Insurance Giant Found to be Partner in Operation of Bankrupt Nursing Home Chain – Liability May Exceed One-Half Billion Dollars

A recent decision by a Texas bankruptcy judge represents a precedent-setting ruling of note to lenders, sureties, and insurance companies involved in structured finance transactions.

On April 22, 2004, Steven A. Felsenthal, Chief United States Bankruptcy Judge for the Northern District of Texas, Dallas Division, entered a declaratory judgment against ZC Specialty Insurance Company (“Zurich”), a subsidiary of Zurich Financial Services Group, ruling that Zurich was a partner in the ownership and operation of 87 nursing homes located in Texas and Illinois. The nursing home chain, which did business as Senior Living Properties, L.L.C. (SLP), filed for bankruptcy protection on May 14, 2002. As a partner in the enterprise, Zurich now finds itself liable for all debts incurred by the bankrupt nursing home chain. According to a subsequent lawsuit filed by the court appointed post-confirmation trustee, Dan B. Lain, Zurich is responsible for debts in excess of $500 million.

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