The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 8:30 a.m., on Wednesday, March 31, 1999, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

STAFF MEMBERS PRESENT:

Silvia Motta, Committee Secretary

OTHERS PRESENT:

Lawrence P. Matheis, Lobbyist, Nevada State Medical Association

Senator McGinness, Acting Vice Chairman, opened the hearing on Senate Bill (SB) 380. Senator James and Senator Porter disclosed potential conflicts and did not participate in the hearing on S.B. 380.

Bryan Gresh, Lobbyist, Summit Engineering Corporation, stated during the past few years a sudden increase of unsubstantiated lawsuits have been filed against engineers and land surveyors throughout the state of Nevada. He indicated S.B. 380 would provide for a review panel to examine and monitor certain claims concerning alleged construction defects. The measure would also allow for either party who disagrees with the board’s decision to pursue the matter through the courts. Mr. Gresh said the cost and liability resulting from a lawsuit dispute is a great concern among engineers, land surveyors and the general public; especially the increase in cost and the quality of service, which would ultimately affect the consumer. He also said there would be no changes in the law regarding the attorney fees, the compensation for damages or other costs incurred.

Mr. Gresh compared S.B. 380 to the successful medical malpractice panel and said, the current proposal would permit the professionals, such as, engineers and their attorneys to spend less time with unnecessary litigation. He remarked the screening board would pay for itself. However, a fiscal note request would be taking place some time in the near future. Senator Wiener inquired about the estimated time for a screening board to achieve a resolution.

Gregory Walch, Attorney, representing Summit Engineering Corporation, outlined the time frame, a total of 140 days with the purpose of expediting a resolution. He said the time frame includes reasonable extensions, if required, and would be in accordance with the amendments proposed under this bill. For example, an answer to a complaint must be filed within 60 days; 42 days for the insurance division to select the members for the screening board, and 30 days for the hearing to commence. He noted, if there was failure to file an answer within 60 days, the answering party would be unable to participate in the upcoming hearings.

Thomas H. Gallagher, President, Chief Executive Officer, Summit Engineering Corporation, stressed the need for this legislation to assist engineering companies throughout the state of Nevada. He emphasized the severity of the situation and the critical need for lawmakers to find a solution. He claimed that based on his experience and other experts in the field, there could be a great loss of professional designers in the next few years unless something is done immediately.

Senator Care asked for the statistics of lawsuits in the State of Nevada over the last 5 years. He also asked what would happen in the event of a motion to dismiss or a motion for summary judgment is filed. Neither Mr. Walch nor Mr. Gallagher had complete knowledge of the amount of claims filed. Mr. Walch gave a brief detail of the history of a construction defect lawsuit. He explained the process of filing a motion is intended to be a predicate for the filing of the litigation itself. The claim may be "strung out" for up to 16 months or a year while the case takes form. A series of meetings take place, where both sides present their evidence to the screening panel; the panel then presents a dissertation of its findings. Inspections and testing take effect; then the mediation process is handled just before the lawsuit is filed.

Senator Wiener questioned the impact over the last 4 years on errors and admissions, and how many of the claims were actually class-action suits. Mr. Gallagher replied approximately one-third of the claims are class-action lawsuits, and said at least one-half of the project margin of engineering businesses are impacted. He offered, under the errors and admission insurance policy, the engineering companies are allowed to pay $80,000 a year, or a deductible amount per claim.

Senator Care inquired about additional defendants added subsequent to the screening board’s findings, under section 25 of S.B. 380. He also suggested a provision be added to the amendment; i.e., "if screening panel does not issue its findings within 90 to 120 days after initial contact, the plaintiff is entitle to file claim with the courts." Mr. Walch replied any claim that is subject to this act and any construction-defect case would be appropriate since trials can run concurrently. He agreed to the language change, so long as the provision clearly specifies "if you are holding the claim or part of the process" and the trial would not be stretched. Mr. Gallagher commented that many of the claims that are filed are simply unrealistic and poorly thought-out. The name list in some lawsuits has reached as far as a fertilizing company, totally unrelated to construction defects; with as many as 168 subcontractors, prolonging the action process up to 24 months.

Mr. Walch said, in summary S.B. 380 presents an uncomplicated screening panel process, with the intent to expedite resolutions for merit and non-merit claims. He explained that when a landowner or developer files a complaint with the Division of Insurance prior to a court trial, the action is brought before a panel of experts for review of the claim. The panel then may decide whether the claim is legitimate or who would be responsible for the defects. He remarked, to clarify any misconception, S.B. 380 would not prohibit anyone from filing a claim with the courts; providing that the action has gone through the screening process, the lawsuit would not be delayed. He continued, in light of the time it takes to screen and proceed to a court trail, there would be no impact on the time lines. Engineers and land surveyors are licensed professionals. They are required to study and pass an exam in order to practice as a professional in the State of Nevada. Mr. Walch concluded his testimony by outlining each of the sections of the bill to reiterate the proposal.

Senator Care raised the question of an impartial third party for the screening board. Mr. Walch said the issue had been contemplated originally; however, no one had applied for the position and consequently a third engineer was added instead.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association, expressed the need for a screening panel and said the only concern would be the length of the process. He urged the committee to approve the formation of a screening panel.

Larry L. Spitler, Lobbyist, American Consulting Engineers Council of Nevada, concurred with the amendments previously presented before the committee. He asked the committee to accept a letter (Exhibit C) from James A. Duddlesten, President, G.C. Wallace Incorporated, and requested the letter be admitted as part of the record.

Ray Davis, P.E., Executive Vice President, Kleinfielder Consulting Engineering Group, testified in support of the bill. He indicated his company represents 85 percent of the practicing licensed engineers in the State of Nevada. He also said that S.B. 380 is about reducing the cost of litigation. The bill would not prevent anyone from filing a construction defect claim; that the bill would efficiently distinguish responsible and non-responsible parties. Based on the measure, the cost and construction defect mediation settlements will create prompt solutions. He added, the current lawsuit problems are a major influence for the plaintiff’s attorneys, naming just about anyone involved in a construction project, then letting the judicial system sort the dilemma.

Senator McGinness asked if the lawsuit problem had been building over the last few years. Mr. Davis responded, according to an analysis report he received there has been an increase of 35 percent in the last year. Mr. Davis concluded by saying S.B. 380 is in the best interest of the taxpayers by reducing court hearings and the cost involved; a development that may turn into an appeal system. He urged the committee to vote in favor of the bill.

David D. Wilson, P.E., Vice President, Consulting Engineers of Nevada Incorporated, expressed support for S.B. 380.

Scott Smith, Vice President, Harding Lawson Associates, said in representation of the Consulting Engineers of Nevada Incorporated, that he voiced strong support for the bill.

Fred L. Hillerby, Lobbyist, American Institute of Architects, advocated that the measure be approved. He stated that the screening-panel process in the medical and dental fields has been very successful.

Gregg N. Mendenhall, S.E., Mendenhall Smith Incorporated, testified in support of S.B. 380. He voiced his concern for the engineers’ ability to continue business in spite of the increase in lawsuit claims regarding constructional defects. Up until a year ago, he said, there had been no cases filed against Mendenhall Smith Incorporated; yet today there are 12 lawsuits pending.

John S. Kubota, Principle, Kubota & Associates Engineers Limited (LTD), testified in favor of the bill. He mentioned a recent case where the contractor and the framer have gone out of business, leaving the engineer as the only one held responsible. Senator Care requested a copy of the caption on any given claim, reflecting all the different parties named in a complaint.

Ben Grissom, Member, Nevada Association of Land Surveyors, spoke in favor of S.B. 380. He classified the bill as a good law for engineers, land surveyors and the citizens of Nevada.

Gerry Higgins, Consultant, Nevada State Board of Professional Engineers and Land Surveyors, said that the amendments requested by the board of engineers had been included in the bill, and that the board would be in full support of the measure.

Noni Johnson, Executive Director, State Board of Professional Engineers and Land Surveyors, introduced Exhibit D, the proposed amendments to sections 11 and 18 of S.B. 380. Senator Wiener inquired about the language change on page 2, section 11, line 25 of the bill, "designate 40 of its members." Ms. Johnson explained the language was changed to provide a group list of construction-defect experts to serve on a screening panel. The list selection would be based on the requirements for the panel.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association (NTLA), partially disagreed with the proposed amendments. Having participated in the 1985 negotiations and drafting of the medical and dental screening bill, Mr. Bradley offered to answer any questions from the committee. He claimed the screening panel outlined in the amendments, simply would not work, and that the NTLA had recently created a comprehensive bill, one that would allow for defects and responsible parties to be identified; a bill that would enforce the rules for rectification, and would allow the homeowner to file a lawsuit in the event of a disagreement. He drew attention to those persons most affected by this bill (S.B. 380), as in a lawsuit filed by a Homeowners Association (HOA) against a contractor; even when the contractor is willing to correct the problem. He stressed that when a claim is filed against the contractor, the contractor then files the claim with his insurance company, who delays the process by trying to find other responsible parties to aid with lawsuit costs and repairs; then add them to the claim. In the meantime, the contractor and the developer assume that the problem would be corrected. The end result becomes too expensive for all the participants.

Mr. Bradley restated the proposed time line for S.B. 380 for the screening panel to issue its findings simply would not work, because the panel would have to examine the construction plans and building inspections prior to filing a lawsuit. There is a considerable amount of material associated with a construction project that must be reviewed by each one of the six members of the panel. He stated that in the medical and dental malpractice suits, the list of defendants is considerably smaller and the amount of material to be reviewed is less complicated. Mr. Bradley emphasized the future NTLA proposal would eliminate all of the problems presented before this committee. Under such new proposal all subcontractors would receive notices in a timely manner. All the experts in the field would gather for roundtable discussions under the supervision of a magistrate, who would determine the true responsible parties. Mr. Bradley explained that the focus of the screening panel is not strictly for review; it is intended to give both sides the opportunity to present evidence and expedite a settlement. He felt reluctant in regards to the "no-discovery" provision, and suggested a panel with a total of three lawyers and three engineers to maintain consistency.

Senator Wiener asked how additional defendants would be precluded from being added into the claim at a later date, and who would decide which parties are to be included in the action. Mr. Bradley agreed it would be impossible to prevent the additional defendants; the initial intent of the legislation was to name all the parties involved in the project, in spite of this, the ultimate decision is made by the trial judges. He stated the demand of growth in Nevada, the poor construction and inadequate legal representation has increasingly affected the consumer’s primary investment. Senator Wiener maintained that the growth in the State of Nevada had initiated several years before the increase in construction-defect lawsuits. Mr. Bradley said there are instances where it takes time to find the defects, possibly years before the signs begin to show.

Robert C. Maddox, Lobbyist, Nevada Trial Lawyers’ Association, spoke of a pre-litigation process that homeowners must go through before any claim is filed. The process consists of a certified mail notice to the builder, an inspection period, and the offers that are made during the mediation. He pointed out that what is being proposed under S.B. 380, is to add another section of pre-litigation activity to delay the proceedings, avoid cost for repairs and draw additional parties into the claim. In the event that all these tactics fail, the homeowner is to file a suit against the builder, then the builder’s insurance company includes other people like the engineers, delaying the matter even further from the screening process. He asked the committee to reconsider the proposal.

Mr. Maddox said, in his opinion, the proposal would be a horrible and frustrating situation for very unfortunate victims, especially affordable housing owners. In the meantime, the property could be substantially falling apart. He also said this kind of legislation (S.B. 380) requires special skill, experience, strength and power to be able to survive such a long process; not to mention the cost for litigation.

Senator Washington inquired about a possible cost increase to the homeowner as a result of litigation, and he wondered who would be held responsible for any of the repairs. Mr. Maddox said, based on his observations, the consumer’s insurance premiums would be raised to cover such costs. Senator Titus expressed concern for the homeowners and the engineers in the event of the developer not accepting responsibility for damages. Mr. Maddox said if the attorneys would abide by the laws of the state and court rules, as an alternative to filing frivolous lawsuits, there would be fewer people affected.

Acting Vice Chairman McGinness closed the hearing on S.B. 380.

Chairman James opened the hearing on S.B. 479.

Mr. Bradley spoke about the initial legislative intent for S.B. 479. He suggested the trial jurors should be notified of the screening panel’s decisions prior to settlement; namely when conclusions were in favor or against the claimant in order to avoid frivolous cases from moving forward. He also recommended when a screening panel is unable to reach a decision, the case should be reviewed by other experts before the claim reaches a court trial. He testified that creative defense lawyers are trying to use the "unable-to-decide" tactic, misleading the jury or persuading the panel from making the right decision. He asked that the "unable-to-decide" language be excluded from the bill to avoid being admissible in the courtroom, and that such cases as those with someone critically ill clearly be given priority on the calendar schedule. Mr. Bradley mentioned he recently discovered that the context in the screening panel procedure manual from the Division of Insurance, Department of Business and Industry, authorizes the expedition of those cases with a person over the age of 70, or very ill. Referring to sections 2, 3, and 4 of S.B. 479, Mr. Bradley requested the bill be amended to read as the manual from the insurance commission. Senator Care inquired of the reason to give a critically ill person’s case priority on the calendar. Mr. Bradley responded, "in hopes that the patient sees justice before his death."

Chairman James asked what the justification would be for the preference that the dental and malpractice cases are given regarding court settings. Mr. Bradley indicated because of the length of time for the entire process, especially on a complicated case, estimating anywhere from 6 to 14 months to work with experts and the screening panel. There are several issues to be sorted out, such as, the panel member’s schedule, the preparation of the material provided to all six members of the panel, and the review of all the evidence prior to the meetings and mediation hearings.

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, referred to section 2 of S.B. 479. She confirmed that the insurance division, in effect, follows their manual procedure, which establishes preference for persons of 70 years of age and those seriously ill.

Lawrence P. Matheis, Lobbyist, Nevada State Medical Association, indicated was not aware of the issue in section 4, subsection 3 of the bill and would not object to the amendments proposed.

There being no further testimony, the chairman closed the hearing on S.B. 479 and adjourned the meeting at 10:50 a.m.

RESPECTFULLY SUBMITTED:

Silvia Motta,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

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