MINUTES OF THE SENATE COMMITTEE ON JUDICIARY Sixty-eighth Session May 10, 1995 The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 8:50 a.m., on Wednesday, May 10, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Mark A. James, Chairman Senator Jon C. Porter, Vice Chairman Senator Maurice Washington Senator Mike McGinness Senator Ernest E. Adler Senator Dina Titus Senator O.C. Lee STAFF MEMBERS PRESENT: Allison Combs, Senior Research Analyst Marilyn Hofmann, Committee Secretary OTHERS PRESENT: James L. Wadhams, Lobbyist representing the Nevada Dental Association A. Ted Twesme, D.D.S., Immediate Past President, Nevada Dental Association, Bruce Pendleton, D.D.S., President, Nevada Dental Association Gary E. Mouden, Executive Director, Nevada Dental Association Bill Bradley, Attorney at Law, Nevada Trial Lawyers Association Rich Myers, Attorney at Law, Nevada Trial Lawyers Association I. R. (Rene) Ashleman, Lobbyist representing the Southern Nevada Home Builders Robert Lyle, Attorney at Law, Nevada Trial Lawyers Association Barbara Quinby, Member of the Public Cherie Johnson, Member of the Public Bob Maddox, Attorney at Law, Nevada Trial Lawyers Association Francis I. Lynch, Attorney at Law Leslie Chikato, Member of the Public Vicki Fort, Member of the Public Barbara Waller, Member of the Public Eric Cantlin, Member of the Public Robert S. Hadfield, Lobbyist representing Nevada Association of Counties Senator James opened the meeting by restating the committee's intention to impose a deadline for the introduction of bills of May 15, 1995, which date represents a 3-week extension. The chairman then asked for the committee's approval for introduction of four bill draft requests (BDRs). BILL DRAFT REQUEST 17-1983: Revises the provisions governing appointment of commissioners on uniform state laws to represent Nevada. BILL DRAFT REQUEST 16-699 Makes various changes to provisions governing incarceration and custody of parolee who violates condition of parole. BILL DRAFT REQUEST 16-698: Requires notice to operator of jail and opportunity to be heard before issuance of court order affecting conditions of confinement of prisoner. BILL DRAFT REQUEST 7-932 Makes various changes to provisions governing corporations and other business associations. SENATOR ADLER MOVED FOR COMMITTEE INTRODUCTION OF BDR 17-1983, BDR 16-699, BDR 16-698, and BDR 7-932. SENATOR McGINNESS SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR WASHINGTON WAS ABSENT FOR THE VOTE). * * * * * Senator James opened the hearing on Senate Bill (S.B.) 129. SENATE BILL 129: Requires cause of action for dental malpractice to be submitted to screening panel before it may be filed in district court. The first persons to testify were James L. Wadhams, Lobbyist representing the Nevada Dental Association, A. Ted Twesme, D.D.S., Immediate Past President, Nevada Dental Association, Bruce Pendleton, D.D.S., President, Nevada Dental Association, and Gary E. Mouden, Executive Director, Nevada Dental Association. Mr. Wadhams stated the Medical-Legal Screening Panel which is in place at this time has been in place for 10 years, having been created by the Legislature in 1985. He said S.B. 129 would add the profession of dentistry to that panel. Mr. Wadhams said the association makes the request not because a dental practitioner cannot find insurance, but because of persons who do not have access to care because of "circumstances and the environment." He said there was not a proliferation of litigation nor a dramatic increase in the number of lawsuits, but there have been claims made against dentists. Mr. Wadhams stated that has caused a "constriction in the scope of practice and the availability of access to care. He stated a mechanism for screening would not prevent persons from filing lawsuits and seeking damages if the charges were serious. Mr. Wadhams then presented a position paper regarding a dental screening panel, which is attached hereto as Exhibit C. Mr. Wadhams stated dentists have admitting privileges to hospitals and practice in the same setting as physicians, and the practice is "closely aligned" with medicine. He said the association is seeking consistency, "...rather than waiting for a crisis...." Senator James asked how many dental malpractice cases are filed in Nevada each year. Mr. Wadhams answered, "Relatively few." He said the number would be much smaller than the cases of medical malpractice filed, but added the number of dentists practicing in the state was only one-third of those practicing medicine. Mr. Wadhams indicated there was a fiscal note on the bill, which represents additional claims which would be processed through the existing medical-legal panel, with the addition of the dental profession to the panel. He stated an appropriate fee should be charged and the process "should bear whatever cost is necessary to defray that expense." Mr. Wadhams added if the current system does not break even, that would be a separate question which would exist "...irrespective of the additional claims which would come in [by virtue of] this process. Mr. Wadhams referenced Exhibit C and asked that the committee review the position paper. He stated passage of the bill would "reopen the access" for the members of the public who have been disadvantaged because of the "lack of such a system." Mr. Wadhams added provision for a dental panel should have been done in 1985 when the medical-legal screening panel was established by the Legislature. He stressed the addition of the dental profession to the statutes does not change the process in place at this time. Senator Porter asked a question regarding the fiscal impact and Mr. Wadhams answered, "Just prior to this hearing, I discussed this issue with the insurance commissioner...if there is a current shortfall in the fees which are charged to defray expenses...that is not necessarily impacted by this bill." He said the association was prepared to pay whatever proportional share was necessary. Senator Titus stated she was in favor of the present medical- legal screening panel, and supported the concept of being able to "weed out frivolous cases...without denying someone the right to have their day in court." Senator Adler questioned the advisability of "running some cases through a screening panel" when the law provided for arbitration for the "lower-level" cases," which may be more cost- effective. Dr. Twesme responded he did not believe the $25,000 binding arbitration process was available to professionals. He added some of the claims were so small, that insurance companies have decided "arbitrarily on their own" not to defend them. Dr. Twesme stated insurance companies in many cases have decided it is "more expensive to defend a case than to just pay it off," and added many time non-meritorious suits were "paid off expeditiously just to settle them." He said there was a national data bank for any type of malpractice payments, and the name of the dentist involved would go into that data bank, even though the dentist did not have the ability to defend himself against a non-meritorious claim. Dr. Twesme said the screening panel would sort out those claims and be very advantageous to the people to the state. He stated many practitioners "are not seeing patients who are in need of care, including handicapped and Medicaid patients." Senator Adler asked if that situation was caused by the malpractice situation or because Medicaid and Medicare do not pay enough. He added doctors have told him they could not staff their offices for the amount Medicaid pays. Dr. Twesme responded a survey which was done did not address any type of monetary impact. Mr. Wadhams stated he did not believe the economics of dealing with Medicaid patients was the issue in this matter. Senator McGinness referred to Exhibit C and the statement that: "A statewide survey of Nevada dentists...revealed an alarming increase in the number of professional liability suits." He asked for information regarding that increase. Mr. Mouden responded he had prepared the survey referred to, and the figures were provided by insurance companies which the association had used. He said as of February 1995, one in five dentists was facing pending litigation. Mr. Wadhams clarified that the statement "one in five" referred to "incidents which had to be reported to the malpractice carrier as an incident which may result in a claim and litigation." He said he believed the "economic settlement issue" was more important. Mr. Wadhams reiterated the legislation would not "cut off" meritorious cases, and a person could still go to court after the panel has rendered its decision. He added, "We are not here to second-guess the jury...quite frankly, we are here to second- guess the insurance companies that settle claims purely on an economic basis, which affects access to care by the consumer." Senator James asked how the committee could deal with the argument that "...we ought to do something to change the way the court system deals with claims because insurance companies settle for nuisance value...." He asked why there was no one from the insurance industry in the hearing to testify. The chairman continued, "Why aren't they here to say, 'If you pass this bill we will reduce the insurance rates...or they won't go up as fast.'" He said he would like to hear testimony from those companies, because even though the Legislature changes laws regarding tort reform, "...the rates go right on up...they are making big-time profits, according to the Wall Street Journal." Mr. Wadhams replied, "As luck would have it, I have another hat in the closet...did you notice me squirm a little bit?" He said the chairman's questions were "absolutely legitimate," and added he believed there were answers which should be brought forward. Mr. Wadhams said some of those issues, at least in the malpractice area, should be addressed in testimony by the medical malpractice carriers. Senator James pointed out taxpayers pay for the court system, "...and yet they are not allowed to go to court...they have to go through another procedure...so you have to show more than a rational basis why they should have to go through this other procedure." Mr. Wadhams said he believed the jury system "works just fine," but that is not the problem, nor is the administration of the courts. He said the problem is "more economic and the impact on the people who need care...not the people who need justice." Mr. Wadhams stated if S.B. 129 is passed, and dentistry is added for purposes of consistency, "...no meritorious claim will be denied its day in court." He said the bill would provide a mechanism to discourage those who do not have meritorious cases, and to discourage the economic settlement of non-meritorious cases. Senator Porter stated for the record: "To the best of my knowledge, the company I work for does not write professional insurance for dentists...nor am I an attorney who reaps the benefits of the suits pending. He said his foremost concern was how this legislation helps the patient that feels he may have problem. Mr. Wadhams answered people are encouraged to call the local dental society in order to receive an initial resolution of their problem. He said the typical issues are not that of malpractice, but rather fee disputes or other follow-up issues. Mr. Wadhams said the bill would "allow an early opportunity by the patient to find out what he really has...this does not cut off a person's right to court." He added the existing system has been a success according to hospital administrators, physicians and plaintiffs' attorneys. Senator Porter stated, "The patient doesn't care about any of the process other than their problem. I think we spend a lot of time being concerned about insurance companies and attorneys...and we need to make sure the care of those patients is foremost." Senator James said: It would be nice to know this will have the effect that you want, i.e., to make it so insurance rates don't go up so much you are not able to practice and provide the care Senator Porter is talking about. Nobody is telling us that...they are telling us just the opposite by telling us we need to make further reforms to the legal system for medical malpractice, and they have had the screening panel for all this time. The representation is that this is going to somehow help dentistry...so they can help the patients...but it apparently hasn't helped the medical profession...they are telling us that they are still the victims of these terrible lawsuits and that insurance rates are going up. Mr. Wadhams stated he could not answer for the medical profession. He said the issue was not brought before the committee to help dentists nor insurance companies, but rather "...to alleviate some of the access to care problems that are described in the survey." Mr. Wadhams added the dental association has had the same frustrations expressed by Senator James with the "traditional carriers" in the dental malpractice area. He said the association has recruited a company which would share statistics openly with the association, so that with the passage of this type of legislation, it could have an open dialogue with the insurance company. Mr. Wadhams indicated that type of dialogue has not been available in the past. Senator Titus stated: It seems to me if the crisis of 1985 is over...and the insurance companies have come back...rates haven't gone down...this screening panel is unfair because taxpayers have to pay for it, but they have to go through an extra hoop to go to it...the medical professional is now complaining they need something else because this hasn't worked...maybe we should just do away with the medical screening panel. She added, "If you are not going to do away with it, and you believe there is some good...then I think it is rational to put the dentists in it." Senator James stated he was asking for information "...as to how this helps doctors and their malpractice insurance burdens they have to bear, which in turn will help patients...I would like to know if there is some relationship...." He said there apparently is not with relation to the medical malpractice screening panel. Mr. Wadhams answered: Because of other actions we have taken in terms of developing a relationship with an [insurance] company which will deal with us openly and fairly, we will be able to come back to you and tell you precisely how the economic impact was translated...we will be happy to come back in 2 years and give you that information. Senator James asked for the name of the insurance company which was now working with the association, and Mr. Wadhams indicated it was Physicians Professional Assurance Corporation. Appearing in opposition to S.B. 129 were Bill Bradley and Rich Myers, both attorneys representing the Nevada Trial Lawyers Association (NTLA). Mr. Bradley indicated when interest rates are high, there is a tremendous appetite on the part of the insurance industry to bring in more business, and the underwriting requirements are relaxed, higher risks are accepted and excess interest is generated. He said when interest rates go down, as they did in 1985, the insurance industry attempts to "dump" the high risks creating an "availability and affordability crisis." Mr. Bradley stated at this time, interest rates were good and they are not seeing "...what we have contended is a ledge of affordability and availability prices." He said in 1985, there was a "perceived crisis," when doctors and hospitals could not get insurance. It was at that time, Mr. Bradley stated, that the trial lawyers proposed the medical-legal screening panel, which was an alternative to the "drastic and unfair tort reform which was being sought in 1985 and is being sought again this session." He said there were tremendous concerns regarding impeding a victim's right to court by establishing a barrier "known as a screening panel." Mr. Bradley said the judiciary committees worked very hard on the constitutional problems, but those problems still exist. He said under both the Nevada and United States Constitutions, there is a right to a jury trial. Mr. Bradley said in 1985, there was a large distrust between the medical and legal professions, and the medical profession opposed a medical-legal screening panel. However, he said, they worked through the differences in order to create the panel, although there was still concern regarding its constitutionality. Mr. Bradley said in other states, similar panels have been stricken down as being unconstitutional, "impeding a person's right to jury trial." Mr. Bradley said when the legal profession entered into a "deal" with the medical profession in 1985, it was a "handshake deal," which said, "As long as you physicians don't seek any more tort reform, we as an organization will never challenge the constitutionality of the screening panel." He continued to say that agreement held up until about 1 year ago, when the legal professional learned of the Nevada Medical Association's desire to implement additional tort reform measures. Mr. Bradley indicated the chairman had talked about the rational basis for the screening panel. He said,"Frankly, it is our position that adding the dentists to this panel may very well sound the death knell to the panel on a constitutional challenge." Mr. Bradley stated he was concerned that when additional "defendants" were added to coverage by the panel, "...you are not going to be able to justify the impediment to the right to a jury trial, and consequently this panel will go down in constitutional flames." Senator James pointed out that the summary judgment process did not violate constitutionality and there was no jury trial in those cases. Mr. Bradley answered there was a hearing on the merits in the judicial branch in the summary judgment process. Senator James asked if it was "being able to get to court or being able to get to a jury that was the constitutional issue." Mr. Bradley said the "right to a jury trial" and the right to "get into court" were synonymous in this context. Mr. Bradley continued, "All of us would like three peers...three friends...sitting on one of our claims, deciding whether or not we committed negligence." He said in the legal- medical screening panel, three attorneys and three doctors heard the claims, and "...we have no ability to find out whether the three attorneys or three doctors are friends of the defendant doctor." Mr. Bradley reiterated his concern that "when you include a class, such as the dentists, which do not have any perceived crisis, you have real constitutional concerns...." He said the screening panel process takes 6 to 8 months, which further impedes a person's right to a jury trial. Senator James asked if there was a rational basis to say, "...this is a complex area and medical experts are required to testify as to whether there was malpractice...." Mr. Bradley answered there have been constitutional challenges in some states to screening panels which arose out of the 1985 "crisis," and several courts have struck down screening panels "...because that crisis was alleged as opposed to real." He said he would like to see the legal-medical panel preserved but continued, "I am truly concerned that without being able to show this rational basis regarding the goal of the legislation." Mr. Bradley indicated a 2-year "sunset" provision was attached to the 1985 legislation establishing a legal-medical screening panel, which required the judiciary committee to revisit the matter in 2 years to see if premiums had dropped. He continued: Lo and behold...within 2 weeks of when the sunset occurred in the 1987 Legislature, there was a big press conference on the front steps of this Legislature, and the malpractice insurers decreased premiums...and everybody was happy. Unfortunately, health care costs continued to go up, irrespective of decreased premiums. Mr. Bradley indicated he did not know what they were trying to accomplish with S.B. 129. He said to take a panel which was viable at this time, and to add a group "which has not demonstrated a need to withstand a constitutional challenge," could cause the entire panel to "go down." He continued, "If the whole panel goes down as a result of a handful of dental cases, then I think we have done everybody a disservice." Mr. Bradley indicated the complaints against dentists are few and minor, and should be submitted to the voluntary peer review panel. Senator James asked Mr. Bradley if he knew of any medical-dental screening panels existing in the country. Mr. Bradley answered the only one he knew of existed in Alaska, and added, "It was a nightmare of a panel." He said as far as he knew, however, that panel has not been deemed unconstitutional. Senator Porter said he understood Mr. Bradley to say a "deal was cut" in 1985 between the lawyers, the doctors and the hospitals. Mr. Bradley agreed. Senator Porter asked if he was now indicating the "deal had been broken," and the NTLA was opposed to the process and "you may even prove the whole thing is unconstitutional...." He said he had a "real problem with that...in that we are here to worry about the patient...those comments really add to disgust of the whole system...." Senator Porter then asked, "What about the merits of the case?" He said he was troubled by the term, "a deal was cut." Mr. Bradley responded tremendous concerns had evolved around the creation of the legal-medical panel from a constitutional standpoint. He said he has always supported the panel, and he believes at the time it was established, there was a "disincentive" for any lawyer to challenge the constitutionality. Mr. Bradley continued, "You don't have that any more in this context...and I am concerned we cannot control each lawyer in the state." Senator Porter asked Mr. Bradley to explain why he believed the addition of the dental profession to the panel would hurt the patient. Mr. Bradley responded the legal professional would make a decision, based on the economics of a case regarding negligence, whether or not to pursue that case. He said it was very expensive to pursue a case, and the cost of going through the screening panel was between $5,000 and $15,000. Mr. Bradley said he believed 90 to 95 percent of dental malpractice cases involved sums less than $40,000. Therefore, he stated, "...there is no way those people are going to get representation because it simply cannot be justified to get involved in a case of dental malpractice when the dollar amounts are that small." Mr. Bradley stated if the dental profession was added to the Legal-Medical Screening Panel, there would be no incentive to go to the voluntary peer review board. Senator Lee asked if the dental profession was "a part of the handshake" which occurred in 1985, and Mr. Bradley answered it was not. Senator Lee then asked how Mr. Bradley felt the "handshake" had been violated. Mr. Bradley answered that violation has occurred because of the tort reform measures being pushed by the Nevada State Medical Association. He stated he was not accusing the dentists of violating any "handshake" agreement. Senator Lee asked Mr. Bradley, "In 1985, when that handshake was done, could you or your board of trial lawyers control an attorney in Nevada that decided it wasn't fair...and that they were going to court with their client?" Mr. Bradley responded the association could have advised the lawyer concerning the negotiations. He also said the board of the NTLA has a provision whereby the organization agrees to file "as a friend of the court," and can elect to get into a controversial area. The decision of the association was that "...we would never challenge the constitutionality of the panel." Senator Lee asked if S.B. 129 became law, if the NTLA would still have that avenue, and Mr. Bradley replied they would. Senator Lee then referenced the remark that it would cost $5,000 to $15,000 to prepare a case for the screening panel and asked what it would cost if the case went straight to court, with no review panel involved. Mr. Bradley answered, "From $30,000 to $45,000." Mr. Myers stated in 25 years of practicing law in the area of personal injury and professional negligence, and in the collective experience of his partners and associates, they have only handled two dental malpractice suits. He said by its nature, dentistry is not a profession that "hurts many people very badly." Mr. Myers referred to the matter of patient "access," and said, "In addition to all the expenses involved in pursuing in court, if I had another layer of expense and time in the form of a screening panel, I would be even more selective, and turn away more people." He also said the insurance companies, if they had to pay panel expenses, would be even more inclined to pay greater sums to settle cases. Mr. Myers stated the Legal-Medical Screening Panel was already overburdened, and do not have sufficient manpower to handle the cases already filed. Dr. Twesme appeared again to explain the peer-review panel system. He said this was a voluntary program which has been in place for many years and has been very successful. Dr. Twesme said when a patient registers a complaint, they enter into binding arbitration where the case is reviewed and hopefully settled to everyone's best interests. However, he stated, "That is not working, obviously, or we wouldn't have seven or eight dentists who have taken time out of their practice to come up here and talk to you today." Dr. Twesme indicated they would not be there today if there was not a problem, which was shown in the survey the dental association conducted. He said their goal is to increase access to the patients of Nevada. Dr. Twesme continued, "There are over 26 different procedures that have been discontinued by general dentists...who feel if they do these procedures which are performed by specialists, they are going to get sued." He said it was also important that malpractice premiums decrease, since increased costs have been passed along to the patients. Senator James responded, "The big question is whether or not this is going to help that." Mr. Wadhams directed the committee's attention to lines 24 and 25, page 6 of S.B. 129. He said the language states, "If the determination is not in favor of the claimant, the claimant may file an action in court." He asked the committee members to keep that language in mind when considering the bill. There was no further testimony on the bill, and Senator James closed the hearing on S.B. 129. He then opened the hearing on S.B. 395. SENATE BILL 395: Regulates recovery for defects in residential construction. Senator James indicated the bill also dealt with "tort reform" involving cases for recovery in residential construction. He informed the committee that one of his law partners is representing some southern Nevada homebuilders on various matters, and said this may or may not disqualify him from voting on the legislation. The chairman indicated he would seek an opinion in this matter. The first to appear before the committee were I. R. (Rene) Ashleman, Lobbyist representing the Southern Nevada Home Builders, Robert Lyle, Attorney at Law, representing the NTLA, and Jim Wadhams, Lobbyist representing Southern Nevada Home Builders Association. Mr. Ashleman indicated the NTLA, the home builders and the local governments had worked very hard in order to agree on the legislation. He said the trial lawyers and the home builders "find themselves jointly in an undesirable situation, "because there currently is no mechanism for resolving disputes." Mr. Ashleman said very often if there is a suit or threat of suit involving construction defects, a warranty or insurance carrier may indicate "...they will have it out in court...don't fix things." He said that may be appropriate in some circumstances, but causes frustrations to the homeowner, "...who discovers he gets to live in what he believes to be an unpleasant and defective home for 2 or 3 years while the legal system cranks along its merry way." Mr. Ashleman said there is also frustration on the part of the home builder who is trying to sell more homes in that atmosphere. He said S.B. 395 provides procedures to help solve those problems. Mr. Ashleman stated there have been many modifications to the original bill, which is now almost entirely rewritten, and the agreed legislation is set forth on Exhibit D. Senator Adler asked if the legislation covered all defects, including landscaping. Mr. Ashleman answered the language was designed to cover all defects, such as construction, manufacture, design or repair of a new residence, or alteration or addition to an existing residence, or of accessory structure or other appurtenance. Senator Adler stated he wanted it to be made clear that the language included landscaping, sprinkler systems, and fencing. Mr. Ashleman answered for the record that this was clear in section 4 of the bill. Senator Adler reiterated his desire to have the term landscaping set forth in S.B. 395. Senator Titus asked if the term "contractor" referred to a "licensed contractor." Mr. Ashleman stated if a homeowner bought a home from an unlicensed contractor, and needed to enter into litigation, "...he would want to have such a mechanism as surely then as if the guy were licensed." Senator Porter asked if the new definition of "contractor" would appear only in chapter 40 of Nevada Revised Statutes (NRS), or if it would appear in other chapters pertaining to contractors. Mr. Ashleman answered that definition was intended to apply only to chapter 40 of NRS. Senator Porter asked Mr. Ashleman in his testimony to include information on how the bill will help the homeowner. Mr. Ashleman explained the bill requires, before a cause of action is brought against a home builder, that the claimant give written notice by certified mail, return receipt requested, to the contractor at his last known address. He said the contractor must then respond, by inspection and offer to repair, if the contractor admits he was at fault. (See section 11 of S.B. 395.) Mr. Ashleman stated the contractor may make a written offer of settlement or repair. He continued to say if the claimant rejects such offer, he may file a lawsuit. Mr. Ashleman said this system will provide immediate satisfaction to the homeowner, because if the contractor does not do the things which are necessary, he loses various defenses in court, and may subject himself to fees and costs. The contractor has the advantage of telling his insurance carrier that Nevada law requires to make the necessary repairs immediately. Senator James pointed out if a homeowner unreasonably rejects a written offer, the court can deny the attorney's fees and costs of the homeowner, and asked if a contractor fails to make a reasonable offer, or fails to complete the repairs, if the homeowner can recover such costs and fees. Mr. Ashleman stated section 13 of the bill covers that contingency. Mr. Ashleman discussed section 14 of the bill, which provides that a contractor may elect to repurchase a defective structure. Senator James asked, "What if a homeowner wants to get it fixed as well as it can be fixed, and they don't want to move?" Mr. Ashleman indicated they could do that, but Senator James stated the language of the section gives an absolute right to the contractor. The chairman stated language should be set forth which says a homeowner can sue for damages, but not in excess of the value of the home. Mr. Ashleman continued, "If a builder offered...even if the homeowner wanted the home repaired...we would be free to argue in court that the builder [extended] a reasonable offer...." He added they certainly do not want to be put in a situation "where we have to pay more for the cost of repair than the home and the allied costs associated therewith are worth." Senator James asked if the language, "as the parties may agree," makes it a "mutual decision," not "an absolute right?" Mr. Ashleman agreed. Senator James indicated he did not believe the language was clear, and suggested they work on that section of the bill. Mr. Ashleman continued with an explanation of Exhibit D, beginning with section 16. He indicated starting with section 18 of the bill, were provisions for bringing a complaint if the problems could not be resolved. Mr. Ashleman indicated the language set forth the term "mediation," which was not arbitration. He said a mediator's job was to facilitate communication between the parties, and if possible, to get them to agree upon a mutual settlement. Mr. Ashleman pointed out a mediator does not make an award nor does he make findings and a decision. He said if either party does not enter into mediation in good faith, he can so advise the court. Mr. Ashleman stated to resolve a concern of both the trial lawyers and of various other consumers, they agreed on behalf of the bill's proponents that the contractor "fronts the entire amount of money for mediation fees." He added this does not mean if the contractor wins in court, he cannot regain those costs. Mr. Ashleman said this does not keep a person from "having their day in court." He said they have placed a cap on the daily cost of mediation and that is set forth in section 18(2). Mr. Ashleman stated in addition to cutting down on discovery and preparation costs, mediation has other good features, such as time involved and the ability to allow the parties to "fashion their own solutions." He said the parties have far more flexibility than could be done in a courtroom setting or in arbitration. Mr. Ashleman said if the parties must take the matter to court, a special master would be appointed, with powers as set forth in section 18(4) of Exhibit D. He said the aim was to cut down on the inordinate cost and delay involved in the discovery process. Mr. Ashleman stated the decisions or actions made by the special master may be reviewed de novo by application to the court. In response to questions posed by the chairman, Mr. Ashleman indicated a special master would be appointed by the court and that master would be compensated by order of the court. Mr. Lyle (representing NTLA) indicated the cost of a special master is typically borne by the county as part of the court administration budget, or the parties can be ordered to bear the cost if specified by the court. Senator James asked what type of a report would be submitted by a special master. Mr. Ashleman answered the basis of the report of a special master, who would actually be an "expert witness" would be whether the problem was a defect or not. Mr. Ashleman stated the advantages to the home buyer are very evident throughout the legislation, as well as to the home builder. He said section 19 of the bill is of particular value to the home buyer, because quite often the buyer will sign a waiver or settlement agreement, and find out later the problem had not been solved. Mr. Ashleman said there was a concern regarding such a waiver, which led to language which states, "No written waiver or settlement agreement executed by the buyer after the contractor's repair shall be a valid bar to a complaint...." (See section 19). Mr. Ashleman continued: "Depending upon which one of us you hear argue about it on any given day, this is a course of action not currently available to the home buyer...." Mr. Ashleman stated section 20 of the bill tolls the action against claimants or contractors against any third parties, including government entities. He said the bill was designed to make it clear it is the home builder's responsibility to resolve the problem. Senator Titus asked for an explanation of the role of the contractors' board, and Mr. Ashleman explained its purpose: "The contractors' board is very active in going after unlicensed contractors...they remove the licenses of contractors who are incompetent...." He said S.B. 395 would not prohibit anyone in any way from going to the contractors' board, irrespective of other actions which are taking place, and filing a complaint. Senator Titus stated she would like to make sure a person who has a problem with an unlicensed contractor, "...they don't have to go through all of this to get at the unlicensed contractor first." Mr. Ashleman answered if that person wants to recover from the unlicensed contractor for his negligent work, they would still have to go through the process set forth in the bill. Mr. Lyle indicated he has practiced law in the area of construction in Nevada. He said in the negotiations leading up to the development of Exhibit D, the question continually came up, "What would be best for homeowners who did not have a lawyer?" He said they have attempted to set forth a process whereby the average homeowner who is not able to hire a lawyer, can "walk themselves through the system and not be harmed by it, and be able to accomplish a timely repair and resolution of their problems." Mr. Lyle stated that involves (1) the notice; (2) the inspection; (3) an offer to resolve; (4) nonbinding mediation if the matter cannot be resolved; and (5) appointment of a special master if the matter must proceed to court. Mr. Lyle indicated there were a number of homeowners present to testify, who had opposed the bill in its original form. He said he had explained the provisions of Exhibit D to those persons, and they would speak to the committee regarding that compromise. Mr. Lyle stated as part of his law practice, he has represented contractors as well as homeowners, and has defended insurance companies representing contractors and subcontractors. He stressed he was not representing any particular interest regarding S.B. 395, but has worked with the other parties involved in order to "come up with a meaningful and fair bill." The next person to speak was Barbara Quinby, Member of the Public. Ms. Quinby stated she was a resident of Reno. She said she was"...not all that concerned whether the attorneys and the home builders are going to go along on this," and added, "We need something for the homeowners." Ms. Quinby stated, "My life has been hell for the last 6 years...and there has been nowhere to turn." She said there was no consumer group for homeowners to turn to, and she was unable to afford an attorney. Ms. Quinby said she turned to the State Contractors' Board which, she added, "...has done a good job of stonewalling me and getting me so confused I don't know up from down...and has caused some of the statute of limitations time lines to pass." Ms. Quinby asked how passage of S.B. 395 would affect people who "have already gone nowhere under the Nevada system." She said her family's file with the contractors' board is still open, but they have no access to that file. Ms. Quinby asked the following questions: "What happens if our contractor ignores our written statement; what happens if they go out of business; what happens if they file for bankruptcy; who inspects?" She said her contractor did the inspection himself, and they have water leaking out of their light fixtures, their smoke alarms and "pouring out of our doorjambs." Ms. Quinby continued, "They put a little bit of tar paper on our roof...then we have 2 dry years and it doesn't leak...but when we have a year like this...I have no pots and pans available left." She stated, "Unless we could afford an attorney, there has been nobody to help us." Ms. Quinby indicated the State Contractors' Board has indicated they would take care of the situation, but they have not. She reiterated, "Where does this bill help us? Are we grandfathered in? Do any of you want to buy my home?" Senator Adler asked for the name of the contractor who built Ms. Quinby's home. She answered it was "Ekins Construction," which did not go under that name, but rather under the name, "Celebrity Homes," which later went bankrupt. Senator Adler indicated he had found similar problems in his district when contractors used multiple names. Ms. Quinby said there was additional negligence, when the county issued a Certificate of Occupancy to the family, although certain work had not been done. She stated she believed her home had been inspected. Ms. Quinby concluded, "I found out the hard way that there is no protection in this state for the homeowner." Senator James recessed the hearing at 11:00 a.m., until adjournment of the floor session of the Senate. Upon adjournment at 12:45 p.m., the chairman reconvened the hearing. Ms. Quinby continued her testimony. She said her concern with the legislation was the language which states the contractor would do the inspection within 35 days. Ms. Quinby indicated she did not believe the party who was involved should do that inspection. Mr. Ashleman returned to the witness table to address that concern. He said if the contractor does not have the right to inspect, "..it will be hard to make a repair or even an offer of settlement." Mr. Ashleman said the inspection was "not an official report," and was not to decide who was right or wrong for court purposes. Ms. Quinby said her other disagreement with the bill was the provision that states a contractor can offer to purchase the home "at the purchase price." She said her home has been increasing in value, because of other homes in the neighborhood. Ms. Quinby added, "By the time you can go through this problem...and maybe have to end up in court...I don't understand why they can't give you fair market value...." Mr. Ashleman answered: "If you start to do that, you are going to make settlements extremely difficult. Secondly, some of these homes were built 20 or 30 years ago." Senator James pointed out a homeowner was not "stuck" with a contractor's offer of a purchase price, because that homeowner has the option of going forward pursuant to other provisions of the legislation. The next person to appear before the committee was Cherie Johnson, who provided the committee with documents set forth herein as Exhibit E. Ms. Johnson stated she was generally in agreement with the new version of the bill (Exhibit D). She said she had some of the same questions as did Ms. Quinby. Ms. Johnson showed the committee a picture of a rock on her roof, which was placed there to hold down roofing, and was "considered a roof repair." She then asked if a home purchaser would be notified as to the requirements for notice set forth in S.B. 395. Senator James asked Mr. Ashleman to address how homeowners are educated concerning their rights. Mr. Ashleman answered it was the intention of the home builders association to prepare a pamphlet which would be provided to the new homeowners. He said if Ms. Johnson was concerned that if a homeowner did not make a complaint within 60 days, he would have no recourse, it was not true. Mr. Ashleman said the 60 days involved "the time of notice prior to filing a lawsuit." Senator James asked Ms. Johnson if she understood there was now an "avenue of consumer protection" which did not exist before. Ms. Johnson agreed there was an avenue, since before they did not know what to do. As Ms. Quinby stated, the inaction on the part of the State Contractors' Board caused the matter to exceed the statute of limitations. Senator Adler stated he believed the bill did a "good job [regarding] the medium to large size contractors, but the real 'fly-by-night' contractor is [still] going to build a house and take off...." Ms. Johnson indicated that is what happened in her case. She said that company filed bankruptcy and moved their assets into another company. Senator Adler stated most reputable companies would "make the repairs good, anyway." Senator James said he believed once the legislation was passed, creating an avenue for the homeowner to follow, there will be a willingness on the part of the reputable contractor to comply. He said class actions, which are very complex pieces of litigation, "...will take you way down the road in time...and should be a last resort." Senator McGinness indicated a homeowner should take responsibility before a home is purchased or built, to contact the State Contractors' Board and find out if the builder "...was just licensed last week or has been licensed for 60 years...." Ms. Johnson disputed Senator McGinness' statement, indicating the State Contractors' Board considers that to be confidential information. She said the contractor they used had been in the Reno area for quite a number of years, but they could obtain no information regarding complaints. Ms. Johnson stated, "I was told by the State Contractors' Board that I have no right to my own file...except for my own correspondence." She added, "They are not there for us... they are there for the contractor and they will protect that contractor...." Senator James said the issue of the State Contractors' Board was handled in a different committee, and added, "Maybe it is an area that should be reviewed...but I don't think it can be done today in the context of this bill." The next person to speak was Bob Maddox, Attorney at Law, member of the NTLA, who stated he represented homeowners in Reno. Mr. Maddox stated he participated in the negotiations leading up to the development of Exhibit D. He said he was initially "adamately opposed" to the bill in its original version, and stated he was now "enthusiastically in support of the bill as redrafted." Mr. Maddox said he was in favor of the mediation provisions, particularly because the contractor must "front all the money" for such mediation. He stated he believed this would be an incentive for the contractor to deal with the smaller cases quickly and efficiently. Mr. Maddox said he was satisfied with the provisions of section 13 of the bill, which specify the damages the homeowner can recover. He also said he agreed the attorney's fees and costs of the homeowner should be recoverable in court. Mr. Maddox said there are some wording problems in the bill, and asked if he could go on record with his understanding of certain provisions: The definition of 'contractor'...this wording would include a person who is not necessarily licensed as a contractor, but who does work. There is a problem which should be addressed. In section 11, the contractor, given the definition...can go in and do the repairs...that is not a licensed person, and that should not be happening. If it occurs that the homeowner buys the house from an unlicensed person, and that person is covered by the definition here, that person should not be doing the repairs. Senator Titus stated, "The way this bill works...if you have to negotiate with an unlicensed contractor to get down to repair it, you are encouraging them to do something additionally wrong, because they are unlicensed. Mr. Maddox indicated that was a provision which needed to be "cleaned up." Senator Porter said he did not believe the unlicensed contractor should even be involved in mediation, since he had already broken the law. Mr. Maddox admitted that was a provision which must be discussed. Senator James asked that language be developed to deal with the issue of unlicensed contractors in the context of S.B. 395. Mr. Maddox indicated he would be happy to do that, and Mr. Ashleman agreed. Mr. Maddox set forth a second concern: By reading the definitions...a homeowner, as I understand it, may recover more than the original cost of the home. (Sections 13 and 14). If the idea is that the homeowner be made whole...there are a number of things which may come into play... It was important that between sections 13(a) and (b) of the bill, there be added the language, 'and/or'... Senator James stated the bill drafters would not allow the phrase, "and/or," to appear in the NRS, and they generally use different wording. Mr. Maddox stated section 14 should be "a negotiable thing," and not be forced upon the homeowner. Next he referenced section 16, and the language, "...costs in addition to any other damages recovered under any other law...," and asked that the language, "...not inconsistent with the provisions of sections 2 to 19 inclusive of this act," be stricken. Senator Porter asked Mr. Maddox if he had any problem with the phrases, "...the contractors may...." Mr. Maddox answered that language had been agreed upon in negotiations between the parties developing the legislation. Mr. Ashleman indicated there were two definitions of the word "may," i.e., one "may" is intended to give the court discretion as to whether it does or does not allow certain attorney's fees and costs; the other, he said, is used because the contractor does in some cases have alternatives. He used as an example, "The contractor may decide to buy a house back, he may decide to repair it, or he may decide to make a reasonable offer of settlement...but he is not allowed to do nothing." Mr. Maddox pointed to language in section 15 of the bill which states: "When the contractor makes the offer of settlement, it should provide that the offer warns the claimant in clear and understandable language of the time frame to accept and the penalties for failure to respond...." Senator James stated he believed a new homeowner should receive a booklet explaining the law. Mr. Maddox agreed. Mr. Maddox stated the intent of utilizing a special master would be to expedite the process so the matter could be resolved as quickly and efficiently as possible, without having "horrendously expensive discovery wars consuming everyone in the case." The next person to speak was Francis I. Lynch, Attorney at Law, Las Vegas, who introduced three homeowners from southern Nevada who were his clients. The first to make a statement was Leslie Chikato. Ms. Chikato said the revised version of the bill (Exhibit D) "...gives us more rights that we originally had." She said they have been "fighting" their home builder for 3 years. She said her concern was that the mediation board "...not be handled in the same way as the contractors board...." Also speaking was Vicki Fort, who said she was against S.B. 395 in the beginning, but is pleased with the amended version. She said she hoped no one would have to go through what she did, although she did not elaborate. The last of the three to make a statement was Barbara Waller, President, Duck Creek Village Condominium Homeowners Association. She said they have gone through 5 years of litigation on construction defects, and their case has finally settled. Ms. Waller stated she is happy with the amended version of the legislation. Mr. Lynch concluded by saying the matter that worried him the most in the original bill were the provisions regarding the State Contractors' Board, but he is satisfied with S.B. 395 as presently written. Senator James indicated he will ask for the amendment as set forth on Exhibit D to be drafted by the Legislative Counsel Bureau and returned to the committee for a work session. The next person to speak was Eric Cantlin, Member of the Public, and a Carson City homeowner. Mr. Cantlin stated he contracted with a contractor approximately 3 years ago to have a 3,800 square foot custom home built. He said after 1 year had passed, after requesting vouchers, invoices and releases, he was told by both the contractor and the State Contractors' Board that he was not entitled to receive the same. Mr. Cantlin stated the contractor was paid $117,000 and rolled an additional construction loan over for $125,000. He said after a 3-year investigation, he found the mortgage company he had rolled the construction loan over to, "...is not licensed as a banking mortgage company in the State of Nevada." Mr. Cantlin said he started and ended with the attorney general of the State of Nevada, and has "gone through this loop ...around, around and around." He said three formal complaints have been filed with the State Contractors' Board. Mr. Cantlin continued: "We have had 11 roof leaks, 9 plumbing leaks, a 1/2-inch fracture through 3 garage floors, a 3-inch drop in the foundation ...the construction was never completed...the materials list was not followed by the contractor." He said the State Contractors' Board has told him, "As long as it was built and he did use sufficient materials, I do not have a grievance." Mr. Cantlin continued to say the contractors' board has asked him, "What have you done to correct the problems?" He said although he is in favor of the bill as revised, there are additional revisions which are necessary. Mr. Cantlin referenced language which says the contractor may inspect in 35 days. He stated, "I have had this individual out six times to reinspect my home after I have asked subcontractors to give me a bid for the work." Mr. Cantlin stated the subcontractors are "aghast at the problems I have...when the contractor comes up...I have no problems." He said the contractors' board indicated to him that he had "invalid issues." Mr. Cantlin stated he could not sell his home, because "...it is not completed...not fixed...not finished." He said an appraisal in its present condition would cause him to lose money. Mr. Cantlin disagreed with language in the bill which says no state, city or federal agencies could be held accountable. He said the contractor told him that the city "signed off" on everything concerning the home. He then asked if S.B. 395 would "grandfather" those persons who are still attempting to resolve problems regarding homes built in the past few years. Senator James referred to the liability of governmental agencies and asked: "Does the language of the bill just toll those actions of the governmental entities pending the application of these provisions...with the liability for inspection [being] dealt with under a separate statute...?" Mr. Ashleman answered this was correct and no liability which exists for the governmental entities was removed. Mr. Maddox clarified that S.B. 395 does not have that impact. Senator James stated the bill would not affect a cause of action, and as a matter of fact it "tolls" the time within which a person can bring that action. Senator James referenced the concerns regarding those persons who are presently involved in disputes with contractors. He said this bill "should apply to anybody." Mr. Ashleman stated they "very deliberately" did not use limiting language and added, "Any limitations they may have on filing actions are limitations caused by other statutes, not this bill." He said if the legislation is passed, any person "could send a letter off to their contractor today and cure their situation." Mr. Ashleman added, however, if a case is currently in court, the plaintiff would not do so. Mr. Maddox stated the provisions regarding notice and mediation would not apply if a case had already been filed, but said he assumed those provisions would apply "at least as far as the damage provisions are concerned." Mr. Ashleman repeated he did not believe a matter already in the court system would apply. Senator James stated he believed the issue should be clearly spelled out in the bill. The last person to testify was Robert S. Hadfield, Lobbyist representing Nevada Association of Counties. Mr. Hadfield stated the association supports the measure and believes it is a good consumer bill. He said the association feels the bill will provide the "quickest relief to the homeowner" and avoid costly litigation, by setting up a badly needed process. Senator Porter asked if prior to the work session on the bill, staff could examine the definition of "contractors" contained in S.B. 395, and the impact it will have on the balance of the NRS. Senator James agreed and said all those items discussed in the hearing will be incorporated into an amendment, to be presented at the time of a work session. Mr. Ashleman asked to clarify section 9(2) which should set forth the date of the act as July 1, 1995. Senator James stated, "What has happened today is a tremendous example of how you can take what would be a hotly contentious issue and get your heads together to come up with something both sides can be happy with." He commended those who had worked to develop the legislation. The chairman indicated he would hold this issue up as an example for other issues, particularly in the area of tort reform. He concluded, "When parties take intractable positions on both sides...dig their heels in and decide they are going to hit a home run...and load the deck against the other side, nothing gets accomplished...." He again thanked those present for their work. There being no further business to come before the committee, the hearing was adjourned. RESPECTFULLY SUBMITTED: Marilyn Hofmann, Committee Secretary APPROVED BY: Senator Mark A. James, Chairman DATE: Senate Committee on Judiciary May 10, 1995 Page