SUNH » Topics » ITEM 1. LEGAL PROCEEDINGS

This excerpt taken from the SUNH 10-Q filed Aug 3, 2006.

ITEM 1. LEGAL PROCEEDINGS

     On June 1, 2004, we commenced a declaratory relief action in the Orange County, California Superior Court in which Steadfast Insurance Company ("Steadfast") and two subsidiaries of American International Group ("AIG") are parties.  The action seeks, among other things, a determination that the AIG subsidiary that was the carrier providing coverage under our excess/umbrella insurance policy for the 2000 through 2002 policy years is obligated to provide first dollar insurance coverage for those three policy years pursuant to the terms of the excess/umbrella policy.  That policy provides that the excess/umbrella policy continues in force as underlying insurance upon exhaustion of the underlying primary insurance policy.  If we prevail in this action, such a judicial determination would eliminate a portion of our self-insured liabilities for general and professional liability claims.  We can give no assurances that we will in fact prevail and, accordingly, our financial statements reflect no positive adjustment for the drop down of the excess/umbrella coverage asserted in this litigation. 

     In July 2006, we agreed with the other parties to the litigation, pursuant to statutory authorization and in order to streamline reaching a decision, that the matter would be referred to a retired judge to adjudicate all aspects of the case.  The parties retain all rights of appeal.  The previously reported August 28, 2006 trial date is in the process of being taken off calendar.  We anticipate that proceedings pursuant to this referral will commence this Fall. 

This excerpt taken from the SUNH 10-K filed Mar 10, 2006.

Item 3.  Legal Proceedings

     On June 1, 2004, we commenced a declaratory relief action in the Orange County, California Superior Court in which Steadfast Insurance Company, American International Group, Inc. ("AIG") and certain of AIG's subsidiaries are parties. The action seeks, among other things, a judicial determination that the carrier providing coverage under our excess/umbrella insurance policy for liability claims made by residents and patients for the 2000 through 2002 policy years is obligated to provide first dollar insurance coverage for those three policy years pursuant to the terms of the excess/umbrella policy. That policy provides that the excess/umbrella policy continues in force as underlying insurance upon exhaustion of the underlying primary insurance policy. Trial is currently scheduled to commence on August 28, 2006. If we prevail in this action, such a judicial determination would eliminate a portion of our self-insured liabilities for general and professional liability claims and/or require the carrier to reimburse us for certain amounts that we have paid to dispose of such claims. We can give no assurances that we will in fact prevail.

     In September 2005, we resolved allegations by the Bureau of Medi-Cal Fraud and Elder Abuse, a division of the Office of the Attorney General of the State of California, that we violated the terms of the Permanent Injunction and Final Judgment entered in October 2001. The alleged violations included allegations of inadequate staffing, training and supervision at our California inpatient facilities. The resolution of these allegations resulted in the PIFJ. Among other things, the PIFJ states that it does not constitute a finding of any violation of law. It requires adherence by our facilities in California to certain clinical practices specified in the PIFJ (such practices are substantially consistent with existing law and our current practices) and to staffing requirements, and the payment of $2.5 million over a two year period commencing in October 2005. The requirements set forth in the PIFJ will not materially change our operating costs or the manner in which we operate.

     We are a party to various other legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of our business, including claims that our services have resulted in injury or death to the residents of our facilities, claims relating to employment and commercial matters. Although we intend to vigorously defend ourselves in these matters, there can be no assurance that the outcomes of these matters will not have a material adverse effect on our results of operations and financial condition. In certain states in which we have or have had operations, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law public policy prohibitions. There can be no assurance that we will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.

     We operate in industries that are extensively regulated. As such, in the ordinary course of business, we are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to direct regulatory oversight of state and federal regulatory agencies, these industries are frequently subject to the regulatory supervision of fiscal intermediaries. If a provider is found by a court of competent jurisdiction to have engaged in improper practices, it could be subject to civil, administrative or criminal fines, penalties or restitutionary relief, and reimbursement authorities could also seek the suspension or exclusion of the provider or individual from participation in their program. We believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations and cash flows.

17


SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

This excerpt taken from the SUNH 8-K filed Dec 1, 2005.

          (a)     Legal Proceedings

Peak Medical Corporation and/or certain Subsidiaries are parties to lawsuits arising in the ordinary course of business, including claims that the Subsidiaries' services have resulted in injury or death to residents of the facilities ("professional liability claims"), claims relating to employment and claims relating to commercial matters.  Those professional liability claims may be: 1) substantially covered by insurance policies; 2) covered by insurance policies with deductible and self-insured retention provisions; 3) covered under an insurance policy in effect from June 2002 to June 2004 which has been exhausted; and/or 4) not covered by any insurance policy.  In certain states in which the Subsidiaries operate, insurance coverage for the risk of punitive damages or attorney fee awards is not available due to state law public policy prohibitions.  The Company cannot predict the outcome of such litigation or the cost resulting from an adverse outcome in any given case.  The Company intends, however, to defend all litigation vigorously.

This excerpt taken from the SUNH 10-Q filed Nov 1, 2005.

ITEM 1. LEGAL PROCEEDINGS

     Information with respect to this item is found in "Note 12 - Other Events" and is incorporated by reference herein.

This excerpt taken from the SUNH DEF 14A filed Sep 22, 2005.

          (a)     Legal Proceedings

F-32


PEAK MEDICAL CORPORATION
AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

June 30, 2005 and 2004

Peak Medical Corporation and/or certain Subsidiaries are parties to lawsuits arising in the ordinary course of business, including claims that the Subsidiaries' services have resulted in injury or death to residents of the facilities ("professional liability claims"), claims relating to employment and claims relating to commercial matters.  Those professional liability claims may be: 1) substantially covered by insurance policies; 2) covered by insurance policies with deductible and self-insured retention provisions; 3) covered under an insurance policy in effect from June 2002 to June 2004 which has been exhausted; and/or 4) not covered by any insurance policy.  In certain states in which the Subsidiaries operate, insurance coverage for the risk of punitive damages or attorney fee awards is not available due to state law public policy prohibitions.  The Company cannot predict the outcome of such litigation or the cost resulting from an adverse outcome in any given case.  The Company intends, however, to defend all litigation vigorously.

This excerpt taken from the SUNH 10-Q filed Aug 4, 2005.

ITEM 1. LEGAL PROCEEDINGS

     Information with respect to this item is found in "Note 12 - Other Events" and is incorporated by reference herein.

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