STATE LAW REQUIREMENTS FOR ARBITRATION CLAUSES IN HEALTH PLANS NOT
PREEMPTED BY FEDERAL LAW
In Smith v. PacifiCare Behavioral Health of
California, Inc. (2001) 01 CDOS 9230, the Second Appellate District held
that state law governing arbitration clauses in health plan contracts was
not preempted by federal law.
In Smith, two enrollees sued a health plan for
failing to provide plan benefits. The plan moved to arbitrate the dispute
pursuant to the arbitration provision in its plan language. The court
agreed that the arbitration provision did not comply with the requirements
of state law and refused to compel arbitration.
The court held that the Federal Arbitration Act
preempts state law, but was inapplicable here because under the
McCarran-Ferguson Act, state laws that regulate insurance, such as the one
at issue, are not preempted unless the federal law specifically relates to
insurance. The court found that the Federal Arbitration Act applied to
contracts generally and did not specifically relate to insurance. Thus,
the Federal Arbitration Act did not preempt state law governing
arbitration clauses in health plans.
