The California Court of Appeal, Fourth Appellate District, reversed a Superior Court order denying defendants' motion to compel arbitration pursuant to an arbitration provision in an insurance policy. The Court of Appeal held the trial court erred in finding the arbitration provision unenforceable on the ground that it was not disclosed in the policy application because the provision was clearly stated in the policy.
Health Providers Insurance Reciprocal, RRG ("HealthPro"), a risk retention group that does business as a reciprocal insurer, is a subsidiary of Beta Healthcare Group, a joint powers authority. (HealthPro and Beta Healthcare Group are collectively referred to as "HealthPro.") HealthPro issued professional liability insurance policies to Mission Viejo Emergency Medical Associates and its twelve physician partners (collectively "MVEMA") for three years beginning in January 2002.
Each HealthPro policy contained an arbitration provision that was referenced in the table of contents and detailed within the designated policy section. The 2004 arbitration provision differed somewhat from the identical arbitration provisions in the 2002 and 2003 policies. The arbitration provision was not contained in the applications for the policies.
A patient sued MVEMA and one of its physicians for allegedly misdiagnosing his brain infection. A jury awarded the plaintiff $11.7 million and the case ultimately settled for $5.3 million with HealthPro paying its $2 million policy limits.
MVEMA sued HealthPro for breach of the duty of good faith and fair dealing, breach of contract, and intentional and negligent infliction of emotional distress. MVEMA claimed that HealthPro failed to settle the malpractice action.
HealthPro filed a motion to compel arbitration. MVEMA opposed the motion asserting none of the applications for the policies mentioned arbitration and that MVEMA was not otherwise informed or aware of the provision. The trial court denied HealthPro's motion finding that because the arbitration provision was not mentioned in the applications for the policies, MVEMA, and its partners, did not knowingly and voluntarily waive their right to a jury trial. HealthPro appealed.
The party seeking arbitration has the burden of proving an agreement to arbitrate. Once the existence of the agreement is established, the burden shifts to the opposing party to establish a factual basis for denying enforcement of the clause.
The Court of Appeal found HealthPro had met its burden of proof. MVEMA admitted the existence of the agreement by declaration and implicitly through acceptance of the policy benefits. The arbitration provision was clear and conspicuous as it was included in the table of contents and within the policy itself. The Court noted that the arbitration clause was the second provision in the General Conditions section of the policy, was printed in the same typeface as other provisions, and followed a heading in underlined capital letters.
The Court also held MVEMA failed to establish its defense of lack of consent. MVEMA's evidence ignored that the objective intent of the parties to a contract, as evidenced by the words of the contract, governs. The parties to a contract, including insureds and insurers, are bound by its terms even if they do not read the contract so long as the terms are clear and conspicuous.
The Court also rejected MVEMA's contention that HealthPro had a duty to call special attention to the arbitration provision, which MVEMA characterized as "unusual or unfair language." The Court questioned whether an arbitration provision could constitute "unusual or unfair language," because an arbitration provision does not impact the basic duty to insure. But, even if the clause contained "unusual and unfair" language, it is enforceable because it is conspicuous and clear. Disclosure outside the policy itself is not required.
The Court also rejected MVEMA's contention that the arbitration provision is not binding because it was "redrafted" in the 2004 policy without MVEMA calling attention to the change. The language of the policy itself provided notice of the change. The arbitration provision was also not unconscionable. The Court did not address procedural unconscionability because the arbitration provision was not substantively unconscionable, i.e. the provision is substantively fair. Procedural unconscionability, even if it existed, was therefore irrelevant.
The Court remanded the case for the trial court to enter an order granting the motion to compel.
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