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On July 7, a California jury awarded a large verdict against Skilled Healthcare Group Inc, for its violations of California's health and safety code by not providing the minimum 3.2 hours of direct nursing care per day to patients at its 22 facilities. The verdict of $671 million in damages covered only $613 million in statutory damages and $58 million in restitution. The jury has not yet reached the punitive damages portion of the trial.
According to a report by Reuters, the plaintiffs in the case were comprised of a class more than 32,000 people. Plaintiffs' attorneys say they hope the verdict will bring about a "sea change" in the way not only this company, but other nursing homes do business. It will certainly affect the business of defendants Skilled Healthcare, who say they may have to consider bankruptcy.
In a statement, the company "strongly disagrees" with and will challenge the verdict. Jefferies & Co analyst Arthur Henderson told Reuters that if the company could not get the judge to lower the verdict amount, bankruptcy would have to be an option. "I would say that, if they got to pay that money, there is not much that's really going to be workable," he said, before adding he was surprised by the unusually large judgment, given that no one was killed or injured.
It is possible that the judge could lessen the jury verdict under the process of remittitur. Remittitur allows a judge to reduce an excessive jury verdict; but the legal standard is very hard to meet. Actual damages may be remitted only if the award by a jury is so completely out of line with the damages proven in the case that it is unconscionable. A judge will most often not remit an award of punitive damages in the absence of gross error or prejudice on the part of the jury.
Insurance coverage is not an option for Skilled Healthcare. The company's statement said that even if it is successful in obtaining insurance coverage, the amount of the jury verdict far exceeds the policy limits of its insurance.
This is not the first time this company has seen bankruptcy proceedings. In 2001, Skilled Healthcare filed for Chapter 11 protection after the federal government changed reimbursement rates and procedures for medical services provided to individuals. The company emerged from bankruptcy in 2003.
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