into what's happen
being in our State Legislature. Senate Bill 241 is now being considered
by the Legislature. I'm here to tell you that that bill that gives
the builder the mandatory right to repair proceeds from a false
premise. That false premise is that homeowners in our community
are refusing contractors' offers to repair their homes. I can tell
you as a practitioner -- Mr. Jones also practices in this area --
and it's a very small group of people because it's a very complex
area of law and there are very few law firms that practice in this
area -- there is a common theme that runs amongst the people that
come to our firms, and that is they have tried to get their builders
to fix their problems. Mr. Hill admitted that. Mr. Robinson told
you about his efforts in trying to get his builder to fix their
problems. In many cases those homeowners have gone to the State
Contractor's Board and tried to get them to do something. I had
a homeowners association that proceeded to verdict last summer that
had over 150 complaints brought to the State Contractor's Board
prior to them coming to me, and in most cases the Contractor's Board
found no violation of the statute. That's not uncommon, ladies and
gentlemen. And that's another problem with 241. They claim that
the Contractor's Board is a neutral party, yet it consists of six
contractors and one public member. And I'm not here to impugn them
or to say that they're going to side with the contractor in every
instance, but what I am here to tell you is that the average person
who buys a home doesn't think they're going to get a fair shake
in front of a board that consists of six contractors and one member
of the public.
What's even more offensive about that bill is they allow the contractor
to file a complaint against the homeowner in front of the Contractor's
Board to have the Contractor's Board make a determination as to
whether the repairs done by the contractor were adequate after the
repairs were done. So if it's an item [like] a missing structural
strap, as was in the case of Mr. Robinson's, missing structural
elements, missing firewalls, what's the Contractor's Board representative
going to see? They're going to have to take the word of the contractor
that the repairs were actually done, otherwise they're going to
have to tear open the walls to determine whether or not they were
done, which is a very expensive endeavor. And the way that bill
was written, makes no sense with respect to the Contractor's Board
involvement. It was stated by one of my colleagues in connection
with a hearing on Senate Bill 241 that that Nevada doesn't have
a construction defect lawsuit problem. Nevada has a construction
defect problem. And you heard Mr. Hill articulate very well the
insurance problems that now confront the insurance industry. And
I couldn't have said it any better than Professor Robinson. If you
crash your car three times a year, your rates are going up. If everybody
else in Las Vegas crashes their car three times a month, everybody's
insurance rates are going to go up.
One of the
things Insurance Commissioner Alice Molasky did in preparation for
a July hearing last year was she wanted input from the insurer's
about why insurance rates for contractors have gone up so substantially.
And I've got one of the responses. And you know, from our perspective
these insurance companies should be forced to identify themselves
so people can actually ask them questions. But I want to read you
an excerpt from one of the insurance companies that writes in this
area. And they said while the high cost of litigation is one reason
for claim severity, they believe that the most critical cost driver
from a claims perspective is the substandard construction practices
and poor workmanship by the contractors. That's why insurance rates
are going up, not because beneficial bacteria are out there opening
up wounds and causing unmeritorious and frivolous lawsuits.
In the last
six months, I've seen the phrase frivolous lawsuits used in connection
with construction defect claims so many times in the press, I can't
begin to even tell you how many times. Yet do you know how many
defense verdicts they have -- complete defense verdicts
where the contractor walks away? There's been no defense verdicts.
There were 12.
That was one complex case, Betsy. And how many --
I got 12 zeros.
I got 12 zeros.
As to the homeowners. But not as to the homeowner's associations.
We'll talk about that. Hold on. Hold on. There's never been a construction
defect case dismissed as frivolous.
In the case that Betsy Gonzalez is talking about called the "Falls" case, which was a case where there were how many homeowners?
139 homeowners. And it was my understanding, and I stand corrected
if I'm wrong, that the verdict came in came in favor of the homeowners
in that case.
They were individual verdicts on a homeowner-by-homeowner basis.
Okay. Then I stand corrected. Out of 139 homeowners in that case,
12 homeowners received nothing. And I don't know what happened thereafter.
But in complex cases, which is what I meant to talk about, complex
cases where the plaintiff is a homeowners association or a group
of homeowners, there's been no defense verdict. In fact, I think
you were involved in one of the cases in which there was a plaintiff's
verdict in favor of the homeowners
Yes, I was.
So she can tell you what happened with the 12 homeowners that got
zero after the fact, but from my perspective, the change in the
law that's been advocated by the Coalition for Fairness in Construction
is not justified by the facts in any way, shape or form.
How much time
do we have? A few more minutes? Even assuming for a moment, ladies
and gentlemen, that there was some predicate for change -- and understand
that present law affords the contractor the opportunity to make
an offer to repair. In fact, one of the big differences between
present law and what the builders advocate the legislature is --
under present law, the builder must make a response to the homeowner,
even if they're not going to repair, they have to respond to each
defect that the homeowner raises and tell the homeowner if they
contend it's not a defect or they have no responsibility, why. And
if they don't want to fix it, but it is a defect, current law requires
that they make an offer to settle that case before a mediation ensues.
SB 241 takes that all the way. You know what it does? It gives the
contractor the unilateral right to say, "We're either going
to fix it, or commit you to litigation against us." And then
to make matters worse -- and this is probably one of the worst features
[of] that bill. There's a provision in there, and Mr. Hill didn't
mention this, that talks about contingent fee arrangements. Mr.
Robinson articulated pretty well about the budget crisis that his
homeowners association faced when they were confronted with the
decision to go forward. And I can tell you that homeowners associations,
being nonprofit companies, don't have money other than what they
generate from their dues to pay their monthly expenses, and the
only vehicle by which those HOA's and homeowner and single family
homes have access to the court system is through a contingent fee
arrangement. Lawyers are willing to take the case on it -- if we
get money for you, we get paid. If we lose the case we get zip.
That's the nature of a contingent fee arrangement, and SB 241 effectively
does away with those. It says the court is only empowered to award
our attorney's fees based on an hourly basis.
That just doesn't
make sense, ladies and gentlemen. It doesn't level the playing field.
In the list of cases that we provided to the Construction Defect
Task Force -- and we provided to the Legislature every one of those
cases [where] those builders could have done the right thing, could
have stepped up -- you know what they did uniformly in every single
case? They turned it over to their insurance company? What do you
think happens when you continually ask your insurance company to
bail you out over and over and over again? The answer is simple,
premiums go up. And I want to leave you with one thing.
In the 1999
session -- this is sort of digressing a little bit. The idea that
a builder should be given notice and opportunity to fix the defect
before litigation is present law in noncomplex cases, [involving]
five or fewer homes. In 1999 the building industry advocated for
a change in the law. They said in complex cases we wanted to start
with a lawsuit. And I want to read you a passage from one of the
lobbyists, Mr. Jim Wise, who gave his testimony recently. He says, "Section 5" -- and he's talking about 241 in the simple
cases, not the complex cases – and I want to back this committee
up. In 1999, quite frankly, we made a mistake. We were part of the
mistake. The Coalition didn't exist. And I participated in that
mistake and that was recommending the adoption of Section 682, which
simply says the beginning of any dispute is a lawsuit. That just,
in retrospect, staggers common sense. And now they ask the Legislature
to take away homeowners rights on the basis that they can't fix
homes because lawsuits, because these claims are started with the
filing of a lawsuit. You're smart people. You take that for what
it is. If they want to go back to the way it was between 1995 and
1999 and start all cases, complex or noncomplex, we stand behind
that reform. I don't think it's going to make a hill of beans difference
for those contractors that are going to turn these matters uniformly
over to their insurance companies. But in the final analysis, you
have to analyze the legislation in context of the fact and what's
happening in our community. And I'm here to tell you there's no
factual support. If you look at the list of lobbyists up in Carson
City Nevada, there's about 20, in excess of 25 lobbyists for the
construction industry and two for homeowners. Politics and money
mean a lot. Thank you.
Bill's messed up my placard. Now we'll hear from Betsy for a few
Thank you. I think we should take a step back, [to the point] when
cases get involved in Chapter 40. And as Professor Robinson talked
about, cases get in Chapter 40 when a builder is nonresponsive to
a customer service or a warranty claim. Many of the home builders
now have taken a very proactive stance in the customer service and
warranty problems. When a homeowner comes in they are making concerted
efforts to resolve those problems. The home builders who want to
be in this community and have a reputation in selling homes, want
those problems fixed because those houses are the basis of their
reputation. I think when we get into Chapter 40, and the discussion
we're having here today is when those fail, when the warranty program
or the customer service program fails, and those can occur in a
number of situations, and I think we've seen them and heard discussions
about them, when you have massive problems that have occurred that
are outside the scope of something that a customer service problem
would usually control -- we've had cases historically where the
home builder doesn't hear about the customer service warranty problems
as a group of claims until they get the Chapter 40 notice -- and
those kinds of things have contributed to the problems that the
industry have seen. The question is, Does Chapter 40 as we currently
have it work? Not very well. Can it work? It can work very well,
and it does work very well in many situations. The situations where
it does work well are where the people who want to solve the problem
work together to come up with a repair that they agree to the scope
of, and if there are any other damages they agree to. And those
happen everyday. There are cases where Chapter 40 claims are filed
and they are solved without litigation occurring. Usually those
are cases where they involve single family homes.
settled one involving 48 homes . . . in the Chapter 40 process for
a cash payment because the homeowners didn't want us to come in
and make the repair. We offered to make the repair or alternatively
pay them cash. They didn't want us to do the repair, which is fine.
So we agreed to a cash settlement because the builder recognized
there was a problem, got the subcontractors involved in an early
stage. The subcontractors recognized there was a problem, got their
insurers involved, who, after some coercion, realized there was
a problem, and then an amount of money was gathered up to solve
it. And that's when Chapter 40 works.
40 fails is when anyone of those four components doesn't want to
solve the problem. When a homeowner has unrealistic expectations
or wants a repair that is something just not reasonable. When a
home builder ignores it or doesn't want to make the repair, when
a subcontractor refuses to be involved or when an insurer refuses
to step up to the plate and make payments that are required under
it's policy. If any of those four things occur, Chapter 40 doesn't
work as it's currently set up. And there's also no current mechanism
in the Chapter 40 bill or Chapter 40 statute to actually enforce
it. We're required to go through mediation processes, but that's
only to try to bring people together, not to force them to do anything.
As I told a client the other day, you can't force somebody who's
being unreasonable to settle. Even if you're asking twice as much
money as it's worth, you can't make them settle. If they want to
sue you, they will. What Chapter 40 currently has is if you have
people who don't want to work together to do the right thing, you're
not going to be able to solve the problem. The only way to solve
that problem is have a procedure that you go through to force people
to do something. And other than the litigation process, I don't
know of a better procedure to do that. You can go through arbitration
processes to do that, but arbitration results are often appealed.
You can go through mediation processes, but you can't force an agreement.
So the goal, I think, for the participants to go in with Chapter
40, to go in with the idea that they're going in to try and resolve
the problem and to have realistic expectations on all sides of all
But the way
it's going to fail is if you can't force those realistic expectations.
We had a homeowner who wanted to be paid $200 a night to be relocated
from his house while we did his drywall repairs. We thought that
was unreasonable. He also thought he should be out of his house
for 45 days. We thought it would only take us two weeks to resolve
it. We sat down and went through mediation, and eventually we got
the homeowner to agree, you know, "Maybe I'm asking too much
for how much I want to pay per night, and maybe I'm asking for too
long." And we gave some, and we settled it. That's how the
process is supposed to work but it doesn't always. And when attorney's
fees and expert fees become involved, it makes it even more difficult
to resolve because then you're not only talking about the homeowner
and what they want to resolve, you're talking about the money that
they've had to pay for experts already. They're talking about attorney's
fee that has been incurred by their counsel. The earlier and the
quicker, through some sort of process, you are able to resolve the
cases, the better it will work. And without having some sort of
forced procedure to make people be reasonable, Chapter 40 will never
work, even with the bill that's here now. The builders have the
right to repair right now. They may not have the right to repair
as is indicated under the new bill, but the builders have the right
to repair and they frequently offer to make the repair. The problem
is what happens when people disagree about what the repairs should
be. There's no current mechanism to enforce that. And whether you
have the State Contractors Board or, in cases I've had, where you
hire an independent expert that both people agree on to look at
the repair and make sure it's okay, there has to be a mechanism
agreed upon by the parties on how to resolve that dispute. Chapter
40 can work, but the people involved in the process have to want
to make it work. And without that, no bill we adopt is going to
I know I initially promised people some panel interaction, but I
think in light of the fact we got a late start and we've got other
segments, I know most of our folks will be able to stick around
and so I think we are going to -- and we'll be required to hold
all questions. But let's take just a five minute, and really keep
it to five minute, break, and we'll change to our second group of
panelists and get started at 10:15. Thank you very much.
We are scheduled
to have Dr. John Nowins -- originally Rich Bray from Nevada Mutual.
Rich could not make it. John had an emergency come up. Somebody
from Keep Our Doctors in Nevada or from the medical community was
going to be here in his stead, and that person has not arrived.
We may still have a late arrival. And so what we have now is an
all-star plaintiffs panel. You know, and of course, my first thought
is well these guys are down here. The defense people are up in Carson
City getting some real laws passed, but now I'm going to make Dean
and Bill paranoid, and I don't want to do that. But let me introduce
them briefly. And I think the format we've agreed on will be that
they will talk for the ten minutes that speakers normally do on
the issue with the -- with their consciousness raised that they
have straw men to knock down. So they'll be presenting perhaps of
what you hear from other folks. But then what I'd like to do is
take maybe 20 minutes or so after that to catch up on the questions
that we didn't have a chance to ask. So maybe we will take a little
departure from the previous format and take some audience questions,
try to break at about 11:00 for five minutes again, and then come
back with our third segment. And then we can have some more interpanel
and audience questions before we take our noon break.
Let me introduce
our speakers today, if I get my notes here. Dean Hardy to my immediate
right is the President of the Nevada Trial Lawyers Association.
He's a graduate of the University of Nevada and Pepperdine Law School.
He's been a long time trial in this town, specializing in particular
in worker's compensation. To his right is Bill Bradley, a Reno-based
lawyer representing plaintiffs in a variety of matters. He's a graduate
-- undergraduate degree is from Stanford and his JD from the McGeorge
School of Law. He's had more than 20 years as a plaintiff's lawyer.
He is the past President of the Nevada Trial Lawyers Association
and currently a spokesman on behalf of the Association -- before
the Nevada Legislature. So, with that, we'll present Dean first
and then followed by Bill.
Good morning. I am not the current President. I am a past President
of the Trial Lawyers Association as well. The perspective that I
come from with the malpractice issue is one that's a step before
the malpractice premium issue arises. It's one that Scott Canepa
touched upon when he was giving his remarks earlier. That is that
we cannot start from the perspective when discussing medical malpractice
premium increases without at least an analysis that the malpractice
premium increases were caused by lawsuits. There seems to be a given
in all of the media reports that the drastic and significant increases,
and make no mistakes about it, there was a significant and drastic
increase in doctors' malpractice premiums that occurred in the beginning
of 2002. Now prior to the calendar year 2002, we didn't hear much
about medical malpractice premiums in Southern Nevada. We just didn't
hear it. It wasn't on the radar screen, and we didn't hear anything
about malpractice premiums. But if we do a little historical perspective,
we can see there are at least some other causes for the drastic
and significant malpractice premium increases.
in 2001, of course, Sept. 11, a tragic day in our history. But what
else happened was -- in the years prior to 2000, the economy was
in a different state than it is today. Those of you that were invested
in the economy, those of you whose 401K's were invested in an economy,
saw dramatic double digit increases in your 401K's and dramatic
double digit increases in your investment portfolio. That same thing,
that same phenomena, was occurring with the insurance companies.
Those insurance companies that insured our physicians in Southern
Nevada and throughout the State of Nevada and throughout the country,
insurance companies -- and I wish we had our panel member from the
insurance industry to debate this with. But it's a lot easier to
debate when they're not here. So I think I'll win this one and that
will give me one in a row on the issue. I need to give you more
of a historical perspective.
In 1994, St.
Paul Insurance Company came to the State of Nevada and purchased
a small mutual insurance company called Nevada Medical Liability
Insurance Company. That had been formulated by doctors in Southern
Nevada in response to the crisis, similar crisis, same problem that
occurred in the early '70's, when the economy took a major down
turn as you'll recall -- some of you might be too young for that
but most of you look like you were around back then. And the economy
takes a major, major downturn; so the doctors formed this company.
It ran well, and it ran efficiently for 20 years between 1974 and
1994. They adhered to strict underwriting criteria, did not insure
every physician that walked in with an application, adjudicated
claims appropriately against their insured physicians, and ran,
as I suggested, appropriately and efficiently until 1994 when St.
Paul came in and said, "We'd like to buy your company."
The doctors said, "It's not for sale." They jotted a number
on the check and held it up in front of the doctors and they said,
"Oh, it's for sale now." That's not an indictment of the
doctors. They formed a good company, that's the American dream,
and they sold that company for a profit which is their right and
certainly not something I would suggest was inappropriate. Thereafter,
St. Paul became very aggressive in Southern Nevada. Between 1994
and the year 2000, they were able to garner 60 percent of the market
in Southern Nevada. Sixty percent of every physician that was insured
in Southern Nevada was insured through St. Paul. Take a step back
for just a second and wonder what might happen if State Farm insured
60 of people driving our streets. That can at least create a problem
if State Farm walks out. That's exactly what happened.
insured 60 percent of the physicians -- or excuse me -- St. Paul
insured 60 percent of the physicians, some of which, many of which,
had double digit claims made against them between 1994 and 2000.
Between 1994 and 2000, St. Paul increased their premiums 5.4 percent.
There is no other commodity in Southern Nevada or anywhere in Nevada
or anywhere in the United States, I suspect, that didn't increase
in price between 1994 and 2000, by as little as 5.4 percent. Why?
Why did St. Paul continue to insure doctors that had double digit
claims against them? You heard what Mr. Robinson said, and you heard
what Mr. Canepa said, if I wreck my car twice I don't get renewed.
Doctors that had been sued in excess of 10, 12, 15, 20 times, being
insured by the same insurance company, they're not stupid. Insurance
companies do not insure individuals time and time again. They know
who's being sued. Why would they continue to insure these physicians?
one reason. Between 1994 and 2000, the investment return on that
premium dollar was double digit. Claims were a minor irritant. Claims
were a minor irritant and do not, do not misunderstand that. Insurance
companies are very very very savvy with investments, much more savvy
than you or I. The economy sours in 2000. Sept. 11, 2001, occurs.
Insurance companies are not now making double digit returns on that
investment portfolio. They recognize that the doctors that they
have under insurance contracts are probably going to be sued again
and again and again for medical negligence. St. Paul decides to
make a business decision and they pulled out of the State of Nevada.
They no longer write, excuse me, all over the country. They pulled
out of the United States in underwriting policies for doctors. It's
a claims made policy. You need to understand that as opposed to
an occurrence policy. What that means is if St. Paul was insuring
a doctor when the claim was made, they defended the claim and had
to pay the claim. If they were insuring the doctor when the occurrence
occurred but the claim had [not] yet been made, they were not on
the hook. So they pulled out of the State of Nevada at the end of
2001, beginning of 2002, and at that point, these doctors were bare.
of the physicians were insured by St. Paul. Some of them knew that
they had committed malpractice during this time frame that the claim
had not yet been made. So they had to go out and secure what's called "tail coverage." That tail coverage from other insurance
companies that were not in this market because St. Paul had artificially
kept the premium deflated to get the market share, said, "Sure
we'll insure you." Let's talk about what the cost of that premium
might be, and let's talk about the cost of what might occur now
that St. Paul has walked out of the market. That is an insurance
problem. That is not a medical malpractice claims problem from a
trial lawyer perspective. The numbers of claims that went through
the system, which was taken out in the special session of course,
the system being we had a medical legal screening panel in the State
of Nevada which the doctors advocated to be eliminated. And for
the life of me, I couldn't figure out why they were on that side
of that argument because it didn't make any sense, were screening
out claims that would come into a lawyer's office and a lawyer would
recognize the amount of money it would take to take through the
screening process. We don't have enough time to go through all that.
Let me just tell you there were 181 claims that went through Southern
Nevada's screening process. 181 in the calendar year 2000. Now,
just depose that with the nearly 4,000 doctors and 16,000 nurses
and hundreds of medical facilities in Southern Nevada -- excuse
me that's the State of Nevada -- 4,000 physicians, 16,000 nurses,
hundreds of medical facilities that were subject to the jurisdiction
of the panel all making diagnoses, taking blood, doing medical procedures
-- literally tens of thousands a day where the prospect of medical
negligence might occur, and yet 181 cases went through the Southern
Nevada screening panel in the year 2000.
So when you
hear the terms "excessive claims," "excessive number
of cases," "frivolous cases" -- and that was the
cause of the malpractice premium increase -- take a minute. As a
lawyer, we are used to going into court, and we are used to making
sure that the other side proves a fact. In the State Legislature
there is no burden of proof. Statements and anecdote become factual.
When I read that the number of claims and the frivolity of the claims
and the significance of the claims have created a medical malpractice
premium crisis, I ask the same question. Please don't accept that
as factual without asking someone to please prove it because they
will not be able to.
The one thing
I'd like to leave you with that's been left out of this debate from
day one is I haven't seen one physician step up to any podium and
say, "This is how we are going to reduce the number of medical
negligence claims." All they speak of is how we're going to
limit a victim's rights in court by capping damages, by limiting
attorneys fees, by doing something other than fixing the problem.
I haven't heard anyone discuss how we are going to at least -- mistakes
will happen as Mr. Hill has suggested. But at least we ought to
think in terms of the reduction of medical negligence claims. Thank
We'll hear from Bill Bradley now.
Thank you very much. It's truly an opportunity to appear in front
of a forum like this and discuss this very important issue. The
one thing I want to cover that Dean left out -- with respect to
what happened in 1994, when St. Paul made this strong move in the
Nevada market -- and you have to realize how attractive Nevada was
back then with the double digit growth you had down here in the
South. They made a deal. It's in writing. All this -- everything
we talk about is in writing and nobody wants to talk about it, though.
The Nevada State Medical Association made a deal, a contract with
St. Paul. St. Paul agreed to offer every member of the State Medical
Association a 15 percent rate discount if they would join the Nevada
State Medical Association. And as a result of that, of course, who
is not going to take a rate discount, and that's what attracted
the doctors and the Medical Association to St. Paul.
part of the deal was that the Medical Association got a one percent
fee for bringing in all the physicians from St. Paul, and that was
paid in the form of an agent rebate to the Nevada State Medical
Association. Our insurance commissioner has since found that is
violative of many provisions of our law, that agreement and the
payment back to the Medical Association is an unlicensed refund
of premium. They have initiated a lawsuit against St. Paul to correct
that terrible wrong. But that's what really led us to this, is an
aggressive insurance company, a Medical Association looking to do
what's best for it's members. But the real insidious part of that
agreement was this -- that agreement made St. Paul take every single
physician that was a member of the Nevada State Medical Association
without regard to their prior history. There was a physician in
Southern Nevada named Dr. D'Ambrosia, that’s his last name.
Dr. D'Ambrosia got the benefit of this wonderful opportunity to
get a 15 percent discount. Unfortunately at the time that Dr. D'Ambrosia
came in, he was known as a spinal surgeon who was horribly injuring
people during spinal surgery. Dr. D'Ambrosia got a 15 percent rate
discount, came in, continued to operate, hurt 40, 50, 60, 70 people
and hurt them badly operating on their spine. And claims continued
to mount up against them. The Board of Medical Examiners did nothing.
It wound up he had 41 complaints against him in Southern Nevada
without any action by our Board of Medical Examiners.
When the Board
of Medical Examiners finally caught up with him -- and realize when
he's hurting all these people and St. Paul is having to pay their
medical bill and their pain and suffering, they have to get the
money from someone else -- so who do they get it from? They get
it from all the good physicians who entered into this agreement
in good faith. So as a result of one horrible surgeon's errors,
many good qualified Nevada physicians had to pay for his errors
and the lack of regulatory authority over doctors like Dr. D'Ambrosia.
And, of course, that's not the end of the D'Ambrosia story. When
the Medical Board finally caught up with Dr. D'Ambrosia before they
could implement disciplinary proceedings against him, he voluntarily
resigned his license. So it looked like he never had any discipline
in Nevada. He went to California. He was approved for licensing
in California. Within a few months of beginning his practice in
California one of his patients died following spinal surgery in
Malibu. And that case is currently being investigated by numerous
agencies in Southern California. So we come to this forum and to
every public opportunity with this -- what we believe is an explanation
for the crisis [is] not medical malpractice, excessive verdicts.
I never heard a physician tell me about a frivolous claim that they
have been involved in. I have 21 verdicts that I'm happy to share
with each and every one of you. There have been 21 verdicts in Southern
Nevada since 1996 for medical malpractice. I have yet to hear a
physician in a public forum in the Legislature, in any public forum,
say that one of these is an excessive verdict. I've got the numbers
here that I can show you if you're interested. But the verdicts
represent eight fine citizens, neighbors, coworkers, friends of
yours, who take their job very seriously as a juror and listen intently
to every single piece of evidence, and, as a unit, as a jury, something
that our forefounders felt so proud about, made that tough decision
in 21 cases that a physician made an error.
we have is that many physicians think malpractice means they are
a bad doctor. And malpractice does not mean you're a bad doctor.
It means a mistake happened. And unfortunately when physicians make
errors, people can be hurt very, very seriously. So we move into
this environment of closing the UMC Trauma Center that we wonder
about why it was truly closed. The claim [is] that hundreds of physicians
are leaving Southern Nevada and it [is] fire storms in the summer
of 2002. And it's part of a national movement. It's now occurring
in 36 other states. It just happens to be a coincidence it's all
happening right now. And as a result of that, our Governor appoints
a task force of physicians, lawyers and insurers, and one of the
most frustrating things about this is we never get in one of these
forums with an insurer. It's the most frustrating thing we deal
with. And you've noticed today. Tough to get these insurers sitting
over in these chairs. They let us worry about it. They let all of
you reach your own conclusions, and they just raise their premiums
because nobody says you can't raise your premiums. If you think
about it for a minute. I remember Karen Ferguson says it's the only
industry that is exempt from antitrust. And I've never understood
this. When they lose money -- if you and I are in business and we
lose money, and we need to run our business, what do we do? We go
to the bank. We borrow more money. We go into our savings. We buckle
down. Fire people, let people go, do everything we have to. Well,
they don't. What do they do? Raise premiums. And if you don't like
it, we'll leave.
So in the Special
Session a law was passed that unfortunately limited victims rights.
It's a 350,000 dollar cap, but it's a cap per victim per physician.
We felt that was much more fair than the California system where
it's 250,000 dollars per event. The California system is very insidious.
And to put it very bluntly, it eliminates claims on behalf of senior
citizens, stay at home parents and children. And if you think about
that for a minute, those are the people that don't have any economic
damages. Their medical bills are paid by Medicare. The stay-at-home
mom has no income. She doesn't earn anything, although we all know
how hard she or he works at all but there's not a dollar figure
that we attach to it. The death of the child. The child never gained
any income. So all of those cases -- senior citizens, stay-at-home
parents and children -- all they have is a noneconomic loss, that
thing we call "physical and mental pain, suffering, disability
and anguish." But what the insurer's do is say, "Let's
limit that." And when they limit that, all of a sudden it becomes
very difficult for them to find a lawyer because -- believe me,
if insurance companies wanted to get rid of trial lawyers, it's
very easy to do. They don't have to go through all this expensive
legislation. All they need to do is treat people fairly. When there's
a mistake in the hospital they know it. They know it within 24 to
36 hours because of the claims reporting requirements. They come
in, say, "We understand that you were injured." The wrong
limb was taken off. A woman's both breasts were removed accidentally.
They get their early and say let us help you.
In the 22 years
I've been practicing I have never had a client come to me and say
the insurance company was there early, we just disagree on what
the compensation is. What the insurance company does is say, "we
hope they're like all the other people and just go away." And
unfortunately two to three percent of the people affected by medical
negligence are the ones that wind up in litigation. When the jury
returns a verdict in favor of the doctor, that's a truly just verdict.
Insurance companies really like those verdicts, and that's when
they support the jury system. But when a jury comes back and finds
in favor of an injured plaintiff, you hear the cries juries are
out of control. You really can't have it both ways. I don't believe
Southern Nevada juries are out of control, and I challenge anybody
to show me where they are. I'd like to speak a lot longer about
what we did, and I'm happy to take questions about what AB 1 did,
and how it limits your rights as Nevadans. How the initiative petition
destroys your rights as Nevadans. Why the insurance industry is
pushing forward with a bill in the Legislature that mimics the initiative
provision and what the Legislate is doing to correct it. So thank
you very much for your time.
Let's take a few minutes, and if I can sort of delegate to myself
the first question. You mentioned the, I think it was, I want to
say 31 verdicts.
Twenty-one verdicts out of approximately how many pending cases?
Well, we know that approximately 180 cases were filed at the screening
panel. About 70 percent of those went on to trial. That's a hard
question to retrieve in Southern Nevada, unfortunately. But a couple
-- a hundred cases a year perhaps.
And so it would appear to me that one natural comeback we might
get, if someone from the medical community was here, that's a pretty
low win percentage. Doesn't that mean there are a lot of suits out
there that aren't meritorious which are chilling, if you will, to
the operation of the medical community that are pending, that are
expensive. Would that be a -- does that not justify some level of
I'm glad you asked that question because we had a screening panel
that was designed to screen out frivolous cases. And the screening
panel went away, at the doctors' and insureds' insistence. Was supposed
to screen out the frivolous cases at an early stage and resolve
the meritorious cases. It did that for frivolous cases and for small
cases. We're also required to file an affidavit with our complaint
that we've spoken to a medical professional and that professional
agrees there is malpractice. So it's very hard to say there have
been frivolous cases brought into our courtroom. Finally, the Nevada
trial lawyers passed a bill in 1995 called "the lawyer pays."
Many of you have heard of a statute called "the loser pays." Well, we weren't comfortable saying the loser pays because the loser
is relying on his lawyer or her lawyer to make a recommendation
whether the suit is meritorious or not. And so we felt, why are
you going to make the decision of a lawyer affect the client, and
we fought for and passed a law that says the loser pays lawyer --
the lawyer pays. So if a lawyer is found to have filed, maintained
or defended an action in a frivolous manner, there are sanctions
that can be awarded against that lawyer. In the context of medical
malpractice, I'm not aware of that action ever being made against
a lawyer that's done [in] these cases. The final thing is you have
to realize in the context of medical malpractice in order to represent
someone we, as plaintiffs lawyers, know in fighting that insurance
company there will be a cost of 100,000 to $150,000. The experts
are very expensive. There's a lot of travel. I don't know anybody
who is willing to throw out 100,000 or $150,000 on something that's
frivolous and hope they can intimidate a multi-billion dollar insurance
company into paying something if the facts aren't on their side.
Let me open it up to audience questions and also fair game -- construction
defects are fair game. I see Steve and Betsy and Scott are all here.
Bill is off invigorating young minds even as we speak. But if I
can ask to, if folks would identify themselves for the record when
they ask questions, so that our court reporter can try to get this
down as well.
I'm just curious. Are you advocating that these screening panels
We believe that the screening panels were an effective process.
In combination with tort reform, no, because they become too burdensome.
When you make an injured victim go through multiple expensive hoops,
you chill their ability to hold the wrongdoer accountable.
But again, you know, a lot of you defend screening panels?
We wrote, created and defended screening panels for 14 years in
Nevada, despite the objection of the Nevada State Medical Association
and the insurance industry.
You thought they worked well?
I thought the one in Northern Nevada worked better than Southern
Nevada. What is -- the problem with the screening panel, it's screening
-- and people forget, particularly physicians -- the word is screening.
Now it costs approximately $20,000 to put a
screening panel presentation together. We would get an expert that
would criticize the care provided. The other side would get three
experts that supported the care that was given. Under that circumstance,
there is a legitimate dispute. The case has been screened. We had
three lawyers and three doctors review that written material and
reach a decision. When there was an "unable to decide"
or a "no malpractice" finding, which three findings were
no malpractice, were unable to decide or "yes, there's a reasonable
probability of malpractice." When there was either an "unable
to decide" or a "no malpractice, " the doctors felt
their case had been adjudicated on the merits. And the problem with
screening panels, there's no right to cross-examination. You're
relying on the medical records only. And so, they became frustrated
when a screening panel said they didn't do anything wrong and the
case went forward. Now, many of those cases that went forward once
we got into deposition and cross-examination and found out what
truly wasn't in the records, they became meritorious. But as a preliminary
step in resolving, in eliminating the frivolous case, it works.
The other thing I'll say, clear malpractice -- the woman with the
bilateral mastectomy, several cases I've had -- the other goal of
the screening panel was to resolve that meritorious case earlier.
That was an abysmal failure.
I don't care
whether you're talking about construction defect, medical malpractice,
anything you want to talk about. Until you hold the insurers responsible
for delaying conduct in order to generate investment income, we
are going to have a problem resolving claims quickly. Yes?
Joe Gilbert, I'm a professor of management here at the University,
and in a prior life I spent 16 years managing an insurance company.
My question is this: if I said I have nothing good to say about
trial lawyers, I think you would dismiss me as a one-sided, biased,
unbalanced individual. We need you say something positive about
the insurance company.
We have the rack and the thumbscrew right here at the end.
I think there are several things you can say positively about insurance
companies. They are very tremendously adept at making money.
I would also add that I'd love to have a business that started to
make less money but have the ability to go to our State Legislature
and say, "We didn't make enough money last year. You've got
to change the law so I can make more money, and the insurance industry
has that ability."
In all seriousness, if I said one thing positive about trial lawyers
-- they're very, very adept at making money -- would you consider
that a positive comment?
No. You got anything positive?
Without them -- they are an essential service and they do provide
a fundamental necessity in our society. And without them people,
don't have anywhere to turn [to] when they are devastatingly injured.
So, I mean, obviously, they have a significant role in the world
economy, plain and simple.
Let me just try to piggyback on that. One tends to hear monolithic
statements about the trial lawyers, the defense bar, the insurance
industry -- as folks who have gotten down there and dealt with different
carriers as clients or opponents -- is it such a herd mentality
that you don't make distinctions and the industry moves as one?
Or one would, I think, as a matter of economic theory have some
variance to grab some market share. You know, the responsible carrier
is going to build a long-term book of business. Do we see that,
or not see that? And why or why not?
We -- first of all in the context of medical malpractice, in Nevada
we only have 4,000 physicians. So it's not a particularly attractive
market. And that's something we have to be sensitive to as we engage
in this debate. Nevada Medical Liability Insurance Company, the
company [that] was bought by St. Paul, that's a phenomenal insurance
company, tremendous underwriting guidelines, great claims handling,
An area we
didn't talk about is an area of verdicts beyond policy limits. Out
of the 21 verdicts I mentioned to you earlier, approximately 14
of those were where the doctor wanted to settle, the injured person
was willing to settle within the policy limits of the physician,
and the insurance company single-handedly made the decision to go
forward because the insurance company doesn't have to listen to
the doctor on the amount. It's just -- the doctor gets to say whether
or not they want to settle. In those 13 cases the verdicts went
well beyond the policy limits of the physician. And in that case,
you have an excess verdict, it creates problems when they could
have got out for a million they paid $5,000,000, and they did that
in over 13 cases. And once again the good doctors ended up paying
for a bad insurance company's decision.
Out of those
13 cases, I believe it's 13, I think 6 of them were the same insurance
company, a company from California that just doesn't seem to ever
feel -- get the message how important it is to make sure you get
these cases resolved early. And you have to realize, when those
excess verdicts happen, it hurts the doctor. They've been dragged
through a trial, very emotional trial, it hurts his or her representation,
the victims waits for years to get compensation. And the lawyers
make the money. And it seems to us, if the screening panel works
and if these insurers would really get their act together -- eliminate
that risk early. Get the lawyers out of it. Get them resolved before
it turns into litigation. So to answer -- there are some good, there
are some good -- there's a couple good insurers here taking their
responsibility very, very, very seriously, and that's what Nevada
should be really asking for.
A group of
4,000 physicians can't afford the Rambo decision of an insurer to
go forward and worry about a verdict down the road. That just is
poor management for Nevada.
Ann McGinley, I'm a professor here. I guess that raises the next
question to you and to Scott, I think, and that is what kind of
regulation do you think we need from insurance companies in order
to be assure -- we know the market isn't working. And we know it's
a state law that covers insurance companies.
Let me tackle this. One of the things that we had proposed was some
regulatory reform over insurers. One of them is, I'd like to understand
underwriting criteria. And I think the doctors have a right to understand
that. How did the insurance company arrive at the policy premium
price? And publish all of that underwriting criteria and see whether
or not there's been instances in which the insurer has ignored their
own underwriting criteria. In the case of St. Paul, not only was
it ignored, it was nonexistent. There was absolutely no adherence
to underwriting policies, underwriting guidelines. And so I think
it's important. I thought it was a huge huge idea to mandate that
the insurers provide that type of information. Of course they suggested
that that was privileged information and they weren't going to produce
The other thing
that I thought was a good, purposeful reform, that may or may not
have impacted the insurer, was the reporting, mandatory reporting,
of medical errors so that we could find out who are the bad doctor
and make that list available. You can't find out right now how many
claims were made against your physician or who's been sued in the
State of Nevada. There is a database, but it's only available for
hospitals and insurance companies. Now, I'm not sure why that information
is not available to someone that's seeking a physician. So there
are some good opportunities at reforming that arena.
You can look on the Board of Medical Examiners under your physicians
name. In fact today, had Dr. Nowins been here, you could look at
Dr. Nowin's record. And so -- but the reporting has not been 100
percent accurate. The worst areas that our state should be not proud
of is the way we've treated our insurance division. They don't have
the funds to do the job they need to do. Any of you if you're up
in Carson City should take the time to go over to the insurance
division, to the Commissioner's office. It's an embarrassment. And
once again when we're dealing with a small risk pool -- 4,000 physicians
-- that insurance commissioner has to have the staff, the money,
the personnel power in order to do adequate studies of these insurers
and find out if they're underpricing the market or overpricing the
market. That would be the best. The other thing -- and it's troubling
to see, it's not in the insurance regulations, but it's in the other
three legs that we talked about, civil justice system insurance
reform and medical malpractice.
Right now the State Senate has approved a bill to make it much more
difficult to discipline a physician under the context of the Board
of Medical Examiners. They've increased the burden of proof, and
it's unbelievable to us that at a time when we know the quality
of medical care is degrading because of managed care and all the
hurdles that people have to go through, at a time when our quality
of care is suffering there are people out there who want the Board
of Medical Examiners to have to work harder to discipline bad physicians.
That is a terrible mistake.
Let me add in the construction defect context, one of the things
presently in SB 241 is the presence of the state contractors board
to which I made reference. But ultimately, the State Contractors
Board has no jurisdiction over entities that don't have licenses.
And the majority of homes that are built and sold in the State of
Nevada, in most states in our country, are sold by real estate development
companies that aren't licensed. So the State Contractors Licensing
Board has no jurisdiction.
part that kind of dovetails with your question is the State Contractors
Licensing Board [that] has absolutely no jurisdiction or authority
to order any insurance company to do anything. Even if they concluded
in the confines of 241 that the repairs that were offered or made
by the contractor were insufficient or Band-Aid repairs, and the
money behind those repairs was some insurance company, they can't
do anything whatsoever. They have no jurisdiction over that insurance
company. I think the statements were made, and he's correct, there's
only two entities, there's only two businesses in the country that
are exempt from the Sherman antitrust law: that is, major league
baseball and the insurance industry. Go figure.
But I want
to just add on to what Bill Bradley said. I took a case to trial
last summer, a construction defect case, where AIG Insurance Company
was given the opportunity to settle that case for less than $6,000,000
and absolutely thumbed its nose at the homeowner, and then the jury
returned a verdict in favor of the homeowners in the amount of 12
million dollars. And, you know, who's to blame for that? I mean,
the contractor was behind the settlement. They were saying settle
the case. Everybody wanted to settle that case. The homeowners wanted
to settle the case. The insurance company didn't want to do that.
I don't know what you do in terms of insurance reform in forcing
carriers, and we've -- any time in the confines of the insurance
task force that Mr. Hill sat on, any time we would raise any suggestion
of maybe imposing some rules, or giving homeowners, when an insurance
company takes control of the defense of a general contractor and
starts making those decisions, why shouldn't the homeowners have
direct recourse against that insurance company? Any time we raised
that issue, I mean, it was like a wet blanket was thrown over and
the broad sweeping statement was made, if we impose any further
regulations on the insurance industry, all we're going to do is
provide further reasons for them to stay out of our state.
And I think,
you know, if you're going to be here making profit along comes some
responsibility to act correctly.
A quick follow up and then I'll take John's question.
Isn't there one response that could be [made] that the State --
I know this is going to be unpopular here -- but the State could
take over the insurance industry, they themselves could provide
No. The Governor has done a great job. He formed his own insurance
company. What's interesting he put in the past president of the
company -- of the little company that was so successful, Bob Bird.
They have now started writing physician policies in Nevada. They're
doing a great job. And Bob Bird has testified in the Legislature
that the bill passed last summer AB 1, if it survives constitutional
challenge, and there's some built in safeguards to ensure constitutional
challenges, it will reduce premiums.
news is that the Governor's plan has been fully underwritten by
AIG. AIG last summer -- AIG is the world's largest insurer -- AIG
last summer said, their president said, we are not going into a
state anymore unless they have meaningful tort reform. Well, when
they said that, I though they're not going to insure in some states.
Okay, Nevada has passed tort reform. What they really said is, "We're
not going to go in and write insurance, but more importantly, we're
not going to go in and participate in the bond offerings."
And that is devastating to state government when the largest insurer
says, "We're not going to come to your state and buy your bonds
to build your roads."
As a result
of the bill passed last summer that has constitutional safeguards
in it, and still treats people fairly and still allows them to hire
a lawyer -- AIG came into the state and fully underwrote the Governor's
plan. So we feel very strongly the law passed last summer met the
needs of the insurers, is run by a good, good, good experienced
physician person. The Governor did a great job in setting that up
and putting people in there. It's not a state run program, but he
started it under the auspices of the state. Eventually it will go
out and go private. It's really a commendation of the Governor.
He understood the issue and got it running under the right can circumstances.
He did a great job.
John and then
Steve and then Mike, I think. Or Mike and then Steve. I'm sorry.
I'm John Murtoch. I'm a little depressed right now. My wife is an
OB-GYN nurse, and I'm a home builder. Here's the challenge I have.
I've worked in other states. I came to Las Vegas 15 years ago from
the New York area. I mean, I built in other states also. I build
these homes. Yes, all fight with insurance business and home building
lobby and the trial attorneys, but at the end of the day I can decide
to build homes in Oklahoma. All right? My wife decides to stop working
because Nevada is becoming a state, for all different reasons, which
is not a very business friendly anymore for the medical industry
or the home building industry. I don't have to build homes now.
I don't have to build homes in Las Vegas. My insurance premiums
went from $100,000 to $900,000 last year. Not because of me or because
of other builders, [but] because of the system. Is anyone mature
enough at the Assembly and Senate to back off from the different
views and say, “Are the citizens of Nevada being protected
by the current system?” They are not. I could leave tomorrow
and they lost a great home builder. My wife stopped working years
ago and they lost a good OBGYN nurse. You can go
somewhere else. Nevada is not so big. It's a small place.
Are the people
mature enough to know with all this interfighting, all the turf
fighting, that they'll lose the good home builders, and you'll have
the bad home builders? They'll lose good doctors and have the bad
doctors. And so is it the curse. So we have to stop fighting about
trial attorneys and the home builders and the insurance companies
or else we can vote with our feet as citizens Nevada, go somewhere
Yes. And here's the -- I think everybody in the Legislature is mature
enough to understand that. But so far the only solutions have been
offered is take away victim's right and eliminate juries. If you
are a believer in this country and if you've ever had the opportunity
to sit on a jury, and we'll again challenge anybody to say Nevada
juries don't work, but so far the only solutions that have been
forwarded by powerful money interests are, "take away victims
But they're afraid the same jury might give the same person $3.2
million for a coffee cup, $10 million for a leaky toilet. So the
jury is there, where the same jury says, "If you burn yourself,
we'll award you $2,000,000." That's the fear of the defendants.
Just because it's a jury it doesn't mean it's a responsible jury.
That's the biggest fear insurance companies have. That juries are
But you're talking about what if. What if a jury? We deal with facts.
And we have to see the misconduct you're talking about. What if
an airplane crashes and it lands in this building. We'll all die.
Should we all be outside worrying about a building -- an airplane
very truly is “what ifs” are the hysteria. And that's
what drives this national campaign to deprive victims of their rights.
We're not saying that there are solutions. We're not saying that
under certain circumstances our civil justice system needs reform.
But don't put it all on the civil justice system.
I'll tell you this. Under the current system, whoever it is is going
to be losing in the long run. The doctors and the builders and all
the people who are being sued will leave.
May I read something to you? I just -- because, this is a survey
and I'm going to let you guess what state it is, all right? Seventy-five
percent of physicians have become less satisfied with medical practice
in the past five years. Relationships with patients provide physician's
greatest source of satisfaction. Low reimbursement managed care
hassles and government regulation are the greatest sources of dissatisfaction.
Forty-three percent of surveyed physicians -- this was a State Medical
Association survey -- forty-three percent of surveyed physicians
plan to leave medical practice in the next three years. Another
12 percent will reduce their time spent on patient care. The time
physicians spend in patient care has declined by 7 percent in the
last five years. Forty-four percent of physicians spend less time
than they did five years ago. Fifty-eight percent of physicians
have experienced difficulty attracting other physicians to join
urology, orthopedic surgery and neurosurgery are leading specialty
shortages. More than one quarter of physicians would no longer choose
medicine as a career, starting over, and more than one-third of
those who would still choose medicine would not chose to practice
in this particular state. Two-thirds of physicians are advising
their children not to practice medicine.
do you think that comes from?
You've got to be talking about California, right?
The land of the 250,000 verdict. My point is this: in the context
of medical care, in California the most Draconian tort reform law
where victims' rights are ignored every day. The other problems
facing physicians, the horrible problems that they're having with
managed care, the lack of adequate reimbursement from the state
medical program. Those are the problems we need to address along
with our civil justice system. As all of you watch the tax debate
that's going on right now in Nevada and whether you think this number
is 900 million or 300 million or 100 million, think about some of
these things, why physicians are only being reimbursed $800, $900
to deliver the most precious commodity our society has those little
babies. Someone figure that out.
Let me take
-- I think there're about two questions pending. Take Mike's first
and Steve's next, and then we'll probably take our break.
I'm going to be greedy, Jeff. I actually have a comment about Anne's,
and then I have two questions, so you can cut me off.
And this is Mike Green from Wake Forest.
Your suggestion about the state taking over medical malpractice
insurance reminded me of your home state, Pennsylvania, which for
many years now has had what's known as a "cat fund" in
which the state, a state fund actually takes a significant layer
of excess insurance. They're primary private insurers. I'm not sure
where it kicks in, 750 thousand dollars, something like that. At
that point the "cat fund" is involved and it pays. That
has been such an unmitigated disaster in Pennsylvania, according
to everybody I've talked to -- judges, plaintiffs lawyers, defense
lawyers, the insurance commission, that it has been dismantled,
and they are in the process of doing away with having the state
"cat fund." Now, maybe some states could do it better,
but the notion that states automatically are a solution, we ought
to take some lesson from what happened in Pennsylvania.
Scott, I have
a question for you, it's been SB 241 you were describing. It says
it does away with contingent fees or abolishes contingent fees.
It has the practical effect of that, correct.
You said it would require fees to be done on an hourly basis.
The section of the bill and I have it here requires -- it says the
fees may only be awarded based on an hourly calculation.
This would regulate your contract with your clients as to how you
could charge your clients.
SCOTT CANEPA: That's correct.
Is that not “a loser pays” [system]?
No. That's completely different. That's another course in the bill.
What 241 says is that the court shall use an hourly multiplier irrespective
of any contract that the lawyer may have with the homeowner.
The court shall?
Why is the court going to be involved?
SCOTT CANEPA: You'll have to ask Mr. Hill that.
Because under 241 the court is going to approve any attorney fee
paid to any attorney whether the case is settled, proceeds to verdict
or is resolved at any time.
Is that true for both plaintiffs attorneys and for defense attorneys?
STEVE HILL: No, no. Plaintiffs attorneys.
Just the homeowners.
Okay. Now let me ask the question for you and for Steve. That is
instead of this regulation of one size fees, suppose the legislature
just put in a provision that said the loser pays, and leave it --
and the court then would have to determine how much the loser pays,
but it would be a loser pays system in which attorneys fees were
paid by the party that lost.
That's existing law. Under Chapter 40, it says right now if a homeowner
rejects a reasonable offer of settlement, whether that settlement
is a monetary settlement or an offer to repair, the court has the
discretion to deny all of the attorneys fee and costs of the homeowner
and make the homeowner pay all of the attorneys fee and costs of
the contractor. That's current law today.
Is the reverse, the mirror image of that, is that also the law?
If you don't get a settlement offer greater than your judgment,
you can recover your fees.
That's -- no. The statement I just made to you under Chapter 40
has the converse and the rule in itself. It says if the homeowner
rejects a reasonable offer to resolve the case, whether by a monetary
settlement or an offer to repair the court can make the contractor
pay the contractor's legal expenses and costs and deny the homeowner's
fees and costs.
If it's determined
that offer wasn't unreasonably rejected, the homeowner has the right
to their attorneys fees their litigation cost and the cost to repair
their house. One point I didn't make earlier they're not entitled
to any noneconomic damages. You're not entitled in Nevada to pain
and suffering. You're not entitled to any inconvenience damages
under current existing framework. And if the builder just makes
a threshold response under the statute, the builder is insulated
from punitive damages under existing law.
I'd like to respond to the context of medical malpractice. First
of all, the injured victim who is not able to work has to still
pay the mortgage, has to still pay the car payment, is in a financially
very vulnerable situation. That's not to say their case needs to
be meritorious in order to proceed. I agree with that. But requiring
that person to have the threat of having to pay when their life
has been destroyed through no fault of their own is offensive in
some situations as far as I'm concerned.
The other problem
is in the context of medical malpractice. If I bring a claim and
I lose under our screening panel, the loser pays, my client. When
I bring a claim against a physician and I win and I win more than
I offered to settle with, the loser pays -- the physician should
pay. He or she was the loser, I think you'd agree. The physician
never pays. The insurance company pays. And so when you talk about
loser pays, let's always make sure we're talking about apples to
apples. The physician has no risk because the insurance company
pays his fees.
under the initiative petition that the doctors think they want so
badly, it is going to have some significant ramifications to them
that they simply are not understanding right now. But losers should
You said the trial lawyers successfully established that if there
were penalties imposed for filing frivolous suits, that that would
be imposed on the lawyers rather than on their clients.
Absolutely. That's our current law.
It seems to me if we had a similar law that says instead your client
pays, losing case. After all, you're the ones who pick whether these
cases go forward, so let's have you pay if you're unsuccessful,
the other side's fee, and similarly recover from them in the event
that you're successful.
When you say "unsuccessful," if I've got two physician
that's are credible and honest and truly believe that the defendant
committed malpractice and the other side has two physicians that
also firmly believe that they did not, I don't think you want the
chilling effect of the loser pays [system]. We're still America,
and we still do rely on juries. However, that is where the judge
becomes the gatekeeper. That decision should be left up to the judge,
who has the benefit of listening to the case and find out if it
was meritoriously and [brought] in good faith. If it was, there's
a legitimate dispute between these two physicians, and these two
physicians about what happened, and the jury -- the one thing you're
forgetting about is the propaganda that has been promulgated upon
our society for the last fifteen years about the lawsuit lottery.
And I don't
care what anybody says in this room. When an injured victim walks
into a courtroom these days, they walk in one step less than even.
They better be able to show that jury right out of the box that
that is a meritorious case because juries are so inundated with
the propaganda from the insurance agency that we're involved in
a lawsuit lottery, that we're not walking in with unbiased jurors.
Now I would love to work with your group to take the propagandizing
of jurors out of the media.
Let me take Steve's question, and then we'll take our break.
I haven't abdicated my rights as a panelist, I just have some comments.
The first suggestion I make is even the process my opponents may
have to leave the room. That probably won't happen. On a couple
of different topics that have come up. The state run insurance company
being the first.
industry had a hearing in front of the Insurance Commissioner last
July in which we asked for that help. We didn't want the state to
take over the insurance industry, but we asked that the state supplement
insurance for the construction industry. Immediately after that
hearing, the liability companies that write other types of liability
in this state -- state Farm, Travelers, Farmers -- that provide
liability insurance for individuals said if you do that -- because
they would be partially liable for the risk -- if you do that we
will all leave the state en mass. The system you have right now
is so bad and so unpredictable that we want no part of writing construction
The size of
the construction liability market is so large that it dwarfs many
other things. So those problems would bleed out to our customers,
and we didn't want to cause that. That's really not an option in
our industry and we understood that and we asked the Insurance Commissioner
really to discontinue that thought.
As far as the
attorneys fee and the contingency issue currently in Chapter 40,
what has not been addressed is that residential construction is
the only body of law in Nevada in which these costs and fees do
not come out of a jury verdict. They've been termed "entitlements." They are added to a verdict, and they are out of control. [In] the
recent Beazer case that made the paper, the demand was for 24 million
dollars. The ultimate jury award was for 7.3 million dollars. I
don't know what the definition of winning is. We'll get to the offer
of judgment thought process herein in a minute, but that would not
be within -- I think reasonable definition of a win for the plaintiffs.
But the attorneys
fees request in that case on top of the 7.3 million dollars is for
9.3 million dollars, and in addition to that are expert witness
fee and prejudgment interest. So for 7.3 million dollars worth of
repair, we, as ultimate home buyers, are going to pay 25, 30 million
dollars to get those 7.3 million dollars worth of repairs made.
We don't feel that that's fair.
What we have
done in SB 241 -- two things to address these points. We have not
outlawed contingency fees in any way, shape or form. The request
of a judge that they make the calculation on an hourly basis is
part of a list of reasonableness standards that are included in
that law. It does not require that they only use that as a method
for awarding fees but that that be considered as part of the reasonable
standard. Secondly we have tried to beef up the offer of judgment
language which basically is the win/loss thought process because
the court system here that has dealt with construction defect has
at times ruled that the offer of judgment cannot be used in Chapter
40, that Chapter 40 trumps the offer of judgment philosophy. And
so we feel that that's a very good idea, and we encourage that.
Those were my comments.
If -- and 30, 45 seconds -- will be perfect.
The Beazer case to which Mr. Hill referred was not my case but handled
by a colleague. I just want to point out that the verdict, which
I think was actually 7.8 million, was more than twice what the developer
offered the homeowners to fix the houses, and that proceeding that
lawsuit the developer was given the opportunity to fix those homes
and refused thereby causing that lawsuit.
One final point.
They say that Jack Alexander, or Shane Alexander and Jack Kirkpatrick
It is also obviously less than half of what was demanded. Those
are just bargaining positions to start with on both sides. Obviously
the verdict was much closer to what was offered. Secondly the 7.8
million was reduced, because of homeowner responsibility in that
case, down to a 7.3 million award.
This discussion I found to be very enlightening. What I am worried
about is we won't get our third group up; so we'll take our five-minute
break now, and if we have some time for questioning at the end,
and obviously, informally, it's okay.
break was taken.)
If we could reconvene. We have a somewhat smaller segment now with
two speakers. On my immediate right is Nancy Udell. Nancy is the
general counsel and policy direction for Common Good, an organization
that, even if you're not familiar with, you're familiar with it's
founder, Phil Howard, who is the author of two best selling books,
The Death of Common Sense and The Collapse of the Common Good. Nancy
is a graduate Yale Law School and before graduating, before attending
law school, worked in the New York City school system where she
got to observe bureaucratic pathologies first hand. Nancy will talk
-- all of our out-of-towners get a little more time, and we have
two of them on the afternoon panel. Nancy will be discussing primarily
national initiatives in medical malpractice reform for approximately
20 minutes. She'll be followed by professor Ann McGinley, from the
Boyd School of Law. Professor McGinley is a graduate of the University
of Pennsylvania Law School and has taught at Brooklyn Law School
and Florida State prior to joining the Boyd faculty in 1999. And
with that, Nancy Udell.
Good morning. Thanks very much, Jeff. Is this mike working? Can
you hear me okay? I want to try and clear away the rubble a little
bit. It's always hard to have this conversation about how to fix
things. But what's good is everybody agrees that the system is broken.
That's certainly the case in medical malpractice, whether it's the
case in building defect or construction defect litigation, I don't
know as much about. But I've studied extensively the scholarship,
which is voluminous, in the medical malpractice area.
I think the
current reforms that are on the table -- I'm not familiar with your
bill that you were describing in Nevada, particularly -- but the
current federal reforms that are on the table to cap pain and suffering
damages, we think, are much too narrow and unintentionally reinforce
a false dichotomy, [a view that] doctor and patients are natural
enemies, and that's just not the case. What is the case is that
doctors and patients have been driven apart by a system that is
saying that polls that have been done, I guess it was a California
poll, well Common Good did a Harris pole of doctors and medical
professionals last year. Over 90 percent of doctors do not trust
the justice system to reach a fair verdict in a medical malpractice
case. I imagine the patients feel the same way given that the loss
rate is extremely high. Patients, as we know -- there are, I think,
IOM report [which] said that 1.3 million people [suffer] iatrogenic
injury every year, or injury that's caused by treatment in hospitals.
It's estimated -- if you sort of sift through the studies and go
through the fact and shake out what we know about who of that 1.3
million gets any compensation whatsoever from the current system,
it's probably less than one percent. That's an abysmal failure rate,
an abysmal failure rate.
to that, secondly, if you think of any tort system or any compensation
system, [it] has two functions in a society. This is separate from
the important function that insurance performs. But the two functions
of any system to compensation should be: one, to compensate victims,
and, two, to defer further bad behavior or accidents. That's what
a compensation or a tort system is supposed to do. What's happening
today with the medical malpractice system is it's not doing either
of those and yet it's hugely expensive, it's vastly expensive.
over why premiums are rising and why St. Paul left the market and
whether insurers are making money or not, you could debate for years.
Everyone has their facts, and they go both ways. We think that's
not important. The medical malpractice premiums are the tip of the
iceberg, the costs, the real costs of our broken tort system in
medical malpractice are dwarfed by the med-mal issue. First of all,
you've got defensive medicine which estimates -- studies estimate
costs between 50 and 100 billion dollars a year. Even that cost
is dwarfed by the cost of care that's required to take care of the
1.3 million people a year who are injured when they go into the
hospital what they're sick. Studies are almost uniform in agreeing
that the culture of our current system of shame and blame -- let's
find who committed malpractice and let's punish them -- is simply
totally inefficient in deterring errors, and not only that, [it]
creates a culture of secrecy and blame that is counterproductive
to doing what all the studies and all the experts, all the patient
safety experts, done. Burwick, who's done a lot of great work in
this area, the Harvard Medical Practice Study Group, has done a
tremendous amount of work in this area -- we know how to do this.
We know how
to make the system more safe. It requires a culture of openness.
It requires people to discuss mistakes, to talk about what happened.
More than anything it requires the implementation of system changes
in hospitals and big health care institutions. For example, the
electronic medical records [system] is a very expensive thing for
any hospital or HMO to implement, but it's well known that [it]
will reduce error. Electronic order entry for prescriptions. Everybody
knows that will reduce errors. What's happening in the current system,
the discussions that need to happen to get facts out into the open
and to free up funds to make these investments into proven patient
safety measures are simply buried under this constant back and forth
and back and forth -- doctor versus patient, doctor versus patient.
One more point
with the current system, and then we'll go to what we think the
solution is. It's not just a matter of the current system creating
a culture of secrecy and blame that prevents the discussion of errors.
In addition to that, the current system does not provide the right
incentives for providers. One of the reasons, and I think it's generally
agreed in literature, the reason the current system doesn't either
deter bad behavior or provide the right incentives for good behavior
is because the deterrent signal is almost completely random, almost
completely random. In other words, the people who are getting compensation,
the small number of people who are getting compensation out of the
medical malpractice system, are often people who are not victims
of medical malpractice. The vast number of people who are not getting
[compensation] often are people who are victims much medical malpractice.
For all kinds
of reasons, particularly because most errors don't have anything
to do with the doctor being bad or careless but have to do with
the fact that [proper] systems, improvements, have not been put
into a hospital. For example, Jessica Cintillis -- those doctors
were the best doctors in the world, and that mistake had absolutely
nothing to do with the doctor being a bad doctor. In fact, her family
wanted the same doctor to do the second transplant. That was a systems
error. That was a communication about blood type. It was electronic
order entry error.
The fact [is]
we try to take this hammer which is the current tort system and
hit doctors over the head, we want the system to get better, I'm
going to keep hitting you and hitting you with a bigger hammer,
and I don't understand why things are aren't getting better. Well,
we think that that's what the problem is. The problem is we're using
the wrong tool. The hammer is not working. If we really want to
fix things we think we have to move toward not tort reform, not
tinkering around the edges of the current system. So what we're
saying -- we're getting too many big verdicts. Let's cut down to
size and number of those verdicts. Let's take our current broken
system that everybody agrees does not work. It's totally unreliable.
It reaches the wrong results a vast majority of time. It's hugely
expensive, let's keep that system but just try to cut back on a
small portion of what people get in the system. We think that's
a flawed way to go about that.
we are advocating is something much more radical. I'm going to show
you our poster. There are copies of these in the back of the room.
We have been gathering the leaders of health care. When I say leaders
of health care, I mean the top leaders the heads of medical schools,
the heads of hospitals, the heads of universities. We have a follow
up petition coming out in a couple weeks with former Senators, former
Attorneys General, all the patient safety groups are signed onto
this. If you look at the list of who's signed onto this approach
it's a very high powered group in medicine. And what everybody's
saying is, "Let's stop tinkering around the edges. Let's actually
put together a new system of medical justice that will compensate
patients, that will deter bad care and incentive, the right kinds
of system improvements we need to make the system better and improve
the quality of care and that will be cost efficient."
It sounds shocking.
It sounds like a crazy idea, totally radical, let's throw it away
and start over. That's what we're advocating. Let me take ten minutes
to quickly go through six elements that we think should be included
in any reliable system of medical Justice. I'll also just refer
you to our website. This is -- I'm not going to go through all of
this, don't worry. This is a notebook I put together. What we try
to do -- we have two of these. They're on our website which is "seegood.org." We've tried to pull together the research and the scholarship in
this area. One thing that's great about medical malpractice, you
talk about facts. The facts are there. It's very clear. Everybody
agrees. And so that's kind of a good thing. There's really not a
lot of dispute among credible scholars and peer reviewed pieces
over what the issues are.
to pull those two together. We have two books the one is The Effective
of Law on Health Care and the other is Six Elements of the System
of Medical Justice. And I refer you to this. It is downloadable
on our website without attachments. For a more complete version
of the list I'm about to give you -- but let me run through six.
Number one, expert decision makers. We've heard the trial lawyers
tell us, and I think it's generally true, that juries generally
get things right. I think that's true in a lot of areas, but it's
not true in medical malpractice. All the research shows it's not
true in a med-mal case. A reliable system of medical justice needs
an expert decision maker who can draw on a reservoir of information
and scholarly knowledge and past experiences with cases in a highly
complex and highly scientific area that simply cannot be explained
to one jury in one case.
We're not talking
about a hit-and-run here. We may be talking about whether a tracheotomy
-- and I'm not a doctor, so I'm not going to go in -- I should come
up with a good example for these talks of what sometimes come up
in this cases, and you guys probably know better than I do. But
the bottom line is if you read the research and some of the great
work that's being done on appropriate standard of care means there
are often four or five acceptable standards of care in any given
medical situation. There's not one standard of care but what happens
now is you get a jury who are lay jurors. They're not allowed to
look at any scholarship. Maybe if we allowed them to read scholarly
articles and look at what lots of experts said they might do better.
now is the jurors have one expert from the plaintiffs and another
expert from the defendants. They say diametrically opposed things
about an extremely complicated topic, and often it will come down
to who makes better eye contact and who the jury decides to trust.
Because it's not simply possible to decide what scientists and doctors
can't even agree about after having no background knowledge and
no access to scholarships. We think expert decision makers are important.
The other reason
they're important is the function of law -- to talk about law at
a law school sometimes sounds crazy, but the function of law is
to let people know what the rules are and where they stand and to
be predictable so that people can use their judgment going forward
about what the rules are. I would put money down that if there are
any doctors in this room, and maybe there aren't, if there are any
doctors in this room that not a single one of them could tell me
what negligence means in their practice. There's no standard right
now. The law is completely standardless on this, and juries are
supposed to decide facts. They're not supposed to be deciding standards
of medical care.
expert decision makers are important. I will say that that's not
unprecedented in the U.S. by the way. You guys like to say we're
still Americans and we still need to have juries. And its a jingoistic
time, it's important to remember that we can talk about making changes
to our legal system without being Communists or without being un-American.
I hope we can. I'm not sure but I think we can. Throughout the United
States today there are lots of examples of specialized technical
courts who use expert decision makers. But the one everyone is probably
most familiar with is worker's compensation. Those cases don't go
to a jury. The tax court doesn't use juries. The court of customs
doesn't use juries. The court of claims doesn't use juries. The
NLRB doesn't use juries. Immigration courts don't use juries. I
could go on. There are lots of examples in our law. You may be interested
to know at the risk of sounding un-American that there are not a
single civil law jurisdiction that currently uses juries to hear
medical malpractice cases, not a single one.
element of justice -- now I'm running out of time. I have to go
much more quickly. The second element of justice, I've sort of already
discussed and that is impartial experts. We believe it's very important
that the court, the expert decision maker should be able to get
expert testimony from a source that he trust and knows, he or she,
trusts and knows to be impartial. The parties can still submit if
they wanted to, this gets into a lot of expense, written expert
testimony. The court should be able to call upon credible expert
testimony from people who have scientific merit, people who publish
peer reviewed articles, people who are known to be well read and
well practiced in the area.
be some sort of a body of -- doctors I'm sure wouldn't mind contributing
some of their time to be available to give credible expert testimony
that the court could then examine the witnesses, and find out what
is the science in this area. That that's an important thing.
Three, a reliable
system has to be accessible to patients. I think the story that
somebody told earlier about the family in California who's baby
was born with a birth defect who then had the baby subsequently
die, very tragically -- all the lawyers quit. They had about five
lawyers banging down the door when the baby was alive who wanted
to represent them. As soon as the baby died, all the lawyers quit
because there was no money left. What the lawyers want to do is
take a portion of the dollars that are allocated to future care.
That's the big chunk of cash. If there's no future care dollars,
then the lawyers aren't interested in the case. That's really tragic.
And that's not to say lawyers are bad people, but that's an economic
decision just like [that of] the insurance companies. I mean, there's
a reason people are in this -- to make money, and that's entirely
We think people
shouldn't be in that position. We don't think people should have
to give away portions of the dollars that are supposed to be caring
for sick children in order to get access to a system to get justice
for an error that may have occurred. A good example of that kind
of a system is the active injury compensation program which currently
provides compensation to a kid who's get injuries from vaccines.
There's always going to be, you know -- it's good for the herd to
be vaccinated because the herd gets stronger, but there is risk
inherent in vaccinating the herd and the kid who's do get injuries,
should get compensated.
In that system
the hour lawyers are paid an hourly fee. I used to be in private
practice. I always got paid by the hour. I thought it was pretty
good. They're paid an hourly fee. There's no shortage of lawyers
in that program. There are currently 100 lawyers on a waiting list
to represent claimants in the vaccine injury compensation program.
Claimants have to be able to get in and out. The good parts of the
screening panel that you were mentioning. What I'm envisioning is
a system like the screening panel [that] actually makes decisions
so people can get in and get a decision, get some compensation.
They're not going to be waiting four, five, six years and giving
50 percent of whatever money they do get back to costs and lawyer
fees. They're going to be able to get their damages and get in and
for error reduction. I think I already talked about.
deliberate judgments about compensation. We talk about compensation
all the time but what we have to realize is if we take $5,000,000
and give it to one victim we already know the vast majority of victims
are not being compensated. If we just randomly pull a number out
of the air and give that $5,000,000 to one victim, that's $5,000,000
that's not available to compensate other victims and not available
for future care. Every other modern Western country that deals with
medical malpractice makes deliberate judgments about pain and suffering
payments, not to say a rigid cap that's one size fits all. But a
deliberate judgment. Some of them do it by having schedules, and
we've got copies of what England uses. England, by the way, eliminated
the use of a civil jury in med-mal cases in 1883. We've got an example
of what England uses in the book here. But really every European
country has some kind of a schedule. It's not a rigid cap.
can still use their judgment. Some of them, like Germany, uses something
called the Schwartz and Tabellan, where they just pile all the verdicts
that have been given, so it's a norming effect. You realize if somebody
loses a big toe, generally have been dollars blank for pain and
suffering. Economic damages. You don't need a schedule because economic
damages are economic damages. Whatever the methodology, whether
it be a cap, whether it be a schedule, whether it be a compellation
of other damages we think there needs to be deliberate judgments.
That's because -- I guess this is really the biggest common good
point. I'll very quickly say my last point.
because we have to think about how we're a society. We have to think
about how an award in an individual case affects the rest of the
system and the rest of the society. You can't look at these things
in a vacuum. One of the reasons we're having this meltdown is we're
looking at everything as an individual case. The final point, and
I'll do it extremely quickly. I apologize for going slightly over.
A reliable system has to have a barrel for the bad apples. It's
entirely true that most mistakes are not due to bad doctors. They're
due to system errors and communication errors, things that are mistakes
and not negligence. It's also entirely true there are some very
bad doctors out there. There're a few of them. There's not a lot.
They're extremely troublesome, and they often slip through the system.
Ironically they often slip through the system because they hire
a lawyer and sue a hospital who tries to discipline them or sue
an HMO who tries to get them out or sue a licensing board that tries
to take their license away, and then they settle quietly and go
off to another state.
In order to
protect patients from those rare and very troublesome creatures,
bad doctors, a reliable system has to build that policing function
in. You can't just have these cases coming through, and then not
have the punishment or the discipline function. With that I'll say
I'm going to stand up so I don't fall asleep or put you to sleep,
I hope. That was very impressive, Nancy, and it's kind of hard to
follow that. I only have about five to ten minutes. Many of the
things I was going to say are similar, and yet different, from what
Nancy already has said, and a number of people have already said.
The first thing I want to say is that we are not really talking
about one broken system. We're not just talking about a broken system
when it comes to the civil justice system. We're also talking about
a broken health care system. What I mean by that goes well beyond
what we're here today to talk about. I think it's really important
as a background issue. We have 41 million people without insurance
in this country. Many people don't even have access to health care.
So it seems to me that national universal health care has to be
something that we have to think about when we're talking about medical
malpractice. How this all goes together I can't tell you, but it's
in the background, and we have to think about how we're going to
give access to health care to people and good health care.
piece is [that] we do have -- if not broken -- a semi-broken civil
justice system. We have lack of access by folks who are poor folks
as well. Attorneys fee and costs are very high. The expenses of
running offices are very high. Time delay, tactics, discovery, many
procedural hoops, all kinds of adversarial processes that seem to
be just overwhelming. What do we do about these two huge broken
systems? We can just throw them both out, but I know very well that
will be here and it will be typed up and then everybody will go
onto their next day.
telling you in the background -- these are two broken systems that
something should be done about. But my proposal is very -- I have
very modest ideas about what we can do. I want that to be out there,
though, so we consider those broken systems or at least have that
in the background when we're thinking about this. I guess what I'm
saying is -- I should also say this -- tort reform and medical malpractice
problems that have been identified are the result of both of these
In this specific
area we have dynamics that have already been mentioned. We've got
an economic down turn. We have insurance companies probably too
unregulated. We have an interest of making political hay with this
issue. We have a media on a regular basis that portrays doctors
and lawyers as greedy evil people. We have doctor and lawyers who
-- I'm saying both lawyers and doctors -- seem concerned more about
protecting their own turf than about fixing this thing.
By the same
token we have doctors who are expressing what I hear -- and this
really gets to me, this incredible emotional upset and I think it's
real -- it has something to do with their feeling that they can't
practice their profession the way they want to practice it. That
troubles me. I think much of it is a result of this kind of panic
that people have mentioned or miseducation. I don't think that's
what happens. I think what really matters is that's where we are
now and we have to figure a way to take that pressure off the doctors.
I don't think we've created all that pressure through the malpractice
system. I think a lot of it is the economic downturn, the economics
of running a law office, excuse me, a medical office. I think it
all gets lumped together and we can sit here and fight among ourselves
and it isn't going to help much.
I think what
we need to recognize that doctors need that, to some extent, need
that shame or blame whatever you want to call it, taken off. They
feel it's punishment. Do we think it's punishment? As a lawyer no.
I think it's a way of spreading the risk. It's not the way it feels
when you're the one that's being sued. I'm actually an expert in
employment discrimination, employment areas. I also find myself
often aligning with the ideas of the plaintiffs but also realizing
when I have the employers come and talk to me about it they [that]
take it personally when someone says you treated me badly because
of my race and my gender. I think it's a very similar dynamic.
The rest of
the dynamic is the one we mentioned -- media, doctors are winning
the media war, runaway juries, excessive verdicts. We have insurance
companies that I think are driving the whole thing and staying in
best solution? Changing these two system and I'm not sure we can
make those major changes. Perhaps Nancy can. There's a professor
sitting here who gave a speech earlier this week on tax reform.
Instead of saying we have to get rid of the whole income tax, which
you said is never going to happen, and I don't think we're ever
going to get rid of these systems, he suggested some modest simple
reform that might make things better. I'm going to try to follow
his lead here.
I do want to
mention the three things that you mentioned Nancy about deterrent
compensation of victim and spreading the risk of accidents through
insurance. I think that it's true. If tort law's purpose is deter
bad medical practices that maybe it's not a good reason it's not
happening, but it's not happening. The doctors are really -- they're
over-practicing, it appears to me. They're practicing defensive
medicine, at least that's what it seems to be. It also seems they
are underreporting, underreporting to make money, [the number of]
accidents and injuries, of mistakes. You hear all the time of drunk
doctors being out there, doctors on drugs and their colleagues are
not reporting them.
on? Doctors do need to police themselves. We have to create some
kind of an incentive to get them to do that. By the same token victims
need compensation. I'm not a big proponent of these caps on pain
and suffering because personally I have to tell you I think they're
really harmful because what they do is stress that basically men's
lives are worth more than women's and children, and that alone I
have trouble with.
risk. Nancy [says] we should have schedules and have a more even
system. That's true about everything that has to do with our civil
justice system. It is uneven. And I don't know if we're going, it
seems to me, if we're going to go this way with medical malpractice,
that we might have to go this way with the whole tort system. I
don't know if we're going to go there. In any event, a lot of those
foreign countries that use these system and do award less money
have social networks and social programs that are supporting people.
We don't have those same kinds of networks. I think we have to think
in terms of whether we're willing to go for some of those social
programs, if we're going to make these major changes.
The goals as
I see them on medical malpractice reform is to improve the health
care system by creating incentives for better systems. I totally
agree with Nancy. By creating incentives for better reporting of
accidents, by creating incentives for better policing by doctors,
by doctors themselves, but to lower the cost of health care to those
who can't afford it and to provide better access, to prevent future
injuries if preventable and to compensate victims and spread the
risk to society through insurance other social programs.
The goal --
he gave me only eight or nine minutes and now he's going to tell
me I have to leave. I'm going to use a few more minutes. The things
that are not the goals are to protect lawyers and to protect doctors
and to protect insurance companies unless that protection will improve
Here are my
modest solutions. One is the idea of enterprise liability. I really
believe that hospitals should be liable for the doctors and everybody
else who have privileges working in the hospital. They shouldn't
necessarily be employees of the hospital for the hospital to be
liable. If the hospitals will be liable, the hospitals will have
the incentive to make sure those systems are in place, and I certainly
would think the hospitals might be able to negotiate, I don't know,
better insurance deals than the individual doctors.
from my idea in employment law, actually, where you have the idea
of respondent superior where an employer is liable for actions of
employees. I'm going beyond that. I'm saying not only employees
but sick people, [all] who have privileges, who work in the hospital
because the hospital has the right to control how those people practice.
I think that the hospital needs to exercise that right.
A second idea.
We could reduce the liability of individual doctors or maybe get
away from it altogether except when we're talking about a cover
up, fraud or maybe intentional, very reckless behavior, but let
people go to the hospitals. You say what if something happens outside
of the hospital? I think that doctors groups should be liable then.
I think if you choose to practice as an individual as a doctor,
then you're going to be liable. I think the group or the enterprise
should be liable rather than the individual. That gets rid of the
blame game. People make mistakes. I think it would be better where
there were organizations that would create an incentive to report
I think if
we were to look at Mayo Clinic and Cleveland Clinic and those places
where all the doctors, everybody who works there, is an employee
and the hospitals are liable, that we might find a good system that
we could use, actually in a situation where we would expand the
liability to the enterprise, to the hospital, even for people who
are practicing there but who are not employees of the hospital.
The other few
things -- strict regulation of insurance companies must accompany
any reform we have. It seems that they're in the background and
we have the doctors and lawyers pitted against one another. I don't
think that makes any sense.
networks. That I mentioned. Perhaps a national health care system,
some kind of social services for injury, sick, those who cannot
work. I hate to admit that I don't think it would be a bad idea
to limit the attorneys fees to a smaller percentage, 20 percent
for lack of a better number. I also think that -- my last thing
is the experts -- I think that we should probably have some kinds
of a board or panel of experts, that both sides should agree to
that particular selection, the way you would select an arbitrator
to look at the cases rather than having people pay their own experts.
I think what I'd like to do so we can really get to reconvene at
1:00 p.m. -- If there are some audience questions, and then before
everybody goes, I know Dmitri has a few more comments. But do we
have some audience questions for either Nancy or Ann? Ah, yes, Professor
Ann -- actually, both of you addressed this [issue] which is neutral
experts, court appointed experts, which I'm very attracted to. At
the same time I think I heard both of you talking about the cost
of the system, right? Well, court appointed experts are just going
to be an add on. They're not going to replace adversary experts,
not if the lawyers who are around here have any say about it. What
that's going to do is build additional costs into the malpractice
system inevitably. It may be worth it, but let's recognize that
we're talking about additional costs.
Well, in our system you would not be talking about additional costs.
Again, I'm not saying we've got a legislative proposal sitting here
today but we are working with a large number of people who are very
involved, including AARP, to develop a system. The idea would be
to have reliable expert testimony. The whole idea is to pare down
costs. Whatever money in the system should be going to injured patients,
not going primarily to experts, lawyers and court costs, which is
where it's going now. We don't think that expert decision makers
and impartial experts add costs.
If you want,
you could still have the parties put in written testimony from an
expert. I think that's a bad idea. I'm not sure why it's necessary.
Maybe you could have a panel of experts. The cost should be borne
by the system, not come out of the dollars the patients gets to
care for whatever injuries, and it should cut down on costs, not
increase it. I don't agree it would increase costs.
Actually, my idea is that it would not be in addition to individuals
-- that there would be a number of experts but they would be used
-- they would be experts that would be agreed upon by both sides
or a panel that -- I don't know how you do this.
They do it in Europe that way. Many European jurisdictions do it
that way for example for both product liability and medical malpractice
almost every European jurisdiction uses court appointed experts.
Sometimes they appoint a panel. They don't always just appoint one.
And doctors and scientists consider it part of their professional
duty to participate in that. They don't get huge fees, but it's
to everybody's benefit. If you have credit scientists and reliable
medical professionals who are aware of the current science -- giving
testimony is almost [like being] an officer of the court. It's a
Let me just jump in for a second and let me ask -- am I being too
postmodern to suggest it's really hard to say that there is an agreed
upon neutral standard in some of these areas? For example, if we
were trying a case where the proof was economic, it would make a
difference if you had Milton Friedman or Lester Thoreau as your
neutral court appointed expert. How, to the extent you guys have
gone that far down the road, would we control for that?
I personally was thinking in terms of having more than one expert.
I was thinking kind of the arbitration model where you would have
three experts and each side picks one and the judge picks the third.
Or each side picks one, they're already from a panel that's been
screened somehow -- that was my idea.
Able to strike for cause?
Yes. I actually had -- Mr. Freidman, Feldman. Sorry.
It seems to me -- Stanley Feldman from Arizona -- it seems to me
one thing we're assuming that the medical malpractice case, the
plaintiffs are putting on experts who are not reliable and are not
credentialed. I don't know why we make that assumption. It was my
observation when practicing and even afterwards you would have to
be a very unsuccessful plaintiffs lawyer to try and prove your case
to a jury given all that's gone on in the world with an expert [who]
was not well qualified and who was subject to cross-examination
on his qualifications, on his experience and logic. Why do we have
this assumption, and on what data do we base it, that experts being
put on are not reliable.
Well, I'm not saying so much -- first of all I don't think it's
necessarily plaintiffs or defendants. I think both sides pick experts
who support their case. I think it's possible to do that. I'm not
so much saying -- I don't know what the statistics are about the
credentials of expert testimony. What I know is anecdotal and, I
mean, it's probably much less reliable than what you know anecdotally,
given your line of work.
What we think
is detrimental is the fact that experts are partisan, they're hired
guns to present a particular point of view rather than to present,
as you said, Jeff -- let's say you've got a particular case in an
operating room and the doctor makes a decision. You can always find
an expert to say that if the doctor had done something else then
the outcome might have been different. What you really need is an
expert to say, look, in this situation there were four or five acceptable
standards or courses of action that the doctor could have taken,
not just one. You need to know what the current science is. In some
situations there's a very clear standard of what's considered the
acceptable standard of care. In others there may not be. Right now
you don't get that. You just get two dueling experts, one is saying
it is the standard of care and the other saying it isn't.
Again, if I may. I think you're assuming that defense lawyers aren't
doing their job. It's my experience they are. If it is a situation,
and many situations are not this way, but if it is a situation in
which there are several different options, all within the standards
of care one expects and my experience again is it happens, the defense
will put that on. I don't think there's any falsity of experts when
it comes to the defense because the attitude of the medical profession
is if at all possible in good faith to establish that the claim
is not well taken, they will come forward and testify. It's easy
to get defense experts. It's much harder to get good plaintiff experts.
I hear what you're saying. I'm not sure we're disagreeing. I think
the system of the dueling experts, you know, finding one to say
one and one to say the other and have them go back and forth --
it's wasteful and hugely expensive. I don't think it's particularly
productive. I think it would be more productive to do it as, I said,
many European jurisdictions do and to allow the court to examine
and chose experts to give expert testimony on what the standard
of care was. And maybe they need two sometimes if it's a tricky
area. I think that's an area that's a huge eater up of costs. Often
one of the reasons trial lawyers have a hard time is because --
if they're saying there's a cap on pain and suffering they're not
going to have enough money to pay their experts.
And I see one trial lawyer who has been chomping the bit.
I've just got a couple points. The first is in the context of defensive
medicine, I don't think there's anybody in this room that would
not like the ability to utilize the most current equipment that
can be used to make a diagnosis. I think we have taken defensive
medicine to a new level. We've allowed science to progress and do
wonderful things with machines. But now it's defensive medicine
if we ask to use that. Where I struggle very much with this is the
very simple issue of someone walking along the street who falls
and hits their head. They come to the emergency room, the decision
is made should I do a CAT scan to see if there's a bleed in the
Well, if I
fell and hit my head, I would like a CAT scan to know I didn't have
a bleed. Maybe you don't. When the physician makes the decision
to make a CAT scan that sometimes is referred to as defensive medicine.
And I struggle with that. I also struggle with the concept of defensive
medicine in the era of managed care because now you have decisions
made, unfortunately, by very unqualified medical professionals --
it's not even fair to call them medical professionals -- on what
should be done. The defensive medicine argument I struggle with.
I have with your presentation is your total commitment to the literature.
I think 50 to 75 years ago you were correct. But I think in the
last 50 years with the incredible power and money generated by corporations
that are funding a lot of the research we all now want to rely upon.
It's very hard to question the integrity of an excellent university
when they're asked to study tobacco.
If we were
40 years ago the research and your scientific data would all be
saying that tobacco is not harmful. I have to question how you take
the money out of the integrity of the science you're talking about.
It's hard to respond to a wholesale questioning of the validity
of scientific research, which is how I interrupt your question.
It's not wholesale.
I guess I'd refer you to the briefing books which contain very credible
scholarly research. I'd be happy to have a follow up conversation
with you if you can point out how these studies are not credible
because of how they were funded. I don't believe that to be the
case, but I'd be happy to talk about [it]. It's hard to talk about
in the abstract because I don't know specifically what you're referring
to. I believe that the scientific -- I mean I'm a believer in science.
I believe in facts as you guys do. I think the facts are clear.
Let me respond
to your first point about defensive medicine. Two things Dan Kessler
who's now the head of the FDA, and Mark McClellan who is now the
head of the FDA -- Don Kessler is at Stanford -- did a study in
our first briefing book as an example on defensive medicine and
estimated the costs in today's dollars to be between 50 and 100
billion dollars. This is a hard thing to measure but Common Good
did a pole of doctors last year, and this I found really stunning
-- over 50 percent of doctors admitted in the poll to performing
tests they believed to be unnecessary, performing procedures they
believed to be unnecessary and prescribing drugs they believed to
be unnecessary because they were worried down the road someone might
say why didn't you? I think CAT scans often are appropriate and
I do want to get a CAT scan when I get injured, but I don't think
as a society we can afford to give a CAT scan every single time
someone is injured just because a lawyer could come along later
and say, "Might it not have been different if you gave a CAT
scan?" That's what defensive medicine is about. It's not about
not using the technology we have. It's about second guessing. You
can always say what if -- always.
Let me take one more question if we have one out on the floor.
Bill, I would just ask you question. Suppose if you went into the
emergency room the doctor said we can give you a CAT scan, I think
there's a very small chance and the bill will be 1100 dollars. Do
you want it?
I agree with that. Unfortunately, you see in this instance where
Wait -- you agree with what? You won't pay for it?
That physician and that patient should reconnect and have that discussion.
You would say, “yeah I'll pay for it?”
Here is where it points out the problem. When I have health insurance,
I don't have any problem.
That's the point. Who pays for that? We're all paying for it. The
41 million uninsured are paying for it. That's who's paying for
The issue of the CAT scan because a doctor is worried about being
sued, I disagree with you. I think the reason that doctor should
or should not decide a CAT scan based not on the objective findings
they find in the emergency room should be based on the fact that
if there is a problem, the future cost of that brain damaged injured
person whose treatment could have been eliminated by a simple nonintrusive
test -- I think that's what the doctor has to make the decision
I agree with that. I'm not disagreeing on that. That's the goal,
absolutely. That's what we want.
We will have an economic market in the emergency room under Professor
Green's new scenario. With that -- and obviously who have reserved
luncheon, for our panelists and participant – it is next door.
For those of you who did not [make reservations], there are many
fine places to eat in the area. We hope we'll see everybody back.
Dmitri has a few more words. I think, too, why don't we try to reconvene
-- why don't we shoot for five after 1:00 for those who are coming
back. Okay, 1:15.
Just a word of thanks to the people who came for this panel and
helped organize it, in particular Connie Akridge, president of the
Clark County Bar Association, Jeff Stempel, who pulled all his connections
and brought very interesting speakers here as well. I believe that
Connie has an announcement about a program that our county and bar
associations and the Center for Democratic Culture sponsor -- a
dialogue on freedom. One last thing while she's coming here we may
still have a couple places at our luncheon in case you would like
to join us.
Thanks, Dmitri. We are having a Dialogue and Freedom Program on
behalf of Law Day which will be next Thursday and Friday. It's a
program sponsored by the Clark County Bar Association. It was actually
devised by Justice Kennedy after the events of 9/11. It's a program
where we go into the high schools and talk to the high school kids
about our basic American values. And it's based on a hypothetical
the kids are given ahead of time, in which the kids land in another
country, [where people] think we're all capitalist pigs. We have
to get the kids talking about pieces of literature or music or our
founding documents, to get them talking about where do we derive
our values, how do we get our freedoms, what's our structure all
about, what's the role of the rule of law. These are all very provocative
ideas we get to discuss with the kids.
If anyone is
interested in participating in this program and going into high
schools, either Thursday or Friday, please see me at the break because
we still have some availability. The other thing I wanted to tell
the attorneys in the room is that we have CLE credit for this program.
It will be three hours for the morning and two and a half in the
afternoon. Also you can sign up for that at the front door.
Thanks to our speakers and panelists as well.
break was taken.)
Political, and Historical Aspects of Tort Reform
Session 2. 1:00 - 3:30 p.m.
I just got a note from Dina Titus. Dina writes -- by the way, my
name is Dmitri Shalin in case you missed our morning session. She
that I'm unable to attend your forum today but legislative hearings
and votes keep me in Carson City. The program promises to be interesting
and informative, and I was looking forward to participating. You
are to be commended for taking on the subjects of construction
defects. It is both critical and controversial and those reasons
need to be addressed in an open forum with well respected representatives
from both sides involved. Accordingly, good policy can result
which balances the concerns of attorneys, builders and insurance
companies in order to best protect the interest of Nevada homeowners.
As you know a construction defect bill, SB 241, passed the Senate
last week. While I support the right to repair, which is an important
reform included in the Bill, there were other provisions that
I felt tipped the scales too far in one direction and kept homeowners
vulnerable. I'm confident, however, that some changes will be
made in the Assembly, and I look forward to voting for a compromise
bill before the session is over. Thank you for your involvement
in this important issue, and please feel free to call me anytime
I can be of service. Sincerely, Dina Titus.
I'm turning the floor again to illustrious Jeff Stempel.
Dmitri, you're blowing your credibility every time you do that.
Thank you. Welcome to the afternoon segment of our discussion. I
think what we'll try to do here again, the same sort of ground rules
of ten minutes a speaker. Then we will have five speakers that you'll
hear from before we take our five minute break again before we convene
the afternoon panel. At the conclusion of the afternoon panel we
should have some time for audience questions and panelist interaction
and we hope we'll be able to keep everybody on a Friday afternoon.
At least we won't lose them to the beach in the Mojave desert.
Let me take
the liberty of again introducing everybody at once, although Judge
Feldman prefers his staging area up there, but we'll bring him down
in a moment. Let me start on my extreme right. Rob Correales is
a member of the Boyd School of Law faculty. He's a graduate of the
Kansas Law School and has his LM from Georgetown and is one of the
founding faculty of the Law School. He came here in 1998 after years
as an assistant dean at the University of Wisconsin.
To Rob's immediate
left is Carl Tobias, another member of our founding faculty. His
JD is from the University of Virginia, and he's a long term member
of the University of Montana faculty and came down here to be part
of the founders of the Boyd School of Law and is a prolific scholar.
He writes more than I can read.
almost falls into that category because he writes nearly more than
I can read. Mike Green from the Wake Forest University School of
Law. Mike is the Bess and Walter Williams distinguished professor
of law at Wake Forest University School of Law. Mike was for years
a member of the University of Iowa faculty. He's a graduate of Penn
Law School and one of the most prominent tort experts in the country,
very active in the American Law Institute.
sort of forming what might logically be a somewhat different segment.
Rob is going to talk about how real or severe is the purported tort
liability problem. Mike, followed by Carl, will talk about historical
and recent developments in tort reform, and then we'll get a judicial
and practitioner perspective on tort reform from the people to my
left, your right.
Stanley Feldman recently retired after 20 years, I believe, on the
Arizona Supreme Court. Prior to that -- a very distinguished career
as one of the leading, I think it's fair to say, plaintiffs lawyers
in the state of Arizona and indeed in the country. I teach insurance
law and some of his opinions as a Justice are absolutely classics
in the area, whatever your point of view on the issue, and find
themselves frequently cited in the casebooks.
Feldman's immediately left is Connie Akridge who is a partner in
Wadhams & Akridge. You've heard her named partner's name being
taken in vain earlier this morning. They represent insurers in a
variety of capacities legislative and litigative. Connie is a graduate
of the University of Arkansas School of Law and is the current president
of the Clark County Bar Association. With that package of introductions
let me begin with Rob Correales this afternoon.
Good afternoon. The title of my talk this afternoon is how real
or severe is the purported tort liability problem. I basically don't
have an answer for that. What I have are suggestions that much is
missing from the discussion as to whether and to what degree there
is a tort liability problem. I would like to share some of those
thoughts with you.
tort liability crisis that we're experiencing is not unique. We've
had cycles of tort liability crises throughout the second half of
the 20th Century, and this is but the latest of one of those cycles.
We've experienced those cycles in the 60's, 70's, and 80's. All
of the cycles have proven to be remarkably successful for tort reforms.
Before then, I should state, that we had what is called the progressive
era when, believe it or not, both court and academics agreed that
we didn't have enough litigation. Litigation was in it's way to
vindicate rights before these cycles begun and was invited by many
commentators and judges.
crises have in common are many things but there are three things
that I would like to talk to you about. They are generally driven
by a perceived concern over flaws in the tort system. Three of which
are the following: number one is the ease with which cases can be
filed and the resulting proliferation and the numbers of cases,
what has come to be known as the litigation explosion. Litigation
is exploding all around us, and we're very concerned about that.
That has been the claim of many tort reforms.
is the perception [that] juries tend to favor plaintiffs at the
expense of the facts, and they tend to disfavor defendants, particularly
rich defendants. The third is the unpredictability of jury awards
or a claim that jury awards are unpredictable and that they're provided
by out of control juries that do not care much about the facts and
only care about awarding extremely large sums of money and that
these large sums of money are very commonly awarded.
All of these
concerns have been the subject of a great deal of study by legal
academics. Much of this research has been done by Professor Mark
Galanta of the University of Wisconsin who I consider to be one
of my mentors and admire a great deal. He and a number of colleagues
have utilized principles of empirical analysis to explore each of
these concerns, with some interesting results.
I want to talk
about all of those concerns in the -- through the prism of some
of that work. But before I do that, I want to address for you --
I want to make an observation that tort reformists have been incredibly
successful over the years in passing tort reform in spite of the
fact that much of the claims about the system are not supported
by empirical evidence.
have noted that this success may in fact have been the result of
media coverage of tort cases. It's indeed better drama, a far better
drama, to report on the occasional large award against a corporation
or to report cases with silly facts or to announce the corporations
tend to prevail in over 50 percent of the cases and that many cases
containing those facts are indeed stopped before they get out of
the starting gate.
my friends, work, the methodical, analytical work makes not for
as exciting theater, does not quite make for good theater. Still
the effect of the media upon public perception of the tort system
[that] sometimes drives political action can be striking. One example
I want to talk to you about is the example of the McDonald's coffee
case, the verdict in the McDonald's coffee case. Although that verdict
has been thoroughly investigated and in fact vindicated by no less
of a pro business publication than The Wall Street Journal, newspapers
around the country continue to use that case as an example, actually
a simplified version of that case, of what is wrong with the system.
They cite and attempt to expose the excessive tort system and the
capriciousness of juries.
of the story is something like that. They cite an outlandish award
of nearly $3,000,000 to a woman who carelessly spilled coffee on
herself. A system gone out of control. For whatever reason they
failed because this information is readily available to the public.
They failed to note the case was eventually settled for just over
$200,000 which is not rare in these large award cases, and that
the plaintiff suffered serious injuries in the form of third degree
burned into sensitive areas of her body that necessitated vary painful
skin grafts. This happened from coffee that was just at 180 degrees
Fahrenheit, when other restaurants keep it at below 160. This also
happened by a company that was fully aware that people would be
severely burned under these circumstances, yet chose to take that
chance in order to maximize the flavor of its coffee.
I have a better
one that I want to relate to you. This is the story of a psychic,
who apparently recovered nearly a million dollars for the loss of
her psychic powers during a CAT scan. What you get is a story that
says, "Psychic sues doctor, recovers nearly $1,000,000 for
the loss of her psychic powers." The story clearly suggests
an irresponsible jury at work. None of us would argue with the conclusion
that this was the work of an irresponsible jury. The story, in fact,
was made famous by then vice president Quayle who used it to illustrate
the problems with the tort system and used it to rally support for
his tort reform initiatives.
By now you
might imagine that this might not get an endorsement in many circles.
What is not told about in this story is that the jury verdict was
based on serious brain damage that resulted from a negligently administered
contrast dye and that the court had thrown out the allegation regarding
the loss of the plaintiff's psychic powers. The jury verdict in
that case and the judge's dismissal of the silly claim were both
quite rational, but those facts did not make the popular press.
In a study
of a newspaper where coverage of a product liability case was reported
that Professor Garber reported that a verdict involving punitive
damages is one and a half more times more likely to be reported
than a compensatory verdict which is 12 times more likely to be
reported than a defense verdict. The author concluded that the product
liability and medical malpractice cases were 11 percent of tort
filing and 13 percent of tort trials. Those kinds of cases accounted
for 74 percent of suits reported in five national magazines between
1980 and 1990.
What you get
is a picture of proliferation of tort lawsuits. In the study Professor
Garber also cited empirical studies that demonstrated plaintiffs
win 50 percent of all tort cases that go to trial. He also reported
that a somewhat smaller percentage of products liability cases are
won by plaintiffs and a much smaller percentage of cases involving
medical malpractice are won by plaintiffs. But the reports in the
five national magazines report 85 percent of plaintiffs victories.
In fact, it's not unusual that news reports of large cases are subsequently
accompanied by even more reactions by prominent politicians and
business leaders decrying the American tort system as a system gone
out of control where plaintiffs just line up for this litigation
If we were
to rely strictly on the accounts of these cases, one would reasonably
conclude that, first, the number of tort filings keeps getting larger
and larger and keeps growing; second, that plaintiffs win the majority
of lawsuits; third, that large awards are common; and fourth, juries
are extremely capricious.
studies demonstrate a vastly different picture. I think I've taken
up a lot of my time already, and I'll try to speed through the rest
of this. The first thing I would like to talk about is the ease
with which cases are filed and the resulting proliferation in the
number of lawsuits. That may perhaps be my most important contribution
are not easy. They are very expensive. They also require a great
deal of emotional and economic investment on the part of both defendants
and plaintiffs. For a plaintiff's attorney to take a malpractice
case, for example, that attorney must be willing to invest in excess
of $40,000 per case in many jurisdictions. It is not easy to file
those cases. Is there a litigation explosion? A national study performed
in 1998 by the National Center for State Courts revealed that litigation
threats remained virtually unchanged from 1989 to 1998 in 28 states.
Figures from the National Center for State Courts for the year 2001
revealed that 92 million state court filings in the year 2000 representing
an eight year high. The new high is due largely to increases in
traffic caseloads and domestic relations filings.
in 30 states have decreased 10 percent since 1991 and population
adjusted court filings declined in 22 of the 30 states examined.
In addition the study also found a downward trend in automobile
accident cases, a downward trend in product liability filings and
little change in medical malpractice filings. So that would tend
to argue for either a downward trend or a steady trend, not an increase
The other two
concerns are about whether juries tend to favor plaintiffs, and
finally, about the size and frequency of large jury awards. In response
to that, the National Center for State Court study done in 1996
of 75 of the largest counties in the country produced a set of interesting
figures. The study revealed that plaintiffs won about 48.2 percent
of all tort cases filed throughout the country. They do better in
automobile cases and in cases involving intentional harm. They do
less well in other types of negligence cases, averaging 39 percent
of premises liability cases, 37.2 in products liability cases and
34.2 in libel/slander cases. Plaintiffs fare the worst in cases
involving medical malpractice where the winning percentage was 23.4
The low winning
percentage for plaintiffs could be interpreted to mean that juries,
instead, favor defendants. But that would be an unfair characterization
of the work of juries.
In the interest of time -- just to remind our out-of-towners --
we give you more dispensation to hold forth longer. I'll give the
warning signs, but we've been giving 20 minutes to our out of town
I still remember when Jeff first called me on the phone and asked
me if I would come out here for this. I thought I detected in his
voice just a slight note of tension which I really didn't understand.
If I lived out here in Las Vegas I'd have my feet up, I must say,
and I wouldn't have a suit on. Jeff said something like, "Mike,
I need a nationally recognized tort scholar with an intimate knowledge
of tort reform, all the data about how the system operates, and
one who can give a talk that overcomes the after lunch somnolence
of people who have just eaten and make it interesting.” I
thought about it for a minute and then, in a very rare moment of
candor, I said to Jeff, "You know, Jeff, I can think of a couple
of people who do torts who would probably be better for you. He
responded very quickly and I rapidly realized the source of that
tension in his voice. He said, "Two or three? Mike, there are
dozens, but everyone has turned me down."
to be here even if it was not as a first round draft choice. What
Jeff doesn't know is that I found out that one of the people he
asked before me who turned him down was -- you're not going to believe
this but it's absolutely true -- Yogi Berra. Yogi, in addition to
being an astute student of life and baseball, has been an observer
of tort reform for many years. After all, which contemporary social
commentator can match the title of Yogi's latest book, when you
come to a fork in the road -- take it. Well, Yogi wasn't available.
He's on special assignment for George Steinbrenner this month. After
I agreed to come, I called Yogi to talk to him about his views,
and I discovered that Yogi actually had a prepared lecture on the
history and contemporary trends in tort reform, and he was kind
enough to share it with me.
So I come to
you not to say anything of my views but to present to you Yogi Berra's
five laws of tort reform. First of all, it's deja vu all over again.
Since tort law evolved into something separate to address accidental
injury in the 19th Century, we've had continual tort reform. Indeed
the first tort reform was to do away with the tort system as a method
for compensating accidental injury and to adopt instead worker's
compensation which took the question of accidental injuries out
of the tort system because it was doing so badly with regard to
employees. It was a progressive reform.
Later in the
early part of the 20th Century Benjamin Cardozo swept away New York
Court of Appeals, certain barriers to sue that were indeed the precursors
for the modern system we had. That was tort reform, though court
initiated tort reform. In the latter half of the 20th Century, as
Rob mentioned, we had an enormous expansion of tort liability. We
had strict products liability being adopted in the beginning in
the '60's and through in the '80's. We did away as contributory
negligence as a complete bar, another tort reform, a necessary one,
but tort reform.
tort duties to include duties in many contexts to control the activities
of others who might cause harm. Some of you may be old enough to
remember the Connie Francis case. That was a path-breaking case
in which she sued Howard Johnson's hotel she was staying at after
she was sexually assaulted by a third person. She didn't sue the
third person but she sued Howard Johnson's in that case, successfully.
That was a path-breaking case in imposing liability for failure
to control and provide adequate security in a hotel.
Even the current
round of tort reform is a reprise of several similar cycles of tort
reform. Listen to the following comments about medical malpractice,
and I quote, "Premium increases of up to 500 percent in some
states, commercial carriers withdrawing from the market entirely
in others, medical malpractice has become uninsurable," exclamation
point. Those comments were made in the 1970's after medical malpractice
insurance premiums jumped sharply right at the turn of the decade
and then again in the middle part of the 1970's. In response, 15
states enacted limits on damages in malpractice cases as a result.
Forty-three states enacted some other form of malpractice reform.
That's three decades and three cycles of modern tort reform ago.
My focus is
on damage caps that I want to spend a little time talking about
because they have the greatest impact. If what we want to do is
reduce the cost of the malpractice system, and in the end either
control or reduce malpractice premiums, caps on damages are the
way to do it. Pat Danson, an economist at Warton, did a study of
the 1970's reform and found that most of them had very little impact.
Statutes of limitations did reduce the number of claims that were
being brought, but malpractice caps were -- damage caps were the
The mid 1980's
brought yet another malpractice crisis complete with rapidly increasing
insurance premiums and other hand-wringing effort, further reforms
to ease the situation and another one in the 1990's. Here we are
in 2003 in another round, with another crisis in medical malpractice
and the American Tort Reform Association predicting that this year
will be the biggest in activity since the mid 1990's. Does this
mean that every ten years plaintiffs lawyers gather up all their
malpractice cases and dump them into the hopper and every ten years
juries go through this incredible spate of generosity? I don't think
so. I think what's going on here, and Pat Danson's work pretty well
documents this, is we have a cycle that goes on. We have significant
volatility in insurance medical malpractice premiums. It occurs
because we have increased claims costs that are going up at a rate
not 100 percent, not 500 percent, but faster than even the costs
of medical care are going up. That's one reason.
Two, we have
the failure of insurers during that decade to adjust their rates
to reflect, because of competitive pressures, to obtain business.
So it comes all of a sudden on this ten year cycle. Third, we have
financial factors involved for the insurance company. One is the
returns obtained on their investments. Each of these cycles seem
to be preceded by a substantial decrease in the returns on investments.
What are your investments doing right now? What have they been doing
for the last three years? Of course, the same phenomena is affecting
the insurers who collect premium dollars and invest them.
aspect to this that I don't entirely understand but I think is also
at work, and that is the flow of capital into and out of the insurance
industry depending upon the profits they're making. We've got a
complicated number of factors that result in the malpractice, and
in other liability areas, in this tremendous volatility of premiums
that if they were spread out over the ten years would not look great,
but would look much more normal than when all of a sudden it's compressed
into a short period every decade.
has had bills to federalize products liability law. This is in the
notion of here we are all over again. We've been talked about federalized
product liability tort reform since the 1970's. We continue to have
that on the plate of the current Congress. Actually Congress did
pass a bill during the Clinton Administration, but President Clinton
vetoed that so it still remains.
law of tort reform is you can't tell the shape of an elephant by
performing an autopsy on a butterfly. If you really do have a marker,
Those don't work but I have something --
I confess to being partial to the color green, and thank you. This
is really a reprise, no it's not, I think. Rob talks about the horror
stories that are out there -- McDonald's, the psychic in Philadelphia.
I don't think those cases, even corrected for leaving out the details,
I don't think they tell us very much about the tort system which
is what we ought to be interested in. No baseball player hits a
thousand. No system that's operated by human beings is going to
bat a thousand when it does it. What we're trying to understand
how the system works, I don't think that looking at the McDonald's
case, or, Bill, at your case, tells us very much about what's happening
in here. This is where we really do need data in order to understand
how the system is operating.
good about talking about the costs of the tort system. Nancy Udell,
for example, this morning listed the cost of the tort system. We're
talking about the verdicts that are rendered by juries, corrected
of course for reductions, post-trial motions and on appeal. There's
not just those verdicts but there's the amount that's paid in settlements
which really reflect most of the cases, not the cases that go to
trial. There's the defense costs. There's the contingent fees that
are paid to plaintiffs. There's defensive medicine, and there's
an angst by physician who's are sued. If they haven't been sued,
they're worried about the prospect that they will be sued. Those
are all real costs of the tort system.
What we have
much less of a handle on, because it's very hard to measure that
which doesn't happen, is how much does the tort system prevent socially
undesirable conduct. Put it another way, how much deterrent are
we getting out of the system that we don't see because accidents
don't happen. That's the benefit of what we get from the tort system.
I think that's a complicated question and a difficult one to address.
Now, I have a fair amount of sympathy for the idea that in the medical
malpractice context we're probably not getting a whole hell of a
lot of deterrents out of the current medical malpractice system,
that there are probably better ways to try and address it.
In other areas
of what we call tort law, and that's a big field that we're playing,
and we need to really think about it as disaggregated fields of
liability. I think we get an awful lot of deterrence, not an awful
lot, we get a significant amount of deterrence that we really would
want to have. Indeed, if we're going to give up or reduce the tort
system as exists, for example, in Europe where there's a tort system
that barely resembles what we have here, we need to be prepared
to adjust in another way and that is to have a much more aggressive
regulatory stay, which is what the Europeans have, along with, as
Ann was talking about this morning, a much greater social safety
net that exists for those who are the victims of accidental injury.
law of tort reform is, "I didn't mean to do what I meant to
do, did I?" A corollary of this law is, "I never said
most of the things I said." Another expression of this law
more familiar to lawyers is the law of unintended consequences.
We try and reform something and then we discover that sometimes
the cure involves some adverse side effects. I think damage caps
are the best illustration of that. We can impose damage caps and
they do reduce costs. There's no question about that. They do have
an impact on malpractice premiums.
Let me point
one thing out in the best study that's been done of the medical
malpractice system. This was a study done at Harvard of New York
hospitals and accidental injuries. Researchers who did that discovered
that only about one in seven of people who are injured in the hospital
due to medical error end up filing suit. Why is that? Some of it
may be ignorance. They don't know why. I think a predominant reason
is something that Bill Bradley said this morning. He said that a
medical malpractice case requires an investment of $100,000 to 150,000.
If you're a plaintiff's lawyer and somebody comes to you and says, "I was injured and I think my doctor did it," what's the
first question you're going to ask them? It is how badly were you
injured? There's no point in investing $100-150 thousand plus time
for a return that is under a quarter of a million or more dollars,
particularly given the probability of success in medical malpractice
when we put a cap on damages? Well, one of the ways with a cap on
damages, on nonpecuniary damages that we reduce costs is fewer cases
are brought, meritorious or not. Why? Because as was explained earlier,
it is children, it is non-wage earners, and it is the elderly who,
no matter how seriously injured, don't have economic loss; and,
with a $250,000 cap, no serious malpractice lawyer, no good malpractice
lawyer, is interested in those cases.
That is I think
not the intention behind caps, but that is the unintended consequence
of doing it. The Kaiser case that Dmitri mentioned this morning
is a well known example of that phenomena. The child born with severe
birth defects, neurological defects, born prematurely, plenty of
lawyers who were around when he was alive, but they all left after
he died. As Yogi explains it, we made too many wrong mistakes.
Now, is there
a solution? Is there a problem with noneconomic damages? I think
so. I did an experiment with my class. I teach torts, and I do an
experiment at the end of the semester when I teach damages. I give
them the facts of a case, a case that was litigated a number of
years ago, I ask them to break up into panels of juries. And I ask
them to decide how much in damages should be awarded to this woman
who was injured when a bus -- the bus doors closed on her and she
was dragged along the road and suffered fairly severe injuries.
Then I let
each of these groups deliberate. I tell them they have to come in
with a damage award. I just did this earlier this week. I had 21
jury verdicts that ranged from $170,000 to $7.7 million. The median
was $1.5 million. The median is what the plaintiffs lawyers talk
about because it's always lower. The average was about $2 million.
That's what the defendants lawyers talk about, and I think that's
probably the better figure because that represents real cost.
What we see
with jury verdicts on nonpecuniary damages is a wide range of awards
because they're virtually unconstrained. There's no standard for
it. There's no market to judge it by. Individual juries are told
to do what's reasonable and just and different juries see it different
ways. There may be -- there certainly is reform that we can do to
try and make similar cases more similar and to try and do away with
the outlays that exist. A number of people have made proposals,
a very sensible one would be simply to tell juries what had been
awarded by other juries in similar cases. Judges who award damages,
both in the United States and in other countries, know what has
been awarded in other similar cases. But we don't give that information
Yogi's fourth law is addressed to the politics of tort reform, and
that is, "The game ain't over until it's over." This reflects
the vagaries of the political process that results in legislation
being enacted or not enacted. One of the major impacts on the likelihood
of federal legislation being enacted this year is the fate of a
17-year old in Durham, North Carolina. Her name is Jessica Santillan,
the teenager who had a heart-lung transplant from a donor who had
an incompatible blood type. That Santillan episode has had a significant
impact on the debate in Congress over federal malpractice legislation.
described the legislation as having hit a brick wall in response
to her death. More generally I think what we often find is that
legislation gets enacted when there is some major public dramatic
event that captures our attention. That was true back in the 1960's
when we federalized worker's compensation for coal miners in the
Federal Black Lung Miners Act. How did that happen? It happened
because of a well publicized coal mine cave in in West Virginia.
How did we
end up federalizing and creating a no fault compensation scheme
for a certain group of New Yorkers who happened to be affected by
Sept. 11 in the World Trade Center? It was because of a dramatic
event [that] captured public attention and spurred legislature to
get off of the status quo, which is often what drives the lack of
to say that one of my favorite tort reforms, one that should have
been done for at least 20 years, is apparently about to happen in
Congress, though not due to any dramatic event. That is, I hear,
or at least I read, that we are about to get a federal asbestos
compensation statute enacted in 2003 finally after years and years
of Congress dilly dallying.
law is, and a final one, appropriately, "You should go to other
people's funerals, otherwise they won't come to yours." What
Yogi was addressing there is efforts to do away with contingent
fees. We often see that as part of tort reform effort. It's often
proffered as consumer protection. Victims are paying too much to
their lawyers. We need to change that, after all, defense lawyers
work on an hourly fee, why can't plaintiff's lawyers? I think the
reality will be to shut down, simply close down access to the tort
system. That may be what some would like but it's certainly not
proffered with that in mind.
You have to
appreciate that contingent fee lawyers provide three different things
for the contingent fee that they get paid. One is they provides
attorney services. Contingent fee pays for services provided by
that attorney. But it goes beyond that. It pays for financing the
case. That $100,000 or 150,000 that Bill Bradley was talking about
this morning is money he's putting up to finance the case. And in
almost all cases, money that he will not get back if he's unsuccessful.
third aspect, plaintiffs lawyers don't know it but they're in the
insurance business. They're in the insurance business. They are
insuring their clients against the risk that they'll lose. They
take on that risk, and not unsurprisingly, they want to get paid
for it just like insurance companies want to get paid for taking
on certain risks. Now if you press me, do we have a well functioning
market in plaintiffs personal injury contingent fees? I don't think
so. I think they are sticky high.
We don't really
have good competition because we have one-shot players, being the
consumers, the victims, who come to their lawyers and don't know,
don't really have a basis for making judgments about quality of
attorneys. We might be able to make that a little more competitive
if we could. But certainly shutting down contingent fees is not
the way to go about doing it.
Let me close
with a final observation by Yogi, one that I find especially appropriate
for an academic who has come out here to the desert as the very
last round draft choice by my good friend, Jeff Stempel. Yogi's
law is, "It ain't the heat, it's the humidity." Thank
I don't know if the things he told you in his introduction are true.
With that, Carl Tobias will give a few comments on the topic of
I want to first of all thank everyone for inviting me, and I want
to especially thank people like Michael Green and other people who
came from out of town. I know that takes time and we much appreciate
your coming here. I think what I will do in terms of talking is
just say a few things in light of both what Professor Correales
and Professor Green said, and then maybe offer up some concerns
of my own or some ideas of my own. Basically, I'm going to first
try to respond a little bit to the first two speakers, and then
offer my own observations.
Most of my
ideas will go to the importance of precision and specificity when
talking about tort reform kinds of issues. First, by way of responding,
and also . . . some structural ideas as well. Michael talked about
courts and legislatures. I want to apologize if I repeat what other
people have said because I know there's been a lot of discussion
in the morning. I think it's important to think about who the decision
maker is and who is engaging in tort reform. Is it the court or
is it the legislature, and how do each of those entities go about
doing that? Which is preferable? I know that both certainly have
authority and, want to keep in mind, though, that much of tort law
historically has been case law common law development, and only
quite recently, with some exceptions, has tort law been statutorily
enacted by legislatures. So I think it's important to keep those
ideas in mind as we talk about sort of modern tort reform.
If we're going
to do that reform, I think both Professor Correales and Professor
Green say quite rightly that we need the maximum relevant accurate
empirical data that underlie those reforms, and I think that's very
difficult to do, especially in the 50 states, many of which don't
have particularly good ways of gathering valid empirical data. It's
not as if we have the National Center for State Courts in Nevada
or Montana where I used to teach or any number of other states.
I think it's important if you're going to undertake reform, especially
by way of statutes, that you have data that supports what you're
going to do.
To come back
to the point with precision, Professor Green made this point quite
well, it's important to talk about whether, when you say tort reform,
you mean the entire tort process. Do you mean product liability?
Do you mean medical malpractice? Because I think there are very
different kinds of approaches that you might take depending on which
of the specific fields of tort law you're talking about.
Let me quickly
give you an example there. I think most people would agree that
they're very different substantive policies and goals and interests
and procedures that might apply, depending on the area. More specificity,
it seems to me you might well decide -- and I'm not conceding this
point -- but you might decide in the medical malpractice area that
it's so important to have health care delivered at some kind of
reasonable cost that you might be willing to impose certain procedural
requirements or other substantive rules that you wouldn't be willing
to apply in, for example, the garden variety automobile accident
case. Maybe the classic example of what I was just talking about
is joint and several liability. It seems -- I'll talk about that
in just a minute with my cautionary tale, but the notion of joint
and several -- I'm not saying that we should at this stage or any
stage -- do away with joint and several liability for medical malpractice,
but you might be able to justify it in terms of the policy I was
talking about. It seems to me, that makes much less sense in automobile
accident cases, given the way people are insured or not insured,
or that type of thing. The interest in health care system that's
economical does not drive automobile accident collision litigation.
I want also
to talk a little bit, as Michael mentioned, litigation financing,
which I think is critically important. I also want to see what it
costs to bring a case and how that often can drive the system or,
as Michael suggests, may shut down the system. It's important to
keep in mind litigation financing. It's important to keep in mind
procedures which is a bit of a segue to what I also want to talk
about by way of cautionary tale. I don't think tort reform stays
in the box as just substantive tort law. On the one hand, you need
to be precise about a particular area of tort law, we also often,
by way of tort reform, are enacting procedures that then may drive
the substance of tort law or at least have some important impacts
on what happens in tort law.
All of that,
hopefully, and may perhaps unartfully, brings me to my cautionary
tale which comes from last summer's special session of the Nevada
Legislature, which enacted medical malpractice reform. Ostensibly,
substantive medical malpractice reform and the classic example is
the cap of 350,000 dollars with two exceptions. But in that legislation,
if you look at it, there also are procedural provisions and thus
the importance of keeping in mind substance and procedure and tort
and the kind of procedures that might be used in these cases.
-- I'll give two examples. One is sanctions. There is a provision
in there for attorney fee sanctions. It's made mandatory. There
was -- there is a statute in Nevada which made those attorney's
fees discretionary. In other words, in certain situations and I
don't have time to read through it, but basically saying if the
litigation is frivolous or even a lower standard than that, then
the winning party can have the court shift the fees over and that
impacts then back on litigation financing, as I was suggesting earlier.
That might make a lot of sense in the medical malpractice area or
not, for the policy reasons I was saying earlier.
But it doesn't
seem to me that it makes sense in all litigation. That's exactly
what happened in this particular situation. It now covers all litigation
and doesn't give the judge any discretion, but says that when the
particular standard is found, then that will apply.
example I'm going to give you is joint and several liability which
you can consider procedural or substantive. In any event there's
a special medical malpractice provision in the legislation that
passed last summer, and that is from the knowledgeable source, the
Review Journal, of March 6, a headline that says -- this is their
own editorial -- "Lawmakers must still address the issue of
joint and several liability." I want to talk about creeping
incrementalism and the notion that what you may wish for in the
area of medical malpractice then comes forth in other areas of tort
reform where it may or may not be appropriate for public policy
makers to act.
It seems to
me particularly inappropriate to abolish joint and several liability,
for example, with automobile accident cases where you might decide
it's appropriate for medical malpractice.
Thank you. Connie Akridge will now give an overview of what's on
the industry's agenda.
Thank you. Good afternoon, everyone. I'm actually going to talk
just about some legislation that's pending in Congress now proposing
the reform of class actions. This kind of legislation has sort of
been swirling around Congress since around 1998.
There are two
bills currently pending, one in the Senate, S 274 and one in the
house, HR 115. The senate bill is sponsored by a number of Senators
including our Nevada state senator, John Ensign. It essentially
has two sections to it. The first one probably the most controversial
would expand federal court jurisdiction so that all of the large
multi-state class actions would go to federal court. As you know,
a lot of the actions end up in state court because of the complete
diversity rule and the complete diversity -- there has to be complete
diversity -- each plaintiff has to have a different state of citizenship
than each defendant. Then you have the jurisdictional amount of
$75,000 which keeps some of the cases out of federal court. This
new rule, if passed, and it's already passed the -- on April 11
it made it through the Senate Judiciary Committee -- would make
it so that there would be what they call "minimal diversity" which would mean that as long as any plaintiff was a citizen of
a different state from any defendant and as long as the amount in
controversy was more than $5,000,000, the case would go to federal
There are some
exceptions to this general rule. One is that if two-thirds of the
class members are citizens of one state, then it would stay in the
state court. Where fewer than one-third of the plaintiffs are from
the same state as the primary defendant, that would be moved automatically
to federal court. With some limitations where you had between one-third
and two-thirds of the plaintiffs are from the same state as the
defendant, they may stay in state court but that would be based
on judicial discretion.
The other part
of the bill is what they call sort of a class action bill of rights.
It has to do with more sort of administrative aspects of class actions.
One is a plain English requirement for notices. The proponents of
this bill complain that notices that are sent out to class members
are usually incomprehensible or send a nondescript notices so that
the class members mistake them for junk mail and throw them away.
of these aspects of the bill of rights would be that the judges
would -- there would be more judicial scrutiny applied for settlements
so that the intent of it is to curb what they call coupon settlements
like the Blockbuster case where the class members ended up receiving
coupons for Blockbuster rentals as what they ended up getting out
of the action while the attorneys made -- got quite a bit more than
that in attorney's fees.
The other thing
it would outlaw would be the payment of bounties which is essentially
giving the class representatives a greater stake in the settlement
proceeds than out-of-state members. It would also provide assurance
that out-of-state class members would not be disadvantaged just
because they're out of state.
The other interesting
part of this bill is that it would require that the U.S. Attorney
General and the Attorney General or the appropriate regulatory official
in any state where there's a class member would have to be notified
of a proposed class settlement. The court would be required to wait
90 days to allow for comment on the settlement by the appropriate
state or federal officials. That's interesting. It would also require
the Federal Judicial Conference to prepare a report on class action
settlements, including recommendations for improvements. That's
practiced as an action that the Federal Judicial Conference intends
to take to implement the reports recommendations. It's pretty dramatic
change over what we currently have.
The HR bill
is very similar. It also has, in addition, an immediate appeal of
certification decisions as a matter of right. The proponents of
this bill indicate that the framers establish diversity jurisdiction
to insure that significant disputes between citizens of different
states should be adjudicated in federal court as opposed to locally-elected
state courts, which may be biased in favor of the local parties.
They say that compared to state courts, federal courts tend to have
fewer cases per judge and more resources.
Under the present
regime, say the proponents of this legislation, class counsel can
avoid federal courts in favor of certain magnet states. I think
we know who those are -- they have reputations for unfairly applying
class certification standards, for imposing their own laws on other
states' citizens or approving class settlements that benefit class
counsel and not class members.
The one case
they point to is a case by the name of Avery versus State Farm.
It was an Illinois case. In Avery, which was a nationwide class
covering 4.7 million State Farm policy holders in 48 states and
the District of Columbia, alleged that automobile insurance company
had breached it's contracts with it's policyholders by requiring
the use of less expensive nonoriginal equipment manufactured parts
as standard industry practice.
they had insurance commissioners come in to the court and testify
that that practice was permitted and encouraged in other states,
the court still made decisions adverse to those -- to State Farm
in those states where the practice was permitted. The proponents
say that this shows that you really have state courts reaching beyond
their boards to regulate things they have no business regulating.
also say that the current system is causing substantial increases
and overlapping, conflicting and duplicative class actions pending
simultaneously in state and federal courts. The opponents of this
legislation say that state courts are capable of conducting complex
class action litigation. Most of the effective class actions are
based on state law, they say, which state courts are best equipped
to interpret and apply, and which federal courts can only, they
say, guess about. They say that it denies victims a convenient state
forum and allows defendants to forum shop through removal to federal
courts. Federal courts are already overloaded, they say, and should
not be further burdened with large class actions.
say the opponents, would sweep into federal court many cases in
which no particular federal interest is superior to the state interest.
They say there are cases, like with the bankruptcy of Enron, the
people who suffered harm, the employees, and lost their pension
benefits should have an opportunity to have some redress for those
Last year the
ABA commissioned a task force on class action reform. That task
force studied the issue. They said they thought there was some merit
to the federal court having increased jurisdiction although they
did say that decision should be made very carefully so that the
federal courts wouldn't be over burdened. They said though that
because the federal courts already have judicial panel on multidistrict
litigation, they would be well prepared to handle these national
class actions. With regard to the bill of rights piece of the legislation,
however, the ABA beliefs that the amendments to Federal Rule of
Civil Procedure 23, which is the class action rule, would sufficiently
take care of the notice provisions and any of those sort of administrative
kinds of things that the second part of the Act is design today
protect. Those amendments were transmitted from the Supreme Court
to Congress last month. So they believe that that would sufficiently
handle, along with allowing judicial discretion.
It will be
interesting to see what happens with this legislation. I think it
looks like there's more interest in it this year. It actually passed
out of the House last year. We'll see what happens. Thanks.
If you saw "My Big Fat Greek Wedding," I find it harder
to do the Windex. But I'm going to, since you now have alerted me
I might be committing a tort on the board. Justice Feldman will
be our next speaker. As another out-of-towner, he'll be taking a
little bit more time for his presentation in assessment of the current
state of tort reform affairs, and then we'll take our break after
Justice Feldman's remarks.
Thank you. I'll use a Crayon. If I had time, I'd write the whole
dictionary definition, but I think we can agree on what this word
means. Reform -- it means changing things for the better. Very little
of what is now called tort reform has anything to do with changing
things for the better in the tort system. If you listen today to
the speakers what you hear is, the problem you hear being addressed
by the changes we're talking about, is not to make the system better
but to do something about ever increasing, ever multiplied, insurance
premiums. That is a different problem than reforming the tort system.
God knows the tort system, like every other branch of the law, does
need to change, did need reform, but we've had reform.
I have a choice
now. I can do one of two things. I think the better thing would
be to say I agree with everything Professor Green said and sit down.
It was Yogi.
But I think in order to earn my outrageous fee of a drink, I better
talk. I've had a fairly unusual perspective over the last 35 years
or 40 years of my career in the law. First, I wasn't a trial lawyer.
I did mostly plaintiffs personal injury work. Mostly malpractice
and mostly products liability. But any other kind of case that looked
good and a little bit of defense work. Then I spent 20 years on
the Supreme Court of the State of Arizona some time of that as Chief
Justice. Now I'm back in practice again. So I get to see the reality
of having known the reality of what the war in the trenches was
like and then having seen it from the perspective of looking at
everything that happens in the state practically. I now see again
the reality. So from that perspective, I'd like to talk a little
bit about tort reform.
We keep hearing
tort reform, but let's take a look, if we may, at just what it is
we're talking about.
A great of
it we've already had. One of the main projects in tort reform and
Professor Tobias mentioned this as a possibility in Nevada is ending
joint and several liability rule which says that anybody who contributes
-- any defendant who contributes to the event and is a cause of
the -- negligent cause of the event, is liable for all of the damages
which occurred. And ending that and making a regime of only several
liability, means that the jury is told to allocate fault as between
the different defendants.
to whom fault is allocated has to pay only that share of damages.
So if you're allocated 10 percent of the fault -- and it's a very
difficult job to decide percentages of fault -- if 10 percent of
the fault is allocated to you, you only have to pay 10 percent of
the damages which the jury awards. This, we were told, was going
to bring premiums down. The effect in the real world is this, everybody
gets sued, everybody. It's a bonanza for defense lawyers, and I
have nothing against defense lawyers, but it gives them a lot more
business. No plaintiffs lawyer who know what's he or she is doing
can afford to fail to sue everybody that could be involved in the
event because if you only sue one of them, the one you think is
really at fault, the one you think is a major cause of the damage,
that defendant will defend in court by saying, "Oh, no, it
wasn't us. It was Green that did it. He's the one" –
so-called “empty chair” argument.
As a plaintiff
you can't afford to do that. If Green could be at fault, if the
defendant says he's at fault, the defendant you want to sue, says
he's at fault you sue Green too. If Green blames it on someone else
you sue them. If they blame it on someone else, you sue them. You
end up with everybody in the lawsuit. This does not bring premiums
down. The effect of medical malpractice cases in Arizona has been
just the opposite because you sue the doctor, because you investigated
your case, you think the doctor is responsible, you think the doctor
was negligent, and the doctor says the nurse failed to give me all
the information. So then you sue the hospital that employs the nurse,
and the hospital says, "Well, the lab tests didn't come back
right." So then sue the lab, and the lab -- and it just goes
sued. The defense costs go up like a balloon. We have adopted a
system in many states that changes the statute of limitations. They
talk about it in terms of medical malpractice cases as though to
abolish the discovery rule. The discovery rule for those of you
who may not be lawyers is simply this: the statute of limitations
starts to run within the time --after the time you have discovered
you have been injured. Perhaps somebody leaves an instrument in
your body, you may not know it for two years. If there's a two year
statute of limitations, you can't sue until you find out what the
problem is and how it happened. If the statute has already run,
it's too late.
What we have
adopted and what the administration wants to adopt and what has
been adopted partially in Congress in the past, so-called statute
of repose, which is that no matter how long, or when, no matter
when the accident occurs, the statute of limitations barring your
suit will go by a certain number of years after the product was
manufactured, or in medical malpractice cases after the event, the
surgery say, occurred.
If the wing
falls off your Boeing 733 on your way back home, the statute of
repose for private planes, not yet for commercial planes, is 12
years. The average life of the planes being used is much, much longer
than that. So if the defect occurs, manifests itself and the accident
occurs, you will have had your case barred by the statute of limitations
before you have even been injured. In other words it's just an absolute
abrogation of the cause of action for damages. That is not tort
reform. It is manifestly unfair. That was supposed to change --
that's insurance reform. It was supposed to change the problem as
far as premiums were concerned, but it did not. It did not. I could
go on forever.
We have other
things -- affidavits of merit. We have them in Arizona, and I gather
you have them in Nevada, that you are supposed to, before you file,
you're supposed to have a written statement, file a professional
negligence case. In Arizona against any person licensed by the state,
which I guess includes barbers, people who do fingernails, all of
whom are licensed by the state you must have an affidavit from someone
in the profession saying they have examined the case and they believe
there is negligence. That sounds easy. That sounds like something
you should do if you know the facts. Sometimes you don't know the
facts until after you have filed and have the opportunity of discovery.
Someone walks in your office having gone in for a tonsillitis operation
and is unable to move anything on the right side of their body --
they may well have a case. And you may well have to file it before
the statute of limitations run, and you may have to have discovery
to find out how good a case it is. Sometimes you can't even get
the records until you have filed the case and can subpoena them.
We have that. But that hasn't brought down insurance premiums either.
of merit were followed by limits on punitive damages. We have court
imposed limits. The latest one by the U.S. Supreme Court in Campbell
versus State Farm, what, two weeks ago I guess it was. Not tactful
to say, but one of the worst opinions I have ever read. Justice
Scalia and justice Thomas were motivated to say, "Why were
we into this case? Why is it that the cruel and unusual punishment
clause has anything to do with punitive [damages] in civil cases?" There is no good answer to that question.
We have compulsory
mediation, we have compulsory arbitration in Arizona and in many
other places. Yet insurance premiums keep going up. What we are
talking about is not changing the system in order to make the tort
system more fair. In many ways we have changed it to make it less
fair. Some ways we have improved it, yes. But in many ways we have
made it less fair. And we have made it less fair in order to reduce
insurance premiums. Yet we haven't seen any reduction in insurance
premiums, none. They keep going up.
I was here
two years ago and I talked about the same subjects. I said at that
time the current statute governing malpractice cases in Nevada was
still under consideration by the Legislature. I said then it was
not for me to tell the people of Nevada what they should do in order
to reduce medical malpractice insurance premiums. I said if you're
going to adopt these suggestions to reduce medical malpractice insurance
premiums, get a commitment from the companies that if you do this
and if you do that, they will reduce their premium and they will
hold the reduction in place for a number of years. That's not what
happened. The tort reform measures were passed. They are now in
effect, and two years later we're talking about a huge rise in insurance
premiums. And we are going to again reform the tort system in order
to control insurance premiums and yet there is no commitment at
all from the insurance companies as to whether they'll stay in the
market or hold the line on prices or at least within increase in
inflationary pressure or whether they will hold the line in any
way for any number of years.
It seems to
me we are at cross purposes here. If something needs to be done
to save the insurance companies, let's look at it in that way. Let's
decide if the game is worth the candle and then decide whether we
want to do it. When we start talking about it in terms of tort reform,
I get shivers up my spine. We have had tort reform, and it still
hasn't cured the problem we were trying to address.
A couple of
other things that were mentioned I have to comment on. Class action
reform which we're talking about in Congress. If ever there was
something we do not need it is class action reform. This may be
radical. I think we need a few more class actions. I can give you
some classes. I'd like to be a member of the class that is suing
World Com. I happen to be the proud holder of what was a double,
triple A bond when I bought it from World Com. Two weeks later it
wasn't worth twelve cents on the dollar. Then I found the board
of directors and the lawyers in World Com loaned Mr. Evers, the
chief executive office, 400 million dollars unsecured. How is that
for a business decision? And then they did a lot of other things.
Then there's Enron. And we can go on and on.
There has been
and is a lot of corporate greed in America. We've got to get class
actions, get rid of the coupon cases as you mentioned, fine. But
the idea of limiting the right of people to sue by limiting class
action relief just is a failure if you look at what's gone on, what
we now have learned from the recent past. It just won't work, and
I think if the people of America knew what was really involved they
would rise up in anger. We have lost trillions of dollars on the
stock market, 400 to 500 billion dollars in pension funds, several
million jobs, all because of greed. All because of a lack of good
conscience and morals in corporate boardrooms.
This is not
the time to limit the right of people to sue. The idea that me with
my little $50,000 bond could sue World Com all by myself without
being a member of a class is just ridiculous. The fees involved
are out of sight.
Let me close
with a little bit about fees, which I've now begun to see from all
sides of -- one of the first cases -- do I have time to tell this
story? One of the first cases that I got when I got off the court
and went into practice, a friend of my wife's who is a CEO of a
large company. He lives in Tucson. The company does business all
over. I saw him at a party my wife was giving for the Poetry Center
for the U of A. He walked in. I said, "Hi, how are you?"
and he said, "I'm not good.
I said, "What's
I said, "Why not?"
He said, "Well, I've got this case in New York, I have this
law firm representing me and the company."
And he says, "Gosh," he says, "It's expensive."
He said, "I've been back there five weeks in a row rehearsing
for trial because our trial starts next week."
I said, "You're rehearsing for trial?"
He said, "Yeah. Bring all the witnesses back that we have and
we get in the courtroom.”
I said, "What courtroom?"
He said, "They have one built in the building for this law
firm" -- I won't tell you the name of the law firm, but it's
And he said, "So I've testified for a week."
I said, "To whom?"
He said, "Well, two of the lawyers working on our case do the
direct examination. Two of them do the cross-examination and the
senior partner in charge of the case is the judge."
He said, "all our witnesses are practicing that way."
I said, "So why are you unhappy?"
He says, "It's cost me 12 million dollars in fees so far."
I said, "Oh, I guess I know why you're unhappy."
I said, "Well, are you going to win?"
He said, "We better win."
I said, "When's the trial?"
He said, "Next week."
About a month
later, I'm sitting at the basketball game and I feel a hand right
here. I turn around and there he is. I said, "Hi."
He said, "I want you to come back here and talk to some members
of the board that are here.
I said, "What happened?"
He said, "Nothing good."
I said, "Well, you paid 12 million dollars it ought to be good."
He says, "We got a verdict of 42 million dollars plus prejudgment
interest for 12 years.
I said, "Oh."
He said, "So"
he needed was some help about an indemnity claim that he had against
the other defendant which I was able to give him -- but they have
another case now -- a 400 million dollar claim.
The other defendant
probably would have to indemnify us, but we have to agree to the
new -- they don't like the old lawyer, the one that got the -- lost
-- the 38 million case. So they've got a new firm of lawyers about
750 lawyers and they showed me the proposed engagement letter that
the lawyers had sent. It said, "Dear client, we are honored
at the opportunity of representing your company in such and such
a case. I personally” -- this is the senior – “I
personally will supervise on a hands-on day-to-day basis and will
be assisted in such supervision by lawyer X and lawyer Y. You will
in addition have the full services of this law firm in representing
you. Then it went on with fees. This lawyer charged $850 an hour.
Lawyer X was
$750 an hour. The cheapskate, the third supervising lawyer was only
$650 an hour. I said to my friend, I said, "This is really
good, it's going to cost you to $3,000 an hour to supervise this
whole law firm."
He said, "What
do you think it's going to cost?"
I said, Oh, from your last case, I'd say 30 or 40 million dollars.
"Well," he said, "what do I do?"
I said, "You've got no choice -- pay the 400 million or defend.
He said, "I guess I'll have to defend." He said, "Will
you go there?"
I said, "Not on your life I'm not going to New York to represent
you. You go ahead and get the New York lawyers to do it."
the object to this story? We all know that these firms charge fees
but translate that by, cut it by a thousand to the guy who walks
in your office and has been hit by a car or had his brakes fail
or his tire tread separate and is badly injured and has thousands
and thousands of dollars in medical bills and can't work and may
never work again and you're not a New York lawyer, you're going
to charge $200 an hour, $150 an hour? I don't know what rates are
cannot pay you and may never be able to pay. If you abolish the
contingent fee there is no access to the courts. Translate that
not just to the victims of accidents, translate that to other businesses.
We get people
in the office all the time, businesspeople running small businesses
who want to work on a contingent fee, want us to work on a contingent
fee because they cannot afford to pay the costs that lawyers charge,
the fee that's lawyers charge. If you know what it costs to run
a law office and if you know what it costs to run a medical office,
I don't think there's anything you can do about the fee that's lawyers
charge. At least nothing that's going to affect the question of
medical malpractice unless you do what I call the "ultimate
The one thing
nobody thinks about, the one thing that will change it so you won't
have to pay a penny in malpractice premiums or any other kind of
liability insurance premiums, abolish the law of torts. First of
all, you know that that is not a good justice system, it's not fair,
and the insurance companies would fight like hell because no liability
insurance claims, no liability insurance, no premiums for liability
We have to
find some better system. I was very interested in Miss Udell's comments
this morning. We have to find some better system. That system must
include the right of access so you can hire lawyer and afford to
be some way of fair adjudication of your claims. There must be some
way to put a clamp on some of the costs ever discovery. We've tried
that in Arizona and it hasn't worked. It hasn't worked at all.
be some way for fair adjudication. She mentioned neutral decision
makers. I was a neutral decision maker for 20 years or tried to
be. I'm not in favor of neutral decision makers in most cases. The
reason is simply this that most of us who are neutral decision makers
are not familiar with the realities of life for the ordinary people
who come before the courts and the tribunals. We're insulated from
it. We don't know their problems. We don't understand their problems.
We just don't
appreciate it as much as we should. I'm a great believer in the
jury institution. Much of that argument is fueled by a distrust
of juries. Why is it we trust juries for so many other things, the
whole criminal justice system is based upon faith in the jury system.
If you want to see a complex case try looking at a case in which
DNA analysis is at issue. The jurors sit there and they are taught
by the lawyers if they are good lawyer and we just the jurors to
do this job. We trust them in almost every area of criminal law.
Why is it we
can't trust them with civil law? Why is it that we believe that
jurors are biased in civil cases? I think just the opposite.
you got earlier from Professor Tobias and Professor Correales are
quite the contrary. They indicate that most tort claims are won
by the defendant. It's never been my experience that jurors are
prone to favor people who sue doctors. Quite the contrary.
My final word
is let us trust the jury system. It has done well by us. Thank you.
Why don't we try to reconvene at five of three [minutes]. That will
give us a little more than a five minute break and then we can resume
with our final panel of the day?
(A five minute
break was taken.)
If I could focus everybody's attention, we have our last panel of
the day today, working on the operative title of "Prospects
for Tort Reform in the Nevada Legislature" with -- I think
you'll discern it from this group and the emphasis and the focus
perhaps on construction defects and medical malpractice. Those seem
to be the highest profile issues.
Let me introduce
my panelists. To my far right Rick Harris. Rick is a founding partner
in the firm of Mainor & Harris and a graduate of the McGeorge
School of Law. Rick has also been an adjunct faculty member at the
Boyd School of Law teaching law office management on a couple of
occasions and we're always grateful for his input in that regard.
To Rick's immediate
left is his partner Nancy Quon, who is a graduate of Cal Western
Law School and has been a long-time lawyer representing plaintiffs
in the Mainor & Harris firm.
immediate left is Mark Ferrario of O'Reiley & Ferrario, who
is the -- don't call him a lobbyist. He's a lawyer for the Nevada
Home Builders Association, and he's been very active in representing
them both in the courtroom and in matters legislative and politically.
He's a graduate of UCLA law school. And I hope I am not putting
him on the spot. He is perhaps one of the master minds behind Bill
241 that you've heard so much about during the course of our discussion
The order of
presentation that we're going to do, I believe, will be Nancy, followed
by Mark, followed by Rick. And with that, Nancy Quon.
Good afternoon. I also put together a class for UNLV on homeowner
association law. It's an eight hour course, and as a favor to all
of the other lecturers, I always put myself last in the day.
the sixth hour of hearing about what happens within home owners
association such as someone didn't mow their lawn, can we tow their
car and what to do with the guy next door -- I get that glazed look
when I stand up. But the point of the statement is if your eyes
start glazing over that's fine with me, I'm used to it.
I want to talk
a little bit about legislation that's pending for construction defects.
I practice primarily in the area of construction defect. I represent
homeowners. I represented homeowners in this arena solely for the
last six years. I got into construction defect litigation because
I owned one of the first condominiums her in Las Vegas that went
through a construction defect matter prior to us having any laws
enacted in the State, and its a very difficult procedure.
As a single
parent at the time, I thought nobody should ever have to go through
this. When I got through law school that was my emphasis, and this
is what I do.
We have legislation
that's pending that's going to change law that's been enacted since
1995 here in Las Vegas. For anyone who wants to take the opportunity
to look at that law, it's what we like to call Chapter 40. It's
NRS 40.600, and it's a pretty comprehensive set of statutes that
govern what happens for homeowner when's they have construction
issues in their home. What do they have to do to work with their
developer to get them fixed.
idea in 1995 when this was enacted . . . this was actually put forth
by a local developer, Bob Lewis, and the home builders at that time
to try to curb what they were seeing in California as a lot of construction
defect litigation. The 1995 statute was actually negotiated out
between the Nevada Trial Lawyers Association and Mr. Lewis and home
builders to try and make it fair to homeowners and to the developer
when construction issues [were on the] rise. The one thing we all
have to realize is you're never going to get a perfect product in
a large track of homes. I don't really know if it's possible, but
the idea was, when something goes wrong -- what do we do?
I think we
heard this mantra here several times today, that's the right to
repair. We have the developers up in the legislature this session,
and they're putting forth this idea that all they really want is
the right to repair. I find this concept rather interesting because
I think to myself as a homeowner, if I'm laying in bed and all of
a sudden a crack opens in my ceiling and water starts coming through,
the first thing I do is not pick-up the phone and call a lawyer.
Number one, I don't think I'll get a lawyer to answer the phone
in the middle of the night, but I don't think it's the appropriate
person to call.
to call is their developer. They ask the developer to come out and
help them. That has been my experience in doing this for the last
six years here in Las Vegas. Unfortunately it's whether the developer
doesn't respond and they can't get help when eventually that's when
they call an attorney. I think when they say “right to repair” what they're actually asking for is a second right to repair. Interestingly
enough, if you look back at the 1995 statute that was enacted here
in Nevada, it had a provision that developers had the right to repair.
who was going to go forward with a claim against their developer
had to send the developer a notice of the defects. It was a very
simple system. You sit down, you write it out, you say where did
you identify that defect, where do you think the defect is.
You send it
certified mail to the developer, and you give them an opportunity
to come back in and take a look at it and make you some type of
an offer, whether it was an offer to repair, whether it was a monetary
offer. That was the statute as it stood in Nevada in 1995 -- we
had that second right to repair.
enough, it was the developers a couple years ago in the legislative
session that went back up to the legislature and said, you know, “For complex litigation cases -- that's five or more homeowners
who are going forward in a construction defect suit -- that right
to repair doesn't work. We want those homeowners to just go ahead
and file their complaints against us, we need to get our insurance
companies involved, our subcontractors need to be brought in in
the beginning of this.” So it was developers who asked to
take that right to repair, that mandatory letter that had to go
out to developers anyway. Now we're back in the legislative session
2003, and guess what -- the developers are back up to the session
asking for the right to repair.
about what else is contained in this bill that's being put forth
as a right to repair. I think I will borrow a phrase from one of
the attorneys you heard this morning speak to you, Mr. Scott Canepa,
who also does what I do, represents homeowners in construction defect
cases. There is a provision of this proposed statute that I find,
like Mr. Canepa, morally repugnant, and I'll tell you why. It has
a definition of a defect that I don't know how any developer could
look you in the face trying to sell you their product and say this
is a definition of a defect should something go wrong with your
home because that definition says that before it's going to be considered
a defect, some injury has to occur whether it be an injury to a
person or whether it be injury to property. Until that happens,
it is not considered a defect.
an instance of a missing fire wall in multi-stacked homes. That
is not going to be considered a defect until there is a fire that
breaks out, until somebody is injured or property was damaged as
a result of that missing firewall. That is not a defect. We cannot
make that the law in this state. I can think of million examples
-- electrical problems that we see over and over in construction
defect cases that would not be considered a defect if the developer
would be responsible for the person they sold that home to until
that electrical component caused injury or damage to the property.
That should not pass in this state.
about what is their concept of the right to repair. SB 241 is the
bill I'm talking about, and I know you heard it a few times today.
SB 241 would give the developer the right to come back in and make
some type of a repair. They have 150 days in order to make that
repair. They will make that repair and then they will tell the homeowner
what that repair is. At the time you let them into your home to
come in and do what they're going to do. You have no idea what it
is they're going to do, and you won't know until 30 days after they're
done. Let's say you don't like that particular repair and let's
say you have a window and the developer comes in and decides to
put calking around the window.
Your next step
would be the State Contractor's Board. Let's talk about the State
Contractor's Board because the most interesting portion of this
statute is it has no time limitation. We know you have 150 days
for your repair. We know the State Contractor's Board has an indefinite
period of time to make their decision. That State Contractors board,
their decision is going to be admissible in a state court. Whatever
the State Contractor's Board, which consists of contractors, the
one member at large typically who's affiliated with the State Contractor's
Board -- is going to make a decision that's going to be read to
the jury if the case goes forward. They also have immunity pursuant
to this statute for whatever decision it is that they make.
Let's say that
you don't agree with what the State Contractor’s Board said.
Then you have a mandatory mediation provision in the statute. Then
you have to go through the entire mediation process. If you make
it through this, and you still own your home -- because it could
be years down the line -- you can finally file a complaint against
the developer for that defect, but only for that defect. Let's say
you've gone through this entire process, you filed your complaint,
you're now in court, and as you're going out to investigate, you
find another defect. That other defect cannot be joined into the
complaint that's on file. That other defect now goes back to square
one -- 150 days of repair, State Contractor’s Board and mediation.
thought -- what if during this process of repair you get to the
State Contractor's Board, you get to mediation, they make the repair
and it's wrong? Do you go back to square one, which is come back
and repair it again [through] State Contractor's Board and mediation.
The point is that you may never, ever go forward. That's only, once
again, if the defect is defined as something within the statute's
boundaries. I'm getting a three minute mark here.
I'm trying to be subtle.
I appreciate that. I can tell you one of the other big problems
that I see with this legislation is the recovery. Originally, in
1995, our legislature changed somewhat -- what was happening in
California was that the only thing you recovered in California was
the cost of repair to your home. That means out of that cost of
repair, you slice the pie, you took out the attorney's fees, you
took out your cost, and whatever was left, that's what you had to
fix your house [with].
this is about, fixing the problems within your home. In Nevada,
we set forth a list of recoveries. We had recoveries for your cost
of repairs. Over and above that, you got your attorney's fees and
your costs, an interest on your case. And the idea was to make the
homeowner whole. This year in SB 241 what's being put forth is recovery,
something we call diminution in value.
about that quickly. That means we're going to have a battle of appraisers.
If you have a missing fire wall in your home, and that's the defect
you're putting forth if the developer hires an appraiser who says, "Look, we've appraised these homes in the neighborhood." They are selling regardless of this missing fire wall, and they're
selling for a higher price than what you've paid, you don't get
anything. You have no diminution in value to your home. You have
to have somebody say your house is worth less because of the defects
that are found. That is the recovery.
As we heard
this morning when we talked about contingency fee agreement and
the importance of contingency fee agreements for homeowners, especially
homeowners who are affected -- that buy houses that are low income
families. This SB 241 proposes to take away contingency fee agreements
because it only allows the court to determine what the fees are
for an attorney on an hourly basis.
will never go forward. They are so expensive to litigate, when we
talk about costs in a case in a construction defect matter you can
spend, as my partner will probably cringe when I say this, between
800,000 to a million dollars on some cases depending on the size
of the project. That's a lot of money and a lot of risk plaintiffs
attorneys put out. So when you look at SB 241, and I'm kind of standing
next to the person who drafted it, who hopefully will give me some
better insight than what I've read into it. It's not a good legislation.
It has passed
through the Senate, it's going to the Assembly Judiciary. Take an
interest in it, pull it up, read it, listen to what we have to say
today. And I'm happy to answer any questions regarding the legislation
at the end of the discussion.
I didn't know I was such an evil person. Luckily, I am a homeowner
as well. When I assure you I wouldn't do anything I wouldn't want
to live with myself. I'm going to address a lot of what Nancy said.
I think you need to understand the history behind this whole construction
defect, and I'll call it an industry in this state.
began in Southern California and it fed on all of the available
food stock in Southern California. It started to migrate here in
In 1995 the
building industry got together and proposed a bill to the Nevada
Legislature without any input from trial lawyers like myself and
other people that were handling construction defect cases here before
it became all the rage. They put forth this bill, and it started
out to be a thoroughbred, and it came out of the Legislature looking
something like a camel.
was the legislature thought that they gave builders an opportunity
to address construction defects before they got sued. That's what
the legislators thought they did in 1995. What we found out is that
wasn't what they did. What the Legislature did was drastically change
the rules as it relates to prosecuting construction defect suits.
They drastically changed the damage rules. Most importantly, they
changed the rules that exist in every other area of tort law in
regard to attorneys fees. They made attorneys fees and expert fees
a recoverable element of damages -- a drastic, drastic change.
Now, what happened?
In 1995 the law gets passed, and you know, it starts to percolate
and people start to look at it and pretty soon some lawyers start
to look at it and go, "This is the greatest thing going."
through the 1997 Legislative Session there was an influx of construction
defect cases, and some of the trial lawyers that had to start dealing
with this new law and said, "Oh, my God, this is a disaster."
And so from 1997 up through this session, the home building industry,
with input from people who are handling these cases now, tried to,
in effect, right the ship. And we've been singularly unsuccessful
in 1999, we were unsuccessful in 2001, and I hope we're not unsuccessful
in 2003 because the area does need -- and I hate to use this word
"reform" because I don't view it as tort reform -- but
it does need change.
You need to
bring some balance back to this system. What the home building industry
is trying to do with 241, and I think it helps that you all understand
how these laws come about, the building industry asks for input
from a number of sources. The input came to me, I condensed the
input, drafted what I thought would be an acceptable bill, and what
you do is hand this over to a bill drafter. This is an unnamed human
being up at the Legislature who takes what you give them, and they
churn it out. And this is what it started out looking like, and
this is what it comes out looking like. We got this about 12 hours
or so, maybe 24 hours, before it was to be introduced, and we were
asked to give all of our comments. It was impossible to do.
There are some
unintended consequences in this bill and those are being rectified
as we speak. I'll talk about the first one. I've already had some
conversations, not only with Nancy but with Mr. Canepa as well.
The first thing that the trial lawyers said was, "Oh, my God,
you're changing the defect definition to make it in line with a
case that came out of California known as ‘Aas.’" Aas is a horrible case. Aas says that you can't sue a builder for
a defect until that defect causes damages. Taken literally, as Nancy
said, if you had all kind of problems in the homes with fire wall
and the like, you couldn't sue your building to get that taken care
of until your house burned down. That's absurd.
We are not
advocating that position. If you read 241 in all of it's entirety,
you can see that was not our intent. But I'm here to tell you that
was not our intent. We are not advocating for the passage of Aas-type
legislation in this state. The second thing that the trial lawyers
said, “you're abolishing contingent fee agreements.” Wrong again. We are not abolishing contingent fee agreements. What
we are trying to do is get courts to take a closer look at the fees
that are generated on cases like this because we believe in many
instances they are far out of line with the work that went into
the case. There were some recent cases that were decided, actually
went to verdict.
actually had presented a petition to the court to get attorneys
fees. That has come under much discussion. What we want the court
to do is look at the time invested in the case, what work went into
the case, the contingent fee agreement, the risk and then the court
will make a determination as to whether the fees are reasonable
or not. That's what we're asking on that point.
In terms of
the right to repair, Nancy and I have a drastically different view
of whether this is a first right or a second right to repair. Where
this whole idea started from was in 1995 the builders thought they
had a chance to engage in the repair process as a prelude to litigation.
That didn't come about. I spoke to a group of 25 or so Northern
Nevada legislators. I think it was in 1999. I asked those that were
in the session in '95 if they thought they gave builders the right
to repair. Every one raised their hand. I told them they were all
wrong. What they gave was the builder the right to make an offer
for repair. That's what they gave the building in 1995. And the
trial lawyer would say repairs are never made. I'm going to tell
you why repairs are never made. It's because of lawyers. Okay? Period,
plain and simple. When Nancy gets her client, she's got to advocate
for her client. The builder gets a lawyer, and who starts to talk?
The lawyers. Nancy says, "What you're proposing is a Band-Aid
I say, "That's
crazy, Nancy." She wants it done this way. She wants a Cadillac,
I want a Chevy. We debate and we debate and we debate because that's
what lawyers do. Who's lost in this debate? The customer, the homeowner
and the home builder. They're not even talking to anybody anymore.
What I found in my practice was that, if I could with my clients
maintain contact with the customer, okay? That in the vast majority
of cases if they had the economic horsepower to do it, the client
will address the real concerns of the customer. The problem was
we could never engage in a debate. There was a severing of that
customer relationship. What we ended up doing was we looked at this
and looked at it from a business perspective, and we wanted to maintain
the link between the home builder and the homeowner. That's what
So what people
in Nevada will have to do, if they have a problem with their home
and it's leading to litigation is they're going to have to give
that builder notice, and they're going to have to say, "Mr.
Builder, my roof leaks, and if you don't fix it, I'm going to sue
you. As a matter of fact even if you fix it, I can still sue you." Because we haven't taken away any rights . . . I'm not in favor
of tort reform. So this is a no-risk proposition to the homeowner.
the homeowner does, "Mr. Builder my roof leaks." The builder
gets that notice. If the builder is smart, okay, the builder's going
to look at that and say, "I've got a leaky roof. He's going
to talk to his lawyer and go, ‘Can I defend that in court’?" Hell no. You're not supposed to build houses with leaky roofs. So
if the builder is in business and if the builder has an ounce of
sense, the builder is going to go ahead and fix that home. That's
what this bill is designed to do. What's important to note is that
the builder extracts nothing from the homeowner. The only risk here
is a little time. This whole right to repair concept came out of
some practical experience that I and some other lawyers representing
builders had in this community. Again we found if we could get our
clients back out in the community when we knew there were problems,
that clients typically make the right business decision and that
homeowners typically make an intelligent consumer decision. And
when those two things happen, we don't end up with class action
or 300 and 400 people suits in the courthouse bogging things down.
We end up with
people enjoying their homes without the burden of three and four
years of acrimonious litigation. That's what the right to repair
concept in this bill is meant to achieve.
Nancy talked about the whole complex litigation thing. I actually
was part and parcel of that. In 1999 we did not go up to the Legislature
and say, “Just sue us.” What happened was in 1999 we
recognized that Chapter 40 process was a miserable failure in terms
of getting cases settled before they got to litigation. What we
had was such a dramatic increase in cases that it became useless
to engage in the Chapter 40 process because no cases were getting
settled. What we needed was a vehicle to get all the parties together
before we talked settlement, and the vehicle we chose at that time
was the litigation process, because you could third-party all the
subcontractors. It was a practical decision made actually in negotiation
with the trial lawyers. In terms of the going to the Contractor's
Board and the like, all that this legislation does is it gives the
home builder the right to call the Contractor's Board and say, "Look
will you come out and opine on whether my repair is adequate or
not." That's all that it does. It's not mandatory. Right now
the only person that can go to the Contractor's Board and trigger
their jurisdiction is the homeowner.
We now make
it [that] the contractors can also go to the Contractor's Board.
I find it interesting that the trial lawyers do not like the idea
that we can go to the Contractor's Board when it is that board that
is charged with disciplining contractors and licensing contractors
and presumably should know about workmanship issues. I don't find
that offensive at all. At the end of the day what I think I would
encourage everybody to do on all of these issues is cut through
the hyperbole, ask the right question, think for yourself.
in the med-mal area, I've been accused of being somewhat schizophrenic
because I was solicited to advocate on behalf of the trial lawyers
at the special session because I was against med-mal reform. I don't
think we need it in this state. I found that people were not asking
the right questions, and quite frankly, I agreed with everything
the speaker said earlier in terms of whether we need tort reform
in the med-mal area. In this state we don't. We actually threw away
a great system. I do a lot, a fair amount, of med-mal plaintiffs
work. On this issue you need to, again, get through the hyperbole
and see what's really going on here. The home building industry
in this state is taking away no rights. That's not our intent. What
we're trying to do is get some balance back to a process that really,
quite frankly, hasn't worked, if you go back to the benchmark legislation
in 1995 which was designed to get cases out of the system and get
what occurred. What we had was a huge jump in litigation, people
suffering from litigation, home values decreasing, insurance premiums
going up 500 and 600 percent and people being put out of business.
This statute is designed to reconnect a product supplier -- I don't
want to say a product supplier -- the builder of a home with his
customer or her customer, so that things can get done without the
intervention of lawyers and the courts. Thank you.
While I'm clear, a word for Rick, let me add to the Aas case that
what he referred to is spelled A-a-s, rather than O-z, for anybody
who wants to look it up and it may be the only thing the lawyers
will agree on. Rick Harris is our next speaker.
I've got one minute? I won't take too much time. I do appreciate
the opportunity to be the last word. Last summer after the special
session which ruined my summer, and I walked the halls as a lobbyist
and worked closely with the NTLA regarding the special session in
medical malpractice, I had seen doctor friends up there. After the
special session and this draconian tort reform took place in med-mal,
I had the opportunity of sitting in Andre's, one of Las Vegas's
finest restaurants, with one of these doctor friends of mine.
We were lamenting
the special session and what happened and the give and the take
and so on and so forth. And he said, "You know, my malpractice
rates went up from about $75,000 a year to $175,000 a year."
I was shocked. “That's just a tremendous increase, and I can
see where you're coming from.” I happened to ask him what
did you make last year? “I made about $3 million after expenses.”
“What about your partner?” I saw he was on the forefront
of all this med-mal reform. “What about his income?”
"He works a lot harder than I do. He made $6 million last year.” When you look at these amounts of money relative to premium increases
in medical malpractice, you really have to compare that with the
actual income of these physician and see if it's really that big
of a burden.
I do admit
if a physician is only grossing 200,000 a year and he's got to pay
150,000 in med-mal premiums that could be a little difficult. That
is not the typical case. Perhaps that physician should work a little
harder or find something else to do. Typically the medical malpractice
premiums are less than the rent these physicians pay. It is certainly
no excuse to have Congress or the Legislature try to recoup the
misguided investment efforts of the insurance companies on the backs
of the innocent victims.
in the United States Congress HR 5, the house bill on health liability
reform, has passed. After the spring break in Congress it will be
introduced in the Senate, where it stands a tough fight, but nevertheless
there is a potential it could pass there. That particular bill goes
well beyond what California, the supposed model of health insurance
or medical malpractice reform, gives us. I urge you to study that
bill. HR 5 is much worse than that for the victim.
It also goes
beyond medical malpractice. It goes into pharmaceutical and product
liability relative to health care as well as nursing home care with
a $250,000 cap that is more restrictive than California has with
restrictions on the statute of limitation and also contingency fees
to punitive damages to a point where it's an absolutely ludicrous
approach. Nothing more than a bailout of the insurance industry
that President Bush is beholden to.
I want you
to understand through all of this, if we look at history as being
the best indicator of what's to come, we have had volcanic eruptions
of this so-called crisis in the 70's, 80's and now again in the
21st Century. It is the economy, stupid. It is the economy, plain
and simple. In every state that has submitted to these false reasons
for tort reform, there has been no significant premium decrease,
because it's plain and simple -- the economy.
represents less than one percent of the entire cost of health care.
It is no reason to attempt to extract something from the very few
victims of medical malpractice in order to bail out the insurance
company that already enjoys the freedom from antitrust laws that
allow them to price fix and control the health industry. I suggest
that the doctors team up with the lawyers rather than with the insurance
companies to undertake meaningful reform in the area of the insurance
industry while they're trying to police their own in terms of making
the world a safer place relative to medical mistakes. Thank you
for your attention.
And almost back on schedule which gives us some time, as I think
everyone will be relieved to hear. Even though Dmitri wanted me
in two places in the program, I will avail myself of the opportunity
to punt so we don't run too late in the afternoon so we can have
some audience questions or some panel interaction. So with that,
why don't we take a few minutes for some questions, and then we
will give the court reporter some rest. Bill Robinson.
Comment first and then a question. I find the comment that you didn't
mean to put that it had to be actual damage in the bill to be somewhat
disingenuous when that was in the '99 bill that was proposed by
the home builders and that same statement was in the 2001 bill proposed
by the home builder. So if that statement is that you didn't mean
it, did you not mean it in 2001 when you proposed and you did not
mean it in '99 when you proposed it? That's rhetorical. I don't
really expect an answer because I know the answer. Let me go with
a better question. The guy who built my house with cardboard, why
in the -- should I ever be required by law to let him come in and
allegedly fix his cardboard? Why I as a homeowner cannot find a
reputable quality builder to come in at that man's expense to fix
my cardboard? Why is it that I have to let that guy back in my house?
Why did you buy a house made out of cardboard?
How would I know?
Are we blaming the victim, Mark?
No, I'm not. The problem I have with this debate is when you go
to the Legislature, this is what you hear. When I first went up
there, the first person that the trial lawyers put on was a woman
who bought a home from a fly-by-night builder who went bankrupt,
who had no insurance, who was nowhere to be found and the home was
falling down around her. You know what was beautiful about that?
All the legislation they were passing was never in a million years
going to help that woman. The situation that you're posing if there's
a builder out there who's fly-by-night and built your house out
of cardboard is probably not going to be there to do any repairs
anyhow, and it's not going to help.
I knew who my builder was.
I knew where his office was. The Contractor's Board knew him. I
went to the Contractor's Board.
And your home was inspected by the City. It was passed. It was approved.
Your plans were inspected and everything. And somebody made a mistake.
This bill says -- somebody made a mistake. Somebody dropped the
That's a mistake [of] putting in cardboard.
And all this bill does -- it says the builder has a chance to come
back in and if you put cardboard, he can take it out, and if he
has to relocate you, he pays for the relocation costs. He puts you
up somewhere and he fixes your house. If you don't like it when
it's done, at the end of 150 days, sue him. If he comes in and puts
gold plated drywall up in your house and increases the value of
your home astronomically, sue him. Sue him. You give up nothing.
This law is designed to address a broad spectrum of cases. You can
always pull one or two out of either end of the spectrum that are
going to distort the debate. What we found was in the clients I
was dealing with in particular -- many times the first notice of
a problem in a community came on the letterhead from a lawyer, not
from complaints from the home buyers.
a client calls me and says we have a problem in the community, the
first thing I ask them to do is pull all their records, and the
first thing I want is a matrix of all customer complaints for the
last three years, four years, five years. I want to know what's
going on in that community. What we found is there's a disconnect
that's occurring somewhere. This bill was designed today to right
going to be builders that will never address your situation. There's
always going to be bad builders and bad subcontractors, but you
don't penalize the good builder and the good subcontractor because
of the bad. This bill is design today to get this back to the middle.
That's exactly what has happened in this community. Good builders
and good subcontractors have been caught in the crunch of construction
What have you done in that bill to deal with the bad builders other
than to ask the Contractor's Board, which is a captive agency of
the contractors, to deal with it.
You know, that's funny you say that because the other day we were
arguing in court to have a case go in front of the Contractor's
Board. Someone made that comment to me that they're somehow captive
of the builders. That's a fallacy in the state. I represent contractors
that had their license on the line in front of the Contractor's
Board. That is not a fun prospect. The thing I never understood
is why don't more plaintiffs lawyers drag builders in front of that
They let them go.
Then you've got a problem with the licensing body.
Let me interject for a second. Has there been much effort to think
about what I heard throughout the discussion -- it's a little dyslexic
because we have the construction defect panel this morning that
not everybody was here for and then we sort of reprised it to some
degree. A lot of the problem appears to be builders who just aren't
there anymore and one might even argue abusing the limited liability
of corporate forms. The companies dissolve, they don't have an office
anymore, you can't find them. The worst offenders are the subs.
If you can't find the general, good luck finding the sub. They're
on a flat bed truck in another state somewhere. Has any consideration
been given to simply requiring there be more responsibility down
the line as opposed to worrying about the liability procedure?
There has been none. You know, the interesting thing, I wanted to
respond to one comment. Mark just said, "Why didn't you check
out your developer better." I sat through the weeks and weeks
of insurance task force hearings that were put on by the State,
and one of the suggestions by the Nevada Trial Lawyers Association
was that homeowners be given information at the time of sale of
their home, is that developer an insured entity and additional information
on the builder. The response from the insurance task force was,
"We're not going to do that, we're not going to recommend that
to the Governor. We don't think that makes good business sense." That was the quote from the Insurance Task Force. So when you ask
homeowners to investigate their home builders, it's not that easy.
What you get is the literature the home builder gives you over and
over and over again.
I did have
a case that went to trial and they gave them literature saying they
had fire walls. Guess what? They didn't. How does the homeowner
know that? They rely on what the developer tells them. And I do
have to disagree with Mark that home builders are just waiting out
there to get in there and make repairs. I, as a practitioner, would
give homeowners the Chapter 40 notice before the law changed and
ask them, "Here's the notice. Fill it in. Send it to your developer.
Certify return receipt. Take your best shot. If they come back and
fix that's wonderful for you." I would say 90 percent of those
people called me back -- they never got a response from the developer.
Not even under a formal procedure and that's part of the law. Not
one. I had a complex case. We put it into prelitigation and gave
the developer a chance to come back out and fix it. We said, "Please,
the association doesn't want to get into litigation, here's your
opportunity." Participated with them for seven months in prelitigation,
let them come in and do their testing. At the end of the seven months,
we said, "Please give us an offer." They said, "We're
not giving you an offer, you should have filed your complaint in
the first place pursuant to the law. Go file that complaint." That letter is in writing. That's the response we get from developers.
The idea there're
some developers that are great that will come back and fix it --
they don't need additional legislation to do that. They have the
right to do it know. They work with their homeowners and they fix
it. It's the developers who don't want to do it that are being punished
almost by Chapter 40 because they won't respond to the people they
sold their homes to. That's the way that it should be.
I disagree with that, and I think at the end of the day -- again,
look at the legislation and what are you giving up? You're giving
up 150 days and in some respects, not even 150 days.
Does the statute of limitations extend an extra 150 days?
Everything is tolled from the moment --
Does it extend through the Contractor's Board review?
Only for the defect you identified.
And we would have walked away from our houses.
Here's the deal. As soon as you send a notice to the contractor,
or the developer, on that defect, which is what presumably is causing
you problems, let's assume it's a leaky roof -- you have everything
tolled until the process runs it's course. You give up no rights
in regard to that defect by allowing the home builder to come in
your home and fix that roof. That's all this is. That's what this
is designed to do.
Let me give you a situation, and then I'll shut up. I'm right at
the edge of my statute of limitations. I tell my builder it's a
leaky roof. He comes out and patches the roof. It doesn't rain for
It starts over as to the fix.
Now it rains, it leaks, we find out it's not the roof, we find out,
which we did, it was the balconies. If you poured water on the balconies,
the water ran right through the floor of the balcony right into
the wall down into your house and out into your house. Now my statute
of limitations is gone on that balcony.
You were on the 8th or 10th year, whatever it is.
Right at the edge. I lost my balcony even though the balcony turns
out to be the final cause. I can't get it fixed now because of the
If you were beyond the statute of repose under that scenario, which
is what would be operative here, okay, you would probably be precluded
from moving forward.
So you've taken away my right to have my house fixed.
But it depends on what you identified as the problem in the first
instance. If it's water intrusion into your home and the builder
So I have to get a lawyer to write the --
No, you don't. I have water coming into my home. The builder goes
out and slaps mastic on your roof and the next time water comes
into your home, the builder will never prevail on a statute of reposed
offense because what they were to address was the water intrusion
into your home the repair didn't work. The statute of repose runs
anew from the time the repair is completed on the repair. So I think,
quite frankly, that the scenario you pose will never come to pass.
I assume if the judge were to rule to the contrary, the Nevada home
builders would be part of an amicus brief to get that reinstated.
Somebody had a question way back there that's been holding for a
while. Take the floor.
You probably represent a lot of good builders. My experiences between
my own home and friends is all these builders as soon as you have
a complaints pick-up some guy on Eastern Bonanza, give them a tube
of caulk and a quart of paint to come to your house, offer to fix
a roof leak, fix cracks.
It's a beautiful thing.
But when they come and your counter, your slab is sunk and your
cabinets are separating from your counter top and you throw a big
bead of caulk and throw some paint on it and say, "Oh, it looks
great." You know, you have no recourse
And you go back and forth.
No you don't. No. End of discussion. You gave them their shot. You
don't like it. Sue them.
You don't have a right under this statute.
Absolutely. You send them a notice and you say, "My counter
top is coming away from the cabinet, my floor is sinking. Come out
here." And he calls some guy to come out, whether he got them
at Eastern and Bonanza, I don't care where he got them from. And
the guy comes out and caulks the hell out of your house. And you
know what you do? Sue them because you don't like it.
But let me just ask. For a quick question, what was in the magic
of the 150 day period?
We debated that. At one point it was 180. At one point it was 90.
At one point 120. It's going to come out to some number. What we
did was try to look at the types of repairs that are normally involved
here. Then had you to look at, well, what if it's a condo? What
if it's five homes? What if it's a slab problem? Slabs take a long
time to fix? If it's just windows you can fix them in a week. If
it's caulking it might be a day. The numbers are somewhat arbitrary,
and it was just a bunch of folks getting in a room. And I've had
discussions with trial lawyers on these numbers and they've ranged
from, like I said, 90 to 180. There's no magic to 150.
And I assume our plaintiffs bar would not be anymore predisposed
to that part of the bill if they were rather 30 or 60 days.
I think a leaky roof, 150 days to fix a leak letting water in the
roof is a problem.
The problem I have with this debate is it comes -- the premise here
is that the home builder wants to basically screw his customer.
I don't agree that with that. I really don't. I'm not telling you
there aren't bad builders. There are. This bill is not going to
protect the bad builder because you can still sue the bad builder.
You're giving up nothing. What we're doing is we're trying to again
get this thing more in balance than it has been the last few years.
What we have found is that when you encumber the process with lawyers,
insurance companies, and the like, that what happens is repairs
don't get made, litigation goes rampant. You have 20 lawyers. I'll
take anybody over here on any given day to Associated Reporters
-- and Nancy knows this -- and let's see the cottage industry that's
being created at Associated Reporters because of litigation. Twenty,
thirty, forty, a hundred lawyers over there everyday defending these
cases while the homes sit unrepaired. You know what's also interesting
when these horrible homes -- nobody ever moves out. People live
in them for four years. The plaintiff's lawyer gives me a demand
and says, "Mark this case is worth $10,000,000." And my
defense lawyer that the insurance company paid for they say it's
worth $2,000,000. After we dance around for four or five years,
the case settles for about $4,000,000. What have we achieved? The
defense lawyers made a lot of money. Plaintiffs lawyers make a lot
of money. The experts make a lot of money because they know they're
getting paid. The homeowners sat there. At the end where does that
money go? Sometimes it goes back into the house? Sometimes it goes
into a pool in the backyard? Sometimes it goes into a new car. The
premise here was they want their houses fixed, and what we tried
to do is set up a process that's going to result in more of the
houses getting fixes, not all, maybe not yours, but more.
Let me give a follow up question, then I'll stop.
Would the home builder support some kind of subsidization of local
agency inspectors to insure -- it's not rocket science to build
a home. If they could have an independent inspection team come in
and if they signed off on all the quality and such would
the home builders --
Well, you actually have a debate with the home builders right now
that they are already doing that. They pay for the inspection process
from the City and the County.
Everyone knows they don't inspect every single home.
They don't. They don't inspect every home, and you also have some
third party inspectors that have been hired by home builders to
do exactly what you've said, to protect themselves against what
they believe will be inevitably litigation. I don't know that that
issue has ever quite frankly come up. I don't know what the industry
would come to do in response to that. I know there's a lot of consternation
now because they get hit with these inspection fees. I know there's
a lot of debate that these inspectors don't do their job. That's
not my experience typically. They can't see everything, true. They're
not as bad as they're portrayed to be. If you're paying for something,
it ought to be worth something. And we made that a provision in
the bill that if an inspector comes out from a local agency and
looks at this structure and says it passes, that that ought to mean
something. Right now, it means nothing.
Let me add. I think we had another question pending. And also, fair
game are our prior panelists who are still in the audience, both
from the morning and afternoon. If you've got questions for Bill
Nancy, could I ask you a question. When you represent a client suing
a contractor or a claim against a contractor, what sort of arrangement
do you agree to with that client in terms of fees if I could be
We work on a contingency fee. It depends on how many homes you're
representing. How many problems they have. We've negotiated that
fee with associations depending on their situation. We advance the
costs on behalf of them. That's one thing I insisted when I came
over to Mainor & Harris given my previous experience in an association
where the attorney would only work on an hourly, and we had to have
special assessments to pay costs. It's impossible to maintain these
suits that way.
You work on the contingent [basis] and at the end of the day if
you're successful you get back from the builder some amount of court
If you go to trial. Typically these cases go into settlement. You
know, like maybe one percent of these actually end up in the courthouse.
I assume you settle, you settle in the shadow of what would have
happened at trial which includes recovery of your fees.
Your fees are independent of the court awarded fees.
They are added on as damages. If you agree it's a $3,000,000 cost
of repair the average add-on for Chapter 40 entitlements is about
a million and a half. So if a three -- make it simple, a $300 repair,
because of the litigation process now costs 450 to 500. That's how
these cases settle. It's not a question of if they win, typically.
It's a question of whether they win because it's virtually impossible
to defend these cases.
I was fairly sympathetic, Nancy, to your position of who does a
homeowner call when the roof starts to leak. Call my lawyer? All
that does is start the clock ticking, and I've got to pay. But now,
as I understand with loser pays, along with your willingness to
accept the contingent fee, all of a sudden hiring that lawyer costs
me very little. In fact all of the impediments to sue are gone.
I find myself much more sympathetic to your position, Mark, which
is -- give us a chance first to try and solve this problem. Although
150 days sounds like a long time to fix a roof leak. But the notion
of let's hold off for some time, given how costly it is for the
homeowner to sue, makes some sense.
Can I respond to that? You need to understand. You're starting from
the premise that homeowners that are that litigious they want to
put their largest investment in their life into litigation. That
hasn't been my experience. There are downfalls for homeowners who
have to go into litigation to get the problems fixed. The disclosures
that are put forth in Chapter 40 as it stands now are quite stringent.
They are more than the standard disclosures for sale in real estate.
They have to disclose every defect identified, every report, and
every expert. The list goes on and on. That doesn't encourage them
to go into litigation unless there was some other reason to do it.
Those disclosures have to be made by an attorney to a homeowner.
homeowners associations it's extremely difficult because they lose
their FHA financing in many cases. We have an association who had,
basically -- could only sell their homes through FHA because the
values of the condos were maybe 50-60 thousand. Those people wanting
to purchase could only purchase through FHA loans. Fannie Mae pulled
the financing because the association went into litigation. That
is a very difficult decisions for associations. Associations only
go forward in these cases and homeowners only go forward as a last
resort. These associations don't call attorneys right away. They
do attempt to work with the developer. In fact the developer sits
on the board of directors of these associations for several years
before the entire project is sold out and they have the opportunity
to make those repairs while they're on there.
in doing this for six years, the homeowners are not that litigious.
They don't want to put their houses into litigation. They are basically
tainting the title to their own home. They don't want to do that,
and they do it as a last resort. The mere fact we do it as a contingency
fee is to help those homeowners who could never afford to get the
houses fixed without the help of an attorney without having the
contingency fee available.
That is true
of any type of litigation. It's true of the medical malpractice
that Mark does on behalf of injured patients. He takes his percentage
of the recovery from whatever the settlements or verdict is and
in those cases receive lawyer fees because it comes out of whatever
the pot is. This is additional recovery to make that person whole.
And there is kind of a problem with that too, if you don't have
a homeowners association where you have a widespread problem that
infects an entire area the contingency fee can't be a very attractive
option for your firm. Do you have any individual or small groups
of homeowners that you would even take on a contingency fee?
We've taken -- and it's very difficult. I'll give you an example.
We took 11 homeowners who were on expansive soil. Whose homes were
just falling apart. A horrible case for these homeowners. The cost
in the case because the court wouldn't let them join in a class.
The only way to let them do it, because there was only 11, was through
a joinder case. The cost, because we had to investigate every house,
got so high that at the end of the day to get that case settled
to get those people enough money to get their homes fixed, this
firm ended up doing it pro bono. We did not take a fee on that case
because there was no way to get enough recovery for those homeowners
to fix those houses. I know I go up to the Legislature and some
of these legislators look at me like I have two heads because they've
heard every story they can hear about. And we're just out there
running around getting homeowners signed up to make money. That
is not true. We do many cases where there isn't enough money at
the end of the day, and our goal is to get the homeowner enough
money to get the houses fixed. That's why I do construction defect.
It's a matter of repair dollars to these homeowners to fix a very
It's not like
personal injury where it's very subjective as to pain and suffering.
They get no emotional distress in these cases. They get the actual
cost of the repair. That's what they get to fix it, and that's what
they need to fix their homes. That's what our goal is. I understand
your concern, but I can tell you my experience is they don't just
call a lawyer because, gee, they'll work on a contingency fee. They
call a lawyer whether they don't get help from their developer and
they have tried. I have never ever in six years had a case where
there weren't requests made by those homeowners to the developers
for repairs, documented requests.
Let me just see if we have any other questions. I know there will
be point and counterpoint on some of these financing issues, but
I do want to make sure that if folks have other questions that they
want to raise, of either the second or the first panel, that we
give folks an opportunity. Also I want to thank our second panelists
Just a couple of words if I may. It took a bit of time to put together
this forum. I want to thank all the people who made it possible.
Of course, Jeff Stempel and Connie Akridge, Dean Morgan, who offered
the facilities. Also our corporate sponsors and especially John
Murtagh, President of the Longford Group, and Flanders McMillan
Group, and John Curtis in particular. He was very instrumental in
putting it together. He is not here. He is in court today, hoping
to get out. Others as well. Thank you very much for being here at
four o'clock on Friday night. This is truly amazing. I think it
was a riveting discussion as far as I'm concerned, and I'm personally
most grateful for all of those who made it. Thank you.
[END OF CONFERENCE]