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MAGNANI v. BLUE CROSS OF SOUTHERN CALIFORNIA

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Court of Appeal, Second District, Division 1, California.

Leo MAGNANI, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; BLUE CROSS OF SOUTHERN CALIFORNIA, Real Party in Interest.

Civ. B006741.

Decided: April 15, 1985

Gianelli & Morris and Timothy J. Morris, Los Angeles, for petitioner. Vogt, Sanchez & Meadville and Steven A. Meadville, Encino, for real party in interest.

PROCEDURAL HISTORY

Petitioner brought an action in respondent court to recover for breach of contract, breach of implied covenant of good faith and fair dealing, breach of statutory duties, breach of fiduciary duty, and negligence.   The defendant, Blue Cross of Southern California (Blue Cross), filed a petition to compel arbitration.   After respondent court granted the petition to compel arbitration, petitioner filed in this court a petition for a writ of mandate or prohibition.   Said petition was denied by Hanson (Thaxton), Acting P.J., and Leetham, J.*  Dalsimer, J., voted to issue the alternative writ.

Thereafter, petitioner filed in the Supreme Court a petition which was virtually identical with the petition filed in this court.   The Supreme Court thereupon ordered the matter retransferred to us with directions to issue an alternative writ to be heard before this court.   Having complied with the direction of the Supreme Court, we now consider the merits of the petition.

STATEMENT OF THE CASE

The complaint filed by petitioner in respondent court concerns the failure of Blue Cross (real party in interest) to pay all of the medical expenses incurred by Lisa Magnani (Lisa), the dependent daughter of petitioner, under a group medical insurance plan offered through the petitioner's employer, Pacific Telephone.

Lisa was hospitalized for several months for a psychiatric disorder.   On March 22, 1983, Blue Cross by letter to petitioner indicated that benefits for the hospitalization of Lisa which began on December 9, 1982, would be terminated effective January 24, 1983.   This termination of benefits was based on Blue Cross' determination that Lisa's condition was no longer considered to be in the “acute phase.”   The last paragraph of the subject letter states, “If you disagree with the outcome of this review, please contact our Subscriber Service Department at (800) 382–3431.   Our representatives can inform you of the appeal procedure available to you.”

On August 10, 1983, Blue Cross forwarded to Mr. Magnani a letter virtually identical with the March 22 letter.   The only difference between the letters was that the second letter referred to a different claim number and indicated that service had been provided by the hospital to Lisa from February 2, 1983, through May 28, 1983.   Further, the August 10 letter informed Mr. Magnani that benefits would be discontinued beginning March 1, 1983.

In its petition to compel arbitration, real party in interest alleged that “[o]n at least two occassions [sic ] subsequent to the time the controversy arose Defendant advised Plaintiff, personally and through his representatives, that this controversy was subject to arbitration․”  In support of the petition to compel arbitration, Blue Cross submitted a declaration of Marlin Galbreath, “a senior in the Pacific Telephone & Telegraph Unit at Blue Cross,” who averred that he spoke with petitioner in the latter part of January or early February 1983 about Lisa's hospitalization and Blue Cross' denial of a portion of the claims relating thereto.   He went on to say, “I explained to Mr. Magnani that if he disagreed with Blue Cross' decision he could request Peer Review and/or Arbitration inasmuch as Blue Cross' Medical Review had determined that a portion of Lisa's stay was not eligible for benefits.”

On September 8, 1983, petitioner requested a peer review of the termination of benefits.   The peer review upheld real party's termination of benefits.

Attached to the petition to compel arbitration was a copy of a document entitled “Blue Cross [¶] BLUE CROSS OF NORTHERN CALIFORNIA [¶] BENEFIT CERTIFICATE.”   The benefit certificate consists of eight pages, 81/212 by 13 inches in size, and is printed mostly in 6-point type.1  The benefit certificate states in preamble, “Nonprofit Hospital Service Corporations certify that they have a Group Benefit Agreement, referred to in this Certificate as ‘the Agreement’, with the company whose name appears on the attached identification card, referred to in this Certificate as ‘the Company.’   Subject to the terms, conditions, reductions, limitations and exclusions of the Agreement, the services and benefits listed in this Certificate will be provided for the Subscriber and eligible Family Members for any covered illness, injury or condition.”

The certificate contains under the heading “GENERAL PROVISIONS” paragraph A, which states as follows:  “THIS CERTIFICATE OF COVERAGE IS NOT A GROUP BENEFIT AGREEMENT AND DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE OF THE GROUP BENEFIT AGREEMENT.   THE COVERAGE PROVIDED UNDER THE GROUP BENEFIT AGREEMENT, AND EVIDENCED BY THIS CERTIFICATE, IS SUBJECT TO ALL TERMS, CONDITIONS, REDUCTIONS, LIMITATIONS AND EXCLUSIONS OF THE GROUP BENEFIT AGREEMENT.”   The certificate also contains an arbitration provision.   The identification card to which the certificate refers is not attached to the petition to compel arbitration nor is it a part of the record herein.

Petitioner's opposition to the petition to compel arbitration objected to the court considering the benefit certificate.   In a declaration filed in opposition to that petition petitioner stated that he had never received a copy of the benefit certificate as an employee of either Pacific Telephone or Pacific Bell.   Rather, petitioner declared that he had received a document entitled “1982 Medical Expense Plan and HMO's” (the brochure), upon which he relied.   Petitioner also declared that he had never been advised that an arbitration hearing was available to him after Blue Cross had denied his claims.   He alleged that he first became aware that an arbitration hearing was available when he learned of real party's petition to compel arbitration.

The brochure, a copy of which is attached to the opposition to the petition to compel arbitration, explains the medical expense plan to which petitioner subscribed.   The brochure is 33 pages long and is printed in 10-point type except for headings that are printed in larger type.   In contrast to the benefit certificate, which is cast in legalistic and technical terms frequently employed in insurance contracts, the brochure contains explanations in ordinary, nontechnical language.

The brochure advises the reader that it is a summary plan description and that “[i]t does not attempt to cover all details.   These are contained in the master contract between Blue Cross and the Company which legally governs the operation of the Plan.   The master contract, as well as the annual report of Plan operations and Plan description are filed with the federal government.”   There is no mention in the brochure of the benefit certificate, nor does the brochure advise the employee that his rights may be subject to provisions of the benefit certificate.   Indeed, as noted, the brochure tells the employee in specific terms that the master contract between the company and the insurance carrier governs the operation of the plan.   The brochure advises the employee that, if he desires to examine the plan documents, including the contract with the insurance carrier, copies of those documents will be made available to him upon written request to the plan administrator.   The brochure further informs the employee that his employer is the plan administrator.

Significantly, the brochure tells the employee, “If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court.”   Finally, the brochure informs the employee that, if he has any questions about the medical expense plan, he should contact his employer.

Neither the “master contract” mentioned in the brochure nor the “Group Benefit Agreement” mentioned in the certificate has been made available to us.   Further, we are not even informed whether the terms “master contract” in the brochure and “Group Benefit Agreement” in the certificate refer to the same document.

After the matter was argued and taken under submission by the trial court, Blue Cross filed supplemental points and authorities in support of its petition to compel arbitration.   Attached to these supplemental points and authorities is a declaration of Herbert Wood.   Mr. Wood, in his declaration, which is dated May 2, 1984, stated that he was the Pacific Telephone and Telegraph headquarters coordinator for Blue Cross of California and had held that position for over two years;  that he was familiar with the manner in which literature and benefit agreements are issued to Pacific Telephone and Telegraph employees who are enrolled in Blue Cross;  that for at least the past three years the master agreement between Blue Cross and Pacific Telephone and Telegraph has been renewed and revised on an annual basis;  and that in each case revisions resulted in the need to issue new “Benefit Agreements” to each Pacific Telephone and Telegraph employee who was a subscriber.   Mr. Wood additionally stated that shortly after January 1 on an annual basis new Blue Cross identification cards and benefit certificates were mailed by Blue Cross directly to the address maintained in the Blue Cross membership records for each subscriber.   Petitioner interposed no objections to this declaration.

DISCUSSION

In his petition for a writ of mandate, petitioner essentially contends:  (1) that Blue Cross has expressly or impliedly waived any right to arbitration and (2) that the arbitration provision in the certificate does not include the issues raised by the underlying complaint.

 It has been held in California that the willful misconduct or bad faith of a party may constitute a waiver and justify a refusal to compel arbitration.  (See Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 426, 158 Cal.Rptr. 828, 600 P.2d 1060.)   The court stated, “Although a number of authorities properly caution that a waiver of arbitration is not to be lightly inferred [citation], our cases establish that no single test delineates the nature of the conduct of a party that will constitute such a waiver.”  (Ibid.)

 “Whether there has been a waiver of a right to arbitrate is ordinarily a question of fact, and a finding of waiver, if supported by sufficient evidence, is binding on an appellate court.  [Citations.]”  (Sawday v. Vista Irrigation Dist. (1966) 64 Cal.2d 833, 836, 52 Cal.Rptr. 1, 415 P.2d 816.)

 In both Davis and Sawday, the Supreme Court reviewed the trial court's denial of a petition to arbitrate.   In the case at bar, where the trial court ordered arbitration, we, too, are bound by the trial court's factual determination that there was no waiver if that finding is supported by sufficient evidence.   In its order granting the petition to compel binding arbitration, the court did not expressly find lack of waiver.   The court's minute order simply reads, “The Court reasons that the contract under which the plaintiff claims the rights requires binding arbitration to enforce those rights.”   We must assume, nevertheless, that the court believed the declarations of real party's witnesses and disbelieved that of petitioner.   We therefore conclude that the court found there was no waiver.   An order of the lower court is presumed correct, and all intendments and presumptions are indulged to support it on matters as to which the record is silent.  (6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 235, p. 4225.)

 Were we the triers of fact, we would afford little credence to the declaration of Mr. Galbreath, unsupported as it was by any documentary evidence, nor would we be much impressed by the rather vague and conclusional declaration of Mr. Wood.   However, our task is not to reweigh the evidence, but merely to determine if it is substantial.   It is the function of the trial court to reject testimony that it finds improbable.   An appellate court can reject testimony accepted by the trial court only when it is “ ‘wholly unacceptable to reasonable minds' [citation] [or] ‘unbelievable per se ’ [citation]․”  (Evje v. City Title Ins. Co. (1953) 120 Cal.App.2d 488, 492, 261 P.2d 279, original italics.)

We must therefore determine if, as a matter of law, the facts as impliedly found by the trial court constituted a waiver of the right to arbitrate.   If it finds such a waiver, an appellate court will conclude that the trial court abused its discretion in ordering arbitration.  (Bertero v. Superior Court (1963) 216 Cal.App.2d 213, 221–222, 30 Cal.Rptr. 719.)

 Pacific Telephone and Telegraph, the plan administrator and petitioner's employer, provided the brochure to petitioner.   By so acting, Pacific Telephone and Telegraph was the agent of real party.  “[T]he employer is the agent of the insurer in performing the duties of administering group insurance policies․  [Citations.]”  (Bass v. John Hancock Mut. Life Ins. Co. (1974) 10 Cal.3d 792, 797–798, 112 Cal.Rptr. 195, 518 P.2d 1147.)

 Mr. Galbreath's declaration discloses that he informed petitioner that petitioner “could request Peer Review and/or Arbitration inasmuch as Blue Cross' Medical Review had determined that a portion of Lisa's stay was not eligible for benefits.”   Mr. Galbreath further declares that he informed Mr. Ken Walker, vice-president of the Communications Workers of America Union, that petitioner “could choose Peer Review and/or Arbitration to have his claims resolved.”  (Italics added.)

Petitioner's rights are explained diversely by Blue Cross' agent, Mr. Galbreath, by the brochure presented to petitioner by Blue Cross, and by the certificate, which the trial court impliedly found was forwarded to petitioner by Blue Cross.   To some extent these diverse explanations are mutually contradictory.   As mentioned, the brochure advises that a suit may be brought in court, the certificate provides for arbitration, and the Galbreath declaration speaks of a choice of peer review and/or arbitration.   The ambiguity produced by these differing provisions is compounded by Mr. Galbreath's use of the words “request Peer Review and/or Arbitration” and “choose Peer Review and/or Arbitration.”

Our Supreme Court has indicated disapproval of the conjunctive-disjunctive amorphism employed here by Mr. Galbreath.  (In re Bell (1942) 19 Cal.2d 488, 499–500, 122 P.2d 22.)   After citing many authorities that have criticized the term, the court stated, “It is true that the expression has proved convenient in contracts and other instruments where, by its intentional equivocation, it can anticipate alternative possibilities without the cumbersome itemization of each one.  [Citations.]  It lends itself, however, as much to ambiguity as to brevity.”  (Ibid.)

It has long been established that any ambiguity or uncertainty in policies of insurance will be resolved against the insurer.2  (Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437, 296 P.2d 801.)   Indeed, Civil Code section 1654 provides, “In cases of uncertainty not removed by the preceding rules [for the interpretation of contracts], the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.”   Further, several writings between the same parties and part of the same transaction are to be construed together.  (Civ.Code, § 1642.)

While the statement made by real party's representative in explaining petitioner's remedies to him is not a contract, principles of contract interpretation should be employed for the purpose of determining whether the statement constituted a waiver of a contract provision.   The uncertainty was caused by real party acting through its agent, Mr. Galbreath.   His characterization of petitioner's rights as choosing peer review and/or arbitration clearly implied that, if peer review was the choice, arbitration would not be required.   This oral advisement by real party, taken together with the conflicting advisements of the brochure and the certificate, must be construed in favor of the insured.   That is, the doubt created by the use of the amorphism “and/or” must be resolved by interpreting Mr. Galbreath's statement as an offer to choose between two alternatives.   While it is possible that the offer could be construed as allowing petitioner to elect both peer review and arbitration, there is no indication that, if he chose one, real party would reserve the right to thereafter pursue the other.   Nor was petitioner told that, if he elected peer review, as he did, he would lose the right to have a judicial resolution of his controversy, a right outlined in the brochure.   There is no mention of peer review in the certificate or in the brochure, and there is no indication in the record herein as to any of the incidents or effects of peer review.

In sum, we hold that the ambiguity of the expression “and/or” used by the agent of real party in explaining to petitioner the rights he had upon the termination of his benefits must as a matter of law be resolved in favor of the insured.   Therefore, an opportunity to “choose peer review and/or arbitration” must be construed to mean an opportunity to select one to the exclusion of the other.   For this reason, we hold that the trial judge abused his discretion in ordering arbitration.

 Moreover, the record is barren of evidence that petitioner is in any way bound by the certificate.   As indicated, there is no mention in the brochure supplied to petitioner by Blue Cross that his rights will be governed by any provisions other than those found in the “Plan documents” or the “master contract.”   The certificate supplied by Blue Cross to petitioner has no internal indicia connecting it to the brochure supplied to petitioner or to the plan documents referred to in the brochure.   There is nothing in the record to indicate that Blue Cross even attempted to notify petitioner when it forwarded to him the lengthy, wordy certificate that this legalistic document made drastic changes in the rights of enforcement of his medical expense plan as explained in the brochure.   There is no evidence that petitioner accepted the terms of the certificate;  to the contrary, he denied ever receiving it.   The certificate, never having been authenticated, was irrelevant to the inquiry.

As the record does not establish that the trial court was furnished a copy of the “master contract,” there is no basis for the trial court's reasoning “that the contract under which the plaintiff claims the rights requires binding arbitration to enforce those rights.”   The only “contract” properly before the court, the brochure, does not provide for arbitration.

Let a peremptory writ of mandate issue ordering the trial court to vacate its order granting the motion to compel arbitration and to enter a new and different order denying the motion.

I respectfully dissent.   I would deny the writ.

I agree with the majority opinion that this court is bound by the superior court's finding, as a question of fact, that there was no waiver of its right for arbitration by Blue Cross of Southern California (Blue Cross).

However, I disagree with the majority opinion's conclusion that the writ should be granted as a matter of law simply because of the perceived ambiguity of the expression “and/or ” used by Marlin Galbreath when he personally advised Mr. Magnani that he (Magnani) could contest Blue Cross' denial of a portion of his claim by requesting “peer review and/or arbitration.”

My analysis of the factual background of the case at bench compared with that in Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 158 Cal.Rptr. 828, 600 P.2d 1060, combined with the rationale for its holding explained in Davis, and the teachings of Keating v. Superior Court (1982) 31 Cal.3d 584, 183 Cal.Rptr. 360, 645 P.2d 1192, reversed in part on other grounds sub nom. Southland Corp. v. Keating (1984) 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1, compels a denial of the writ.   My reasons follow:

BACKGROUND

On December 29, 1983, Leo Magnani, petitioner herein, filed a complaint in superior court naming Blue Cross as a defendant.   The complaint alleges five causes of action, including one based on an alleged Breach of Implied Covenant of Good Faith and Fair Dealing, seeking special, general and punitive damages.

On March 28, 1984, Blue Cross filed a “Petition to Compel Arbitration [C.C.P. §§ 1281.2, 1290 et seq.].”  The petition was supported by “Benefit Certificate No. 2513” (policy) which was in full force and effect at all times herein mentioned.   The Policy contained the following provision, headed in bold block type, with the words “ARBITRATION PROVISION”:

“A. An initial determination will be made by Blue Cross as to whether services and benefits were medically necessary or whether the care or treatment of an illness, injury or condition was in accordance with standard medical practice.   BLUE CROSS will also determine if any of the terms, conditions, reductions, limitations, or exclusions apply so as to exclude or reduce services or benefits which would otherwise be provided under the Agreement.

“B. The Member and Blue Cross agree that any dispute over the initial determination will be submitted to binding arbitration.   The scope of that arbitration will be limited to a determination of whether, or to what extent, benefits specified in the Agreement are payable with respect to the claim or claims in dispute.

“C. The arbitration will be initiated by the Member making written demand on Blue Cross.

“D. The arbitration will be held before a designated neutral arbitrator appointed under the auspices of the county medical association of the county in which the services and benefits were provided.   In the event the county medical association declines or is unable to designate an arbitrator, the arbitrator will be appointed by the superior court having jurisdiction of the matter according to California Code of Civil Procedure Section 1281.6.”

In support of its Petition to Compel Arbitration, Blue Cross filed a declaration (under penalty of perjury) by Marlin Galbreath, a senior in the Pacific Telephone & Telegraph (PT & T) unit of Blue Cross of California, which, in pertinent part, states:

“3. In the latter part of January or early February 1983, I spoke with Leo Magnani about his daughter, Lisa's hospitalization at College Hospital and Blue Cross' denial of a portion of the claim relating thereto.  [¶] 4.   I explained to Mr. Magnani that if he disagreed with Blue Cross' decision he could request Peer Review and/or Arbitration inasmuch as Blue Cross' Medical Review had determined that a portion of Lisa's stay was not eligible for benefits.   [¶] 5.  ․ [¶] 6.   Mr. Magnani said he would seek Peer Review and I told him Blue Cross would need a signed request from him.  [¶] 7.   I also recall speaking with Ken Walker, Vice President of the Communications Workers of America Union in late January or early February 1983 about Mr. Magnani's claims.  [¶] 8.   I informed Mr. Walker that Mr. Magnani could choose Peer Review and/or Arbitration to have his claims resolved.  [¶] 9.   Mr. Walker stated that Mr. Magnani did not want to go to Arbitration because if he lost he would then have no other recourse.   He said that Mr. Magnani would go the legal route․”

The Declaration of Herbert Wood (under the penalty of perjury) was also filed in support of Blue Cross' Petition to Compel Arbitration.   Mr. Wood's declaration, in pertinent part, states:

“2. I am the PT & T Headquarters Coordinator for Blue Cross of California and have held that position for over 2 years.   In that capacity, I have become familiar with the manner in which literature and Benefit Agreements are issued to PT & T employees who are enrolled with Blue Cross.  [¶] 3.   For at least the past three years, the Master Agreement between Blue Cross and Pacific Telephone and Telegraph has been renewed and revised on an annual basis.   In each case, the revisions have resulted in the need to issue new Benefit Agreements to each PT & T employee who was a subscriber under the Blue Cross Plan.  [¶] 4.   Therefore, shortly after January 1, on an annual basis, new Blue Cross identification cards and Benefit Certificates were issued to each PT & T Blue Cross subscriber.   The identification cards and attendant Benefit Certificates were mailed by Blue Cross directly to the address maintained in the Blue Cross membership records for each subscriber.”

The record contains copies of two letters from Blue Cross to Mr. Magnani at his home;  one dated March 22, 1983 and the other dated August 10, 1983.   These letters advised Mr. Magnani of the results of Blue Cross review and terminating benefits as of January 24, 1983.   These letters contained the following paragraph:  “If you disagree with the outcome of this review, please contact our Subscriber Service Department at (800) 382–3431.   Our representatives can inform you of the appeal procedure available to you.”

Declarations of Mr. Magnani's oppositions to Blue Cross' Petition to Compel Arbitration denied ever seeing the Benefit Certificate (policy), and denied that he was ever advised that an arbitration hearing was available after Blue Cross denied his claims, and the first time he became aware that an arbitration hearing was available was when he learned of Blue Cross' Petition to Compel Arbitration.   Mr. Magnani's counsel, by declaration, asserts he never saw the Blue Cross policy, never received a request to stay the action pending arbitration, and granted extensions of time to respond to plaintiff's complaint.   Both Mr. Magnani and his counsel stated they received a brochure which stated that legal action could be filed in either state or federal court in the event of a dispute over benefits.

On June 14, 1984, Honorable Daniel Fletcher (Judge presiding, dept. NEC), having heard oral argument, and read and considered all points and authorities and declarations, granted Blue Cross' Petition to Compel Binding Arbitration and referred the matter to arbitration.

Plaintiff Magnani filed a “Petition for Writ of Mandate and/or Prohibition” which, as noted in the majority opinion, was denied (Hanson (Thaxton), A.P.J. and Leetham, J.;*  Dalsimer, J. voted to issue the alternative writ).

On September 27, 1984, the state Supreme Court transferred this matter to that court and then, in the same order, retransferred it back to this court with directions to issue an alternative writ and conduct a hearing before this court, citing Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 430–431, 158 Cal.Rptr. 828, 600 P.2d 1060.   It is clear that by citing Davis the Supreme Court in no way intended to indicate the ultimate disposition of this case since the Court of Appeal is a constitutionally created, independent, court of review.

THE DAVIS CASE

The case of Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 158 Cal.Rptr. 828, 600 P.2d 1060, involved consolidated class actions by insureds against Blue Cross of Northern California.   The trial court denied the insurer's request to submit the disputes to a medical arbitration panel, concluding that the insurer had breached its duty of good faith and fair dealing to its insureds and had consequently waived its right to demand arbitration by failing to apprise its insureds at the time it rejected their claims either of the availability of arbitration or the procedure by which the insureds could initiate arbitration.   The trial court found that by virtue of the obscure placement and ambiguous wording of its arbitration clause, the insurer had reason to know that its insureds would frequently be unaware of their right to arbitration or of the procedures by which it could be initiated, and, despite such knowledge, had not taken any steps to apprise its insureds of such arbitration procedure.

The state Supreme Court in Davis, in affirming the trial court's order, stated at pages 430–431, 158 Cal.Rptr. 828, 600 P.2d 1060:

“These statutes reflect the Legislature's recognition that an important component of any insurance arbitration procedure is a requirement that insureds be given timely and meaningful notice of the procedure so that they can realistically resort to arbitration if they decide to do so.  (Cf. Health & Saf.Code, § 1368, subds. (b) and (c).)

“The trial court in the instant case found that Blue Cross knew that in many instances its insureds would not be aware of the arbitration clause and that, despite this knowledge, Blue Cross deliberately decided not to inform its insureds of the arbitration procedure.   In this context, the practical effect of the insurer's practice was to transform its arbitration clause into a unilateral provision, establishing a procedure to which the insurer could require its insureds to resort when Blue Cross deemed it advisable, but one that would not generally provide a speedy, economic or readily accessible remedy for the bulk of Blue Cross' uninformed insureds.

“We think the trial court was fully justified in finding that Blue Cross had breached its duty of good faith and fair dealing in adopting such a course of conduct.   Blue Cross clearly was not giving its insureds' interests ‘as much consideration ․ as ․ its own’ in failing to advise them of their rights to demand arbitration of any disagreement with the insurer.   Having rejected plaintiffs' claims without so much as calling to their attention their potential remedy of arbitration and having thereby compelled plaintiffs to resort to litigation, Blue Cross is now hardly in a position to reverse itself and to invoke the arbitration process which it left to repose in plaintiffs' dark ignorance.  (Fn. omitted.)

“In view of the importance of timely advice of arbitrability to the basic fairness of the arbitration process, we conclude that the trial court properly determined that by its action Blue Cross waived or forfeited any right subsequently to compel its insureds to submit their disputes to arbitration.”

THE KEATING CASE

In Keating v. Superior Court, supra, 31 Cal.3d 584, 183 Cal.Rptr. 360, 645 P.2d 1192, the state Supreme Court summarized, generally, controlling decisional law in respect to claims of waiver of right to arbitration.   The Keating court said at pages 604–606, 183 Cal.Rptr. 360, 645 P.2d 1192:

“The law in this area is rather well defined.   Arbitration is strongly favored.   Courts will closely scrutinize any claims of waiver (Gavlik Const. Co. v. H.F. Campbell Co. (3d Cir.1975) 526 F.2d 777, 783;  Seidman & Seidman v. Wolfson (1975) 50 Cal.App.3d 826, 835 [123 Cal.Rptr. 873];  9 U.S.C. § 3;  Code Civ.Proc., § 1281.2, subd. (a)), and ‘indulge every intendment to give effect to such proceedings.’  (Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9 [129 Cal.Rptr. 489].)'  (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d 180, 189, 151 Cal.Rptr. 837, 588 P.2d 1261.)   Moreover, the burden of proof is ‘heavy’ and rests on the party seeking to establish waiver (Martin Marietta Aluminum, Inc. v. General Elec. Co. (9th Cir.1978) 586 F.2d 143, 146;  General Guar. Ins. Co. v. New Orleans General Agency, Inc. (5th Cir.1970) 427 F.2d 924, 929, fn. 5) which ‘is not to be lightly inferred.’  (Gavlik Const. Co. v. H.F. Campbell Co., supra, 526 F.2d at p. 783;  Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 426 [158 Cal.Rptr. 828, 600 P.2d 1060].)

“The trial court here found no waiver.   Because the question of waiver is one of fact, we have noted that the ‘determination of this question, if supported by substantial evidence, is binding on an appellate court.  [Citation.]  ․ [It is only] in cases where the record before the trial court establishes a lack of waiver as a matter of law, [that] the appellate court may reverse a finding of waiver made by the trial court.’  (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 185, 151 Cal.Rptr. 837, 588 P.2d 1261;  see Reid Burton Const. v. Carpenters Dist. Council, etc. (10th Cir.1980) 614 F.2d 698, 703, cert. den. (1980) 449 U.S. 824 [101 S.Ct. 85, 66 L.Ed.2d 27] [adopting a ‘clearly erroneous' standard of review].)

“We have recently acknowledged that while there is no ‘single test’ in establishing waiver, the relevant factors include whether the party seeking arbitration (1) has ‘previously taken steps inconsistent with an intent to invoke arbitration,’ (2) ‘has unreasonably delayed’ in seeking arbitration, (3) or has acted in ‘bad faith’ or with ‘wilful misconduct.’  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d at pp. 425–426, 158 Cal.Rptr. 828, 600 P.2d 1060;  see Germany v. River Terminal Railway Company (6th Cir.1973) 477 F.2d 546, 547.)   We have stressed the significance of the presence or absence of prejudice.   Waiver does not occur by mere participation in litigation;  there may be ‘judicial litigation of the merits of arbitrable issues' (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 188, 151 Cal.Rptr. 837, 588 P.2d 1261), although ‘waiver could occur prior to a judgment on the merits if prejudice could be demonstrated’ (id., at p. 188, fn. 3, 151 Cal.Rptr. 837, 588 P.2d 1261).   This result is fully consistent with federal cases which have held that ‘as an abstract exercise in logic it may appear that it is inconsistent for a party to participate in a lawsuit for breach of a contract, and later to ask the court to stay that litigation pending arbitration.   Yet the law is clear that such participation, standing alone, does not constitute a waiver [citations], for there is an overriding federal policy favoring arbitration․  [M]ere delay in seeking a stay of the proceedings without some resultant prejudice to a party [citation], cannot carry the day.’  (Carcich v. Rederi A/B Nordie (2d Cir.1968) 389 F.2d 692, 696;  see Shinto Shipping Co. v. Fibrex & Shipping Co., Inc. (9th Cir.1978) 572 F.2d 1328, 1330.)”  (Emphasis in original.)

THE CASE AT BENCH

Here, the hospitalization insurer (Blue Cross of Southern California) incorporated into its Benefit Certificate (Policy) an arbitration clause which, unlike in Davis, was not obscure or ambiguous but was clear, plain and conspicuous.   Nor does petitioner herein contend that the arbitration provision in the policy was obscure or ambiguous.   The Declaration of Herbert Wood shows that on or about January 1, 1982 and January 1, 1983, a Blue Cross identification card and policy containing the “Arbitration Provision” was mailed directly to the address maintained in the Blue Cross membership records for each PT & T employee enrolled with Blue Cross.

Indeed, the court below, by implication, found, as question of fact, that Mr. Magnani was mailed and presumably received the policy containing the “Arbitration Provision.”   While no further notice is required, the record is clear that Mr. Magnani received additional verbal notice of the availability of recourse via “peer review and/or arbitration.”

The Declaration of Marlin Galbreath, in support of Blue Cross' Petition to Compel Arbitration, discloses that in late January or early February 1983, Mr. Galbreath, a senior in the Pacific Telephone and Telegraph unit at Blue Cross, spoke with Mr. Magnani about his daughter's hospitalization at College Hospital and Blue Cross' denial of a portion of the claim relating thereto.   Mr. Galbreath informed Mr. Magnani that Blue Cross' medical review had determined that a portion of his daughter's stay was not eligible for benefits and that if Mr. Magnani disagreed with Blue Cross' decision, he could request peer review and/or arbitration.   Moreover, the record further shows that in letters dated March 23, 1983 and August 10, 1983, Mr. Magnani was advised by Blue Cross that if he disagreed with Blue Cross' decision regarding denial of benefits, he should contact the Blue Cross Subscriber Service Department which would inform him of the appeal procedure available to him.

Thus, unlike in Davis, the record shows Mr. Magnani had actual timely notice of the rejection of a portion of the claim and was also timely advised of the availability, not only of arbitration but also of peer review, and by letter on two separate occasions invited Mr. Magnani to contact their office for details on procedures.

As explained in Keating, supra, there is no “single test” in establishing waiver of right to arbitration, and that the relevant factors include whether the party seeking arbitration (here Blue Cross) (1) has previously taken steps inconsistent with an intent to invoke arbitration;  (2) has unreasonably delayed in seeking arbitration;  (3) has acted in bad faith or with wilful misconduct;  and (4) finally, great significance is placed on the presence or absence of prejudice.

Applying the foregoing relevant factors to the case at bench, the record shows 1) that Blue Cross took no steps inconsistent with an intent to invoke arbitration;  2) that Blue Cross did not unreasonably delay in seeking to compel arbitration;  3) that there is no showing that Blue Cross acted in bad faith or with wilful misconduct;  and 4) there is no showing whatsoever that Mr. Magnani has been prejudiced.

Here, the record shows that Mr. Magnani's claim was in fact submitted to “peer review”;  that the peer review group upheld Blue Cross' determination as to the amount of benefits due under Mr. Magnani's claim;  that Mr. Magnani then filed the superior court action;  and that when Blue Cross seeks arbitration under the policy, Mr. Magnani seizes upon Mr. Galbreath's statement that he could “request peer review and/or arbitration” as a basis to deny Blue Cross its right to arbitration.   An argument could be made by Blue Cross that Mr. Magnani is bound by the “peer review” finding which found in favor of Blue Cross except for the conjunctive word “and” which preserved for Mr. Magnani a second bite at the apple by way of arbitration.   Thus construing the “and/or” in favor of Mr. Magnani, he is afforded, in the alternative, either peer review or arbitration, and, if unsatisfied with the result of his first choice, he could try again via the other alternative route.

The “basic fairness” referred to in Davis, supra, is a two-way street.   Blue Cross should not be penalized and deprived of its right to arbitration because it gave Mr. Magnani the flexibility of two courses of action for recourse (peer review and/or arbitration), thus affording him a second bite at the apple if he was not satisfied with the result of his first election.

The case of In re Bell (1942) 19 Cal.2d 488, 122 P.2d 22, cited in the majority opinion as authority for disfavor of the expression “and/or” is grossly factually distinguishable and not dispositive of the case at bench.1

By reason of the foregoing, the majority opinion's conclusion, as a matter of law, that the ambiguity in the expression “and/or” compels a granting of the writ is based on the slenderest of flimsy reeds.   It is clearly overborne by the rationale in Davis and the resolution of the “relevant factors” listed in Keating, supra, in favor of Blue Cross, (as hereinbefore discussed) coupled with the strong well-established policy favoring arbitration.  (See Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 479, 121 Cal.Rptr. 477, 535 P.2d 341.)

I would deny the writ.

FOOTNOTES

FOOTNOTE.   Assigned by the Chairperson of the Judicial Council.

1.   Our research finds no statutes regulating legibility of contracts that permit the use of type smaller than 8 points.  (Cf., e.g., Civ.Code, § 1630 [not less than 8 points];  Ins.Code, § 6020 [not less than 12 points];  Ins.Code, § 10320 [not less than 10 points];  Ins.Code, § 11512 [“not smaller than 10 points”];  and Ins.Code, § 392 [“at least eight-point blackface type”].)

2.   Recognizing that the medical expense plan to which petitioner subscribed is technically not an insurance policy, we nevertheless apply the rules used in interpreting insurance policies in the interests of both fairness and pragmatism.   Blue Cross refers to itself in the brochure as the “insurance carrier,” and it speaks of “the total premium” and of the “insurance contract.”   Only the esoteric are aware that Blue Cross is not an “insurance” company.

FOOTNOTE.   Assigned by the Chairperson of the Judicial Council.

1.   The Bell court was faced with a habeas corpus proceeding to determine the constitutionality of an anti-picketing ordinance under which petitioners, members of a labor union, had been convicted.   Petitioners were convicted under a complaint which charged them both in the conjunctive and disjunctive [“and/or”] with violation of each section of an anti-picketing ordinance prohibiting both peaceful picketing and picketing by acts of violence.   Petitioners contended that since the conviction upon charges of peaceful picketing would be an infringement of their constitutional rights, the entire conviction was invalid.The Bell court acknowledged that “It is true that the expression [“and/or”] has proved convenient in contracts and other instruments where, by its intentional equivocation, it can anticipate alternative possibilities without the cumbersome itemization of each one.   [Citations.]”  However, the Bell court held because of its ambiguity “[I]t cannot intelligibly be used to fix the occurrence of past events․  If a person is accused of violating an unconstitutional as well as a constitutional provision of a statute and the verdict by the use of “and/or” declares him guilty of violating either one or both provisions, it is an open question whether he is guilty of any punishable offense.”   (Id., at p. 500, 122 P.2d 22.)The distinguishing features between In re Bell, a criminal case, and the instant civil action are obvious.It is further noted the Bell court, irrespective of the “and/or” charge, nevertheless discharged the writ previously issued and ordered the petitioners remanded to custody because they had failed to sustain the burden of proving that they were not convicted of the one valid provision of the ordinance prohibiting acts of violence.

DALSIMER, Associate Justice.

SPENCER, P.J., concurs.

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