Smith v. Pacificare Behavioral Health of Ca

• Decision Date: 25 October 2001
• Docket Number: No. B145004.,No. B142321.,B142321.,B145004.
• Citation: 93 Cal.App.4th 139,113 Cal.Rptr.2d 140
• Parties: Lisa Ellen SMITH, Plaintiff and Respondent, v. PACIFICARE BEHAVIORAL HEALTH OF CALIFORNIA, INC., et al., Defendants and Appellants. George Rivera, Petitioner, v. The Superior Court Of Los Angeles County, Respondent, Pacificare of California, Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

113 Cal.Rptr.2d 140

93 Cal.App.4th 139

Lisa Ellen SMITH, Plaintiff and Respondent, v. PACIFICARE BEHAVIORAL HEALTH OF CALIFORNIA, INC., et al., Defendants and Appellants.

George Rivera, Petitioner, v. The Superior Court Of Los Angeles County, Respondent, Pacificare of California, Real Party in Interest.

No. B142321.

No. B145004.

Court of Appeal, Second District, Division 3.

October 25, 2001.

Review Denied February 20, 2002.

Konowiecki & Rank and Gary S. Pancer, Los Angeles; Greines, Martin, Stein & Richland and Timothy T. Coates, Beverly Hills, for PacifiCare Behavioral Health of California, Inc., PacifiCare of California, PacifiCare Health Systems Foundation and PacifiCare Health systems, Inc, Defendants and Appellants and PacifiCare of California, PacifiCare Health Systems Foundation and PacifiCare Health Systems, Inc.

Shernoff, Bidart & Darras, Michael J. Bidart, Claremont, and Jeffrey Isaac Ehrlich, Fort Lauderdale, FL, for Lisa Ellen Smith, Plaintiff and Respondent and George Rivera, Petitioner.

CROSKEY, J.

These consolidated proceedings involve the question whether a health care service plan may enforce an arbitration clause contained in the plan and in related subscriber agreements which does not comply with the statutory disclosure requirements applicable to such clauses. In case No. B145004, the petitioner, George Rivera, seeks a writ of mandate vacating a trial court order granting the motion of the real party in interest PacifiCare of California (PacifiCare), to compel arbitration in accordance with the plan's arbitration clause. In case No. B142321, PacifiCare has appealed the order of the trial court denying PacifiCare's motion to compel arbitration pursuant to the same clause. The respondent, Lisa Ellen Smith, makes the identical arguments in support of the trial court's order in her case as does Rivera in his.¹

As a part of its regulation of health care service plans, California imposes certain disclosure requirements as a predicate to the enforcement of arbitration clauses contained in plan subscriber agreements. Health and Safety Code section 1363.1 (section 1363.1) (see fn. 15, post) provides that a binding arbitration clause in a health care service plan must incorporate various disclosures, including a clear statement of "whether the subscriber or enrollee is waiving his or her right to a jury trial...." The waiver language must be substantially in the wording provided in Code of Civil Procedure section 1295, subdivision (a),² and must appear immediately before the signature line for the individual enrolling in the plan. (§ 1363.1, subds.(c), (d).)

These cases present the question whether the failure to comply with the mandate of section 1363.1 will invalidate the right of PacifiCare to enforce the arbitration clause in its subscriber agreements with Smith and Rivera. Although it has been held that the provisions of the Federal Arbitration Act (9 U.S.C. § 1, et seq.) (hereafter, FAA) preempt section 1363.1 and prevent its enforcement, what has not yet been decided by a California court, is whether the McCarran-Ferguson Act (15 U.S.C, § 1011, et seq.) (hereafter, McCarran-Ferguson) overrides the FAA and precludes its preemptive impact on section 1363.1. This is a significant issue, the resolution of which will turn on whether section 1363.1 constitutes a regulation of the business of insurance within the meaning of McCarran-Ferguson.

After a careful examination of the relevant authorities, we are persuaded that section 1363.1 does constitute such regulation and therefore, the FAA cannot preempt section 1363.1 and the latter's provisions must be enforced. As a result, we will grant the requested writ relief in case No. B145004 and will affirm the trial court's order in case No. B142321.

FACTUAL AND PROCEDURAL BACKGROUND³

As we summarize below, Rivera and Smith have each filed an action against PacifiCare seeking damages for injuries sustained as the result of PacifiCare's alleged failure to provide promised plan benefits, including the failure to timely authorize or extend needed treatment by health providers. In each case, PacifiCare responded to the complaints with a motion to compel arbitration.

1. Rivera Background Facts (case No. B145004)

In May of 1999, Rivera was an employee of the County of Los Angeles (County). County had previously entered into a contract with PacifiCare to provide health insurance for its employees (referred to in the PacifiCare documents as "members"). The agreement between PacifiCare and County consists of a "Business Agreement" (signed by the County)⁴ and three forms of "subscriber agreements" depending on the coverage option selected by the member. All forms of the subscriber agreements contained an arbitration clause to which each member became bound upon his or her execution of the enrollment form.⁵ In addition, the evidence of coverage booklet (31 pages) provided to each member following enrollment, contained a further reference to the commitment to arbitrate any dispute.⁶

Following his enrollment in the PacifiCare plan, Rivera was diagnosed, on May 18, 1999, as suffering from a severe bacterial infection in his left foot. In the complaint he subsequently filed against PacifiCare, he alleged he was denied timely and proper treatment for this condition.⁷ He had to wait three days for authorization to see a specialist. By the time of that appointment his condition had progressed to gangrene, and the surgeon recommended, on May 21, 1999, that he be admitted to the hospital that day, and that the small toe on his left foot be amputated within 24 to 48 hours, after antibiotics had controlled the infection. However, the medical group exercising its delegated authority to make utilization management decisions for respondent PacifiCare refused to authorize an admission to the hospital. When he was re-examined two days later, his infection had spread.

When Rivera's doctor learned, on May 23, 1999, that Rivera had not been admitted to the hospital as he had directed, he told Rivera to come to the hospital the next morning at 6:00 a.m. for admission and surgery on his foot. When Rivera arrived, however, he learned he was not on a list of patients whose admission had been authorized, and he was required to wait for hours. It turned out that Rivera's admission had not been authorized by a "hospitalist," a doctor employed by the participating medical group to coordinate hospital admissions and care. He was not seen by the hospitalist for another five hours. Because of the delay in admission, Rivera's surgery was not scheduled until the following day.

After one of Rivera's doctors told Rivera's wife that he should have had the surgery three days earlier, she insisted that the surgery go forward. The surgeon arrived at 7:00 p.m. and was displeased at having been summoned; however, when he saw how far the infection in Rivera's foot had progressed he scheduled the surgery immediately. The operation began at midnight. The infection had spread during the time Rivera had been waiting for care, so that instead of having only his small toe amputated, it was necessary to remove two toes and a portion of the foot. A week after the surgery, Rivera's surgeon referred him for hyperbaric oxygen treatment, a therapeutic technique used to promote healing in necrotic tissue. The surgeon noted in the chart that Rivera's need was "urgent." Once again, however, PacifiCare delayed authorization for the prescribed treatment. Unfortunately, because of such delay, the gangrene progressed, and Rivera's surgeon recommended an amputation of the entire foot, above the ankle. When Rivera arrived at the hospital at 6:00 a.m. on the scheduled day, he was again kept waiting for hours— this time for an entire day—because of the need for the plan's hospitalist to admit him.

Not surprisingly, Rivera claims to have suffered substantial physical and emotional damage as a result of such conduct. Thereafter, he filed this action against PacifiCare on May 11, 2000.⁸ In his first amended complaint (in which he is joined by his spouse, Rita Rivera), filed on June 14, 2000, he alleged 14 causes of action.⁹

PacifiCare's response was to file a motion to compel arbitration. This was heard by the trial court on August 15, 2000, and the motion was granted. Rivera filed a petition for a writ of mandate on October 13, 2000. Following some delay occasioned by the filing of additional briefing both in support of and in opposition to the petition, we issued an Order to Show Cause on March 15, 2001, and set the matter on calendar for hearing with the Smith appeal (B142321).

2. Smith Background Facts (case No. B142321)

Smith filed her complaint on October 26, 1999.¹⁰ In that pleading, she alleged the factual basis for her claim against PacifiCare.¹¹ She is the stepdaughter and dependent of Thomas S. Battle, an administrator for the Rim of the World Unified School District in Lake Arrowhead. As an employee of the school district, Battle had the option of enrolling in the health plan offered through the Southern California Schools Employee Benefits Association. Under this plan, he received the bulk of his health care coverage from the Blue Cross Plus Preferred Provider Plan. Mental health benefits, however, were derived solely from a supplementing health plan sponsored by PacifiCare and marketed as PacifiCare Behavioral Health of California (PBHC). Smith, as Battle's dependent, was also covered under this mental health plan. This plan has language compelling arbitration to resolve any disputes that may arise. Such language is substantially the same as we have already described with respect to the Rivera action. (See fn. 5, ante.)¹²

Smith became suicidal in 1998 due to an uncontrolled major psychiatric depressive disorder, bulimia nervosa, and anorexia nervosa. In response, PacifiCare terminated her physician-recommended inpatient treatment after only six days and refused to authorize or pay for...