Quest Diagnostics 2010 Annual Report Download - page 99

kits. The complaint alleges that certain of NID’s test kits were defective and that defendants, among other things,
violated RICO and state consumer protection laws. The complaint alleges an unspecified amount of damages.
In August 2010, a shareholder derivative action was filed in the Superior Court of New Jersey, Morris
County, on behalf of the Company against the directors and certain present officers of the Company. The
complaint alleges that the defendants breached their fiduciary duties in connection with, among other things,
alleged overcharges by the Company to MediCal for testing services, and seeks unspecified compensatory
damages and equitable relief.
In November 2010, a putative class action was filed against the Company and certain present and former
officers of the Company in the Superior Court of New Jersey, Essex County, on behalf of the Company’s sales
people nationwide who were over forty years old and who either resigned or were terminated after being placed
on a performance improvement plan. The complaint alleges that the defendants’ conduct violates the New Jersey
Law Against Discrimination, and seeks, among other things, unspecified damages. The defendants removed the
complaint to the United States District Court for the District of New Jersey.
In addition, the Company and certain of its subsidiaries have received subpoenas from state agencies in five
states and from the Office of Inspector General of the U.S. Department of Health and Human Services which
seek documents relating to the Company’s billing practices. The Company is cooperating with the requests.
The federal or state governments may bring claims based on new theories as to the Company’s practices
which management believes to be in compliance with law. In addition, certain federal and state statutes, including
the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against
healthcare companies on behalf of government or private payers. The Company is aware of certain pending
individual or class action lawsuits, and has received several subpoenas, related to billing practices filed under the
qui tam provisions of the Civil False Claims Act and/or other federal and state statutes, regulations or other laws.
The Company understands that there may be other pending qui tam claims brought by former employees or other
“whistleblowers” as to which the Company cannot determine the extent of any potential liability.
Several of these matters are in their early stages of development and involve responding to and cooperating
with various government investigations and related subpoenas. While the Company believes that at least a
reasonable possibility exists that losses may have been incurred, based on the nature and status of the
investigations, the losses are either currently not probable or a range of loss cannot be reasonably estimated.
Management has established reserves in accordance with generally accepted accounting principles for the
matters discussed above. Such reserves totaled approximately $10 million as of December 31, 2010. Management
cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome
of such matters will have a material adverse effect on the Company’s financial condition, the outcome may be
material to the Company’s results of operations or cash flows in the period in which the impact of such matters
is determined or paid.
As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or
other similar legal claims. These suits could involve claims for substantial damages. Any professional liability
litigation could also have an adverse impact on the Company’s client base and reputation. The Company
maintains various liability insurance coverages for, among other things, claims that could result from providing,
or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The
Company’s insurance coverage limits its maximum exposure on individual claims; however, the Company is
essentially self-insured for a significant portion of these claims. Reserves for such matters, including those
associated with both asserted and incurred but not reported claims, are established by considering actuarially
determined losses based upon the Company’s historical and projected loss experience. Such reserves totaled
approximately $130 million and $135 million as of December 31, 2010 and 2009, respectively. Management
believes that established reserves and present insurance coverage are sufficient to cover currently estimated
exposures. Management cannot predict the outcome of any claims made against the Company. Although
management does not anticipate that the ultimate outcome of any such proceedings or claims will have a material
adverse effect on the Company’s financial condition, the outcome may be material to the Company’s results of
operations or cash flows in the period in which the impact of such claims is determined or paid.
F-33
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)