Contingencies

Due to the uncertainties associated with the stop-loss fee dispute cases, the Company has accrued an amount of $11.3 million, and an additional amount of $3.4 million in interest payable, as accrued liabilities. For a detailed discussion of this, see Revenue Recognition Policy under Notes to Consolidated Financial Statements.

The Company maintains various insurance policies that cover its Pasadena facility including occurrence medical malpractice coverage. In addition, all physicians granted privileges at the Pasadena facility are required to maintain medical malpractice insurance coverage. The Company also maintains general liability and property insurance coverage, including flood coverage. The Company does not currently maintain workers’ compensation coverage in Texas. In regard to the Employee Health Insurance Plan, until April 30, 2014, the Company was self-insured with specific and aggregate re-insurance with stop-loss levels appropriate for the Company’s group size. Effective May 1, 2014, the Company has taken coverage for its employees under a fully insured health plan.

We do not carry director and officer liability insurance. As permitted under Nevada law and pursuant to our governing documents and indemnification agreements with certain of our officers and directors, we indemnify our directors and officers against monetary damages, including advancing expenses, to the fullest extent permitted by Nevada law.

On May 21, 2013, Ping S. Chu and James G. Gerace (both former members of our Board of Directors), along with seven other plaintiffs, filed a lawsuit in Probate Court No. 3 of Harris County, Texas, naming as defendants Ella Y.T.C. Chan (in her individual capacity and in her capacity as Independent Executrix of the Estate of Chiu M. Chan, Deceased, our former Chief Executive Officer and director), Eric K. Chan (our current Chief Executive Officer and director), and Dynacq Healthcare, Inc. In the suit, the plaintiffs alleged that the Chan family had received improper financial benefits from us. The plaintiffs sought damages in connection with claims of breach of fiduciary duty, shareholder oppression, constructive trust and conspiracy. We, through our legal counsel, filed an answer to the original petition, and filed a motion with the Probate Court to dismiss the lawsuit. The Probate Court granted the motion and dismissed the lawsuit. On August 19, 2013, the same lawsuit was re-filed in the 151^st District Court of Harris County, Texas, in the form of a counterclaim and third party intervention in a lawsuit previously filed by Ella Chan (as Executrix of the Estate of Chiu M. Chan) against Ping Chu for the return of a personal automobile of Chiu M. Chan. Additional parties have joined in the counterclaim and intervention. The counterclaimants and intervenors assert that they are entitled to actual damages, plus fair proportionate dividends and an appraisal and buyout of shares. Dynacq has disputed liability. We believe the counterclaim and intervention are without merit and intend to vigorously defend ourselves in the suit.

The Company is routinely involved in litigation and administrative proceedings that are incidental to its business. Specifically, all judicial review of unsatisfactory determinations of reimbursement amounts due us for our Texas facilities’ fees must be made in the district courts of Travis County, Texas in what can often be a lengthy procedure.