Health Net 2009 Annual Report Download - page 139

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
These proceedings are subject to many uncertainties, and, given their complexity and scope, their outcome,
including the outcome of any appeal, cannot be predicted at this time. It is possible that in a particular quarter or
annual period our results of operations, cash flow and/or liquidity could be materially affected by an ultimate
unfavorable resolution of these proceedings depending, in part, upon the results of operations or cash flow for
such period. However, at this time, management believes that the ultimate outcome of these proceedings should
not have a material adverse effect on our financial condition.
Miscellaneous Proceedings
In the ordinary course of our business operations, we are also subject to periodic reviews by various
regulatory agencies with respect to our compliance with a wide variety of rules and regulations applicable to our
business, including, without limitation, rules relating to pre-authorization penalties, payment of out-of-network
claims and timely review of grievances and appeals, which may result in remediation of certain claims and the
assessment of regulatory fines or penalties.
In addition, in the ordinary course of our business operations, we are also party to various other legal
proceedings, including, without limitation, litigation arising out of our general business activities, such as
contract disputes, employment litigation, wage and hour claims, real estate and intellectual property claims,
claims brought by members seeking coverage or additional reimbursement for services allegedly rendered to our
members, but which allegedly were either denied, underpaid or not paid, and claims arising out of the acquisition
or divestiture of various business units or other assets. We are also subject to claims relating to the performance
of contractual obligations to providers, members, employer groups and others, including the alleged failure to
properly pay claims and challenges to the manner in which we process claims. In addition, we are subject to
claims relating to the insurance industry in general, such as claims relating to reinsurance agreements,
information security breaches, rescission of coverage and other types of insurance coverage obligations.
These other regulatory and legal proceedings are subject to many uncertainties, and, given their complexity
and scope, their final outcome cannot be predicted at this time. It is possible that in a particular quarter or annual
period our results of operations and cash flow could be materially affected by an ultimate unfavorable resolution
of any or all of these other regulatory and legal proceedings depending, in part, upon the results of operations or
cash flow for such period. However, at this time, management believes that the ultimate outcome of the
regulatory and legal proceedings currently pending against us, after consideration of applicable reserves and
potentially available insurance coverage benefits, should not have a material adverse effect on our financial
condition and liquidity.
Potential Settlements
We regularly evaluate litigation matters pending against us, including those described above, to determine if
settlement of such matters would be in the best interests of the Company and its stockholders. The costs
associated with any such settlement could be substantial and, in certain cases, could result in a significant
earnings charge in any particular quarter in which we enter into a settlement agreement. We have recorded
reserves and accrued costs for future legal costs for certain significant matters described above. These reserves
and accrued costs represent our best estimate of probable loss, including related future legal costs for such
matters, both known and incurred but not reported, although our recorded amounts might ultimately be
inadequate to cover such costs. Therefore, the costs associated with the various litigation matters to which we are
subject and any earnings charge recorded in connection with a settlement agreement could have a material
adverse effect on our financial condition or results of operations.
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