Lack of insurance hinders recovery in nursing home cases.

Suing a nursing home is hard enough, plaintiff lawyers say. Now these facilities are throwing up another roadblock to plaintiffs seeking to hold nursing homes accountable for injuries caused by inadequate care: insufficient or nonexistent liability insurance.

Small, individual facilities are often set up as limited liability corporations (LLCs), shielding the owners' assets from lawsuits brought by family members of residents who are injured or die as a result of negligent care. In larger chains, nursing homes are often structured as independent corporations to protect the assets of the parent company. When a plaintiff wins a verdict, collecting the judgment is difficult.

"There has been a significant diminishment of insurance coverage over the last five years" in the nursing home industry, said Ira Leesfield, a Miami attorney who represents plaintiffs in nursing home cases.

Many facilities are going completely bare of insurance, said Derek Potts of Kansas City, Missouri. He has seen cases in which one corporation owns the nursing home business and a separate "pass-through" corporation owns the building and the facility's other major assets. The defendant then uses what Potts called "creative accounting" to show a minimal, if any, profit. Plaintiffs have virtually no assets to pursue in the event of a jury verdict.

Leesfield said many nursing homes carry limited insurance, such as an aggregate policy that provides $1 million in coverage for the year. Whether there are 5 claims or 35 against the facility, only $1 million of coverage is available for all the cases. Others buy policies providing $50,000 per claim, but that, he said, usually covers only defense expenses.

When plaintiffs realize there is little or no insurance money to cover their claims, they must look to the companies' assets. But those are often shielded by corporate structures.

"What we're seeing is a deliberate decision to not carry insurance, to discourage people from bringing claims and to discourage lawyers in particular from investing their time and money in a contingent-fee situation in litigation against a facility with no insurance," Potts said. "There are members of the defense bar who are actively advising facilities and their owners not to carry insurance."

Defense attorneys say aggressive plaintiff lawyers and litigation against nursing homes have caused the facilities' insurance premiums to increase so much that many can no longer afford coverage. However, a March 2005 report from the Center for Medicare Advocacy disputes these claims, finding that tort litigation is not the cause of the rising premiums. Rather, the increases are caused by a variety of factors, including business cycles that affect the insurance industry generally, a lack of regulation of the price of nursing home liability policies, poor-quality care at the facilities, and a lack of appropriate risk-management programs that are standard at other health care facilities. (Center for Medicare Advocacy, Tort Reform and Nursing Homes (2005), available at www.medicareadvocacy.org/snf_Tort ReformSummary.htm.)

Patient advocates say there is no reliable comprehensive data on the prevalence of injuries, abuse, and neglect in nursing homes, although studies have consistently documented the problem. For example, the National Center on Elder Abuse says that in 2003 alone, state long-term-care ombudsman programs investigated more than 20,000 neglect, abuse, and exploitation complaints by nursing home residents.

The Center for Medicare Advocacy also found in its review of cases against nursing homes that the complaints are not "frivolous" but result from serious injuries and deaths.

In-depth discovery

Because injuries in nursing homes are widespread and can be severe, many plaintiff attorneys say they are still pursuing cases despite the insurance problem.

"In our law firm, we have decided to sue the nursing homes regardless of insurance, to get judgments against them and collect our clients' judgments," Leesfield said. When there's no insurance to collect, "we wind up owning the nursing home."

When the facility has used creative structuring to hide corporate assets, following the money trail will often lead to some recovery, Potts said. Although corporate representatives often testify that the company had a financial loss the previous year or is barely making money, "it's hard to believe that every nursing home is losing money, because they keep going up everywhere," he said.

"If there is no insurance, most judges will let you do in-depth discovery into the assets of the facility and the owners to find out where the money is going," Potts added. "You almost have to get an accounting expert to help you see, Are they actually showing a loss, or is this just creative accounting? How are they continuing to operate?"

Martha Eastman of Louisville, Kentucky, past chair of ATLA's Nursing Home Litigation Group, said she has not seen the tactic yet in her state, but she expects to soon, after hearing attorneys from other states talk about how it is spreading.

"One thing I'm doing now, in case it is going to happen, is I'm always looking to make sure I know exactly who owns the nursing home," she said. "We don't know if there's insurance or not until after we file a lawsuit, so we have to make sure we've covered all our bases."

Mark Kosieradzki, a plaintiff attorney in Minneapolis, said the key to getting clients recovery in these cases is to pierce the corporate veil.

"The use of LLCs is an insidious attempt to use the law of corporate structure to evade accountability for wrongdoing," he said. "However, the question of liability is not as simple as it may seem on the surface."

He said most nursing home injuries are not the result of a single incident. Plaintiff lawyers need to look for larger patterns--management decisions that "resulted in systemic problems and placed patients at risk."

"The management decisions outside of the individual corporate entity need to be identified as the true cause of the harm," he said. Focusing the case on higher-level decision-making and the faulty care that resulted from it will help attach the parent company to the suit.

In addition, he said, when corporate actors make management decisions, "such as cutting the operating expenses, resulting in harm to a plaintiff," they may be personally liable.

Broader effect

Nursing homes' insufficient insurance coverage is affecting more than the individual plaintiffs who can't collect compensation. It is causing many attorneys to screen cases more carefully and accept fewer. Ports noted that the prospective defendant lacks insurance in about one in every 10 or 15 cases he considers, and that this appears to be a trend.

In states with damages caps, some plaintiff attorneys report that they can take few cases. The no-insurance issue makes the cases more complicated to try, because they require more experts and other expenses. With damages caps in place, many such cases are simply not viable.

Eastman said most attorneys she knows will not give up just because there's no insurance. "Somehow the nursing home is getting money to run the place, so there's money somewhere," she said. "It's just a matter of finding it."

Leesfield expects that the problem is only temporary. "After the word gets out in the industry that we're going to get judgments against them anyhow, they'll go back and get insurance," he said.