2004 Issue Paper
LIABILITY INSURANCE CRISIS
Over the last four years, CAHSA members have experienced rapidly escalating liability insurance premiums even where the facility has made no insurance claims or had any deficiencies identified by the state licensing or survey and certification processes. This is confirmed by the California Department of Health Services (DHS) data showing that increasing trends in claims frequency and severity, due to litigation, are driving-up liability insurance premiums and as a result fewer companies are willing to write liability insurance policies for nursing homes and assisted living facilities.1
According to the California Department of Insurance only eight “admitted”2 companies covered Skilled Nursing Facility (SNF) liability insurance in 2000, insuring 185 facilities (7,617 beds), representing the insurance experience of just 13 percent of the skilled nursing facilities in the state. The remaining 87 percent of facilities either joined an insurance pool, self-insured, obtained insurance from a company not licensed (not admitted) in California, or went “bare.” “Going bare” or without coverage, however, is not an option for many providers because their loan covenants require uninterrupted insurance coverage. Of the 185 facilities covered by an “admitted” carrier, 123 claims had been filed during the year.3
Though the liability insurance crisis started in Florida in the mid-1990’s, it has spread to at least 25 states, including California. As documented by the DHS Report to the California Legislature, the Elder Abuse and Dependent Adult Civil Protection Act of 1991 (EDACPA) provides a strong foundation for civil law in California. The built-in incentives for plaintiffs to litigate found in the EDACPA statute contribute mightily to the explosion of litigation against facilities that care for seniors.4
Consumer advocates disagree. The California Advocates for Nursing Home Reform (CANHR) report: “Much Ado About Nothing, Debunking the Myth About Frequent and Frivolous Elder Abuse Lawsuits Against California’s Nursing Homes,” November 2003, states that there is no litigation problem for facilities that care for senior adults. CANHR’s report methodology and analysis are flawed. Only 16 of California’s 58 counties were surveyed for the report and half the counties surveyed were rural (omitting urban counties such as: Riverside, San Bernardino, Orange, and San Diego). Nevertheless, CANHR asserts that an average of a new lawsuit every 52 hours is “much ado about nothing.” CAHSA respectfully disagrees with that analysis.
Beyond the number of lawsuits, just one large judgment in a lawsuit is a basis for increasing premiums and thus for the legitimate concerns of the facilities that have to pay them. The CANHR report seems to serve the plaintiffs’ attorneys’ interests in protecting the incentives to litigate in the EADCPA statute more than elucidating the complex relationship between statutory incentives and litigation abuse.
In 2003, two of the recommendations from the DHS Report to the California Legislature were enacted into law. SB 686 (Ortiz) requires admitted carriers to report data about insurance claims against nursing homes and data regarding the cost and availability of liability insurance to DHS.5 AB 634 (Steinberg) legislates inroads on the confidentiality of settlements in EADCPA cases, further fueling plaintiffs’ abilities for extraordinary payoffs at the expense of the long-term care system.
CAHSA supports elder abuse prevention. CAHSA asks its members to adopt and implement the national quality improvement program called “Quality First.” The program incorporates risk management techniques as well as best practices to stop adverse events before they can start. CAHSA also supports the DHS recommendations in its Report to the California Legislature, two of which are already incorporated in SB 686.
CAHSA supports DHS recommendation for a study of the operation of the EADCPA statute, which applies to the broad community as well as to the various health care delivery systems. Careful analysis of EADCPA’s implementation in such diverse environments is necessary to determine if it is performing in the best interests of current and future residents of the long-term care system.
CAHSA will assess all proposals aimed at moderating the onerous effect of the tort system on insurance premiums and coverage. Those proposals that restore balance to what is an out-of-balance tort system will find support among CAHSA members.
- “Liability Insurance for California’s Long-Term Care Providers, A Report to the California Legislature,” DHS, June/July 2003, at page 17.
- “Admitted” insurers are companies that are licensed in California. Admitted insurers are the only carriers that CDI regulates, and can compel to report data.
- “Liability Insurance for California’s Long-Term Care Providers, a Report to the California Legislature,” DHS, June/July 2003, at page 11.
- See: Stevenson, David G., and Studdert, David M., “The Rise of Nursing Home Litigation: Findings From A National Survey of Attorneys,” Health Affairs, Volume 22, Number 2, 2003, at page 219.
- “Liability Insurance for California’s Long-Term Care Providers, a Report to the California Legislature,” DHS, June/July 2003, at page 3.