The Law And Politics Of Tort Reform:
Local and National Developments

Justice & Democracy Forum Series

UNLV Center 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 affecting Nevadans.

Senator Harry 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.

Congressmen John Porter indicates in his letter that,

The University 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.

And finally 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.

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.

DMITRI SHALIN: 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.

The Justice 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 when needed.

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 this panel.

JEFFREY STEMPEL: [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.


JEFFREY STEMPEL: 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.

WILLIAM 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 reserves.

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.

We're just 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 are bacteria.

SCOTT CANEPA: Scott doesn't like that.

WILLIAM ROBINSON: 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.

JEFFREY STEMPEL: 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.

STEVE HILL: 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 is true.

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.

What needs 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.

JEFFREY STEMPEL: 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.

SCOTT CANEPA: 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.

Mr. Robinson, 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?

WILLIAM ROBINSON: Yes my community is beautiful.

SCOTT CANEPA: 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.

BETSY GONZALEZ: There were 12.

SCOTT CANEPA: That was one complex case, Betsy. And how many --

BETSY GONZALEZ: I got 12 zeros.

SCOTT CANEPA: I'm sorry?

BETSY GONZALEZ: I got 12 zeros.

SCOTT CANEPA: 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.

BETSY GONZALEZ: That's true.

SCOTT CANEPA: In the case that Betsy Gonzalez is talking about called the "Falls" case, which was a case where there were how many homeowners?


SCOTT CANEPA: 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.

BETSY GONZALEZ: They were individual verdicts on a homeowner-by-homeowner basis.

SCOTT CANEPA: 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


SCOTT CANEPA: 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.

JEFFREY STEMPEL: Bill's messed up my placard. Now we'll hear from Betsy for a few minutes.

BETSY GONZALEZ: 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.

We recently 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.

When Chapter 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 the participants.

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 work.

JEFFREY STEMPEL: 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.

DEAN HARDY: 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.

What happened 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.

State Farm 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?

There's only 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.

Sixty percent 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 you.

JEFFREY STEMPEL: We'll hear from Bill Bradley now.

BILL BRADLEY: 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.

Well, another 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.

The problem 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.

JEFFREY STEMPEL: 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.

BILL BRADLEY: Twenty-one.

JEFFREY STEMPEL: Twenty-one verdicts out of approximately how many pending cases?

BILL BRADLEY: 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.

JEFFREY STEMPEL: 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 reform effort.

BILL BRADLEY: 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.

JEFFREY STEMPEL: 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.

NANCY O'DELL: I'm just curious. Are you advocating that these screening panels be reinstituted?

BILL BRADLEY: 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.

NANCY O'DELL: But again, you know, a lot of you defend screening panels?

BILL BRADLEY: 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.

NANCY O'DELL: You thought they worked well?

BILL BRADLEY: 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: 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.

DEAN HARDY: We have the rack and the thumbscrew right here at the end.

BILL BRADLEY: I think there are several things you can say positively about insurance companies. They are very tremendously adept at making money.

JOE GILBERT: Your, Honor.

BILL BRADLEY: 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."

AUDIENCE MEMBER: 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?

DEAN HARDY: No. You got anything positive?

BILL BRADLEY: 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.

JEFFREY STEMPEL: 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?

BILL BRADLEY: 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, early resolution.

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: 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.

DEAN HARDY: 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 that.

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.

BILL BRADLEY: 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.

SCOTT CANEPA: 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.

The second 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.

BILL BRADLEY: A quick follow up and then I'll take John's question.

ANNE MCGINLEY: 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 the insurance.

BILL BRADLEY: 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.

The better 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.

JOHN MURTAGH: 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 else.

BILL BRADLEY: 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 rights."

JOHN MURTAGH: 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 not responsible.

BILL BRADLEY: 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 crashing here?

My concern 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.

JOHN MURTAGH: 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.

BILL BRADLEY: 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 a practice.

Primary care, 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.

What state do you think that comes from?

JEFFREY STEMPEL: You've got to be talking about California, right?

BILL BRADLEY: 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.

MICHAEL GREEN: 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.

JEFFREY STEMPEL: And this is Mike Green from Wake Forest.

MICHAEL GREEN: 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.

SCOTT CANEPA: It has the practical effect of that, correct.

MICHAEL GREEN: You said it would require fees to be done on an hourly basis.

SCOTT CANEPA: The section of the bill and I have it here requires -- it says the fees may only be awarded based on an hourly calculation.

MICHAEL GREEN: This would regulate your contract with your clients as to how you could charge your clients.

SCOTT CANEPA: That's correct.

MICHAEL GREEN: Is that not “a loser pays” [system]?

SCOTT CANEPA: 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.

MICHAEL GREEN: The court shall?


MICHAEL GREEN: Why is the court going to be involved?

SCOTT CANEPA: You'll have to ask Mr. Hill that.

STEVE HILL: 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.

MICHAEL GREEN: Is that true for both plaintiffs attorneys and for defense attorneys?

STEVE HILL: No, no. Plaintiffs attorneys.

SCOTT CANEPA: Just the homeowners.

MICHAEL GREEN: 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.

SCOTT CANEPA: 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.

MICHAEL GREEN: Is the reverse, the mirror image of that, is that also the law?


MICHAEL GREEN: If you don't get a settlement offer greater than your judgment, you can recover your fees.

SCOTT CANEPA: 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.

BILL BRADLEY: 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.

Unfortunately 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 mean loser.

MICHAEL GREEN: 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.

BILL BRADLEY: Absolutely. That's our current law.

MICHAEL GREEN: 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.

BILL BRADLEY: 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.

JEFFREY STEMPEL: Let me take Steve's question, and then we'll take our break.

STEVE HILL: 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.

The construction 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 liability insurance.

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.

JEFFREY STEMPEL: If -- and 30, 45 seconds -- will be perfect.

SCOTT CANEPA: 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.

STEVE HILL: One final point.

JEFFREY STEMPEL: They say that Jack Alexander, or Shane Alexander and Jack Kirkpatrick are gone.

STEVE HILL: 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.

JEFFREY STEMPEL: 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.

(A five-minute break was taken.)

JEFFREY STEMPEL: 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.

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 unreliable.

Somebody was 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.

In addition 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.

The debate 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.

What 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 "" 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.

We've tried 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.

What happens 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.

We believe 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.

The second 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.

There should 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 fair.

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 out.

Incentives for error reduction. I think I already talked about.

Number five, 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.

Decision makers 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.

It's important 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 thank you.

ANN MCGINLEY: 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.

The second 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.

Basically I'm 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 problematic systems.

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 the background.

What's the 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.

What's going 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.

Spreading the 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 the system.

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.

That comes 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 those mistakes.

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.

Improve social 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. Thank you.

JEFFREY STEMPEL: 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 Green.

MICHAEL GREEN: 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.

NANCY UDELL: 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.

ANN MCGINLEY: 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.

NANCY UDELL: 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 professional obligation.

JEFFREY STEMPEL: 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?

ANN MCGINLEY: 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.

JEFFREY STEMPEL: Able to strike for cause?

ANN MCGINLEY: Yes. I actually had -- Mr. Freidman, Feldman. Sorry.

STANLEY FELDMAN: 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.

NANCY UDELL: 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.

STANLEY FELDMAN: 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.

NANCY UDELL: 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.

JEFFREY STEMPEL: And I see one trial lawyer who has been chomping the bit.

BILL BRADLEY: 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 brain.

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.

Another issue 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.

NANCY UDELL: It's hard to respond to a wholesale questioning of the validity of scientific research, which is how I interrupt your question.

BILL BRADLEY: It's not wholesale.

NANCY UDELL: 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.

JEFFREY STEMPEL: Let me take one more question if we have one out on the floor.

MICHAEL GREEN: 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?

BILL BRADLEY: I agree with that. Unfortunately, you see in this instance where I --

NANCY UDELL: Wait -- you agree with what? You won't pay for it?

BILL BRADLEY: That physician and that patient should reconnect and have that discussion.

NANCY UDELL: You would say, “yeah I'll pay for it?”

BILL BRADLEY: Here is where it points out the problem. When I have health insurance, I don't have any problem.

NANCY UDELL: 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 it.

BILL BRADLEY: 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 on.

NANCY UDELL: I agree with that. I'm not disagreeing on that. That's the goal, absolutely. That's what we want.

JEFFREY STEMPEL: 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.

DMITRI SHALIN: 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.

CONSTANCE AKRIDGE: 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.

JEFFREY STEMPEL: Thanks to our speakers and panelists as well.

(The lunch break was taken.)

Legislative, Political, and Historical Aspects of Tort Reform
Session 2. 1:00 - 3:30 p.m.

DMITRI SHALIN: 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 writes,

I regret 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.

With this, I'm turning the floor again to illustrious Jeff Stempel.

JEFFREY 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.

Mike Green 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.

They'll be 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.

The Honorable 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.

To Justice 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.

ROB CORREALES: 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.

The current 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.

What these 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.

The second 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.

Academic commentators 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.

By contrast, 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.

Their version 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 lottery.

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.

But empirical 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 today.

Tort cases 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.

Tort 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 in litigation.

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 percent.

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.

JEFFREY STEMPEL: 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 distinguished guests.

MICHAEL GREEN: 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."

I'm delighted 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.

We expanded 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 most effective.

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.

There's another 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.

Similarly Congress 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.

Yogi's second 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, Jeff.

CONSTANCE AKRIDGE: Those don't work but I have something --

MICHAEL GREEN: 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.

We're very 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.

Yogi's third 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 cases.

What happens 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 to juries.

An observation, 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.

One lobbyist 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 legislation.

I'm pleased 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.

Yogi's fifth 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.

That's the 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 you.

JEFFREY STEMPEL: 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 Mike's presentation.

CARL TOBIAS: 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.

One example -- 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.

The second 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.

JEFFREY STEMPEL: Thank you. Connie Akridge will now give an overview of what's on the industry's agenda.

CONSTANCE AKRIDGE: 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 court.

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.

Another one 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.

Even though 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.

The proponents 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.

The legislation, 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 wrongs.

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.

JEFFREY STEMPEL: 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.

STANLEY FELDMAN: 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. I'm tempted.


STANLEY FELDMAN: 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.

Each defendant 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 on forever.

Everybody gets 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.

Affidavits 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 wrong?"

"I don't like lawyers."
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 not usual.
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"

Anyhow what 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."

Well, what's 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 here.

That person 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 tort reform."

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 insurance.

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 have them.

There must 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.

There must 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.

Complex cases. 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.

The figures 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.

JEFFREY STEMPEL: 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.)

JEFFREY STEMPEL: 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.

To Nancy's 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 today.

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.

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.

Typically by 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.

The original 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.

The person 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.

Any homeowner 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.

Interestingly 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.

Let's talk 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.

Let's take 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.

Let's talk 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.

An interesting 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.

JEFFREY STEMPEL: I'm trying to be subtle.

NANCY QUON: 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].

That's what 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.

Let's talk 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.

These cases 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.

MARK FERRARIO: 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.

This industry began in Southern California and it fed on all of the available food stock in Southern California. It started to migrate here in 1995.

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.

What happened 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."

About halfway 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.

Mr. Canepa 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 repair."

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 this does.

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.

Here's what 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 particular 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 homes repaired.

That's not 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.

JEFFREY STEMPEL: 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.

RICHARD HARRIS: 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.

Just briefly, 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.

Medical malpractice 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.

JEFFREY STEMPEL: 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.

WILLIAM 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?

MARK FERRARIO: Why did you buy a house made out of cardboard?

WILLIAM ROBINSON: How would I know?

JEFFREY STEMPEL: Are we blaming the victim, Mark?

MARK FERRARIO: 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.

WILLIAM ROBINSON: I knew who my builder was.


WILLIAM ROBINSON: I knew where his office was. The Contractor's Board knew him. I went to the Contractor's Board.

MARK FERRARIO: 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 ball somewhere.

WILLIAM ROBINSON: That's a mistake [of] putting in cardboard.

MARK FERRARIO: 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.

Every time 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 that problem.

There's always 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 defect litigation.

WILLIAM ROBINSON: 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.

MARK FERRARIO: 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 licensing body.


MARK FERRARIO: What happened?

WILLIAM ROBINSON: They let them go.

MARK FERRARIO: Then you've got a problem with the licensing body.

JEFFREY STEMPEL: 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?

NANCY QUON: 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.

MARK FERRARIO: 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.

WILLIAM ROBINSON: Does the statute of limitations extend an extra 150 days?

MARK FERRARIO: Everything is tolled from the moment --

WILLIAM ROBINSON: Does it extend through the Contractor's Board review?

NANCY QUON: Only for the defect you identified.

WILLIAM ROBINSON: And we would have walked away from our houses.

MARK FERRARIO: 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.

WILLIAM ROBINSON: 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 two years.

MARK FERRARIO: It starts over as to the fix.

WILLIAM ROBINSON: 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.

MARK FERRARIO: You were on the 8th or 10th year, whatever it is.

WILLIAM ROBINSON: 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 lawsuit.

MARK FERRARIO: 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.

WILLIAM ROBINSON: So you've taken away my right to have my house fixed.

MARK FERRARIO: 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 --

WILLIAM ROBINSON: So I have to get a lawyer to write the --

MARK FERRARIO: 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.

JEFFREY STEMPEL: 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.

AUDIENCE MEMBER: 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.

MARK FERRARIO: It's a beautiful thing.

AUDIENCE MEMBER: 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


AUDIENCE MEMBER: And you go back and forth.

MARK FERRARIO: No you don't. No. End of discussion. You gave them their shot. You don't like it. Sue them.

NANCY QUON: You don't have a right under this statute.

MARK FERRARIO: 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.

JEFFREY STEMPEL: But let me just ask. For a quick question, what was in the magic of the 150 day period?

MARK FERRARIO: 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.

JEFFREY STEMPEL: 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.

NANCY QUON: I think a leaky roof, 150 days to fix a leak letting water in the roof is a problem.

MARK FERRARIO: 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.

JEFFREY STEMPEL: Let me give a follow up question, then I'll stop.

AUDIENCE MEMBER: 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 --

MARK FERRARIO: 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.

AUDIENCE MEMBER: Everyone knows they don't inspect every single home.

MARK FERRARIO: 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.

JEFFREY STEMPEL: 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 or them.

AUDIENCE MEMBER: 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 so nosey.

NANCY QUON: 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.

AUDIENCE MEMBER: 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 awarded fees.

NANCY QUON: 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.

AUDIENCE MEMBER: I assume you settle, you settle in the shadow of what would have happened at trial which includes recovery of your fees.


AUDIENCE MEMBER: Your fees are independent of the court awarded fees.

MARK FERRARIO: 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.

AUDIENCE MEMBER: 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.

NANCY QUON: 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.

Secondly for 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.

My experience 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.

JEFFREY STEMPEL: 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?

NANCY QUON: 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 objective problem.

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.

JEFFREY STEMPEL: 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 very much.

DMITRI SHALIN: 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.