In order to operate a vehicle in the State of Alabama, motorists are required to have, keep and maintain a liability policy of insurance, providing coverage in the event they are at fault in a motor vehicle collision. Our readers may be surprised to learn that nursing homes, which provide care to our ever-aging population, and others who require nursing home care, are not required to carry liability insurance. It is almost unimaginable that a nursing home could hold itself out as a responsible, reputable health care provider and yet provide little or no liability coverage. Equally disconcerting, many of the nursing homes operating in Alabama (and other states), are operated through a myriad of corporate entities in order to attempt to shield those from liability who may otherwise have some responsibility for medical negligence.
This very issue was recently brought to light in an opinion released by the Alabama Supreme Court – Hill v. Fairfield Nursing and Rehabilitation Center. In Hill, the Plaintiff sued several corporate entities, alleging that they were the “alter ego” of the company whose name was on the nursing home, Fairfield. The trial court dismissed the claims against all of the corporate entities, except Fairfield. On appeal, the Alabama Supreme Court reversed and addressed this area of significant concern to Alabama citizens.
At the trial level and on appeal, Hill contended that Fairfield was merely a shell company. Despite purportedly operating and owning a nursing home, it did not own any significant real or personal property. Fairfield only carried $25,000 in liability coverage. It showed an operation loss for the most recent year. Two limited liability companies, DTD, LLC and D&N, LLC, were the owners of Fairfield. Both DTD and D&N had single members who were shown as the owners of those entities. The two individuals who were listed as the sole members of these LLCs were also current or former officers of Fairfield.
A fourth company, Tara Cares, was also owned by DTD and D&N. Tara Cares operated under an “administrative services agreement” with Fairfield (as well as 30 other nursing homes). DTD and D&N owned several other nursing homes in seven different states. Like Fairfield, none of these other nursing homes own any real or personal property. In fact, a separate company, Healthcare REIT, owns most of the real and personal property of these 30-plus nursing homes that are owned by DTD and D&N. Healthcare REIT utilized a “middle-man” company, Aurora Healthcare, LLC, to which it leased the Fairfield nursing home property. Aurora, in turn, subleased that property to Fairfield.
While the facts of this case and the interrelationship of these corporate entities is more detailed and complex than stated here, the point here is that, in many instances, the company that purportedly owns and operates the nursing home is set up to be judgment proof, while others benefit financially from the operation with little risk or exposure. Most health care providers are covered by adequate liability insurance, or they have assets that can be attached in the event a judgment is obtained. Moving assets out of a nursing home’s name, however, makes it extremely difficult to collect such a judgment.
Since a nursing home may be judgment proof, the low amounts of liability insurance coverage, such as Fairfield had in this case, promote poor health care. The incentive to provide the level of health care required and expected for our senior citizens is compromised. If a company is found to be liable, for example, for causing harm or death to one of its patients, it purportedly could simply tender its $25,000 in insurance coverage. It can also simply shut its doors, form new corporate entities and come back as a “new” facility. The company has little motive to provide the care needed for its patients, since there is very little risk that it will be harmed or affected as a result of its negligent conduct.
In the Hill case, the Alabama Supreme got it right! The Court determined that a question of fact existed “as to whether the defendants operated as a single business enterprise as to which Fairfield was an alter ego.” Quoting from prior case law, the Court stated that “the courts should not ‘allow a corporate entity to successfully masquerade through [its corporate affiliates] so as to defeat the payment of its just obligations.’” If you need additional information on any of the above, contact Ben Locklar, a lawyer in our firm’s Personal Injury/Products Liability section, at 1-800-898-2034 or by email at Ben.Locklar@beasleyallen.com.
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