Sponsor Statement for HB 240

The Alaska State Legislature is being asked to enact legislation that will help to reduce the exposure of charitable non-profit organizations to legal liability. There are a number of signification policy reasons that would support such legislation. First, charitable non-profit organizations are unlike for-profit organizations that can reallocate risk to their consumers. For example, General Moters can simply increase the cost of its automobiles in order to allocate the inevitable risk of liability to the consumers of its products. This is the basic principle that supports the theory of vicarious liability. However, it has no relevance whatever to charitable non-profit organizations, which cannot "increase their prices" in order to allocate risk. It would be absurd to think of a charitable non-profit organization informing its members that the dues or assessments are going to be increased from 10% to 15% or more in order to respond to liability concerns.

In 1985, a woman undergoing routine gall bladder surgery was given a unit of blood containing the AIDS virus. A Red Cross office had collected the infected blood from a volunteer donor four months before a test for detecting the AIDS virus in blood supplies was developed. The victim sued the Red Cross for negligence, and the Red Cross asserted that its liability was limited on the basis of the state law limiting the liability of charitable non-profit organizations. The victim argued that the state law violated the "equal protection clause" of the state constitution, which specified simply that "no person shall be denied the equal protection of the laws." Specifically, she argued that the law impermissibly established a distinction or classification between charitable non-profit organizations and non-charitable organizations by limiting the liability of charitable non-profit organizations while leaving non-charitable organizations subject to unlimited liability.

The purpose of the law in question is to encourage the formation of charitable non-profit organizations, to promote charitable donations, and to preserve the resources of the charitable non-profit organizations. The legislation sought is to accomplish this purpose by insulating charitable non-profit organizations from liability. It is rational, for the government to make distinctions between those in business for profit and those who have charitable non-profit organizational motives.

Further, charitable non-profit organizations depend heavily upon volunteer workers. The law should seek to promote volunteerism, particularly in light of appropriate and inevitable declines in governmental funding and programs.

Second, the "victim" is a beneficiary. The courts have reasoned that one is a beneficiary who participates in an activity of a charitable non-profit organization that furthers its charitable non-profit organization's objectives. The principle is premised on the fact that charitable non-profit organizations are created to pursue philanthropic goals and the accomplishment of those goals would be hampered if they were to pay tort judgements in cases similar to this matter.

A person who makes a charitable contribution expects the donations to further the goals of the organization, and not to be used to satisfy lawsuits which bear no direct relationship to those goals. There is a litigation epidemic in this country, and it is impacting charitable non-profit organizations. Charitable non-profit organization leaders can no longer afford to sit back and passively wait to be sued. This is a meaningful step that can be taken that will reduce the amount of damages for which charitable non-profit organizations will be liable.

That objective is clearly legitimate. If a charitable non-profit organization's property were depleted by the payment of damages its usefulness might be either impaired or wholly destroyed, the object of the founder or donors defeated, and charitable gifts discouraged.