2018 COA 32
Colo. Ct. App.2018Background
- Kathryn Meardon purchased a health insurance policy from Freedom Life; the policy contained a three-step dispute process (negotiation, mediation, then mandatory, binding arbitration) and a conformity clause requiring the policy to conform to state law.
- Freedom Life denied Meardon’s claim, citing a pre-existing condition exclusion; Meardon sued after administrative attempts failed.
- Meardon relied on Colorado § 10-3-1116(3), which provides that an insured whose claim is denied (after exhausting administrative remedies) “shall be entitled” to de novo court review and a jury trial.
- Freedom Life moved to compel arbitration and dismiss; the trial court denied the motion, concluding the conformity clause amended the policy to conform to § 10-3-1116(3) and thus the arbitration clause was invalid for claims covered by that statute.
- On appeal the court considered (1) whether the conformity clause displaces the arbitration clause, (2) whether the Federal Arbitration Act (FAA) preempts § 10-3-1116(3), and (3) whether some claims might remain subject to arbitration.
Issues
| Issue | Plaintiff's Argument (Meardon) | Defendant's Argument (Freedom Life) | Held |
|---|---|---|---|
| Whether the policy’s arbitration clause is displaced by Colorado § 10-3-1116(3) | § 10-3-1116(3) guarantees a right to de novo court review and jury trial; the conformity clause forces the policy to conform and thus voids arbitration for covered claims | The arbitration clause is broad and enforceable; the conformity clause cannot invalidate arbitration | Held: Conformity clause is triggered because § 10-3-1116(3) conflicts with the arbitration ban; arbitration clause invalidated for claims covered by the statute |
| Whether the FAA preempts § 10-3-1116(3) (making arbitration enforceable) | McCarran-Ferguson reverse-preempts FAA for statutes regulating insurance; § 10-3-1116(3) is an insurance regulation and thus valid | FAA preempts conflicting state law; arbitration clause should prevail under FAA | Held: FAA does not preempt § 10-3-1116(3) because McCarran-Ferguson preserves state insurance laws; reverse-preemption applies |
| Whether all claims in the complaint are exempt from arbitration | Meardon: Claims falling within § 10-3-1116(3) are exempt from arbitration | Freedom Life: Only claims outside § 10-3-1116(3) are arbitrable; many of Meardon’s claims may be arbitrable | Held: Mixed — the court affirmed denial of arbitration for claims within § 10-3-1116(3), reversed as to claims outside it, and remanded for the trial court to identify which claims fall inside the statute |
| Whether Meardon must exhaust arbitration as an administrative remedy before suing under § 10-3-1116(3) | Meardon: Arbitration precluded by statute for covered claims; arbitration is not an administrative remedy that satisfies the statute’s exhaustion requirement | Freedom Life: Exhaustion includes contractually required administrative remedies (including arbitration); § 10-3-1116(3) is conditional on exhaustion | Held: Court treated arbitration as not an administrative remedy for claims covered by the statute (because arbitration would preclude judicial review); specific exhaustion issues left to the trial court on remand |
Key Cases Cited
- Allstate Ins. Co. v. Huizar, 52 P.3d 816 (Colo. 2002) (standard for reviewing insurance contract interpretation)
- BFN-Greeley, LLC v. Adair Grp., Inc., 141 P.3d 937 (Colo. App. 2006) (presumption favoring arbitration and strong force for broad clauses)
- Mountain Plains Constructors, Inc. v. Torrez, 785 P.2d 928 (Colo. 1990) (valid arbitration provision divests courts of jurisdiction over arbitrable disputes)
- Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996) (FAA preemption principles regarding state laws that single out arbitration)
- Allen v. Pacheco, 71 P.3d 375 (Colo. 2003) (McCarran-Ferguson reverse-preemption applied to invalidate arbitration clause conflicting with state insurance law)
- Preston v. Ferrer, 552 U.S. 346 (2008) (Supremacy Clause and FAA preemption framework)
- Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) (ERISA standard of review context cited in discussion of § 10-3-1116 origins)
- Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) (ERISA deference principles discussed in statutory background)