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ADVOCAT INC.

AVC Advocat

May 2, 2005

Mr. Larry Spirgel

Assistant Director

United States Securities and Exchange Commission

Division of Corporation Finance, Mail Stop 0407

450 Fifth Street, N.W.

Washington, D.C. 20549

         RE:

    Advocat Inc.

    Form 10-K for the fiscal year ended December 31, 2004

    Filed March 29, 2005

    File No. 001-12996

Dear Mr. Spirgel:

This is written in response to your letter dated April 20, 2005 regarding Advocat Inc.’s (the
Company) filing referenced above. Our responses are keyed to the comments in your letter. As
requested in your letter, this letter and exhibits will be filed on EDGAR.

SEC Comment

Self Insurance Reserves, page 38

    1.
    We note that you use a third-party actuarial firm to assist you in estimating the
appropriate accrual for any claims. Please:

    a.
    Tell us the methodology and assumptions used by the actuarial firm

    b.
    Tell us why you believe the use of an actuary is necessary

    c.
    Disclose the above details in your critical accounting policies.
Discuss the nature of the estimates or assumptions that are material due to the
levels of subjectivity and judgment necessary, and why the impact of the estimates
and assumptions on your financial condition or operating performance is material.
Also, quantify the potential impact of any changes in your assumptions.

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Company Response

    a.
    Tell us the methodology and assumptions used by the actuarial firm

Methodology

The actuary estimates the ultimate cost for all professional liability claims incurred in a
period and includes estimates for both claims reported and claims incurred but not
reported. The estimate is made quarterly based on then available information.

The Company provides the actuary information with regard to historical losses incurred by
the Company for professional liability claims. For the 2004 financial statements, the
actuary used losses covering a 10 year period, from March 1995 through March 2005, as the
basis for estimates. Based on this historical data, the actuary develops estimates of the
average cost per claim and the frequency of claims per occupied bed. The average cost per
claim includes legal and other expenses incurred. These averages are used to generate the
initial estimate of the ultimate professional liability cost for a given period in relation
to the Company’s occupancy for that period.

On a quarterly basis, as claims are reported and lawsuits filed, the Company obtains from
its insurers and third party claims administrator reports of claims incurred by the
Company. These reports contain information relevant to the liability actually incurred to
date with that claim as well as the third-party administrator’s estimate of the anticipated
total cost of the claim (this estimate is initially developed based on the third-party
administrator’s initial review of the facts giving rise to the claim). This information is
reviewed by management and provided to the actuary. The actuary uses this information to
determine the timing of claims reporting and the development of reserves, and compares the
information obtained to its original estimates of liability based on the average-frequency
and cost-per claim methodology. Based on the actual claim information obtained and on
estimates regarding the number and cost of additional claims anticipated in the future, the
reserve estimate for a particular period may be revised upward or downward on a quarterly
basis. Thus, the accrual for older periods is determined by using currently-known
information to adjust the initial reserve that was created almost exclusively by the
“frequency times severity” methodology.

The actuary evaluates claims and potential claims incurred for periods beginning March 9,
2000. Prior to that time, the Company had adequate insurance in place to cover claims on a
claims-incurred basis without significant uninsured risk to the Company. Beginning with
the March 9, 2000 policy period, insurance coverage was on a claims made basis. Reference
should be made to pages 39

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through 41 of the 2004 10-K for a description of the Company’s insurance coverage.

The accrual for losses computed by the actuary is adjusted to take into consideration
available insurance coverage, although as noted above, the Company’s coverage is relatively
low, and has been completely exhausted in some periods.

All losses are projected on an undiscounted basis. There are significant uncertainties
with regard to the timing of future cash outflows, and discounting of the liability would
therefore not be appropriate.

Assumptions

The accuracy and reliability of the estimated ultimate losses as determined by the actuary
depend on the following:

    (i)
    The reliability of historical experience to serve as an indicator of
future experience, especially as regards to development of open claims.

    (ii)
    The assumption that the historical distribution of exposures by
geographic area and the nature of the Company’s operations are representative of its
ongoing operations.

    (iii)
    The appropriateness of indices from government and industry sources used
to develop and trend losses and exposures.

    (iv)
    The assumption that average claims cost will increase in the future at a
rate of 5% per year, which assumption is based on insurance industry general
liability inflation trend data.

    (v)
    The quality of detail loss, exposure, and other data provided by the
insurance companies and the Company. The actuary relies on this data without detail
verification or audit.

    (vi)
    The assumption that it is appropriate to limit claim exposure to $4.5
million, the limit at which historical data is considered reasonable to estimate
expected losses; and

    (vii)
    The assumption that the legal environment will continue without
significant tort reform or other precedent setting legal opinions.

    b.
    Tell us why you believe the use of an actuary is necessary

The Company must record in each period its estimated liability for claims incurred.
Management believes that the use of actuarial methods that are based on the expected
frequency of claims and their average severity, based on historical trends, provides the
best and most objective method to estimate its liability for professional and general
liability claims. Management considers the use of this methodology appropriate for many
reasons, including the following:

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    (1)
    The majority of the claims incurred during a given period will not be known
for months or even years. While some of the professional liability claims incurred by
the Company can be traced to a particular event occurring on a date certain, which
event becomes known to the Company shortly after it occurs, the majority of the
professional liability claims against the Company are not tied to a specific alleged
incident and involve allegations of neglect over time or events that the Company did
not expect to give rise to a claim. Thus, at the end of each period, the Company is
aware that the known claims represent only a small portion of the actual liability
that the Company can expect to incur for claims occurring during that period. Thus,
the Company’s initial reserve for claims incurred during a period is compromised
almost exclusively of incurred but not yet reported (“IBNR”) claims.

    (2)
    Given the nature of the Company’s business, evaluating potential liability
from a known incident is often difficult. For example, consider an injury resulting
from a fall by a patient at one of the Company’s facilities. Elderly, infirm people
suffer falls, and the fact that an injury occurred does not mean that the facility
failed to meet the applicable standard of care with respect to that patient or that a
claim will be asserted related to that fall. Patients or their family members often
do not assert claims against the Company for extended periods of time. For similar
reasons, it is not unusual for patients or their families to assert claims arising
from alleged incidents occurring many months or even years earlier that the Company
had no reason to believe would ever develop into claims.

    (3)
    Even after a claim is asserted, the actual liability will not be known until
the case settles or a final judgment is entered, events that usually do not occur
until years after the incident or incidents giving rise to the claim. This long time
cycle lends itself to an estimation process that is based on average frequencies over
a long period of time.

    (4)
    Estimating liability for a particular claim is inherently uncertain and
particularly difficult with respect to claims arising from the operation of a skilled
nursing facility business. Claims may be settled through negotiation, arbitration or
through jury award. The facts and circumstances of each claim vary significantly, and
the amount of ultimate liability for an individual claim may vary due to many factors,
including the quality of legal representation, the individual jurisdiction in which
the claim is pending, and the views of the particular judge or jury deciding the case.
History has shown, both with respect to the Company and the industry as a whole, that
potential exposure for a given claim cannot with any certainty be limited to a narrow
estimate of liability. The Company learned this fact first hand in 2000 when a jury
returned a $77 million dollar verdict on a claim that management, its advisors and
attorneys did not believe presented the risk of a large verdict. For these reasons,
management believes that estimates based on average severity of claims over an
extended period of time provide the best basis for estimating

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    the ultimate claims cost. The actuarial methods relied on by the Company provide an
objective basis for estimating a liability that is material to its financial position
and results of operations. Given the difficulties outlined above, Management does not
believe there exists any viable alternative to the use of these methods. Management
also believes that expertise in actuarial methodologies is required to estimate these
liabilities. The Company does not have an employee qualified to make these
measurements and would not have access to critical industry data, and believes that the
use of a third party actuary is a cost effective solution.

    c.
    Disclose the above details in your critical accounting policies. Discuss the nature of the
estimates or assumptions that are material due to the levels of subjectivity and judgment
necessary, and why the impact of the estimates and assumptions on your financial condition or
operating performance is material. Also, quantify the potential impact of any changes in your
assumptions.

Revision to disclosure

The Company proposes revising its disclosure of critical accounting policies under the
heading Self Insurance Reserves as provided below in future filings. The language
is marked to show changes from disclosure in the Company’s 2004 10-K.

Self-Insurance Reserves

Self-insurance reserves primarily represent the accrual for self insured risks associated
with general and professional liability claims, employee health insurance and workers
compensation. The self insurance reserves include estimates of liability for incurred but
not reported claims, estimates of liability for reported but unresolved claims, actual
liabilities related to settlements, including settlements to be paid over time, and
estimates of legal costs [incurred and expected to be incurred].
The Company’s policy with respect to a significant portion of the general and professional
liability claims is to use a third-party actuary to support the estimates recorded for the
development of known claims and incurred but unreported claims. The Company’s health
insurance reserve is based on known claims incurred and an estimate of incurred but
unreported claims determined by an analysis of historical claims paid. The Company’s
workers compensation reserve relates to periods of self insurance prior to May 1997 and a
high deductible policy issued July 1, 2002 through June 30, 2003 covering most of the
Company’s employees in the United States. The reserve for workers compensation self
insurance prior to May 1997 consists only of known claims incurred and the reserve is based
on an estimate of the future costs to be incurred for the known claims. The reserve for
the high deductible policy issued July 1, 2002 is based on known claims incurred and an
estimate of incurred but not reported claims determined by an analysis of historical claims

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incurred. Expected insurance coverages are reflected as a reduction of the reserves.

[Because the Company anticipates that its actual liability for existing and anticipated
claims will exceed the Company’s limited professional liability insurance coverage, the
Company has recorded total liabilities for reported professional liability claims and
estimates for incurred but unreported claims of $42.9 million as of December 31, 2004. The
Company does not have cash or available resources to pay these accrued professional
liability claims or any significant portion thereof.

The Company’s] self insurance reserves are assessed on a quarterly basis [based on
currently available information], with changes in estimated losses and effects of
settlements being recorded in the consolidated statements of operations in the period
identified. The amounts recorded for professional and general liability claims are
adjusted for revisions in estimates and differences between actual settlements and reserves
as determined each period with changes in estimated losses being recorded in the
consolidated statements of operations in the period identified. Any increase in the
accrual decreases income in the period, and any reduction in the accrual increases income
during the period.

[The Company retains a third-party actuarial firm to estimate the
appropriate accrual for incurred professional liability claims. The actuarial estimate
represents the ultimate cost for all professional liability claims incurred in a period and
includes estimates for both claims reported and claims incurred but not reported. All
losses are projected on an undiscounted basis.

The Company provides the actuary information with regard to historical losses incurred by
the Company for professional liability claims. For the 2004 financial statements, the
actuary used losses covering a 10 year period, from March 1995 through March 2005, as the
basis for estimates. Based on

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this historical data, the actuary develops estimates of the average cost per claim and the
frequency of claims per occupied bed. The average cost per claim includes legal and other
expenses incurred. These averages are used to generate the initial estimate of the
ultimate professional liability cost for a given period in relation to the Company’s
occupancy for that period.

The actuary evaluates claims and potential claims incurred for periods beginning March 9,
2000. Prior to that time, the Company had adequate insurance in place to cover claims on a
claims-incurred basis without significant uninsured risk to the Company. Beginning with
the March 9, 2000 policy period, insurance coverage was on a claims made basis. See
“Business — Professional Liability and Other Liability Insurance” for a description of the
Company’s insurance coverage.

On a quarterly basis, as claims are reported and lawsuits filed, the Company obtains from
insurers and a third party claims administrator reports of claims incurred by the Company.
These reports contain information relevant to the liability actually incurred to date with
that claim as well as the third-party administrator’s estimate of the anticipated total
cost of the claim (this estimate is initially developed based on the third-party
administrator’s initial review of the facts giving rise to the claim). This information is
review