In a regulatory filing earlier, Universal Health Services noted that Cumberland Hospital for Children and Adolescents, or “Cumberland,” an indirect subsidiary of the company, is a defendant in multi-plaintiff lawsuits filed in the Circuit Court for Richmond, Virginia, relating to allegations of inappropriate sexual contact during medical examinations by Dr. Daniel Davidow, an independent contractor and the former medical director for Cumberland. “The Company and UHS of Delaware, Inc., our administrative services subsidiary, were also named as co-defendants in the Cumberland Litigation. Plaintiffs have asserted claims of negligence, assault and battery against Dr. Davidow, false imprisonment, violations of the Virginia Consumer Protection Act, and vicarious liability for Dr. Davidow’s conduct against Cumberland, the Company, and UHS Delaware. All defendants have denied liability. The claims asserted by three of the plaintiffs in the Cumberland Litigation were consolidated for trial in September of 2024. The Company and UHS Delaware were dismissed from the action during trial. On September 27, 2024, a jury entered a verdict finding Dr. Davidow and Cumberland liable and awarded these three plaintiffs combined compensatory damages of $60 million for all liability theories, an additional combined $180 million in trebled damages for violation of the VCPA, and an additional combined $120 million in punitive damages. Cumberland is evaluating all legal options and intends to challenge this verdict, including the amounts awarded in the verdict, in post-trial proceedings and on appeal. Based upon Virginia law, we expect that the punitive damage amount should be reduced to a combined maximum of $1.05 million as a matter of law. There are approximately 40 additional plaintiffs making similar allegations with claims pending in the Cumberland Litigation. As previously disclosed on Form 8-K on April 1, 2024, and Forms 10-Q for the quarterly periods ended March 31, 2024 and June 30, 2024, the Pavilion Behavioral Health System, an indirect subsidiary of the Company, was a defendant in a lawsuit filed in Champaign County, Illinois, relating to the sexual assault of one minor patient by another minor patient in 2020. The case went to trial in March 2024, and on March 28, 2024, a jury returned a verdict for ordinary negligence and awarded compensatory damages of $60 million and punitive damages of $475 million and a related judgment was entered against the Pavilion. Based on a search of verdicts in comparable cases, the magnitude of this verdict was unexpected and is unprecedented for a single-plaintiff injury case of this type in Champaign County, Illinois. The Pavilion has filed post-trial motions challenging the judgment, which were heard in August 2024, and are awaiting a decision by the court. The Pavilion will pursue an appeal as appropriate depending on the trial court’s resolution of post-trial motions. We are uncertain as to the ultimate financial exposure related to the above-mentioned Cumberland and Pavilion matters and we can make no assurances regarding their outcomes, or the amounts of damages that may be held recoverable after post-judgment proceedings and appeals. While Cumberland and Pavilion have professional liability insurance to cover a portion of these amounts, the resolution of these matters may have a material adverse effect on the Company. Without reduction for any potential amounts related to the above-mentioned Cumberland and Pavilion matters, the Company and its subsidiaries have aggregate insurance coverage of approximately $221 million remaining under commercial policies for matters applicable to the 2020 policy year (in excess of the applicable self-insured retention amounts of $10 million per occurrence for professional liability claims and $3 million per occurrence for general liability claims). In the event the resolution of the Cumberland and/or Pavilion matters exhausts all or a significant portion of the remaining commercial insurance coverage available to the Company and its subsidiaries for claims that occurred in 2020 (the applicable year for substantially all of the Cumberland matters, and the Pavilion matter, as discussed above), or it requires the posting of large bonds or other collateral during appeal processes, our future results of operations and capital resources could be materially adversely impacted,” the filing stated. In Monday morning trading, shares of Universal Health Services have fallen $12.75, or 5.5%, to $217.17.
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