The opinion
Filed 11/27/23; Certified for Publication 12/6/23 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
SALVATORE J. BAGLIONE, B319659
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 21STCV31846)
v.
HEALTH NET OF
CALIFORNIA, INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Maurice A. Leiter, Judge. Affirmed.
Husch Blackwell and Jules S. Zeman for Defendant and
Appellant.
Gianelli & Morris, Robert S. Gianelli, Joshua S. Davis and
Adrian J. Barrio for Plaintiff and Respondent.
_________________________
Health Net of California, Inc. (Health Net) appeals the trial
court’s order denying its motion to compel arbitration of the
breach of contract and bad faith causes of action brought against
it by its insured, plaintiff Salvatore Baglione. The trial court
found that the agreement between Health Net and plaintiff’s
employer, the County of Santa Clara (County), did not satisfy the
disclosure requirements of Health and Safety Code1 section
1363.1, rendering the arbitration provision of plaintiff’s
enrollment form unenforceable. Health Net contends it satisfied
those disclosure requirements on the enrollment form signed by
plaintiff.
We hold that the enrollment form does not comply with the
requirements of section 1363.1. We also agree with the trial
court that the County’s agreement with Health Net is not
compliant either, and an arbitration agreement, which is part of
a health plan, is not enforceable unless both the enrollment form
and the County agreement are compliant. Accordingly, we affirm
the trial court’s order.
BACKGROUND
Plaintiff obtained his medical insurance through his
employer, the County of Santa Clara. The County contracts with
Health Net, among other health care plans, to provide medical
insurance to its employees.2
1 Further undesignated statutory references are to the
Health and Safety Code.
2 These agreements are yearly, and so four agreements cover
the period at issue in this lawsuit. All contain identical
arbitration provisions.
2
Plaintiff signed an enrollment form for Health Net in
March 2019 as a new hire. In June 2019, he signed an
enrollment form to add his child to his medical insurance. Both
forms contained the same arbitration provision.
In or about June 2019, plaintiff was diagnosed with a
painful and chronic condition. His physician determined that a
monthly injectable medication was the appropriate treatment for
plaintiff’s condition. The medication to treat plaintiff was
approved by the Food and Drug Administration. The drug met
criteria to be covered by the pharmacy benefits of plaintiff’s plan
with Health Net, but Health Net required a prior authorization
for the drug.
Health Net initially contended that injectable medications
were the responsibility of plaintiff’s medical group. Health Net
authorized the drug in September 2019, denied the next request
for authorization, occasionally thereafter authorized it, but
primarily denied it.
In August 2020, plaintiff submitted a complaint to the
California Department of Managed Health Care (DMHC). In
October 2020, Health Net sent a letter to plaintiff stating the
drug had been denied due to a technical error and Health Net
was financially responsible for the medication. Health Net
authorized the medication through June 2021. When plaintiff’s
physician tried to renew the authorization in 2021, Health Net
again took the position that the medical group was financially
responsible for the medication.
Plaintiff filed this lawsuit against Health Net in August
2021, alleging causes of action for breach of contract and breach
of the implied covenant of good faith and fair dealing.
3
Health Net promptly moved to compel arbitration of
plaintiff’s breach of contract and bad faith causes of action.
Health Net asserted that plaintiff had agreed to arbitrate all
disputes with Health Net when he completed the Health Net
enrollment form.
Plaintiff opposed the motion, contending that Health Net
failed to comply with the mandatory arbitration disclosure
requirements of section 1363.1, subdivision (d), with respect to
signature lines in both the group agreement between Health Net
and the County and the individual enrollment form signed by
plaintiff.
There is no dispute that the County agreement does not
contain the required signature line immediately after the
arbitration provision, as required by section 1363.1, subdivision
(d). There is no dispute that plaintiff signed the enrollment
form’s signature line meant to apply to the arbitration clause.
Health Net did not concede that any aspect of the arbitration
disclosure in the enrollment form was out of compliance with
section 1363.1.
The trial court agreed the group contract between the
County and Health Net failed to comply with the requirements of
section 1363.1, subdivision (d). The trial court did not rule on the
enrollment form’s compliance. This appeal followed.
DISCUSSION
A. Enrollment Form
“Section 1363.1 establishes mandatory disclosure
requirements for health services plans that require binding
arbitration. [Citations.] We review de novo the trial court’s
denial of the petition to compel arbitration based on the failure to
comply with the requirements of section 1363.1.” (Rodriguez v.
4
Blue Cross of California (2008) 162 Cal.App.4th 330, 335
(Rodriguez).) We are not bound by the trial court’s rationale and
may affirm its ruling on any correct legal theory supported by the
record. (Johnson v. The Raytheon Co., Inc. (2019) 33 Cal.App.5th
617, 627, fn. 9; Cheng-Canindin v. Renaissance Hotel Associates
(1996) 50 Cal.App.4th 676, 683, fn. 3.)
The primary aim of section 1363.1 is “to protect health care
consumers from the consequences of unknowingly waiving their
right to a jury trial.” (Malek v. Blue Cross of California (2004)
121 Cal.App.4th 44, 71 (Malek).) To accomplish this goal, section
1363.1 provides: “Any health care service plan that includes
terms that require binding arbitration to settle disputes and that
restrict, or provide for a waiver of, the right to a jury trial shall
include, in clear and understandable language, a disclosure that
meets all of [four listed] conditions[.]” (§ 1363.1.)
We find the enrollment forms do not comply with section
1363.1, subdivisions (a) and (c), both of which require clarity of
disclosure. Subdivision (a) provides: “The disclosure shall clearly
state whether the plan uses binding arbitration to settle disputes,
including specifically whether the plan uses binding arbitration
to settle claims of medical malpractice.” (§ 1363.1, subd. (a).)
Subdivision (c) provides: “The disclosure shall clearly state
whether the subscriber or enrollee is waiving his or her right to a
jury trial for medical malpractice, other disputes relating to the
delivery of service under the plan, or both[.]” (Id., subd. (c).)
The disclosure provision in this case begins by stating at
some length that the enrollee agrees to arbitrate “any and all
disputes,” including medical malpractice. Then, however, the
disclosure qualifies this broad language by mentioning that “a
more detailed arbitration provision is included in the Evidence of
5
Coverage or Certificate of Insurance. Mandatory arbitration may
not apply to certain disputes if the Employer’s plan is subject to
ERISA,[3] 29 U.S.C. §§ 1001–1461.”
By this point, the enrollee can only know which disputes he
will have to submit to arbitration by determining whether his
plan is covered by ERISA and then by determining what disputes
“may” be exempted by ERISA. The enrollee certainly cannot
make this determination from the information in the enrollment
form.4 This is not the clear disclosure of which disputes are
subject to arbitration that is required by section 1363.1.
Health Net is not at the same disadvantage as its enrollees.
Health Net explains quite clearly in its opening brief on appeal
that the plan is not subject to ERISA because Santa Clara, “as a
political subdivision of the State of California established and
maintains health benefit plans . . . for its employees through
third-party insurance companies, like Health Net. [Health Net’s
3 Employee Retirement Income Security Act of 1974.
4 If the enrollee turns to the Evidence of Coverage, and looks
up arbitration, he will find only a statement that “Members who
are enrolled in a plan that is subject to ERISA, 29 U.S.C § 1001
et seq., a federal law regulating benefit plans, are not required to
submit disputes about certain ‘adverse benefit determinations’
made by Health Net to mandatory binding arbitration. Under
ERISA, an ‘adverse benefit determination’ means a decision by
Health Net to deny, reduce, terminate or not pay for all or a part
of a benefit.” The enrollee still will not know if their plan is
subject to ERISA. We do not know what an enrollee might find
about ERISA in the other 162 pages of the Evidence of Coverage
booklet, because it is not the enrollee’s responsibility to scour the
booklet for more information on this issue, and so we have not
done so either.
6
plan] is a ‘governmental plan’ and exempt from ERISA.
(29 U.S.C. § 1002(32).” Health Net does not explain why this
inapplicable ERISA provision is mentioned in the arbitration
disclosure and agreement provision of the enrollment form for
County employees.
By placing these references to additional documents and
inapplicable laws between the bulk of the disclosure and the
signature line, Health Net also failed to comply with
subdivision (d) which provides in pertinent part: “In any . . .
enrollment agreement for a health care service plan, the
disclosure required by this section shall be displayed . . .
immediately before the signature line provided for the individual
enrolling in the health care service plan.” (§1363.1, subd. (d).)
Even “ ‘[t]echnical violations’ of the statute—such as the
failure to prominently display an arbitration provision
immediately above the signature line on the enrollment form—
'render [the] arbitration provision unenforceable’ regardless of
whether the person enrolling in the health plan received some
notice of the arbitration clause by reviewing the noncomplying
provision.” (Medeiros v. Superior Court (2007) 146 Cal.App.4th
1008, 1015, quoting Malek, supra, 121 Cal.App.4th at pp. 50, 72.)
As the First District Court of Appeal has explained: “In
plain and ordinary language, ‘immediately before’ means that the
arbitration agreement must be typed in directly before the
signature line provided for the individual on the enrollment form
without any intervening language.” (Robertson v. Health Net of
California, Inc. (2005) 132 Cal.App.4th 1419, 1426 (Robertson);
see Malek, supra, 121 Cal.App.4th at pp. 62–63; see Rodriguez,
supra, 162 Cal.App.4th at p. 338.)
7
Health Net contends that the intervening language in
Robertson, Malek and Rodriguez all involved some subject other
than arbitration, but the allegedly intervening language in this
case “pertains to binding arbitration and the enrollees’ waiver of
jury trial. The sentences about which [p]laintiff complains relate
directly to the disclosure requirements in section 1363.1 and the
Parties’ arbitration agreement.”
In fact, they do not. Section 1363.1’s disclosure
requirements are not satisfied by references to Evidence of
Coverage documents or Certificates of Insurance. Mentioning
them is as much a digression as the HIV testing language in
Robertson, the release of medical information language in Malek
or the reference to class claims in Rodriguez. (Robertson, supra,
132 Cal.App.4th at p. 1423 ; Malek, supra, 121 Cal.App.4th at
p. 62, Rodriguez, supra, 162 Cal.App.4th at p. 333.)
Section 1363.1 does not require any disclosure related to
ERISA. The parties’ arbitration agreement is not subject to
ERISA and so mentioning ERISA does not relate to that
agreement at all. Again, this language is a much a digression
from the disclosure requirements as the language in Robertson,
Malek and Rodriguez.
We recognize that the disclosure agreement contains one
more sentence after the ERISA reference: “My signature below
indicates that I understand and agree with the terms of this
Binding Arbitration Agreement and agree to submit any disputes
to binding arbitration instead of a court of law.” This sentence is
immediately followed by the signature line. Health Net does not
contend that this sentence alone satisfies the disclosure
requirement of section 1363.1. We agree with plaintiff that any
sentence placed after intervening language would have to satisfy
8
all the specific requirements of section 1363.1, and this sentence
does not. (Robertson, supra, 132 Cal.App.4th at p. 1428.)
Compliance with the provisions of section 1363.1 is
mandatory. Health Net has not complied with respect to
plaintiff’s enrollment form, and the result is that the arbitration
agreement is not enforceable.
B. County Agreement
Assuming for the sake of argument that the enrollment
form is compliant with section 1363.1, we also agree with the
trial court’s ruling that the County’s agreement with Health Net
did not comply with section 1363.1, subdivision (d).
Subdivision (d) provides in full: “In any contract or
enrollment agreement for a health care service plan, the
disclosure required by this section shall be displayed immediately
before the signature line provided for the representative of the
group contracting with a health care service plan and
immediately before the signature line provided for the individual
enrolling in the health care service plan.” (§ 1363.1, subd. (d),
italics added.)
To state what should be obvious, subdivision (d) requires
signature lines in both the enrollment form and the County’s
agreement with Health Net. In the trial court, Health Net
focused on its claim that plaintiff lacked standing to raise the
noncompliance in the County agreement.
The trial court stated that it found Health Net’s argument
“unpersuasive. The statute provides mandatory requirements for
both group contracts and individual enrollment forms. Courts
have held that agreements not in compliance with these
requirements are unenforceable, even where the individual had
actual notice. The group contract is a prerequisite to Plaintiff’s
9
enrollment form; the group contract was entered into for the clear
benefit of group members like Plaintiff. As the group contract
does not comply with section 1363.1, arbitration cannot be
enforced against Plaintiff.”
On appeal, Health Net’s arguments of error are premised
on its contention that the signature line provision for the
enrollment form is intended only to ensure the enrollee has notice
of the arbitration provisions applicable to the enrollee’s disputes
with the health plan, while the signature line provision for the
representative of the group contracting with the health plan is
intended only to ensure that the employer has notice of the
arbitration provisions applicable to the employer’s own disputes
with the health plan.
Health Net almost immediately undercuts its own
arguments with references to the legislative history and purpose
of section 1363.1. Health Net argues that the “legislative history
focuses on [the] notice needs of enrollees—it contains no
statement that the purpose of the legislation being to protect the
interests of group employers.”
“The purpose of this bill is to promote . . . consumer
awareness of rights under health or disability insurance plans
that require binding arbitration to resolve medical malpractice
disputes.”5 But we do not see how that purpose assists Health
Net. The legislation as passed does require a signature line for a
representative of the employer in the employer’s agreement with
the health plan. If the purpose of section 1363.1 is not to protect
5 We take no position on the weight which should be given to
this statement, which Health Net identified as an excerpt from
the Senate floor analysis of Assembly Bill No. 3260 by the
California Senate Rules Committee as amended August 24, 1994.
10
employers, then logically this signature line requirement for the
employer-health plan agreement must be intended to protect
enrollees.
Next, Health Net turns to plaintiff’s standing. Here,
Health Net adopts, without discussion, a contrary position: the
purpose of the signature line requirement in the County
agreement is to provide the County with notice that the County’s
own disputes with Health Net are subject to arbitration, and not
to benefit plaintiff and so plaintiff lacks standing to enforce it.
Not only is this argument inconsistent with Health Net’s
prior argument that the purpose of the signature line is to protect
the employees, it ignores the fact that an employer’s agreement
with a health plan is negotiated primarily for the benefit of the
employees. “[A]n employer that negotiates group medical
benefits for its employees acts as an agent for those employees
during the period of negotiation. [Citation.] An agency
relationship is a fiduciary one, obliging the agent to act in the
interest of the principal.” (Engalla v. Permanente Medical Group,
Inc. (1997) 15 Cal.4th 951, 977.) Thus, a properly negotiated
employee agreement is negotiated for the benefit of its
employees.6
6 Health Net’s argument also ignores the language of the
agreement, in which arbitration by the Group (County) and
arbitration by enrollees are mentioned together, not discussed
individually. The arbitration provision of the agreement begins
by noting that “Sometimes disputes or disagreements may arise
between Health Net and the Group or Members[.]” It continues
“As a condition to contracting with Health Net, Group and
Members agree to submit all disputes they may have with Health
Net to final and binding arbitration.”
11
Health Net’s interpretation of section 1363.1 is not
consistent with this requirement. Its interpretation would
require a health plan to disclose to an employer that the
employer is agreeing to arbitrate the employer’s dispute with the
health plans, but the health plan need not disclose to the
employer, which is signing the agreement on behalf of its
employees, that the employees will also be required to arbitrate
their disputes with the health plan.
We see no basis for understanding section 1363.1 in this
manner. If notice and disclosure are necessary to protect an
employer who is giving up its right to a court or jury trial and
agreeing to arbitration in an agreement, notice and disclosure to
the employer are equally necessary to protect the employees on
whose behalf the employer is negotiating the agreement.
Viewed differently, it is the agreement between the County
and Health Net which sets the terms of the relationship between
Health Net and County employees, including the employees’
waiver of trial rights and acceptance of mandatory arbitration.
Section 1363.1 requires specific disclosures of the trial rights
waiver and arbitration provision for the agreement to be valid.
Because section 1363.1 compliant notice is required for a knowing
waiver of jury rights, if the notice provision in the agreement only
tells the employer what rights it, as employer, is giving up, the
employer has not knowingly waived the rights its employees are
giving up.
It is well established that when a contract is made for the
benefit of a person who is not a party to the contract, that person
does have standing to enforce the contract. (See Civ. Code,
12
§ 1559.)7 Health Net does not address this principle but instead
attempts to side-step third party enforcement by arguing that “a
stranger to an agreement has no standing to challenge its
validity on the ground that it was not signed by the other parties
in accordance with statutory requirements. (Safarian [v.
Govgassian (2020)] 47 Cal.App.5th [1053,] 1066 [‘Only the
contracting parties have the power to ratify or avoid a voidable
agreement . . .’].)”
Health Net next argues that the non-compliant arbitration
provisions are voidable, not void. As we will explain, a
noncompliant arbitration agreement is void, not voidable.
We agree with plaintiff that only voidable contracts can be
ratified. (Yvanova v. New Century Mortgage Corp. (2016)
62 Cal.4th 919, 929–930.) We do not agree with Health Net that
either the enrollment form or the County agreement are merely
voidable.
Agreements to arbitrate that do not comply with section
1363.1 are void, not voidable. “The disclosure requirements are
necessary to form a contractual arbitration agreement. The
disclosures communicate the contractual consequences of the jury
waiver to ensure a knowing waiver of the right to a jury trial.
Assent these disclosure requirements, there is no contractual
agreement to arbitrate.” (Malek, supra, 121 Cal.App.4th at
p. 66.)
7 Health Net just states the general rules that only the real
party in interest has standing to sue and obtain relief in court
(Code Civ. Proc., § 367), and that a party does not have standing
to assert rights or interests belonging “solely” to others. (See,
e.g., Jasmine Networks, Inc. v. Superior Court (2009)
180 Cal.App.4th 980, 992.)
13
Health Net next invokes estoppel, relying on the broad
proposition that accepting the benefits of an agreement operates
as an estoppel if the person acted with full knowledge of all
material facts and circumstances, and with full knowledge of his
rights. Assuming for the sake of argument that estoppel applies
at all, Health Net does not explain how plaintiff had full
knowledge that the County agreement did not comply with
section 1363.1. We are not bound to make an appellant’s
argument for it. (United Grand Corp. v. Malibu Hillbillies, LLC
(2019) 36 Cal.App.5th 142, 153.)
C. The Federal Arbitration Act (FAA)
The McCarran-Ferguson Act deprives Congress of the
power to invalidate state law “regulating the business of
insurance.” (15 U.S.C. § 1012(b).) Section 1363.1 “does regulate
the business of insurance within the meaning of McCarran-
Ferguson. Therefore, the FAA, a federal statute of general
application, which does not ‘specifically relate’ to insurance, is
foreclosed from application to prevent the operation of section
1363.1. As a result, [the health care service plan’s] arbitration
provisions may not be enforced because of their failure to satisfy
the specific and unambiguous disclosure requirements imposed
by section 1363.1.” (Smith v. PacifiCare Behavioral Health of
Cal., Inc. (2001) 93 Cal.App.4th 139, 162.)
Health Net contends that the FAA is not reverse-
preempted by the McCarren-Ferguson Act “where, as here, the
FAA does not prevent state law from regulating the business of
insurance, but rather merely requires that section 1363.1 be
correctly applied under California law.” As we have just
explained, section 1363.1 has been correctly applied in this case.
14
Health Net also states more specifically that “the FAA
governs where a [s]uperior [c]ourt’s interpretation and
application of a statute voids an arbitration agreement between
an enrollee and his health plan that fulfills all notice
requirements under state law.” The underlying premise of this
argument is that the enrollment form “fulfills all notice
requirements” of section 1363.1. As we have explained, it does
not.
Thus, the FAA does not require that we reverse the trial
court’s order and compel arbitration.
DISPOSITION
The trial court’s order is affirmed. Health Net to pay costs
on appeal.
STRATTON, P. J.
We concur:
GRIMES, J.
VIRAMONTES, J.
15
Filed 12/6/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
SALVATORE J. BAGLIONE, B319659
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 21STCV31846)
v.
ORDER CERTIFYING
HEALTH NET OF CALIFORNIA, OPINION FOR PUBLICATION
INC.,
[NO CHANGE IN JUDGMENT]
Defendant and Appellant.
THE COURT:
The opinion in the above-entitled matter filed on November 27, 2023,
was not certified for publication in the Official Reports. For good cause, it
now appears that the opinion should be published in the Official Reports and
is so ordered.
There is no change in the judgment.
________________________________________________________________________
STRATTON, P. J. GRIMES, J. VIRAMONTES, J.