Leong by Leong v. Kaiser Foundation Hospitals
| Decision Date | 27 February 1990 |
| Docket Number | No. 13671,13671 |
| Citation | 788 P.2d 164,71 Haw. 240 |
| Parties | Ernez Ling Wo LEONG, a minor, by his Next of Friend, Jane LEONG, Ernest Leong, Jane Leong, Plaintiffs-Appellants, v. KAISER FOUNDATION HOSPITALS, Hawaii Permanente Medical Group, Inc., Kaiser Foundation Health Plan, Inc., Permanente Services of Hawaii, Inc., Estate of Vilis Kruze, M.D., State of Hawaii, Maui Memorial Hospital, A.C. Peat, M.D., Doe One through Doe Fifty, inclusive, Defendants-Appellees. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. As used in HRS § 658-3, the word "default" does not pertain to breach or default of performance undertaken in the contract in which an agreement to arbitrate is a covenant. "Default" means a failure to comply with the agreement to arbitrate.
2. The "trial" referred to in HRS § 658-3 is limited to issues of whether the parties ever agreed to arbitrate or whether there is a default in compliance with such an agreement.
3. A trial is warranted under HRS § 658-3 only if there are disputed factual issues relating to whether there is an enforceable agreement to arbitrate. When there are no factual issues to resolve, the inquiry is simply one of law.
4. The general rule of contract law is that one who assents to a contract is bound by it and cannot complain that he has not read it or did not know what it contained.
5. When there is evidence that a booklet summarizing the essential terms of a group health insurance plan has been prepared and distributed in the usual manner to members of the group, an averment that a person did not receive the booklet, without more, is insufficient to negate a provision for binding arbitration contained in the contract.
6. An adhesion contract is a form contract created by the stronger of the contracting parties. It is offered on a "take this or nothing" basis. Consequently, the terms of the contract are imposed upon the weaker party who has no choice but to conform. These terms unexpectedly or unconscionably limit the obligations and liability of the drafting party. Because of these circumstances, some courts look past the wording of the contract and consider the entire transaction in order to effectuate the reasonable expectations of the parties.
7. A group health insurance plan that is the product of negotiations between the public employees Health Fund and the insurer is not an adhesion contract.
8. In contracts of adhesion, courts are concerned with terms which are oppressive to the weaker party and which serve to limit the obligations and liability of the stronger party. An arbitration provision does not limit the obligations and liability of either party, but merely substitutes one forum for another.
9. HRS § 658-2 provides that an infant who enters into an agreement to arbitrate cannot be bound thereby. But when an adult enters into a group health insurance contract containing an arbitration provision and where the infant is a third party beneficiary, the infant is bound to arbitrate any claims he may have under the contract.
Scott D. Righthand (James S. Bostwick, on the briefs of Bostwick and Tehin), San Francisco, Cal., for plaintiffs-appellants.
Mary A. Wilkowski (Richard K. Quinn and Rodney W. Williams, on the brief), Honolulu, for defendants-appellees, Kaiser Foundation Hospitals, Hawaii Permanente Medical Group, Inc., Kaiser Foundation Health Plan, Inc., Permanente Services of Hawaii, Inc., Estate of Vilis Kruze, M.D., and A.C. Peat, M.D.
Mark S. Davis (Davis & Levin, on the brief), Honolulu, for Hawaii Academy, amicus curiae of plaintiffs-appellants Attys.
Before LUM, C.J., PADGETT, HAYASHI and WAKATSUKI, JJ., and NAKAMURA, Retired Justice, assigned by reason of a vacancy.
Chapter 87, Hawaii Revised Statutes (HRS) establishes the Public Employees Health Fund (Health Fund). One of the primary duties of the Health Fund is to contract with health insurance carriers for group health benefits plans for public employees. HRS § 87-22 (Supp.1989). Individual public employees are given the option of enrolling in one of several group health care plans offered through the Health Fund.
Ernest Leong, an employee of the State of Hawaii in 1971, enrolled himself and his wife in the Kaiser Plan which provides comprehensive medical care and services exclusively through Kaiser affiliates.
On February 11, 1975, Ernez Ling Wo Leong was born to the Leongs and became a dependent-beneficiary member of the Kaiser Plan. The Leongs were active members of the Kaiser Plan from the 1971 enrollment through May 1982.
During June and July, 1975, Ernez received medical care and treatment through the Kaiser Plan for symptoms which were ultimately diagnosed as meningitis. Ernez is severely brain damaged with cerebral palsy, retardation, and compromise of intellectual and fine and gross motor functioning. The Leongs assert that Ernez's condition is a consequence of inadequate and substandard care and treatment by unqualified personnel at Kaiser.
On September 1, 1987, the Leongs filed a claim against Kaiser and others with the Medical Claims Conciliation Panel (MCCP). See Chapter 671, HRS. Not satisfied with the results of the hearing before the MCCP, the Leongs filed a complaint in the second circuit court alleging medical negligence and negligent hiring claims against Kaiser Foundation Hospitals, Hawaii Permanente Medical Group, Inc., Kaiser Foundation Health Plan, Inc., Permanente Services of Hawaii, Inc., Estate of Vilis Kruze, M.D., A.C. Peat, M.D. (collectively Kaiser), the State of Hawaii, and Maui Memorial Hospital.
Kaiser sought to dismiss the complaint, or in the alternative, stay the action and compel arbitration. The Kaiser Plan provided for binding arbitration of "[a]ny claims for damages for personal injury ... arising out of the rendition of or failure to render services under this contract[.]" The existence of the arbitration provision is not disputed. The Leongs contend, however, that they are not bound to arbitrate and instead are entitled to a jury trial.
The circuit court determined that the arbitration provision is binding on the Leongs, and thereby entered an order compelling arbitration. The Leongs appeal. We affirm.
The Leongs argue that HRS § 658-3 (1985) entitles them to a jury trial. Section 658-3 provides in pertinent part Compelling compliance with agreement; jury trial when. A party aggrieved by the failure, neglect, or refusal of another to perform under an agreement in writing providing for arbitration, may apply to the circuit court for an order directing that the arbitration proceed in the manner provided for in the agreement.... The court shall hear the parties, and upon being satisfied that the making of the agreement or the failure to comply therewith is not in issue, the court hearing the application shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or the default is in issue, the court shall proceed summarily to the trial thereof.
The Leongs read this statute as entitling them to a trial whenever a default is in issue; and a default, to them, is whenever there has been a breach of the contract. But "[t]he word 'default' used in the statute does not pertain to breach or default of performance undertaken in the contract in which an agreement to arbitrate is a covenant." Gregg Kendall & Associates, Inc. v. Kauhi, 53 Haw. 88, 93, 488 P.2d 136, 140 (1971). As used in § 658-3, default means a failure to comply with the agreement to arbitrate. The "trial" referred to in HRS § 658-3 is limited to issues of whether the parties ever agreed to arbitrate or whether there is a default in compliance with such an agreement. Association of Owners of Kukui Plaza v. Swinerton & Walberg, 68 Haw. 98, 107, 705 P.2d 28, 35 (1985); Leeward Bus Co. v. City & County of Honolulu, 58 Haw. 64, 72, 564 P.2d 445, 450 (1977); Gregg Kendall & Associates, Inc. v. Kauhi, 53 Haw. at 93, 488 P.2d at 140 (1971).
The Leongs' are entitled to a jury trial under HRS § 658-3 only if there are disputed factual issues relating to whether there is an enforceable agreement to arbitrate. When there are no factual issues to resolve, the inquiry is simply one of law. Lecker v. General American Life Insurance Co., 55 Haw. 624, 626, 525 P.2d 1114, 1115 (1974).
Here, there are no facts in dispute, and therefore, the circuit court's ruling, as a matter of law, was proper.
The Leongs present a host of arguments as to why the arbitration provision should not be enforceable against them. In Madden v. Kaiser Foundation Hospitals, 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178 (1976), many of the same arguments were rejected by the California Supreme Court. We find the reasoning of the California Supreme Court in that case to be convincing.
The Leongs first contend that there was no agreement to arbitrate at the time the injury occurred in July 1975 because a contract for group health care benefits to be provided by Kaiser expired on June 30, 1975.
Prior to expiration, Kaiser and the Health Fund were re-negotiating the contract. Negotiations, however, continued beyond June 30, 1975, and the new contract was not signed until September, 1975, and was made retroactive to July 1, 1975.
The retroactive provision notwithstanding, the Leongs argue that the arbitration provision cannot be enforceable due to the fact that the contract was not signed until after the occurrence of their alleged claims. This argument necessarily presumes that there was no contract at all at the time of the injury, yet the Leongs do not, and cannot, posit that argument since it is only under the contract that the Leongs were entitled to and received the medical services from Kaiser in June and July of 1975. They attempt to pick and choose for their benefit which provisions of the contract had or had not retroactive effect.
The Leongs also argue that the retroactivity of the...
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Case Notes
...that there was no valid waiver of Appellants' right to jury trial but wrote separately to state that Leong v. Kaiser Found. Hosps., 71 Haw. 240, 788 P.2d 164 (1980) should be overruled based on the lack of mutual assent to the arbitration agreement exhibited by the facts of that case, pursu......