Warning Regarding Assisted Living Contracts

A recent case in Multnomah County, Drury v. Assisted Living Concepts, considered whether an arbitration clause in an assisted living contract precluded a wrongful death lawsuit brought by the children of deceased facility resident, Dorothy.

Dorothy was suffering from dementia and her mental capacity was severely impaired at the time her son, Eddie, admitted her to the defendant’s assisted living facility. Eddie signed the facility’s admission paperwork and residency agreement. At that time he was not yet Dorothy’s guardian or conservator and did not then have a power of attorney for her.

The residency agreement included a clause requiring arbitration for all claims or disputes relating to the agreement or the services provided “to You by Us.” After about a year in the facility, Dorothy died as a result of injuries sustained in a fall. Her estate’s personal representative sued the facility for wrongful death resulting from negligent conduct. The defendants (unsuccessfully) moved to compel arbitration, arguing that the estate was bound to the residency agreement as a third-party beneficiary of the contract.

On appeal, the court agreed that Dorothy’s estate was not bound to the agreement and its arbitration clause. Under general contract law principles, a third-party beneficiary is presumed to assent to a contract when it accepts benefits or otherwise seeks to enforce rights under that contract. Dorothy was a “third-party donee beneficiary” of the residency agreement signed by her son. The critical issue for the court was Dorothy’s mental capacity – or lack thereof. Even though Dorothy accepted the contract’s benefits (the facility’s services and apartment), her lack of requisite mental capacity meant that her acceptance of benefits did not ratify the contract. 

This case emphasizes the importance of getting one’s legal affairs in order BEFORE you become incapacitated, particularly your estate plan that includes a power of attorney and an advance directive for medical care.