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In construing a California statute that imposes disclosure requirements on arbitration clauses in health care plans, the California Court of Appeals held that an individual member of a group health plan is entitled to the requisite disclosures.
In Medeiros v. Superior Court, No. B193042, 2007 WL 93170 (Cal. Ct. App. Jan. 16, 2007), Health Net and San Bernardino County (the County) entered into a group service agreement whereby Health Net would provide health insurance to County employees. The group service agreement contained an arbitration clause.
Medeiros, a County employee, chose Health Net coverage using the County's benefits election form, which made passing reference to the arbitration clause in the group service agreement.
When Medeiros sued Health Net for breach of contract, Health Net filed a motion to compel arbitration. In opposing the motion, Medeiros argued that the arbitration clause was unenforceable based on noncompliance with the disclosure requirements set forth in section 1363.1 of the California Health and Safety Code. The trial court granted the motion.
On appeal, the issue was whether prospective members of a group health plan are entitled to the disclosures required by section 1363.1. The Court relied on the statute's legislative history in holding that prospective members of a group health plan are entitled to the requisite disclosures.
Health Net argued that the arbitration clause should be enforced despite noncompliance with the disclosure requirements because the County used its own form to enroll Medeiros in the plan. In rejecting this argument, the Court explained that it could "conceive of no reason why employees who sign a document called an 'enrollment form' provided by the insurance company should receive more protection than employees who sign a document called a 'benefits election agreement' provided by their employer."
Since Medeiros was not given the requisite disclosures prior to enrolling in the health plan, the Court reversed the trial court order compelling arbitration and remanded the case with instructions to deny the motion.
Ordinarily, the Federal Arbitration Act (FAA) preempts state laws that impose special notice requirements on arbitration agreements. However, in a previous decision, the California Court of Appeal held that the McCarran-Ferguson Act precludes FAA preemption of the disclosure requirements at issue in this case. See Smith v. PacifiCare Behavioral Health of California, Inc., 113 Cal. Rptr. 2d 140 (Cal. Ct. App. 2001); but see Erickson v. Aetna Health Plans of California, Inc., 84 Cal. Rptr. 2d 76 (Cal. Ct. App. 1999) (holding that the FAA preempted application of section 1363.1 but without considering reverse preemption under the McCarran-Ferguson Act). Under the McCarran-Ferguson Act, federal law does not preempt state laws "enacted for the purpose of regulating the business of insurance" unless the federal law "specifically relates to the business of insurance." 15 U.S.C.A. § 1012(b).
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