Seymour v. Blue Cross/Blue Shield, 91-4111

• Decision Date: 12 March 1993
• Docket Number: No. 91-4111,91-4111
• Citation: 988 F.2d 1020
• Parties: 16 Employee Benefits Cas. 1757 Ed SEYMOUR; Shannon Seymour; and Ed and Shannon Seymour as guardians ad litem of Brayden Seymour, Plaintiffs-Appellants, v. BLUE CROSS/BLUE SHIELD, a Utah corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1020

988 F.2d 1020

16 Employee Benefits Cas. 1757

Ed SEYMOUR; Shannon Seymour; and Ed and Shannon Seymour as guardians ad litem of Brayden Seymour, Plaintiffs-Appellants, v. BLUE CROSS/BLUE SHIELD, a Utah corporation, Defendant-Appellee.

No. 91-4111.

United States Court of Appeals, Tenth Circuit.

March 12, 1993.

Gerrit M. Steenblik of Jennings, Strouss & Salmon, Phoenix, AZ, for plaintiffs-appellants.

Timothy C. Houpt (Andrew H. Stone and D. James Morgan with him, on the brief) of Jones, Waldo, Holbrook & McDonough, Salt Lake City, UT, for defendant-appellee.

Before McKAY, Chief Judge, and LOGAN and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

Appellants Ed and Shannon Seymour, for themselves and as Guardians Ad Litem for Brayden Seymour, brought suit seeking health insurance benefits from Appellee Blue Cross/Blue Shield of Utah (BCBSU) for Brayden's liver transplant. The district court proceedings were stayed pending an arbitration panel's consideration of the dispute. The panel found that BCBSU was not responsible for covering the liver transplant. The district court granted BCBSU's motion to confirm the arbitration panel award and denied the Seymours' motion to vacate it. The Seymours appeal the district court's order denying their claim to health insurance benefits for Brayden's liver transplant. We affirm.

I.

Ed Seymour was a member of his employer's, Bookcraft, Inc. (Bookcraft), group health insurance plan in July 1984. Mr. Seymour then married Shannon whom he added to his coverage. Effective December 1, 1984, Bookcraft and its employees switched medical coverage so that BCBSU became the carrier. The original policy offered by BCBSU covered liver transplants. An amendment to the policy was sent to Bookcraft and its employees in late December 1984, providing that coverage for liver transplants would be excluded beginning in February 1985. Bookcraft received the amendment, but the Seymours maintain they never received their copy. Neither the Seymours nor Bookcraft ever agreed in writing to the amendment, although a written agreement was then required under Utah law. ¹ The original BCBSU policy, however, included a statement permitting BCBSU unilaterally to modify the policy as long as written notice was given thirty days before the modification took effect. ²

Brayden Seymour was born in March 1987 with a congenital liver disease that was not diagnosed until he was ten weeks old. Mr. Seymour added Brayden as a dependent after his birth, and BCBSU mailed back to the Seymours a new insurance policy booklet which incorporated the 1985 amendment excluding coverage for liver transplants. When it was determined that Brayden required a liver transplant, Mr. Seymour applied to BCBSU and was denied coverage. ³

The Seymours filed this action contending that BCBSU never properly amended the policy to exclude liver transplant coverage. Thereafter, the Seymours and BCBSU jointly moved to stay the district court proceedings pending the outcome of arbitration, which BCBSU asserted was required by the policy. The arbitration panel found that BCBSU was not legally obligated to pay for Brayden's transplant. The Seymours moved the district court to vacate the award, and BCBSU moved to confirm it. The district court, noting that federal court review of arbitration awards is very narrow and finding that the panel did not manifestly disregard the law, denied the Seymours' motion to vacate and granted BCBSU's motion to confirm the arbitrator's award. The Seymours contend on appeal that the arbitration award should not be enforced because BCBSU's unilateral modification of the original policy was contrary to Utah public policy.

II.

So long as an arbitrator draws his decision from the parties' agreements, a reviewing court is generally precluded from disturbing the award. United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36, 108 S.Ct. 364, 369, 98 L.Ed.2d 286 (1987) (citing Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 1361, 4 L.Ed.2d 1424 (1960)). "[A] federal court may not overrule an arbitrator's decision simply because the court believes its own interpretation of the contract would be a better one." W.R. Grace and Co. v. Local Union No. 759, 461 U.S. 757, 764, 103 S.Ct. 2177, 2182, 76 L.Ed.2d 298 (1983); see Enterprise Wheel, 363 U.S. at 596, 80 S.Ct. at 1360. "[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." Misco, 484 U.S. at 38, 108 S.Ct. at 371; see also NCR Corp., E & M-Wichita v. District Lodge No. 70, 906 F.2d 1499, 1503 (10th Cir.1990).

If a court is to disturb an award, it can only do so under strict statutory or judicially-created standards. The Federal Arbitration Act, 9 U.S.C. § 10 (1990), provides the statutory grounds upon which a court may vacate an arbitrator's award. ⁴ In addition, the Supreme Court has recognized a public policy exception that permits a court to decline to enforce an arbitrator's award. See Misco, 484 U.S. at 42, 108 S.Ct. at 373; W.R. Grace, 461 U.S. at 766, 103 S.Ct. at 2183. It is this judicially-created ground for vacating an arbitration award upon which the Seymours rely. ⁵

The public policy exception is rooted in the common law doctrine of a court's power to refuse to enforce a contract that violates public policy or law. It derives legitimacy from the public's interest in having its views represented in matters to which it is not a party but which could harm the public interest. Misco, 484 U.S. at 42, 108 S.Ct. at 373. ⁶ This judicially-created exception was explained in Misco, drawing upon W.R. Grace:

Two points follow from our decision in W.R. Grace. First, a court may refuse to enforce a collective-bargaining agreement when the specific terms contained in that agreement violate public policy. Second, it is apparent that our decision in that case does not otherwise sanction a broad judicial power to set aside arbitration awards as against public policy. Although we discussed the effect of that award on two broad areas of public policy, our decision turned on our examination of whether the award created any explicit conflict with other "laws and legal precedents" rather than an assessment of "general considerations of supposed public interests." At the very least, an alleged public policy must be properly framed under the approach set out in W.R. Grace, and the violation of such a policy must be clearly shown if an award is not to be enforced.

Id. at 43, 108 S.Ct. at 373 (citations omitted).

The circuit courts, as well as both parties here, disagree on whether a "broad" or "narrow" view of the public policy exception should be applied to assess arbitration awards. Compare, e.g., Stead Motors v. Automotive Machinists Lodge 1173, 886 F.2d 1200 (9th Cir.1989) (en banc) (narrow view), cert denied, 495 U.S. 946, 110 S.Ct. 2205, 109 L.Ed.2d 531 (1990), with Stroehmann Bakeries v. Local No. 776, Int'l Bhd. of Teamsters, 969 F.2d 1436 (3rd Cir.) (broad view), cert. denied, --- U.S. ----, 113 S.Ct. 660, 121 L.Ed.2d 585 (1992); Delta Air Lines v. Air Line Pilots Ass'n Int'l, 861 F.2d 665 (11th Cir.1988) (same), cert. denied, 493 U.S. 871, 110 S.Ct. 201, 107 L.Ed.2d 154 (1989). Significantly, however, the Court in Misco granted certiorari because of a prior split in the circuits, noting that "[t]he decision below accords with the broader view of the court's power taken by the First and Seventh Circuits. A narrower view has been taken by the Ninth and District of Columbia Circuits." Misco, 484 U.S. at 35 n. 7, 108 S.Ct. at 369 n. 7. The Court reversed the broader view that permitted a court to overturn an arbitrator's decision based only on a general view of supposed public interests without a review of the relevant laws and legal precedents to determine whether they established a " 'well-defined and dominant' policy against the [described conduct]." Id. at 44, 108 S.Ct. at 374.

Given the Supreme Court's clear guidance in Misco that we have quoted above, we believe it unhelpful to describe the public policy test as either broad or narrow as some of the courts are continuing to do. Rather, in determining whether an arbitration award violates public policy, a court must assess whether "the specific terms contained in [the contract] violate public policy," id. at 43, 108 S.Ct. at 373, by creating an "explicit conflict with other 'laws and legal precedents,' " id., keeping in mind the admonition that an arbitration award is not to be lightly overturned, see United Food & Commercial Workers, Local No. 7R v. Safeway Stores, Inc., 889 F.2d 940, 948 (10th Cir.1989); Communication Workers v. Southeastern Elec. Co-op., 882 F.2d 467, 468 (10th Cir.1989).

III.

We turn now to the award in this case and the alleged violation of public policy. The Seymours assert that the arbitrator's award violates Utah's clearly expressed public policy that an insurance policy may not be modified to reduce benefits unless the parties agree in writing. See Utah Code Ann. § 31-19-26 (repealed in 1985). BCBSU responds that the Utah insurance laws are preempted by ERISA. However, we recently held in Winchester v. Prudential Life Ins. Co., 975 F.2d 1479, 1484-85 (10th Cir.1992), that while ERISA preempts state insurance laws as applied to self-funded ERISA plans, it does not preempt state insurance laws insofar as they regulate purchased insurance policies. Because the insurance contract in this case was purchased, it remains regulated by the Utah insurance statutes.

BCBSU alternatively points out that section 31-19-26 was replaced in 1985 by Utah Code Ann. § 31A-21-106, which provides:

(1) No insurance policy may contain any agreement or incorporate any provision not fully set forth in the policy or in an application or other document attached to and made a part of the policy at...