Health insurance: Provider immunity

Dispute Resolution Journal, Feb-Apr 2003 by Canter, Jonathan

The 7th Circuit recently held that an arbitration provider was well within its rights to proceed with the administration of an arbitration against a company that claimed that it was not a party to an agreement to arbitrate, and that the doctrine of arbitral immunity protected the provider from liability.

International Medical Group and Sirius International Insurance Corp., its policy administrator, were named as respondents in a demand for arbitration filed with the American Arbitration Association's office in Miami. The demand sought benefits under an insurance policy between the claimant and Sirius. The insurance policy included an agreement to arbitrate, which provided in part: "If any dispute shall arise as to the amount to be paid under this insurance (liability being otherwise admitted), such dispute shall be referred to arbitration in accordance with procedures of the American Arbitration Association ...."

IMG and Sirius objected to the arbitration, arguing that the arbitration clause authorized arbitration only if liability was admitted (which was not the case here), and that arbitration could not proceed against IMG because it was not a party to the arbitration agreement. The AAA replied that the filing requirements in the AAA rules had been met, and that the AAA does not make arbitrability determinations. It further indicated that the arbitration would proceed absent an agreement of the parties or a court order staying the proceedings. IMG and Sirius brought suit in Indiana state court against the AAA, the claimant and his attorneys, and two AAA employees. IMG and Sirius alleged abuse of process, malicious prosecution, and the novel tort of "bad-faith arbitration." The case was removed to federal district court, which dismissed the claims against the AAA and its employees. IMG appealed, arguing that the AAA wrongfully exercised jurisdiction over it and that the doctrine of arbitral immunity should not protect the AAA from liability.

The 7th Circuit held that the the AAA's actions were protected by arbitral immunity. The court did not accept IMG's argument that the AAA decided the issue of arbitrability by allowing the case to proceed. The court observed that the same argument could have been made if the AAA had declined to proceed with the arbitration. The 7th Circuit noted that the AAA expressly declined to decide arbitrability, and that it proceeded with the arbitration only after determining that its filing requirements had been met, and after informing IMG that it could ask a court to determine arbitrability. The court analogized the AAA's conduct to that of a clerk of the court upon receiving a filing that complies with court rules. It went on to say, "The appropriate remedy for an administrative mistake by the AAA (but we are not finding here that the AAA erred in accepting the demand and proceeding with the arbitration) would be for the wronged party to seek injunctive relief against the party initiating the arbitration in an appropriate court. The AAA need not be a party to that action and should be spared the burden of litigating the appropriateness of its exercise of jurisdiction."

In reaching this holding the panel found that "the cases uniformly support arbitral immunity in situations such as occurred here."

International Medical Group v. American Arbitration Association, 312 F.3d 833 (7th Cir. 2002).