Item 8.01
Other Events.
As previously reported, AdCare Health Systems, Inc., which merged with and into Regional Health Properties Inc. (“Regional”) in September 2017, and certain of its wholly-owned subsidiaries (collectively with Regional, the “Company”) are defendants in, among other actions, 25 professional and general liability actions (the “underlying lawsuits”) commenced on behalf of former patients of the Company (the “Plaintiffs”) filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in the lawsuit captioned Amy Cleveland et al. v. APHR&R Nursing, LLC et al., filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit and settled in December 2015.
On March 12, 2018, Regional entered into a separate mediation settlement agreement with respect to each underlying lawsuit (each, a “Mediation Settlement Agreement”), relating to the settlement in principle of such underlying lawsuit, subject to the satisfaction of certain specified conditions. Each Mediation Settlement Agreement provides for payment by Regional of a specified settlement amount (each, a “Settlement Sum”), which Settlement Sum with respect to each underlying lawsuit has been deposited into the mediator’s trust account.
The settlement of each underlying lawsuit must be individually approved by the probate court, and the settlement of one underlying lawsuit is not conditioned upon receipt of the probate court’s approval with respect the settlement of any other underlying lawsuit. Upon the probate court approving, with respect to an underlying lawsuit, the settlement and an executed settlement and release agreement, the Settlement Sum with respect to such underlying lawsuit will be disbursed to the Plaintiff’s counsel. Under the settlement and release agreement with respect to an underlying lawsuit, the Company will be released from any and all claims arising out of the applicable Plaintiff’s care while the Plaintiff was a resident of one of the Company’s facilities, including, but not limited to, those related to the applicable underlying lawsuit.
In connection with a dispute between the Company and the Company’s former commercial liability insurance provider
(“Former Insurer”) regarding, among other things, the Company’s insurance coverage with respect to the underlying lawsuits
,
Former Insurer filed a complaint in May 2016 against the Company seeking, among other things, a determination that Former Insurer had properly exhausted the limits of liability of certain of the Company’s insurance policies issued by Former Insurer (the “Policies”), and the Company subsequently filed a counterclaim against Former Insurer regarding such matters (collectively, the “Coverage Litigation”). On March 12, 2018, Former Insurer and the Company entered into a settlement agreement (the “Coverage Settlement Agreement”), providing for, among other things, a settlement payment by Former Insurer (the “Insurance Settlement Amount”), the dismissal with prejudice of the Coverage Litigation, a customary release of claims by each of Former Insurer and the Company, and agreement that that Former Insurer has exhausted the Policies’ respective limits of liability and has no further obligations under the Policies. The Coverage Settlement Agreement became effective on March 12, 2018. Pursuant to the Coverage Settlement Agreement: (i) on March 16, 2018, Former Insurer deposited the Insurance Settlement Amount into the trust account of the mediator with respect to the underlying lawsuits; and (ii) Former Insurer and the Company will cause the Coverage Litigation, including the counterclaim, to be dismissed with prejudice no later than seven days after the date the Coverage Settlement Agreement became effective.
Assuming, and subject to, the approval by the probate court of the settlement of each of the underlying lawsuits and related matters, and the satisfaction of the other conditions with respect thereto, the Company will pay, net of the Insurance Settlement Amount, an aggregate of approximately $2.4 million in settlement of the underlying lawsuits.
The Company gives no assurance that probate court approval of the settlement of the underlying lawsuits will be obtained or the other conditions to such settlements satisfied, or that the underlying lawsuits will be settled on the terms described herein or at all.
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