Publications: Ask the Legal Expert - July 2007

What are the best steps to take to insulate ourselves against punitive damage claims?

Generally, chains have restructured their ownership by making each operating entity a separate legal entity, with the same owners. If such entities follow corporate formalities and have appropriate capitalization, the chain's liability is limited to the single facility against which the plaintiff obtains an award. Plaintiffs' lawyers are generally unable to pierce one facility's corporate protections in order to attach liability to its owners' other facilities.

Both chain and individual providers have undertaken additional corporate restructuring to limit liability by transferring a facility's land and building to a separate legal entity, which then leases back the building to the facility operator or management company with limited assets. Another strategy used in conjunction with corporate restructuring, and which seems to dampen plaintiffs' attorneys' enthusiasm for undertaking a lawsuit against a facility, is insuring each facility for the state's minimum requirement.

Not-for-proflt. multifacility sponsors have applied similar approaches in protecting their assets. They have made each of their operating entities a separate legal subsidiary under a parent entity: transferred a facility's land and building to the parent entity or a related foundation, and leased back the building; and allowed a separate management company, with limited assets, to manage the facilities.

Reproduced with permission from McKnight's Long-Term Care News.

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