Health Net 2015 Annual Report Download - page 216

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-55
In addition, in the ordinary course of our business operations, we are 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, including, without limitation, cases involving allegations of
misclassification of employees and/or failure to pay for off-the-clock work, real estate-related claims, intellectual
property claims, 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, claims for
failure to maintain adequate provider directories and claims arising out of the acquisition or divestiture of various
business units or other assets. We also are 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, claims alleging that we have engaged in unfair business practices and claims
related to the payment of taxes, including but not limited to claims that may have retroactive application. In addition,
from time to time 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. In our role as a federal and state government contractor, we are, and may be in the future,
subject to qui tam litigation brought by individuals who seek to sue on behalf of the government for violations of,
among other things, state and federal false claims laws. 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 adverse effect on our financial condition, results
of operations, cash flow and/or liquidity and may affect our reputation.
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 eight to fifteen months. 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. After vacating
these sites, we recorded a lease impairment representing the discounted fair value of future lease obligations.
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. In 2014, we extended
the lease agreement through December 31, 2017 and it does not provide for complete cancellation rights. As of
December 31, 2015, the total future minimum lease commitments under the lease were approximately $6.5 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, 2015, the total future
minimum lease commitments under this lease were approximately $74.1 million.