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Look out! Arbitration provision may not provide enough coverage

June 18, 2014
by Thomas W. Hazlett and A. Peter Prinsen, Esq.
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Assisted living (AL) communities, long-term care (LTC) facilities, rehabilitation centers and other businesses that contract for ongoing health services with the elderly or others that may be mentally impaired must deal with the litigation risk of arguments that their agreements with the individuals they serve are invalid and unenforceable. Analyzing such risk is complicated by the potential involvement of a power of attorney acting on behalf of the impaired individual. A recent decision by a Pennsylvania trial court clarifies the enforceability of contracts between LTC and rehabilitation facilities and their residents/patients, and specifically the enforceability of arbitration provisions, but it also illustrates the limitations of such agreements.


In Lipshutz v. St. Monica Manor,[1] the Court of Common Pleas of Philadelphia County ruled that a nursing home/rehabilitation facility’s contract with a patient, which was signed by one of the powers of attorney, was valid and enforceable but was limited in its application to the patient’s claims only. In Lipshutz, the plaintiffs’ mother suffered a stroke and, after being discharged from a hospital, was admitted to the defendant’s nursing and rehabilitation facility. One of the plaintiffs, as her mother’s power of attorney, signed the facility’s standard admission contract, which included an arbitration provision. The plaintiffs’ mother subsequently died, and the plaintiffs, as executors of their mother’s estate, filed suit against the facility, alleging claims for their mother and for themselves as beneficiaries of their mother’s estate. The facility moved to dismiss the case pursuant to the arbitration provision in the admission contract.

The court first found that the power of attorney was effective, despite the plaintiffs’ failure to obtain certifications from two doctors documenting that the plaintiffs’ mother was mentally impaired, which was required by the plain terms of the power of attorney document. Despite the plaintiffs’ oversight, the court looked beyond the “formalities” of the power of attorney document to the “totality” of the circumstances because “if healthcare facilities were required to wait for formal certifications, patients would be forced to await formalities before desperately needed care was provided. In the case of seriously ill or injured patients, this is literally the difference between life and death.” 

After concluding that a valid contract existed between the facility and the plaintiffs’ mother, the court turned to the scope of the contract’s arbitration provision. Although the admission contract applied to any claims of the plaintiffs’ mother, the court concluded that it did not apply to any claims by the beneficiaries’ of the mother’s estate (i.e., plaintiffs and their siblings) because they were not parties to the contract. Under Pennsylvania law, an estate’s beneficiaries’ wrongful death claims and the decedent’s claims for injury that survive his or her passing must be tried together. The court found that this requirement of Pennsylvania law was preempted by federal law, however, because, “if [the] Court ordered the wrongful death and survival actions to remain in Court [together], the decedent’s arbitration agreement…would be nullified,” which is contrary to the requirements of the Federal Arbitration Act. Accordingly, the court split the case, allowing the wrongful death claims to proceed in the Court of Common Pleas but dismissing the survival claims in favor of arbitration.


Lipshutz raises two very important issues for healthcare facilities that deal with the elderly or others that may be mentally impaired: