Health Net 2013 Annual Report Download - page 157

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-53
claims brought by members or providers seeking coverage or additional reimbursement for services allegedly rendered
to our members, but which allegedly were denied, underpaid, not timely paid 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, and claims alleging that we
have engaged in unfair business practices. In addition, we are subject to claims relating to information security
incidents and breaches, reinsurance agreements, rescission of coverage and other types of insurance coverage
obligations and claims relating to the insurance industry in general. We are, and may be in the future, subject to class
action lawsuits brought against various managed care organizations and other class action lawsuits.
We intend to vigorously defend ourselves against the miscellaneous legal and regulatory proceedings to which
we are currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending
against us, substantial non-economic or punitive damages are being sought.
Potential Settlements
We regularly evaluate legal proceedings and regulatory matters pending against us, including those described
above in this Note 13, to determine if settlement of such matters would be in the best interests of the Company and its
stockholders. The costs associated with any settlement of the various legal proceedings and regulatory matters to which
we are or may be subject from time to time, including those described above in this Note 13, could be substantial and,
in certain cases, could result in a significant earnings charge or impact on our cash flow in any particular quarter in
which we enter into a settlement agreement and could have a material impact on our financial condition, results of
operations, cash flow and/or liquidity and may affect our reputation.
AmCareco Judgment
We were previously a defendant in two related litigation matters (the "AmCareco litigation") related to claims
asserted by three separate state receivers overseeing the liquidation of three health plans previously owned by one of
our former subsidiaries that merged into Health Net, Inc. in January 2001. As a result of a judgment in April 2011 by
the Louisiana Supreme Court, we recorded a pretax charge of $181 million in general and administrative expense in the
year ended December 31, 2011.
Operating Leases and Long-Term Purchase Obligations
Operating Leases
We lease administrative office space throughout the country under various operating leases. Certain leases
contain renewal options and rent escalation clauses. Certain leases are cancelable with substantial penalties.
We lease office space in multiple locations in Shelton, Connecticut under operating lease agreements for
remaining terms ranging from three to four years. We began monitoring these leases for impairment after the Northeast
Sale in December 2009 although we remained in these sites to conduct related transition work. In December 2012 after
vacating these sites, we recorded a lease impairment totaling $7.4 million in our divested operations and services
expenses. The lease impairment amount represented the fair value of future lease obligations discounted using a credit
adjusted risk-free interest rate of 3.26%.
We lease an office space in Woodland Hills, California that is used for operations in our Western Region
Operations and Government Contracts reportable segments under an operating lease agreement. The lease expires on
December 31, 2014 and does not provide for complete cancellation rights. As of December 31, 2013, the total future
minimum lease commitments under the lease were approximately $3.4 million.
We lease an office space in Woodland Hills, California for our California health plan under an operating lease
agreement. The lease expires on December 31, 2021 and it contains provisions for full or partial termination under
certain circumstances with substantial consideration payable to the landlord. As of December 31, 2013, the total future
minimum lease commitments under this lease were approximately $94.5 million.