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Risk-Retention Groups: An Alternate Way to Secure Insurance

October 1, 2004
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There is strength in numbers when organizations collaborate to manage liability risk by Scott A. Mager, Esq.

The landscape for the long-term care industry is not a pretty sight. Advertising by lawyers sensationalizing negative anecdotes from a small group of families fosters the public's negative perception of facilities. Meanwhile, the industry's lack of any long-range public- relations plan-which would educate the public about the care that facilities do provide and how they do help the elderly-reinforces the (mis)perception.

The courtroom provides no solace, either, as plaintiffs' attorneys cunningly use the nation's shortage of caregivers and low Medicaid payments as a launching pad for claims of outrageously deficient care. Indeed, lawsuits against nursing homes have risen at a disturbingly exponential rate, with many law firms dedicating entire practices to this new gold mine of riches. While some cases do indeed deserve retribution through the court system, the majority of suits have little merit; however, insurance companies often settle the cases to avoid the potential for an explosive verdict by jurors who simply may be sympathetic and award damages without reference to who is at fault (or whether there is fault). It is often quite difficult to appeal these sorts of decisions, no matter how thinly based their verdict is. It is these unjustified lawsuits that abuse the elderly; the lawsuits are used as "lottery tickets" to secure unjustified compensation for relatives (no matter how distant).

Attorneys take advantage of jurors' difficulty in separating the case at hand from their feelings of concern for their own parents. They capitalize on the guilt jurors might expect to feel if they do not award damages to any elderly resident who makes a claim and shows an ugly picture of a sore, bruise, or other adverse condition. Regardless of the resident's actual condition or the real "cause" of the alleged injury, attorneys are masters at using guilt for maximum effect.

Facilities, coping with staff shortages, the effects of agency staff on the continuity of care, and the health realities of severely compromised patients, feel defenseless against contorted claims of understaffing and neglect. Plaintiffs' attorneys portray the companies that own long-term care facilities as "always placing profits above people." Riding this wave of emotionalism, these attorneys succeed in securing large awards or exorbitant settlements.

Lawsuits without merit are quite common in the long-term care industry. Consider the case of a 102-year-old woman whose 84-year-old daughter sued a facility on her behalf for millions of dollars-despite the fact that her death, which occurred several years after she had left the facility, was determined to be from natural causes. Or consider the case of a mother who filed suit against a facility for the wrongful death of her daughter. The girl, who was afflicted with an advanced form of cerebral palsy at the time of her residence, died nearly three years after leaving the facility from complications arising from the disease. Defending frivolous cases like these requires the outlay of large sums of money or the payment of large deductibles. Unfortunately, such cases sometimes motivate companies to settle for inappropriate sums of money, regardless of whether there ever was any fault.

A Crisis Situation
Many insurance companies, sucked into this web of hysteria and lacking a national litigation plan, have simply withdrawn from the marketplace. And some long-term care companies have filed bankruptcy or sold facilities, further harming the entire market and eroding society's ability to provide the best care for its elders. Reeling from the costs associated with defending cases and high insurance premiums, many of the facilities that remain can barely afford to provide care, and most have extreme difficulty finding affordable insurance. Although legislators are now starting to respond to these problems, they often don't understand the issues of long-term care well enough to pass laws that would help ensure the survival of facilities. The sad fact is that some of the lawyers who profess to be "protecting or vindicating elders' rights" and "ensuring that facilities don't get away with murder" are, in reality, the ones prostituting elders' situation for personal gain.

In this climate, litigation in the long-term care arena surges on, especially in the "open floodgate" liability states of Florida, Texas, and California. Mississippi, Oklahoma, Arkansas, Alabama, Virginia, and Pennsylvania are also breeding grounds for increased litigation; and Arizona, New Mexico, Nevada, and Missouri are not far behind. Many of these states do not require (as Florida does) a preliminary hearing before a punitive damages claim can be made; thus, long-term care companies (and often their parent companies) are subject to extraordinary discovery of financial records and deposition of "apex" executive officials, regardless of the true merit of the claims. This abuse often goes unchecked, as the best a defendant can do is to eventually secure a verdict or get dismissed, after the unreasonable stress of the case has taken its toll. The ability to secure insurance, in many of these jurisdictions, has become either impossible or financially unreasonable. However, companies that need a vehicle to "cap" their exposure do have alternatives.