Meardon v. Freedom Life Insurance , 417 P.3d 929 ( 2018 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
March 8, 2018
2018COA32
No. 17CA0019 Meardon v. Freedom Life Insurance— Health
Insurance — Remedies for Unreasonable Delay or Denial of
Benefits — Federal Supremacy — Preemption —
McCarran-Ferguson Act
A division of the court of appeals considers, as a matter of first
impression, whether a mandatory arbitration clause in a health
care insurance policy is displaced by section 10-3-1116(3), C.R.S.
2017, which allows denied claims to be contested in court before a
jury. The division holds that the policy’s conformity clause
invalidates the arbitration clause for those claims covered by
section 10-3-1116(3). The division further holds that the Federal
Arbitration Act (FAA) does not preempt section 10-3-1116(3)
because the McCarran-Ferguson Act preempts the FAA under the
doctrine of reverse-preemption. Accordingly, the division affirms
the trial court’s order as to those claims that fall within the ambit of
the statute, but reverses the court’s order as to those claims that
fall outside the scope of the statute. The division remands the case
for the trial court to determine which claims fall within the statute
and which clams do not.
The dissent would reverse the trial court’s order denying
Freedom Life’s motion to compel arbitration and remand this case
to the trial court to grant that motion and then to dismiss this case.
COLORADO COURT OF APPEALS 2018COA32
Court of Appeals No. 17CA0019
City and County of Denver District Court No. 16CV32553
Honorable Catherine A. Lemon, Judge
Kathryn D. Meardon,
Plaintiff-Appellee,
v.
Freedom Life Insurance Company of America and Robert J. Pavese,
Defendants-Appellants.
ORDER AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division VII
Opinion by JUDGE FREYRE
Berger, J. concurs
Bernard, J., dissents
Announced March 8, 2018
Meier & Giovanini, LLC, Doug E. Meier, Lakewood, Colorado, for Plaintiff-
Appellee
Lewis Roca Rothgerber Christie LLP, Hilary D. Wells, Frances Scioscia Staadt,
Denver, Colorado, for Defendants-Appellants
¶1 The defendants, Freedom Life Insurance Company of America
and Robert J. Pavese (collectively Freedom Life), denied health
insurance benefits claimed by plaintiff Kathryn D. Meardon under a
health insurance policy (policy) issued to her by Freedom Life. We
must decide a novel issue: whether that policy’s mandatory
arbitration clause is displaced by section 10-3-1116(3), C.R.S.
2017, which allows denied claims to be contested in court before a
jury. We conclude that it is.
¶2 The policy purchased by Ms. Meardon sets forth a three-step
procedure for contesting a denied claim. Step one is negotiation,
step two is mediation, and step three is binding arbitration. At
issue here is the last step — final and binding arbitration; the policy
expressly prohibits the filing of any state or federal court action.
Section 10-3-1116(3), by contrast, provides that an insured who is
wholly or partially denied a claim for health benefits “shall be
entitled” to de novo review in any court with jurisdiction and to a
trial by a jury, after exhausting administrative remedies. Thus, the
question before us is whether Ms. Meardon is bound by the policy’s
arbitration clause or whether she may seek relief from a jury in a
court.
1
¶3 To resolve this case, we first analyze the “conformity clause”
that Freedom Life elected to include in its policy. Then we address
the difficult issues presented both by the Federal Arbitration Act
(FAA), 9 U.S.C. §§ 1-16 (2012), and the arcane doctrine of reverse-
preemption under the McCarren-Ferguson Act, 15 U.S.C. §§ 1011-
1015 (2012), which may or may not preempt section 10-3-1116(3)
and render the arbitration clause operative.
¶4 Freedom Life appeals the trial court’s order that denied their
motion to dismiss or compel arbitration. Because we conclude that
the state statute displaces the arbitration clause for those claims
that fall within the ambit of the statute, we affirm the trial court’s
order as to those claims. However, because some of Ms. Meardon’s
claims fall outside the scope of the statute, we reverse the court’s
order to that extent and remand with directions.
I. Background
¶5 Ms. Meardon alleged that Mr. Pavese, acting as a Freedom Life
insurance agent, sold her a policy that did not comply with the
Affordable Care Act, even though she requested one. She further
alleged that the policy did not cover a pre-existing condition, which
the Act also required.
2
¶6 Later that year, Ms. Meardon underwent surgery, and she
submitted a claim to Freedom Life. Freedom Life denied the claim
because it decided that the surgery resulted from a pre-existing
condition that was not covered by the plan. Ms. Meardon tried to
resolve the dispute by sending letters and documents showing that
the surgery did not result from her pre-existing condition. Freedom
Life reaffirmed its decision to deny Ms. Meardon’s claim, and she
filed this lawsuit.
¶7 Freedom Life moved to compel arbitration and to dismiss the
case. It relied on the policy’s mandatory arbitration clause, which
states as follows:
(1) The policyholder was required to resolve “[a]ny [d]ispute”
through “mandatory and binding arbitration.” (The
policy defines “[d]ispute” to include practically every
claim “in any way arising out of or pertaining to, or in
connection with th[e] policy.”)
(2) The policyholder does not have a right to seek resolution
of her claim in a federal or state court.
(3) If the policyholder tries to file a complaint in a federal or
state court, the court should dismiss the complaint.
3
¶8 The policy also contains a “conformity clause,” which states
that “[a]ny provision of this [p]olicy which, on its effective date, is in
conflict with the laws of the state in which [y]ou live on that date, is
amended to conform to the minimum requirements of such laws.”
¶9 The trial court denied Freedom Life’s arbitration motion.
Relying on the conformity clause, the court decided that (1) section
10-3-1116(3) gives a policy holder a right to a judicial resolution of
her claim; and (2) this statutory right voids the policy’s arbitration
clause. Expanding on the second point, the court wrote that
subsection 1116(3) “effectively forbids mandatory arbitration
clauses in [health insurance] policies, and confers specifically
upon . . . policy holders the statutory right to pursue denial of
benefits claims in a court before a jury.”
II. Analysis
¶ 10 Freedom Life contends that (1) section 10-3-1116(3) cannot be
applied because it is preempted by federal law, namely the FAA; (2)
even if the FAA does not preempt the statute, the arbitration clause
remains in effect for those claims that fall outside the statute; and
(3) Ms. Meardon must arbitrate her claims to “exhaust her
administrative remedies” under section 10-3-1116(3). It further
4
argues that even if, as a matter of contract law, the conformity
clause operates to invalidate the arbitration clause, under FAA
preemption rules, the arbitration clause prevails.
¶ 11 Ms. Meardon responds that the trial court correctly interpreted
the conformity clause to invalidate the arbitration clause, and that
even if FAA preemption would otherwise prohibit this operation of
the conformity clause, reverse-preemption, a doctrine unique to
statutes that regulate the insurance business, preempts FAA
preemption (thus the term “reverse-preemption”). We proceed to
separately address the effects of the conformity clause and the
various preemption arguments and counterarguments.
A. Standard of Review and Legal Principles
¶ 12 We must interpret the policy and subsection 1116(3) to resolve
this appeal. We review questions of statutory interpretation and
insurance contract interpretation de novo. Goodman v. Heritage
Builders, Inc., 2017 CO 13, ¶ 5; Allstate Ins. Co. v. Huizar, 52 P.3d
816, 819 (Colo. 2002).
¶ 13 When we interpret a statute, we must ascertain and give effect
to the legislature’s intent. Colo. Dep’t of Revenue v. Creager
Mercantile Co., 2017 CO 41M, ¶ 16. “We construe the entire
5
statutory scheme to give consistent, harmonious, and sensible
effect to all parts,” and “we give effect to words and phrases
according to their plain and ordinary meaning.” Denver Post Corp.
v. Ritter, 255 P.3d 1083, 1089 (Colo. 2011). If a statute’s language
is clear, we apply it as written. Id. But “[i]f the statutory language
is ambiguous, we may use other tools of statutory interpretation to
determine the General Assembly’s intent.” Id.¶ 14 Similarly, the words of an insurance policy “should be given
their plain meaning according to common usage, and strained
constructions should be avoided.” Allstate Ins. Co., 52 P.3d at 819.
As pertinent here, “[b]ecause of the policy favoring arbitration, we
construe any ambiguities [in the insurance policy] in favor of
arbitration, and when an arbitration clause is broad or
unrestricted, the strong presumption favoring arbitration applies
with even greater force.” BFN-Greeley, LLC v. Adair Grp., Inc., 141
P.3d 937, 940 (Colo. App. 2006). “A valid and enforceable
arbitration provision divests the courts of jurisdiction over all
disputes that are to be arbitrated pending the conclusion of
arbitration.” Mountain Plains Constructors, Inc. v. Torrez, 785 P.2d
928, 930 (Colo. 1990).
6
B. Conformity Clause
¶ 15 Parties to an insurance contract cannot agree to disregard
statutory requirements. See Peterman v. State Farm Mut. Auto. Ins.
Co., 961 P.2d 487, 492 (Colo. 1998) (examining a consent-to-sue
clause in an insurance contract and explaining that “[p]arties may
not privately contract to abrogate statutory requirements or
contravene the public policy of this state”). To reflect this reality,
Freedom Life elected to include a conformity clause in its insurance
policy. The general effect of a conformity clause is to modify the
contract to conform to the laws in the insured’s state. See 2 Steven
Plitt, Daniel Maldonado, Joshua D. Rogers & Jordan R. Plitt, Couch
on Insurance § 19:3, Westlaw (3d ed. database updated Dec. 2017).
A conformity clause can be triggered when an insurer is prohibited
from, or required to, include a certain provision in the policy. Id.
Thus, when an insurance policy contains a conformity clause, that
clause amends the policy terms that conflict with state law. See
Traders & Gen. Ins. Co. v. Pioneer Mut. Comp. Co., 127 Colo. 516,
517-19, 258 P.2d 776, 777 (1953) (finding that a conformity clause
requiring conformity to the motor vehicle financial responsibility law
made the statute part of the insurance contract); see also Peters v.
7
Time Ins. Co., No. 10-CV-02962-RPM, 2011 WL 2784291 (D. Colo.
July 14, 2011) (unpublished opinion) (concluding that a conformity
clause reformed the pre-existing condition exclusion in the
insurance policy to conform with the state statute); Burke v. First
Unum Life Ins. Co., 975 F. Supp. 310, 316 (S.D.N.Y. 1997) (finding
that policy’s conformity clause “dictates that the policy be
considered as if it contained the statutory language”); Ill. Farmers
Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 802 (Minn. 2004)
(“When an insurance policy contains a conformity clause, as
Farmers’ policies do, that clause amends all policy terms in conflict
with Minnesota law to conform to those laws.”).
¶ 16 Importantly, a predicate for operation of the conformity clause
is a true conflict with state law. A mere “difference” between the
contract and state law is insufficient to trigger the conformity
clause. See Grant Farms, Inc. v. Colo. Farm Bureau Mut. Ins. Co.,
155 P.3d 537, 538 (Colo. App. 2006) (“A statute and [a] policy
provision are not ‘in conflict’ merely because they are different from
one another.”).
¶ 17 As previously noted, subsection 1116(3) unambiguously
entitles an insured to a de novo review in a court with jurisdiction,
8
and to a jury trial of denied claims. In contrast, the operative
language in the arbitration clause states that
no Disputes arising between the parties shall
be decided in Federal or State courts or before
a judge or jury and the courts shall bar and
dismiss any such attempted litigation.
¶ 18 In contrast, section 10-3-1116(3) provides
An insurance policy, insurance contract, or
plan that is issued in this state shall provide
that a person who claims health, life, or
disability benefits, whose claim has been
denied in whole or in part, and who has
exhausted his or her administrative remedies
shall be entitled to have his or her claim
reviewed de novo in any court with jurisdiction
and to a trial by jury.
¶ 19 The plain words of the statute conflict with the mandatory
arbitration clause: the statute guarantees to insureds such as Ms.
Meardon a forum in court before a jury and the arbitration clause
plainly prohibits such a lawsuit.1 This conflict triggered the policy’s
1 Freedom Life does not contend that Ms. Meardon may exercise her
rights to a de novo trial after arbitration. To the contrary, Freedom
Life asserts that the mandatory arbitration clause precludes any
court action by Ms. Meardon either before or after the completion of
arbitration. The dissent appears to concede that once arbitration is
completed, Ms. Meardon has no right under the statute, or
otherwise, to have her claims reviewed or decided in court, much
less by a jury.
9
conformity clause.2 Application of the policy’s conformity clause
results in the invalidation of the policy’s arbitration clause.
Accordingly, as the trial court held, after operation of the conformity
clause, there was no arbitration clause to enforce.3
¶ 20 This conclusion, however, does not resolve all issues.
Freedom Life appears to argue that operation of the conformity
clause is itself preempted by the FAA.4 Put another way, Freedom
2 Although not argued by the parties, we note that section 10-3-
1116(3) actually requires that the insurance policy “shall provide”
that a person who claims health benefits is entitled to de novo court
review and jury trial. Ms. Meardon’s policy did not provide this
review and is, thus, does not conform to the statute.
3 Section 10-3-1116(3) expressly requires exhaustion of
administrative remedies as a condition precedent to the exercise of
the rights granted by the statute. The parties do not address what,
if any, administrative remedies, such as mediation, may remain, so
we do not address whether Ms. Meardon has yet exhausted all of
those remedies. But, based on our analysis, arbitration is not an
administrative remedy in this case, because it precludes judicial
review. These questions are for the trial court to determine on
remand.
4 We reject Freedom Life’s argument that Ms. Meardon did not
preserve the reverse-preemption argument in the trial court and is
precluded from raising it on appeal. As an appellee, Ms. Reardon
may defend the trial court’s judgment on any grounds supported by
the record. See Atl. Richfield Co. v. Whiting Oil & Gas Corp., 2014
CO 16, ¶ 19 n.6 (“It is settled law that a respondent may defend the
judgment of the trial court or the court of appeals on any ground
supported by the record, so long as the party’s rights are not
10
Life seems to say that a conformity clause can only operate to
invalidate contract provisions that are in conflict with a valid state
law and that section 10-3-1116(3) does not qualify because it
conflicts with, and therefore is invalidated by, the FAA. We reject
this argument because even if the operation of the conformity
clause were so limited, FAA preemption is itself reverse-preempted
by the McCarran-Ferguson Act, 15 U.S.C. § 1012(b) (2012). That
statute exempts state laws enacted for the purpose of regulating the
insurance business from FAA preemption. The end result is that
section 10-3-1116(3) is a valid statute notwithstanding the FAA,
and the conformity clause operates to displace the arbitration
clause.
¶ 21 Generally, to the extent a state law conflicts with the FAA, that
state law is preempted by operation of the Supremacy Clause of the
United States Constitution, U.S. Const. art. VI, cl. 2. Preston v.
Ferrer, 552 U.S. 346, 349 (2008). The United States Supreme Court
repeatedly has ruled that, “[b]y enacting § 2 [FAA], we have several
times said, Congress precluded States from singling out arbitration
increased under the judgment.” (quoting Farmers Grp., Inc. v.
Williams, 805 P.2d 419, 428 (Colo. 1991))).
11
provisions for suspect status, requiring instead that such
provisions be placed ‘upon the same footing as other contracts.’ . . .
The FAA thus displaces [state statutes] with respect to arbitration
agreements covered by the Act.” Doctor’s Assocs., Inc. v. Casarotto,
517 U.S. 681, 687 (1996).
¶ 22 However, the McCarran-Ferguson Act provides a narrow
exception to FAA preemption. It provides in relevant part as
follows:
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance . . .
unless such Act specifically relates to the
business of insurance . . . .
15 U.S.C. § 1012(b).
¶ 23 Thus, the McCarran-Ferguson Act exempts a state law from
FAA preemption if the state law is enacted for the purpose of
regulating the business of insurance and if the federal statute —
here the FAA — does not specifically relate to the business of
insurance. Allen v. Pacheco, 71 P.3d 375, 382 (Colo. 2003); see also
21 Williston on Contracts § 57:178, Westlaw (4th ed. database
updated July 2017) (“Because of McCarran-Ferguson . . . the
12
majority of courts have held that states may enact and enforce
statutes that make mandatory arbitration agreements in insurance
policies void or unenforceable in whole or in part.”).
¶ 24 In Allen, 71 P.3d at 384, the Colorado Supreme Court
recognized the effect of the McCarran-Ferguson Act on a health
insurance statute that might otherwise be preempted by the FAA.
See 71 P.3d at 384 (applying reverse-preemption to invalidate an
arbitration clause in a health insurance contract that conflicted
with the HCAA, § 13-64-403(3), (4), & (5), 5 C.R.S. 2002); see also
S. Pioneer Life Ins. Co. v. Thomas, 385 S.W.3d 770, 774 (Ark. 2011)
(finding that the McCarran-Ferguson Act precludes FAA preemption
of a state statute regulating insurance); Cont’l Ins. Co. v. Equity
Residential Props. Tr., 565 S.E.2d 603, 605-06 (Ga. Ct. App. 2002)
(holding that McCarran-Ferguson Act bars FAA preemption of a
state statute that precludes insurance policy arbitration clauses);
Scott v. Louisville Bedding Co., 404 S.W.3d 870, 880 (Ky. Ct. App.
2013) (concluding that FAA did not preempt state statute exempting
insurance contracts from arbitration); Speece v. Allied Prof’ls Ins.
Co., 853 N.W.2d 169, 174-75 (Neb. 2014) (validating a state statute
enacted to regulate the insurance business under
13
reverse-preemption and concluding the FAA did not relate
specifically to the insurance business).
¶ 25 Regarding the second and third requirements for
reverse-preemption, Freedom Life does not argue that the FAA
“relates to the business of insurance,” or that subsection 1116(3)
was not enacted for the purpose of regulating the business of
insurance. Any such arguments would be frivolous.5
¶ 26 We respectfully reject the dissent’s analysis of section
10-3-1116(3) for three reasons. First, because there is nothing
ambiguous about that statute (and neither party has asserted that
there is), we may not consider its legislative history. People v.
Luther, 58 P.3d 1013, 1015 (Colo. 2002). The dissent bases most of
its argument on its conclusion that the General Assembly did not
intend to displace mandatory arbitration provisions. But that is not
the plain import of the words of the statute.
5At oral argument, Freedom Life presented a variation on the
arguments it briefed. It argued that under preemption principles,
only a statute that by its express terms precludes arbitration can
act to displace a mandatory arbitration agreement. We do not
address arguments made for the first time at oral argument. See
Rucker v. Fed. Nat’l Mortg. Ass’n, 2016 COA 114, ¶ 35.
14
¶ 27 Second, we find irrelevant the Employee Retirement Income
Security Act (ERISA) cases on which the dissent relies. This is not
an ERISA case and whether the complexities of ERISA law affect the
enforceability of section 10-3-1116(3) simply has no relevance to
this case.
¶ 28 Third, we are concerned that the dissent’s analysis transcends
our obligation to decide the issues presented to us by the parties.
Indeed, Freedom Life concedes that “issues that do not appear in
the record are not appropriate for consideration on appeal.” See
Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C., 2012
CO 61, ¶ 18 (“It is axiomatic that issues not raised in or decided by
a lower court will not be addressed for the first time on appeal.”);
see also Andrew Low, Neither Briefed Nor Argued, 38 Colo. Law. 87(Sept. 2009).
C. Claims Subject to Arbitration
¶ 29 Freedom Life alternatively contends that only those claims
covered by section 10-3-1116(3) are exempted from the arbitration
clause and that the remaining claims must be arbitrated. While
this may be true, the parties did not seek a ruling from the trial
court on this specific issue, but only argued the application of the
15
arbitration clause generally. Under these circumstances, we are
unable to decide what claims are subject to the arbitration clause.
See Micciche v. Billings, 727 P.2d 367, 373 (Colo. 1986) (“In the
absence of a fully developed factual record and adequate findings of
fact, however, we cannot determine whether that equitable doctrine
should be applied here. We leave it to the hearing officer to resolve
this issue on remand of the case.”). Therefore, on remand the trial
court must determine which claims are covered by section 10-3-
1116(3) and which are not.
III. Conclusion
¶ 30 We affirm the court’s order denying arbitration of those claims
covered by section 10-3-1116(3). We remand the case for the trial
court to decide which claims fall under section 10-3-1116(3) (and
are exempt from arbitration), and which claims are subject to the
policy’s arbitration clause. The trial court retains substantial
discretion to manage the claims subject to arbitration and those not
subject to arbitration to avoid delays and unnecessary expense.
JUDGE BERGER concurs.
JUDGE BERNARD dissents.
16
JUDGE BERNARD, dissenting.
¶ 31 Aristotle wrote that, “[i]f you would understand anything,
observe its beginning and its development.” It is my view that the
key to this case is found in the origins of sections 10-3-1115
and -1116, C.R.S. 2017, which the legislature enacted in 2008. Ch.
422, sec. 5, §§ 10-3-1115, -1116, 2008 Colo. Sess. Laws 2172-74.
After reviewing the ancestry of those two sections, I conclude that
subsection 1116(3) does not void the arbitration clause in the policy
in this case because the legislature did not intend that it should
apply to arbitration clauses. I therefore respectfully dissent.
¶ 32 As is pertinent to my analysis, section 10-3-1115 creates a
duty. Subsection 1115(1) prohibits an insurer from “unreasonably
delay[ing] or deny[ing] . . . a claim for benefits owed to or on behalf
of a first-party claimant.” Subsection 1115(2) states that a delay or
denial of a claim is unreasonable if there was no “reasonable basis
for [the] action.”
¶ 33 Section 10-3-1116 provides the remedy for a breach of the
duty established by subsection 1115(1). Subsection 1116(1)
provides that an insured “whose claim for payment of benefits has
been unreasonably delayed or denied may bring an action in a
17
district court to recover reasonable attorney fees and court costs
and two times the covered benefit.” Subsection 1116(2) prohibits
an insurance policy from “contain[ing] a provision purporting to
reserve discretion to the insurer . . . to interpret the terms of the
policy . . . or to determine eligibility for benefits.”
¶ 34 Subsection 1116(3) concerns insurance policies that provide
“health, life, or disability benefits.” It states that, if an insurer has
partially or completely denied a claim for such benefits, then those
policies “shall provide” that an insured (1) who “has exhausted his
or her administrative remedies”; (2) is “entitled to have his or her
claim reviewed de novo in any court with jurisdiction and to a trial
by jury.” Id.¶ 35 Where did these two statutes come from? I think that the
answer to this question can be found in an ongoing controversy
about something called a “discretionary clause.”
¶ 36 Discretionary clauses often read something like this: “Insurer
has full discretion and authority to determine the benefits and
amounts payable [as well as] to construe and interpret all terms
and provisions of the plan.” John Morrison & Jonathan McDonald,
Exorcising Discretion: The Death of Caprice in ERISA Claims
18
Handling, 56 S.D. L. Rev. 482, 483 (2011). These clauses became
common in the early 1990s, id. at 482, after the United States
Supreme Court decided Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 115 (1989), see Shawn McDermott, CRS § 10-3-1116,
ERISA Preemption, and the Standard of Review, 39 Colo. Law. 75(July 2010).
¶ 37 Firestone Tire addressed the following issue concerning health,
life, or disability policies that were governed by the Employee
Retirement Income Security Act, which is known as ERISA: What
standard of review should a federal district court use when deciding
whether an insurer had improperly denied benefits? The Supreme
Court held that de novo review was the proper standard, “unless
the benefit plan gives the administrator or fiduciary discretionary
authority to determine eligibility for benefits or to construe the
terms of the plan.” Firestone Tire, 489 U.S. at 115. But, if a health
plan’s language gives its administrator such discretionary
authority, then federal district courts reviewing ERISA claims must
apply the abuse of discretion standard to the administrator’s
decision to deny benefits. Metro. Life Ins. Co. v. Glenn, 554 U.S.
105, 111 (2008); Firestone Tire, 489 U.S. at 109, 115. The
19
difference between de novo review and deferential arbitrary and
capricious review is meaningful. See King v. Hartford Life &
Accident Ins. Co., 414 F.3d 994, 998-1000 (8th Cir.
2005)(comparing de novo and abuse of discretion review of an
administrator’s decision).
¶ 38 The proliferation of discretionary clauses caught the attention
of the National Association of Insurance Commissioners. The
Commissioners were bothered by what they perceived as a conflict
of interest that arose when “the claims adjudicator [— who is often
the plan’s administrator —] is also the insurer that pays the
benefit.” McDermott, 39 Colo. Law. at 75. So, in 2002, they drafted
a model act, which was entitled “Prohibition on the Use of
Discretionary Clauses Model Act.” Joshua Foster, Note, ERISA,
Trust Law, and the Appropriate Standard of Review: A De Novo
Review of Why the Elimination of Discretionary Clauses Would Be an
Abuse of Discretion, 82 St. John’s L. Rev. 735, 744-45 (Spring
2008). The model act showed state legislatures how to pass laws
that prohibited discretionary clauses in health insurance contracts.
Id.
20
¶ 39 As of 2015, almost twenty-five states had either banned or
limited discretionary clauses in health insurance policies governed
by ERISA, or they were in the process of doing so. Owens v. Liberty
Life Assurance Co., 184 F. Supp. 3d 580, 584 (W.D. Ky. 2016). The
means to effect the ban or the limitation varied, including statutes,
administrative rules, or interpretations issued by a state’s
insurance commissioner. McDermott, 39 Colo. Law. at 76.
¶ 40 Colorado was one of those twenty-five states. Id.; Radha A.
Pathak, Discretionary Clause Bans & ERISA Preemption, 56 S.D. L.
Rev. 500, 504 n.30 (2011); Morrison & McDonald, 56 S.D. L. Rev. at
488 nn.44-45. The means that it chose to ban discretionary
clauses was statutory, in the form of subsections 1116(2) and
1116(3). McDermott, 39 Colo. Law. at 76. More specifically,
subsection 1116(2) banned the discretionary clauses, and
subsection 1116(3) made it clear that a court reviewing an insurer’s
decision to deny an insured’s benefits must apply the de novo
standard.
¶ 41 But what about the reference to a right to a jury trial in
subsection 1116(3)? At least eight federal circuit courts of appeal,
including the Tenth Circuit, have held that insureds who file claims
21
for ERISA benefits are not entitled to jury trials because their
claims are equitable in nature. Graham v. Hartford Life & Accident
Ins. Co., 589 F.3d 1345, 1355-57 n.5 (10th Cir. 2009)(collecting
cases); see also McDermott, 39 Colo. Law. at 79 (“[Federal] [t]rials to
the court in ERISA cases are rare. Jury trials do not exist.”). It is
therefore obvious to me that subsection 1116(3) was designed to
avoid the federal prohibition of jury trials. It instead gave an
insured a right to a jury trial in state court when he or she filed a
claim under subsection 1116(1), which alleged that the plan
administrator had unreasonably denied or delayed a claim for
benefits. See McDermott, 39 Colo. Law. at 79 (Subsection 1116(3)
“specifically included the right of an ERISA claimant to a jury
trial.”).
¶ 42 (I note that there is an open question whether ERISA preempts
subsection 1116(3)’s jury trial right. See Shafer v. Metro. Life Ins.
Co., 80 F. Supp. 3d 1244, 1255-57 (D. Colo. 2015)(concluding that
ERISA preempted subsection 1116(3) in its entirety because the
statutory jury trial right “undermine[d]” ERISA by “inhibit[ing]
prompt adjudication by the judiciary.”). But I do not need to cross
22
this bridge to conclude that subsection 1116(3) did not void the
arbitration clause in this case.)
¶ 43 Based on this background, I think that our legislature
intended subsections 1116(2) and (3) to change the standard of
reviewing an insurer’s decision to deny benefits from abuse of
discretion review to de novo review and the identity of the entity
reviewing that decision from a court to a jury. See Lewis v. Taylor,
2016 CO 48, ¶ 20 (“The primary goal of statutory interpretation is
to ascertain and give effect to the legislature’s intent.”); 2A Norman
J. Singer & Shambie Singer, Sutherland Statutes and Statutory
Construction §§ 48.3 (7th ed. 2014) (“Courts look to a statute’s
contemporary history and historical background as aids to
interpretation. . . . [C]ourts generally turn to a law’s pre-enactment
history to discover its purpose, or object, or the mischief at which it
was aimed, when the statute’s language is inadequate to reveal
legislative intent. . . . Courts discussing an act’s legal history
usually are speaking more specifically about prior statutes on the
same subject, and recent statutes on similar subjects, and the case
law interpreting such legislation.” (footnotes omitted)). The
23
subsections did not have anything to do with voiding arbitration
clauses.
¶ 44 For the following reasons, I conclude that the plain language
of subsections 1116(2) and (3) supports my view of the legislature’s
intent. See Lewis, ¶ 20 (To determine the legislature’s intent, “we
look to the plain meaning of the statutory language and consider it
within the context of the statute as a whole.”).
¶ 45 First, neither subsection includes the words “arbitrate” or
“arbitration.” And courts do not add language to statutes when
interpreting them. See Spahmer v. Gullette, 113 P.3d 158, 162
(Colo. 2005)(“We will not create an addition to a statute that the
plain language does not suggest or demand.”); Carruthers v. Carrier
Access Corp., 251 P.3d 1199, 1204 (Colo. App. 2010)(“[W]e will not
interpret a statute to mean that which it does not express.”).
¶ 46 The legislature knows how to modify or invalidate arbitration
clauses if it wants to do so. See § 13-64-403(1), C.R.S. 2017 (“It is
the intent of the general assembly that . . . no medical malpractice
insurer shall require a health care provider to utilize arbitration
agreements as a condition of providing medical malpractice
insurance . . . .”); see also Allen v. Pacheco, 71 P.3d 375, 384 (Colo.
24
2003)(“Because the agreement here does not comply with sections
13-64-403(3) and (4) . . . the agreement is unenforceable and [the
plaintiff] is not required to submit her wrongful death claim to
binding arbitration.”). The legislature’s silence about arbitration in
subsection 1116(3) is therefore more than deafening; it is clear
proof that the legislature did not intend the subsection to void
arbitration clauses.
¶ 47 Second, Colorado favors arbitration. See Meister v. Stout,
2015 COA 60, ¶ 10; BFN-Greeley, LLC v. Adair Grp., Inc., 141 P.3d
937, 940 (Colo. App. 2006). And a broad or unrestricted arbitration
clause, such as the one in this case, gives greater force to the
presumption in favor of arbitration. See Meister, ¶ 10.
¶ 48 Third, the phrase “has exhausted his or her administrative
remedies” that appears in subsection 1116(3) indicates to me that
an insured must go through whatever arbitration process the policy
requires before he or she may even consider filing a lawsuit. In
Timm v. Prudential Insurance Co. of America, 259 P.3d 521, 529
(Colo. App. 2011), the division stated that “[a]n ERISA cause of
action generally accrues when a plan administrator denies a claim
for benefits. A participant must therefore generally exhaust
25
administrative remedies before seeking judicial relief.” (Citation
omitted.) This statement was based on a citation to Held v.
Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1206 (10th
Cir. 1990), which referred to a “[p]lan’s administrative remedies.”
(Emphasis added.)
¶ 49 Federal courts have included arbitration within the class of
administrative remedies that must be exhausted. “[I]f the plan
contains an arbitration clause, the plaintiff must arbitrate the
dispute in accordance with the clause in order to exhaust his
administrative remedies before filing suit in federal court.” Chappel
v. Lab. Corp. of Am., 232 F.3d 719, 724 (9th Cir. 2000); accord
Kilkenny v. Guy C. Long, Inc., 288 F.3d 116, 122 (3d Cir.
2002)(“Under ERISA, internal administrative remedies like the
arbitration procedures mandated in . . . labor agreements must be
exhausted prior to bringing suit in federal court.”); Int’l Molders &
Allied Workers Union, AFL-CIO, CLC v. Aquarius Shoe Corp., 511 F.
Supp. 361, 363 (E.D. Mo. 1981); 15 Steven Plitt, Daniel Maldonado,
Joshua D. Rogers, & Jordan R. Plitt, Couch on Insurance § 210:22,
Westlaw (3d ed. database updated Dec. 2017)(“In keeping with the
general ERISA requirement of exhaustion of administrative
26
remedies, the litigation to date has favored enforcement of
arbitration agreements pertinent to ERISA-governed welfare benefit
plans . . . in the context of agreements . . . appearing in
employer-sponsored plans.”) (footnote omitted).
¶ 50 The policy in this case describes three levels of administrative
remedies: negotiation, mediation, and binding arbitration. The first
two administrative remedies do not bar a subsequent lawsuit. As a
result, if those were the only two administrative remedies in the
policy, Ms. Meardon would be entitled, under subsection 1116(3),
“to have . . . her claim reviewed de novo in any court with
jurisdiction and to a trial by jury.”
¶ 51 But those are not the only administrative remedies. I
conclude that, not only do the policy and subsection 1116(3)
require Ms. Meardon to submit to binding arbitration, but Ms.
Meardon cannot file a lawsuit after the arbitral process is over
because the arbitration is binding arbitration.
¶ 52 In other words, subsection 1116(3) is conditional, rather than
categorical. If insureds are able to file lawsuits concerning the
insurers’ decisions to deny benefits after exhausting the policy’s
administrative remedies, then juries will review their claims de
27
novo. But they might be unable to file lawsuits because of binding
arbitration clauses in their policies.
¶ 53 This reading of subsections 1116(2) and (3) renders the
policy’s conformity clause irrelevant for the purposes of this
discussion. Because the legislature did not intend subsection
1116(3) to void arbitration clauses, the conformity clause cannot
void the arbitration clause in this case. See Grant Farms, Inc. v.
Colo. Farm Bureau Mut. Ins. Co., 155 P.3d 537, 538 (Colo. App.
2006)(“A statute and [a] policy provision are not ‘in conflict’ merely
because they are different from one another.”).
¶ 54 The majority rejects the preceding analysis of subsection
1116(3) for three reasons. I respectfully disagree with each of them.
¶ 55 Reason one: I should not consider the ancestry of subsection
1116(3) because “there is nothing ambiguous about” the subsection
and because “neither party has asserted that there is.”
¶ 56 The majority and I reach different conclusions about what
subsection 1116(3) means. For example, the majority concludes
that the “plain words of [subsection 1116(3)] conflict with the
mandatory arbitration clause.” Supra ¶ 19. I conclude that
subsection 1116(3) does not apply to arbitration clauses at all. Part
28
of my analysis is based on the absence of any reference to
arbitration in subsection 1116(3), and I think that this lacuna is
outcome determinative.
¶ 57 Making the fair assumption that both the majority’s
interpretation and my interpretation of subsection 1116(3) are
reasonable, the difference between them starkly illustrates the
ambiguity that the majority concludes does not exist. See Vensor v.
People, 151 P.3d 1274, 1277 (Colo. 2007)(“If statutory language is
susceptible of more than one reasonable interpretation, it is
considered ambiguous and subject to construction according to
well-accepted aids for determining legislative intent.”).
¶ 58 Two well-accepted tools for construing ambiguous statutes are
“examining the legislative intent[] [and] the circumstances
surrounding [the statute’s] adoption . . . .” Coffman v. Williamson,
2015 CO 35, ¶ 23 (quoting Williams v. Kunau, 147 P.3d 33, 36
(Colo. 2006)). Decisions from courts in other jurisdictions may
assist in determining legislative intent when they discuss similar
statutes. See Mosley v. Indus. Claim Appeals Office, 119 P.3d 576,
579 (Colo. App. 2005)(“Courts from other states have almost
uniformly concluded that the language and purpose of their states’
29
[statute], which are identical to Colorado’s, demonstrate the
legislatures’ intent . . . .”). More specifically, when dealing with an
adaptation of a model act, as we are in this case, we can look to the
intent of the drafters of the model act when trying to ascertain the
intent of our legislature. See Copper Mountain, Inc. v. Poma of Am.,
Inc., 890 P.2d 100, 106 (Colo. 1995). And we may consider the
object that the statute seeks to attain, its legislative history, the
common law, and the consequences of a particular construction of
the statute. § 2-4-203(1)(a), (c)-(e), C.R.S. 2017.
¶ 59 Reason two: The discussion of ERISA cases is irrelevant
because this is not an ERISA case.
¶ 60 It does not matter that this case is not an ERISA case. As I
have already explained, subsection 1116(3) arose out of ERISA
cases. Those cases are therefore helpful in deciding what
subsection 1116(3) means, and that meaning spills over to
non-ERISA cases.
¶ 61 More particularly, the ERISA precedent is especially
instructive because insureds may file cases involving specified
ERISA issues in Colorado state courts concerning their health, life,
or disability policies. “State courts . . . and district courts of the
30
United States shall have concurrent jurisdiction” over lawsuits filed
by a participant or beneficiary in a qualifying plan “to recover
benefits due . . . under the terms of [a] plan, to enforce . . . rights
under the terms of the plan, or to clarify . . . rights to future
benefits under the terms of the plan . . . .” 29 U.S.C. § 1132(a)(1)(B),
(e)(1) (2012); see also Menhorn v. Firestone Tire & Rubber Co., 738
F.2d 1496, 1500 n.2 (9th Cir. 1984)(“Jurisdiction over actions . . .
to recover benefits or enforce rights under a plan . . . is vested
concurrently in state and federal courts.”).
¶ 62 Reason three: My “analysis transcends [the division’s]
obligation to decide the issues presented to us by the parties.”
¶ 63 The question whether subsection 1116(3) voids arbitration
clauses in certain insurance policies has always been front and
center in this case. The trial court concluded that,
by requiring health insurance policies issued
in Colorado to provide for litigation of claim
denials, [subsection 1116(3)] effectively forbids
mandatory arbitration clauses in such policies,
and confers specifically upon life, health, and
disability policyholders the statutory right to
pursue denial of benefits claims in court before
a jury. The arbitration clause in [Ms.
Meardon’s] policy is in conflict with [subsection
1116(3)]. It is, therefore, unenforceable and
31
automatically amended by its own terms” [in
the policy’s conformity clause].
¶ 64 What the reader has already encountered in this dissent
responds directly to the trial court’s ruling by explaining why
subsection 1116(3) does not “effectively forbid[] mandatory
arbitration clauses . . . .” See Melat, Pressman & Higbie, L.L.P. v.
Hannon Law Firm, L.L.C., 2012 CO 61, ¶ 18 (“It is axiomatic that
issues not raised in or decided by a lower court will not be
addressed for the first time on appeal.”) (emphasis added).
¶ 65 In conclusion, I do not think that subsection 1116(3) voided
the arbitration clause in this case because (1) the subsection’s
language does not refer to arbitration; and (2) the legislature did not
intend that it would have such an effect. I would therefore reverse
the trial court’s order denying Freedom Life’s motion to compel
arbitration, and I would remand this case to the trial court to grant
that motion and then to dismiss this case.
32