Skilled Healthcare Group to challenge Humboldt County verdict

Jul 7 2010

Skilled Healthcare Group, Inc. (NYSE: SKH) today reported that a jury in Humboldt County, California, returned a verdict against the Company related to a complaint filed more than four years ago. The case has been disclosed in the Company's prior Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

In the first phase of deliberations, the jury awarded the plaintiffs $613 million in statutory damages and $58 million in restitutionary damages. The jury has yet to hear the punitive damages phase of the trial and will continue to further deliberate.

"We are deeply disappointed in the verdict, and continue to firmly believe that our facilities are appropriately staffed and that our caregivers work hard every day to provide the care and services our residents need and deserve," said Boyd Hendrickson, Chairman and Chief Executive Officer of Skilled Healthcare Group, Inc. "We strongly disagree with the outcome of this legal matter, and we intend to vigorously challenge it."

The jury verdict was announced on July 6, 2010, and a final judgment is expected in the next few weeks.  The Company intends to vigorously pursue various post-trial motions, as well as an appeal, if necessary.

The jury assessed the maximum amount of damages allowed by Health and Safety Code 1430 (b): California statute that mandates that nursing homes maintain 3.2 nursing hours per-patient per-day. The total damages were assessed at a rate of $500 per-patient per-day that the 22 nursing facilities involved in the suit were in violation of the law.

In order to satisfy the typical bonding requirement to defer enforcement of a judgment during the pendancy of an appeal, the Company would be required to post a bond for 150% of the final judgment amount.  The Company currently has $94 million of borrowing capacity under its $100 million revolving credit facility. However, the Company's ability to draw on its credit facility is limited by the covenants of that facility.  

The Company's primary professional liability insurance coverage has been exhausted for the policy year applicable to this case. The excess insurance carrier issuing the policy applicable to this case has issued its reservation of rights to preserve an assertion of non-coverage for this case due to the lack of any allegation of injury or harm to the plaintiffs. Even if the Company is successful in obtaining insurance coverage for this matter, the amount of the jury verdict far exceeds the policy limits of its insurance.

The case is entitled VINNIE LAVENDER, by and through her Conservator, WANDA BAKER, WALTER SIMON; JACQUELYN VILCHINSKY vs. SKILLED HEALTHCARE GROUP, INC., et al, (and 22 individually-named California nursing facilities receiving administrative services from Skilled Healthcare, LLC).