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The California Court of Appeal, Third Appellate District, held that the arbitration provision contained in a health care service plan’s membership agreement was unenforceable because the disclosure of the provision was not “prominently displayed” as required by Health and Safety Code section 1363.1(b) (“section 1363.1”).
Plaintiff Bernard Burks (“Burks”) sued Kaiser Foundation Health Plan, Inc. and others (“Kaiser”), contending he received “egregious treatment” while under Kaiser's care. Kaiser petitioned to compel arbitration pursuant to an arbitration clause contained in the membership agreement between Burks and Kaiser. Burks opposed the petition for arbitration on the ground that the arbitration clause was unenforceable because it was not “prominently displayed” as required by section 1363.1.
The trial court agreed with Burks and denied Kaiser’s petition to compel arbitration, finding that the arbitration clause was not prominently displayed because it was printed in the same or smaller typeface than the typeface of the remainder of the form, and was neither highlighted, bolded or italicized, nor did it have a separate heading.
The Appellate Court affirmed, concluding that the arbitration clause was not “prominently displayed” because there was nothing that made the disclosure stand out from the remainder of the form, such that it could be reasonably expected to command the notice of the person filing out the form, and rejecting Kaiser’s argument that it had substantially complied with section 1363.1.
Section 1363.1 provides that if a health care service plan requires binding arbitration to settle disputes with its members, the plan must disclose that arbitration requirement in “a separate article in the agreement issued to the employer group or individual subscriber.” In addition, the disclosure must be “prominently displayed on the enrollment form signed by each subscriber or enrollee.” A violation of section 1363.1 renders a contractually binding arbitration provision in a health service plan enrollment form unenforceable.
Kaiser argued that its arbitration clause complied with section 1363.1(b)’s requirement of prominence because of its placement immediately above Burks’s signature line. Kaiser argued further that the arbitration clause was prominently displayed because the arbitration clause and the signature line were set apart from the rest of the enrollment form.
In rejecting Kaiser’s arguments the Court relied on the maxim of statutory construction that “Courts should give meaning to every word of a statute if possible, and should avoid a construction making any word surplusage.” The Court noted that section 1363.1(d) already requires disclosure of arbitration to be “displayed.… immediately before the signature line provided for the individual enrolling in the health care service plan” and that section 1363.1(b) separately requires that the arbitration clause be displayed prominently. Accordingly, the Court reasoned that if the placement of the arbitration clause immediately before the signature line were sufficient to constitute “prominence” as required by Section 1363.1(b), there would be no reason for the Legislature to have included the signature line requirement in Section 1363.1(d).
The Court further reasoned that the legislative history of the rule further supports the conclusion that by requiring prominence in addition to placement above the signature line, the Legislature intended to require something more than placement to make the Arbitration Clause prominent. To demonstrate compliance with both statutory requirements, the health plan must be able to point to something other than the placement of an arbitration disclosure to show prominence.
Although the Court accepted the fact that the arbitration clause and the signature line were set apart from the rest of the form and therefore did not compete with non-arbitration language, the Court held that the arbitration clause nevertheless failed to command attention by standing out from its surroundings. As a result, it was not prominently displayed, because it could not reasonably be expected to command the attention of the person filling out the form.
The Court also rejected Kaiser’s argument that even if the arbitration clause did not fully satisfy the current judicial construction of Section 1363.1, it still substantially complied with the statute. The Court relied on the long-established rule that “substantial compliance … means actual compliance in respect to the substance essential to every reasonable objective of the statute, as distinguished from mere technical imperfections of form,” citing to Camp v. Board of Supervisors (1981) 123 Cal.App.3d 334, 348. The Court held that a health plan’s failure to prominently display the arbitration disclosure on its enrollment form can never be deemed a mere technical imperfection of form, because the requirement of prominence is essential to achieving the legislative purpose of Section 1363.1. Because Kaiser’s enrollment form did not prominently display the Arbitration Clause, it was in direct contravention of Section 1363.1(b) and did not substantially comply with the statute.
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This opinion is not final. It may be depublished, modified on rehearing, or review could be granted. This events would render this decision unavailable for use as legal authority.
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