Opinion
CV-22-00193-PHX-DLR
11-09-2022
Mayo Clinic Arizona, Plaintiff, v. Freedom Life Insurance Company of America, Defendant.
ORDER
Douglas L. Rayes United States District Judge
Before the Court is Defendant Freedom Life Insurance Company of America's (“FLICA”) Motion to Compel Arbitration. (Doc. 12.) The motion is fully briefed. (Docs. 16, 19.) For the following reasons, FLICA's motion is granted.
I. Background
Non-party B.H. was covered under a health insurance policy (the “Policy”) issued by FLICA. (Doc. 1-3 ¶ 6.) B.H. sought medical transplant services from Plaintiff Mayo Clinic Arizona (“Mayo”) between November 2019 and February 2020. (Id. ¶ 8.) B.H. assigned Mayo his rights under the Policy to have the covered expenses of his healthcare services paid for by FLICA. (Id. ¶ 13.) The Policy contains an arbitration clause. (Doc. 121 at 72.) Non-party Cigna Health Corporation (“Cigna”) administered the Policy for all transplant-related healthcare services. (Doc. 1-3 ¶ 9.)
Mayo contracted with Cigna under the Cigna Lifesource Transplant Agreement (“Master Agreement”) to render transplant services to patients at predetermined rates (Id. ¶ 11; Doc. 16-1 at 4) and FLICA accessed the Master Agreement to receive these contracted rates for B.H.'s transplant services (Doc. 1-3 ¶ 11). The Master Agreement stipulated that Mayo would provide B.H. with transplant health care services in exchange for FLICA's prompt payment of Mayo's submitted claims at the Master Agreement contract rate. (Id. ¶ 12.) The Master Agreement contains an optional arbitration clause. (Doc. 16-1 at 6.)
FLICA was not a signatory to the Master Agreement. FLICA was deemed a “Payor” under the Master Agreement, defined as “a CIGNA Affiliate . . . which, pursuant to a Service Agreement, funds, administers, offers or insures Covered Services.” (Doc. 16 at 3; Doc. 16-1 at 5.)
Mayo received preauthorization from FLICA through Cigna for all three transplant services it provided to B.H., and afterward, Mayo submitted claims to FLICA seeking reimbursement at the Master Agreement rate. (Doc. 1-3 ¶¶ 15-16.) FLICA refused to pay the claims, citing a pre-existing conditions clause within the Policy. (Id. ¶ 17.)
In this lawsuit, Mayo alleges that FLICA violated the terms of the Master Agreement and A.R.S. § 20-3404(D) when it refused to pay for B.H.'s authorized transplant services. (Id. ¶ 28.) Mayo brings claims for breach of contract, bad faith, promissory estoppel claims, and violation of A.R.S. § 20-3404(D). (Id. ¶¶ 29-56.) FLICA has moved to compel arbitration pursuant to the Policy's arbitration clause. (Doc. 12.)
II. Legal Standard
The Federal Arbitration Act (“FAA”) provides that written agreements to arbitrate disputes “shall be valid, irrevocable, and enforceable except upon grounds that exist at common law for the revocation of a contract.” 9 U.S.C. § 2. Under the FAA, the Court must determine (1) whether a valid agreement to arbitrate exists, and (2) whether the agreement encompasses the dispute at issue. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If both questions are answered in the affirmative, the Court must compel arbitration. Id. The FAA reflects a “liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem 'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). “Where a contract contains an arbitration clause, courts apply a presumption of arbitrability as to particular grievances, and the party resisting arbitration bears the burden of establishing that the arbitration agreement is inapplicable.” Wynn Resorts, Ltd. v. Atl.-Pac. Capital, Inc., 497 Fed. App'x. 740, 742 (9th Cir. 2012). Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses, 460 U.S. at 24-25.
III. Discussion
a. Valid Arbitration Agreement
The Policy's arbitration clause is valid and enforceable against Mayo both (1) through the assignee relationship between Mayo and B.H., FLICA's insured, and (2) under the theory of equitable estoppel.
First the assignee relationship. B.H. was a covered individual under the Policy. Although Mayo was not a signatory to the Policy, B.H. assigned Mayo his rights under the agreement. Non-party assignees may be bound to arbitration agreements because an assignee steps into the shoes of the assignor. Arizona Title Ins. & Tr. Co. v. Realty Inv. Co., 430 P.2d 934, 936 (Ariz. App. 1967); Comedy Club, Inc. v. Improv W. Associates, 553 F.3d 1277, 1287 (9th Cir. 2009). As B.H.'s assignee, Mayo is bound by the Policy's arbitration clause.
Second, equitable estoppel. Mayo tries to avoid the Policy's arbitration clause by arguing that its claims wholly arise under the Master Agreement, which contains only an optional arbitration clause. (Doc. 16 at 1-2.) But even accepting this premise, Mayo is still bound by the Policy's arbitration clause. “Arizona courts apply a variant of equitable estoppel, often referred to as direct benefits estoppel, ” under which a non-signatory may be compelled to arbitrate if it “seeks to enforce terms of that agreement or asserts claims that must be determined by reference to that agreement.” Loc. 640 Trustees of IBEW and Arizona Chapter NECA Health and Welfare Tr. Fund v. CIGNA Health and Life Ins. Co., CV-20-01260-PHX-MTL, 2021 WL 3290534, at *4 (D. Ariz. Aug. 2, 2021) (internal quotations and citations omitted).
Mayo alleges breach of contract and bad faith claims because FLICA denied payment due to an “erroneous pre-existing conditions clause.” (Doc. 1-3 ¶¶ 34, 40.) The Policy contains the pre-existing conditions clause FLICA relied on (Doc. 12-1 at 18), which is essential to resolving these claims. Further, the Policy, not the Master Agreement, details B.H.'s covered services, which is relevant to resolving the breach of contract claim. (Id. at 27-33.) Finally, Mayo's claim that FLICA violated A.R.S. § 20-3404(D) by denying payment after it had preauthorized the transplant services (Doc. 1-3 ¶¶ 52-55) cannot be resolved without referring to the Policy and determining whether it is a covered health care service plan under the statute. Because Mayo's claims cannot be resolved without referencing the Policy, Mayo is bound by the Policy's arbitration clause.
Indeed, the Master Agreement defines “Covered Services” as “those health care services provided to a Participant in accordance with a Benefit Contract.” (Doc. 16-1 at 4.) The “Benefit Contract” refers to “the document issued by a CIGNA Affiliate or other Payor [here, FLICA] which contains the terms and conditions of a Participant's [here, B.H.] health care coverage[.]” (Id.) The “Benefit Contract” referenced in the Master Agreement is the Policy.
b. Scope of the Arbitration Agreement
Next, the Court must determine whether the Policy's arbitration clause encompasses the disputes at issue. It does.
The arbitration clause provides that any dispute that cannot be resolved through negotiation or mediation shall be subject to “binding arbitration.” (Doc. 12-1 at 72.) The Policy defines “dispute” as:
Any action, complaint, claim or controversy of any kind . . . whether in contract or in tort, statutory or common law, legal or equitable or otherwise, now existing or hereafter occurring between [FLICA] . . . and any Insured or any agent, representative, heir, assign, Beneficiary, or successor of such Insured, in any way arising out of or pertaining to, or in connection with this Certificate or the Group Specified Disease Insurance Policy ... or any representation, modification, extension, interpretation, violation, renewal, reformation or rescission of this Certificate, and all related documents including, without limitation, advertising brochures, outlines of coverage, applications, correspondence and similar documents or any past, present or future incidents, omissions, acts, errors, claims handling, claims procedures, practices, or occurrences causing any alleged injury or damage to any party whereby the other parties or their agents, employees or representatives may be liable, in whole or in part.(Id. at 11.) Even if, as Mayo alleges, this dispute arises entirely under the terms of the Master Agreement, it still is covered by the Policy's broad arbitration clause, largely for the reasons that equitable estoppel precludes Mayo from evading the Policy's arbitration clause. FLICA accessed the Master Agreement to receive predetermined rates for transplant services-a healthcare service that is covered under the Policy between FLICA and B.H.'s assignee, Mayo. Without the Policy, which details the services FLICA agreed to cover for B.H., there would have been no reason for FLICA to utilize the Master Agreement and receive certain rates for the provision of those services. The Policy and Master Agreement are necessarily intertwined, and Mayo's claims fall comfortably within the Policy's broad arbitration clause.
Even if this were a more marginal case, doubts regarding the scope of the arbitration clause must be resolved in favor of arbitration. Moses, 460 U.S. at 24-25.
IT IS ORDERED that FLICA's Motion to Compel Arbitration (Doc. 12) is GRANTED. The Clerk is directed to close this case, whereupon, by proper motion of the prevailing party at arbitration, it may be reopened or dismissed with prejudice.