Contingencies | 3 Months Ended |
Mar. 31, 2014 |
Commitments and Contingencies Disclosure [Abstract] | ' |
Contingencies | ' |
Contingencies |
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The Company has been, is currently, and expects in the future to be involved in claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings arising in the ordinary course of business. These claims, lawsuits and other matters are similar to those to which other companies in the senior living and healthcare industries are subject. The defense of these claims, lawsuits and governmental audits, investigations and proceedings, certain of which allege large damage amounts, may require us to incur significant expense. |
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We utilize a combination of self-insurance reserves and commercial insurance policies in amounts and with coverage and deductibles that we believe are adequate, based on the nature and risks of our business, historical experience and industry standards. We cannot predict the ultimate outcome of any pending litigation, claims, or regulatory and other governmental audits, investigations and proceedings. Certain of these matters are not covered by insurance and, in any event, there is no assurance that our actual costs or damages related to any such matter will not exceed such self-insurance accruals or applicable insurance policy limits. Payments for self-insurance claims are made from the Company's available cash resources. |
Merger Litigation |
In connection with the Merger, three purported class action lawsuits have been filed on behalf of Emeritus shareholders in the Superior Court of King County, Washington: Tampa Maritime Association/International Longshoremen’s Association Pension Fund v. Emeritus Corp., et al., Case No. 14-2-06385-7-SEA, filed February 28, 2014; Sciabacucchi v. Emeritus Corp., et al., Case No. 14-2-06946-4-SEA, filed March 6, 2014; and Ellerson v. Emeritus Corp., et al., Case No. 14-2-07502-2-SEA, filed March 14, 2014. It is possible that other related suits could subsequently be filed. Emeritus anticipates that the three pending cases and any related cases that are subsequently filed will be consolidated and proceed as a single, consolidated case. |
The allegations in the three lawsuits are similar. They purport to be brought as class actions on behalf of all shareholders of Emeritus. The complaints name as defendants Emeritus, the Emeritus Board of Directors, Brookdale and Merger Sub. The complaints allege that the Emeritus Board of Directors breached its fiduciary duties to Emeritus shareholders by, among other things, failing to maximize shareholder value in connection with the Merger or to engage in a fair sale process before approving the Merger. Specifically, the complaints allege that the Emeritus Board of Directors undervalued Emeritus in connection with the Merger and that the Emeritus Board of Directors agreed to certain deal protection mechanisms that precluded Emeritus from obtaining competing offers. The Sciabacucchi complaint also alleges that the Emeritus Board of Directors breached its fiduciary duties by failing to disclose all material information concerning the Merger to Emeritus’ shareholders. The three complaints also allege that Brookdale, Emeritus and Merger Sub aided and abetted the Emeritus Board of Directors’ alleged breaches of fiduciary duties. The complaints seek, among other things, injunctive relief, including rescission of the Merger, and damages, including counsel fees and expenses. We are currently unable to predict the outcome of these matters nor a reasonable range of potential losses. |
Other Legal Proceedings |
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On June 4, 2013, in Joan Boice et al. v. Emeritus Corporation et al., the Sacramento County Superior Court entered final judgment in favor of Joan Boice (deceased) and against the Company in the amount of $250,000 in compensatory damages and $23.0 million in punitive damages for alleged elder abuse. Judgment was also entered in favor of Joan Boice’s three adult children for $250,000 and the court awarded the plaintiffs’ lawyer over $4.1 million in attorneys’ fees. On July 8, 2013, we filed a Notice of Appeal. We were required to post a bond in connection with our appeal, and made a cash deposit in the amount of $20.9 million to collateralize the bond, which is included in restricted deposits and escrows in the condensed consolidated balance sheets. This matter has been taken into consideration in our self-insurance accruals. |
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On July 29, 2013, a claim alleging the failure to provide certain services at our California assisted living communities was filed against the Company in the Alameda County Superior Court and subsequently removed to the United States District Court for the Northern District of California. In this case, the plaintiff is seeking to represent a class of residents at such California communities during the period beginning July 29, 2009. The plaintiff alleges violations of certain laws, including California’s Consumer Legal Remedies Act, Unfair Competition Law and Financial Elder Abuse statute. We believe that the suit is without merit and have filed a motion to dismiss the action in its entirety. At this time we are unable to estimate a possible range of loss. |
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Governmental Investigation |
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On March 29, 2013, we received a civil investigative demand (“CID”) from the Western District of the Washington office of the United States Department of Justice (“DOJ”) requesting certain documents related to Emeritus billing to Medicaid programs dating from January 1, 2008. The CID was issued in connection with an investigation undertaken by the DOJ and other agencies into Emeritus bills to Medicaid programs for assisted living facility services provided to Medicaid residents who may have been hospitalized during billed dates of service. |
We are cooperating with the DOJ in connection with its investigation. We are currently unable to predict the outcome of this matter nor a reasonable range of potential losses. |
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Self-Insurance Accruals |
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As of March 31, 2014 and December 31, 2013, we have recorded a liability related to self-insured professional and general claims, including known claims, incurred but not yet reported claims, and legal fees, of $35.8 million and $36.1 million, respectively. We believe that the range of reasonably possible losses as of March 31, 2014, based on sensitivity testing of the various underlying actuarial assumptions, is approximately $34.2 million to $51.5 million. The high end of the range reflects the potential for high-severity losses. |
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Communities not in the self-insurance pool are insured under commercial policies that provide for deductibles for each claim ranging from $50,000 to $250,000. As a result, the Company is, in effect, self-insured for claims that are less than the deductibles. The net liability for known claims and incurred but not yet reported claims was $9.8 million and $8.9 million as of March 31, 2014 and December 31, 2013, respectively (the gross liability was $18.8 million and $16.5 million with corresponding estimated amounts receivable from the insurance companies of $9.0 million and $7.6 million, respectively). |
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The total gross liability for professional and general claims as of March 31, 2014 and December 31, 2013 was $54.6 million and $52.6 million, respectively, of which $17.4 million and $17.2 million is included in accrued insurance liabilities, with the balance recorded in other long-term liabilities. Of the related amounts receivable from insurance companies as of March 31, 2014 and December 31, 2013, $3.6 million and $3.0 million , respectively, is included in other receivables and $5.4 million and $4.6 million, respectively, is included in other assets, net, in the condensed consolidated balance sheets. |
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We are self-insured for workers’ compensation risk (except in five states) up to $500,000 per claim through a high deductible, collateralized insurance program. The liability for self-insured known claims and incurred but not yet reported claims was $46.0 million and $44.5 million at March 31, 2014 and December 31, 2013, respectively, of which $13.4 million and $13.1 million is included in accrued insurance liabilities as of March 31, 2014 and December 31, 2013, respectively, with the balance recorded in other long-term liabilities. We believe that the range of reasonably possible losses as of March 31, 2014, based on sensitivity testing of the various underlying actuarial assumptions, is approximately $44.2 million to $49.9 million. |
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For health insurance, we self-insure each participant up to $350,000 per year, above which a catastrophic insurance policy covers any additional costs. The liability for self-insured incurred but not yet reported claims is included in accrued insurance liabilities in the condensed consolidated balance sheets and was $8.7 million and $8.5 million at March 31, 2014 and December 31, 2013, respectively. |