Opinion ID: 2513984
Heading Depth: 1
Heading Rank: 5

Heading: The McCarran-Ferguson Act Exempts the Colorado HCAA from Federal Preemption by the FAA

Text: The parties do not dispute that the arbitration agreement in this case does not comply with the regulations set forth in the Colorado HCAA, or Health Care Availability Act. Sections 13-64-403(3) and (4) of the HCAA mandate specific language and typeface requirements for arbitration provisions contained in medical services agreements. The General Assembly enacted these regulations with the express intent that an arbitration agreement be a voluntary agreement between a patient and a health care provider. § 13-64-403(1), 5 C.R.S. (2002). In this case, the arbitration agreement between Kaiser and Pacheco's husband lacks the language and bold-faced type notice required by the HCAA. Normally, this non-compliance alone would render the agreement unenforceable against Pacheco. Here, however, the parties have raised the issue of whether the HCAA is federally preempted by the FAA, or Federal Arbitration Act. The FAA upholds the validity of arbitration agreements contained in any contract evidencing a transaction involving commerce. 9 U.S.C. § 2. If the FAA preempts the HCAA, the HCAA will not govern the arbitration agreement and the agreement is enforceable against Pacheco. If the HCAA is not preempted, Kaiser's non-compliance with the HCAA is fatal and Pacheco is not bound by the agreement. Typically, when a state enacts arbitration statutes of general applicability and the statute is inconsonant with the FAA, the FAA preempts that state law. See, e.g., Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687-88, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); Hart v. Orion Ins. Co., 453 F.2d 1358, 1360 (10th Cir.1971) (finding preemption where the arbitration statute was one of general application); Hamilton Life Ins. Co. of N.Y. v. Republic Nat'l Life Ins. Co., 408 F.2d 606, 611 (2d Cir.1969) (finding preemption where the arbitration statute applied generally to all contracts). The Colorado HCAA is not a statute of general applicability because it targets only arbitration agreements contained in medical services contracts. Its detailed arbitration regulations clearly conflict with the FAA, which broadly states that agreements to arbitrate shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. See 9 U.S.C. § 2. The Federal District Court for the District of Colorado has held that because sections 13-64-403(3) and (4) of the HCAA and the FAA are inconsonant, the state regulations are preempted. Morrison v. Colo. Permanente Med. Group, 983 F.Supp. 937, 943 (D.Colo.1997). Our preemption analysis, however, does not end here. A critical issue not addressed in Morrison but raised by Pacheco in this case is the question of whether the McCarran-Ferguson Act reverse-preempts the FAA preemption of the HCAA arbitration regulations. The McCarran-Ferguson Act provides, in relevant part: No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance. Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended... shall be applicable to the business of insurance to the extent that such business is not regulated by State law. 15 U.S.C. § 1012(b) (emphasis added). In other words, under the first clause of section 1012(b), the McCarran-Ferguson Act exempts a state statute from federal preemption if the state law is enacted for the purpose of regulating the business of insurance and if the federal statute does not specifically relate to the business of insurance. It is undisputed here that the FAA does not relate to the business of insurance. Therefore, the remaining issue left for us to resolve is whether sections 13-64-403(3) and (4) of the Colorado HCAA are state laws enacted for the purpose of regulating the business of insurance under the meaning of the McCarran-Ferguson Act. If so, the FAA will not preempt the HCAA and the arbitration agreement in this case is unenforceable. The United States Supreme Court has decided two key cases clarifying when a state law has been enacted for the purpose of regulating the business of insurance under the meaning of the McCarran-Ferguson Act. [7] In SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), the Court focused on the relationship between the insurance company and the policyholder and held that any state statute aimed at protecting or regulating this relationship, either directly or indirectly, is a law regulating the business of insurance under the meaning of the Act. Id. [8] More recently, the Supreme Court re-emphasized the National Securities principle in United States Dep't of Treasury v. Fabe, 508 U.S. 491, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993), maintaining that the essence of regulating the business of insurance is to regulate the relationship between the insurance company and the policyholder. See id. at 501, 113 S.Ct. 2202. Under this principle, a federal law must yield to a state statute to the extent that the state statute furthers the interests of policyholders. Id. at 502, 113 S.Ct. 2202. Following Fabe, the Tenth Circuit Court of Appeals has similarly focused the business of insurance test on whether the state statute in question was enacted for the purpose of protecting policyholders. Davister Corp. v. United Republic Life Ins. Co., 152 F.3d 1277, 1281 (10th Cir.1998) (finding that McCarran-Ferguson exempted a state court's blanket stay order from FAA preemption because the stay manifests a purpose of protecting policyholders in a liquidation setting). Davister is consistent with a line of cases focusing on whether the state law directly regulates the contractual relationship between an insurer and insured. See, e.g., Mutual Reinsurance Bureau v. Great Plains Mut. Ins. Co., Inc., 969 F.2d 931, 933 (10th Cir.1992) (holding that a Kansas statute expressly invalidating an arbitration agreement contained in an insurance contract is a statute that touches the core of the `business of insurance' under the meaning of McCarran-Ferguson); Cox v. Woodmen of the World Ins. Co., 347 S.C. 460, 556 S.E.2d 397, 401-02 (S.C.Ct.App.2001) (a South Carolina statute barring arbitration in an insurance contract is an integral part of the policy relationship between the insurer and the insured because it places limits on the enforceability of an agreement to spread risk). In this case, sections 13-64-403(3) and (4) of the Colorado HCAA not only directly regulate contracts between health insurance policyholders and their insurers (in this case, HMOs [9] ), but also further the interests of these policyholders. Sections 13-64-403(3) and (4) directly regulate health insurance contracts by requiring HMOs to include specific notice language, in ten-point, bold-faced type, of any arbitration agreement contained within the health insurance contract. If the HMO that drafted the insurance contract fails to give the policyholder proper notice of the arbitration agreement, the HCAA protects the policyholder by invalidating that provision of the contract. By regulating health insurance contracts drafted by the health care provider and by protecting patients who are insured by that provider, sections 13-64-403(3) and (4) of the HCAA qualify as laws enacted for the purpose of regulating the business of insurance. Accord Smith v. PacifiCare Behavioral Health of Cal., Inc., 93 Cal.App.4th 139, 161, 113 Cal.Rptr.2d 140 (2001) (holding that the McCarran-Ferguson Act applies to a state statute specifically regulating the words that an HMO can use when including an arbitration clause in its medical services plan). It is irrelevant that other sections of the HCAA, outside of sections 13-64-403(3) and (4), address medical malpractice issues not involving the relationship between an insurer and insured. Fabe makes clear that a statute, to the extent that it regulates policyholders, qualifies as a statute enacted for the purpose of regulating the business of insurance under the meaning of the McCarran-Ferguson Act. Fabe, 508 U.S. at 508, 113 S.Ct. 2202. Moreover, the fact that sections 13-64-403(3) and (4) of the HCAA apply to health care providers instead of exclusively to insurers such as HMOs does not nullify our conclusion that sections 13-64-403(3) and (4) were enacted for the purpose of regulating the business of insurance. As long as the statute is not one of general applicability, it is not necessary that the state statute relate only to insurance or that the statute be in the form of an insurance code. Great Plains, 969 F.2d at 934. Therefore, the fact that sections 13-64-403(3) and (4) of the HCAA technically include non-insurer health care providers such as physicians does not prevent these sections of the HCAA from qualifying as statutes enacted for the purpose of regulating the business of insurance under the meaning of the McCarran-Ferguson Act. In sum, to the extent that sections 13-64-403(3) and (4) of the HCAA do specifically regulate the relationship between a health insurer and its policyholder, see National Securities, 393 U.S. at 460, 89 S.Ct. 564, and to the extent that these provisions of the HCAA do further the interests of these policyholders by ensuring adequate notice of arbitration agreements, see Fabe, 508 U.S. at 502, 113 S.Ct. 2202, the HCAA is a statute enacted for the purpose of regulating the business of insurance under the meaning of the McCarran-Ferguson Act. The McCarran-Ferguson Act therefore exempts sections 13-64-403(3) and (4) of the HCAA from federal preemption by the FAA, meaning that those sections of the HCAA govern the arbitration agreement in this case. Because the agreement here does not comply with sections 13-64-403(3) and (4) of the HCAA, the agreement is unenforceable and Pacheco is not required to submit her wrongful death claim to binding arbitration.