Arkansas Is Next Battlefield In Nursing-Home Liability War.

A legal fight is shaping up in Arkansas over how or whether the state should respond to a big problem with the availability of liability insurance for nursing homes.

Arkansas Insurance Commissioner Mike Pickens has announced that liability insurance is not "reasonably available" to nursing homes in the state. He has called on the state Legislature to address the problem.

Pickens said 80 insurers hold certificates of authority to write the liability coverage, but only five have products registered with the insurance department. Of those, only two write business, one of which will not renew policies. The other is renewing selectively.

The climate for such coverage has soured even more since April, during which time courts have awarded $93 million in judgments against nursing homes, not including settlements. Many carriers have cited a lack of effective civil justice reform in Arkansas as a major reason for their unwillingness to write business there, Pickens said. He cited other factors noted in a recent survey of the insurance market, including increasing losses on the business, difficulty in predicting future loss trends, difficulty in pricing because of escalating court judgments and settlements, low and slow Medicare reimbursement rates and a lack of reinsurance. Insurers in the survey also said the financial condition of the long-term-care industry is perceived to be poor.

One nursing home company, Advocat Inc., was hammered by a $78.4 million court judgment over the summer in Sauer vs. Advocat. Based in Franklin, Tenn., Advocat operates 120 facilities in 12 states and four provinces in Canada. The case involved its nursing home in Mena, Ark. On Sept. 17, its insurers posted the bond required to stay execution of the judgment during the company's appeal to the Supreme Court of Arkansas.

The big jury award was made in connection with the death of a 93-year-old female resident of the nursing home. She had been admitted five-and-a-half years earlier, said Bob Rice, Advocat's director of risk management.

"If states like Arkansas don't do something to get these runaway verdicts under control, companies will refuse to do business in the state," said Lori Nugent, an attorney with Cozen O'Connor, Chicago. She specializes in punitive damages and is familiar with the situation in Arkansas. "These are real-world risks that states like Arkansas must address if they intend to see their citizens receive basic services from reputable companies that are not based solely within their borders."

Nugent said these verdicts cause other countries worldwide to refuse to enforce U.S.-based punitive judgments. "Germany, Switzerland and Japan have refused to enforce U.S. punitive-damage judgments, holding [that] they are unworthy of international recognition;' she said. "Every time a foreign country refuses to support a U.S. punitive-damages judgment, the U.S. legal system's credibility worldwide is eroded."

It hurts smaller states--like Arkansas--more than larger states when national and global companies steer clear to avoid potentially excessive verdicts, Nugent said.

Pickens said he'd like to see a study of the state's options to improve the climate for liability insurance. He has recommended that the House and Senate Interim Committee on Insurance and Commerce determine "what civil-justice reforms are necessary to ensure the constitutional right of each citizen to access the courts to redress legitimate grievances."