August 6, 2009

Illinois nursing facilities should consider starting to include arbitration clauses in new resident contracts now, even though the Illinois Supreme Court will not decide for months (or even years) if facilities can enforce them. The advantages are many. Properly drafted arbitration clauses, for example, can dramatically reduce your insurance rates by decreasing your exposure to jury verdicts, punitive damages and attorneys' fees.

In the past year, two Illinois appellate courts have issued conflicting decisions about whether facilities can enforce arbitration clauses in resident contracts. One appellate court ruled that the Illinois Nursing Home Care Act's prohibition against depriving a resident of his or her right to a jury trial effectively prohibits arbitration clauses in resident contracts. Another appellate court, however, ruled that a federal law encouraging arbitration preempts that provision of the Illinois act.

On June 1, 2009, the U.S. Supreme Court refused to hear an appeal of the Illinois case prohibiting arbitration clauses, thereby leaving in place the conflict among the Illinois courts. The Illinois Supreme Court will, at some point in the future, decide if nursing facilities can enforce arbitration clauses in resident contracts. That might happen in six months, or it could take as long as two years.

With all of this uncertainty, why should you consider including arbitration clauses in your new resident contracts now?

If you begin adding an arbitration clause to your new resident contacts today, and the Illinois Supreme Court issues its decision a year from now, then your facility will have admitted scores of new residents—maybe more than half the residents in your building. If arbitration clauses become enforceable, then all of your new residents will already have those provisions in their contracts.

But be warned: not all arbitration clauses are created equal. Only carefully drafted provisions that contain appropriate disclosures and that restrict when and how arbitration will occur and what kinds of damages are available will result in dramatic savings for nursing facilities.

If courts allow arbitration clauses in resident contracts, facilities can reduce their exposure to unreasonable jury verdicts and punitive damages. Additionally, properly drafted arbitration clauses can help limit the amount of discovery and associated attorneys' fees and costs.

Keep in mind that you cannot unilaterally amend contracts with existing residents to include arbitration clauses. If you provide them with some consideration in return, however, you can ask, but not require, existing residents (or their powers of attorney or guardians) to sign a new contract. Regarding new residents, by asking them to sign a contact with an arbitration clause now, you will be ahead of the game if the Illinois Supreme Court eventually rules that arbitration clauses are indeed enforceable. If the court rules the other way, then you have lost nothing.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.