coMPliANce CORNER
PROtect yOuR Business
Safeguarding Against Class Action Suits
by michael pOkOra
Providers can
implement
effective risk
management
strategies to
guard against
potentially
costly,
reputation-damaging legal
disputes.
The recent Skilled Healthcare Group case is a sobering example of what can happen when a senior housing business does not take risk
management seriously. This Southern California-based nursing home operator providing long-term
care and post-acute care services was initially ordered to pay more than $670 million in damages
for understaffing at its 22 residences in California
(California state law requires nursing homes to provide a minimum of 3. 2 hours of daily nursing care
per resident).
When the jury decided the plaintiffs should receive the maximum amount of damages allowed
by state law for health code violations—$613 million, plus $58 million in restitution—Skilled’s stock
plummeted 75 percent in one day, and bankruptcy
threatened its future. An appeal would have required a bond of 150 percent of the final judgment
amount—about $1 billion.
Two weeks after the July 6 jury decision, Skilled
persuaded the plaintiffs to put court proceedings
on hold and pursue settlement talks. Subsequently
on August 6, 2010 (date this article submitted to
ALE), the defendants filed a Motion for Mistrial
and a Motion for Continuance of Trial in the Humboldt County Superior Court due to serious juror
misconduct. While the risk of a sizable settlement
remains, Jefferies & Company analysts expect the
new amount and terms will allow the company to
remain solvent.
According to the Second Amended Class Action
Complaint filed by the Superior Court of California
for the County of Humboldt, the case did not “seek
recovery for personal injuries or other resident-spe-cific harm that may have been caused by inadequate
staffing at defendants’ facilities.” Consequently, one
may wonder, What is the foundation of the filing of
a class action suit? More importantly, however, one
should ask, What can be done to protect providers
from this costly type of lawsuit or settlement?
defining a class Action suit
A class action lawsuit is an action brought by one or
more plaintiffs on behalf of a larger group of claimants who have a common legal claim or complaint.
These parties have the same or similar interests in
seeking restitution, compensation or relief for injuries or financial loss, potential injuries, product
flaws, lack of service and more.
Class action suits often have several advantages.
First, they have more clout: someone with a minor
complaint or minor personal financial loss may
be less likely to file suit and/or may have difficulty
finding counsel to bring such a claim. Conversely,
a class action suit grabs attention. If allegations are
supported, the court will accept the case and proceed (the legal requirements to qualify for class action status very from state to state).
A class action suit aggregates multiple claims
into one—increasing the judicial process’ efficiency
and lowering litigation costs. Witnesses and experts
do not have to repeatedly testify, and parties with
smaller recoveries can be represented.
examining insurance issues
Class action suits are sometimes used to provide
clinical monitoring for people exposed to toxic
chemical substances or body implants, for example, but currently do not include injuries. The
strategy in such a “no-injury class action” includes
clinically monitoring the party out of concern that
even though no injury or effects are yet apparent,
they may occur someday. This monitoring may
involve yearly physical examinations with expensive diagnostics and incurred expenses. While
the monitoring could be a reasonable amount
per plaintiff, when multiplied by total case representatives, costs can quickly amount to millions
of dollars.
When it comes to no-injury cases, there may
or may not be insurance coverage. Plaintiffs usually construct cases to guarantee coverage, ensuring
available funds to pay out if the case is won. However, liability insurers almost always require bodily
injury or property damage to trigger coverage. Coverage for future injuries is not common unless directors and officers are named, but legal decisions
around the country may vary on this.
Settlement trends in class action suits may be
driven by large public companies with assets and
reputations to uphold and a vested interest in resolving a case quickly and with a lower profile. Seniors
