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.

Introduction

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.

SCOTT CANEPA: Reno.

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?

BETSY GONZALEZ: 139.

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
association.

BETSY GONZALEZ: Yes, I was.

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