Yogi v. HAWAII MEDICAL SERVICE ASS'N

FOR PUBLICATION IN WEST'S HAWAI‘I REPORTS AND PACIFIC REPORTER

IN THE INTERMEDIATE COURT OF APPEALS

oF THE STATE oF HAWAI‘I
---o0o---

BERT YOGI and DARNELL YOGI,
Plaintiffs-Appellees
v.
HAWAlI MEDICAL SERVICE ASSOClATION,
Defendant-Appellant
and
JOHN DOES l~99, JANE DOES l-99, DOE ENTITIES
l-20, AND DOE GOVERNMENTAL UNITS l-lO,
Defendants `

98 =9 ¥%‘J LZ §IIW B!UZ

NO. 29l45

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
- (CIVIL NO. 08-l-Ol47)

AUGUST 27, 2010

NAKAMURA, CHIEF JUDGE, FOLEY, and GINOZA, JJ.

OPINION OF THE COURT BY GINOZA, J.

Defendant-Appellant Hawaii Medical Service Association

appeals from the Order Denying HMSA's Motion to Compel
2008 in the Circuit Court

(HMSA)
Arbitration

of the First Circuit
below, HMSA sought to compel arbitration of claims brought by
(the Yogis) for

(Order) filed on April 9,
(circuit court).l By way of its motion

Plaintiffs-Appellees Bert Yogi and Darnell Yogi
bad faith, intentional infliction of

(IIED), and negligent infliction of emotional
allegations

breach of contract,

emotional distress
distress (NIED). These claims stem from the Yogis'
that, over a period of time, HMSA denied and delayed coverage for

a medical procedure recommended by Bert Yogi's physician.

1 The Honorable Sabrina S. McKenna presided.

GE"!L£

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On appeal, HMSA contends the circuit court erred in
denying its motion to compel arbitration because the Yogis'
claims are within the scope of an arbitration provision contained
in an HMSA Preferred Provider Plan. For the reasons set forth
below, we conclude that the circuit court was correct in denying
HMSA's motion to compel arbitration.

I. Background y
A. Request For Preauthorization of Medical Procedure

The parties do not dispute the facts in this case. In
l997, while working, Bert Yogi (Mr. Yogi) sustained injuries to
his shoulder, neck, and back which resulted in multiple surgeries
between 1998 and mid-2003. Over the years, Mr. Yogi received
various medications to alleviate the pain.

In February 2005, while Mr. Yogi was enrolled in HMSA's
Preferred Provider Plan for Hawaii Employer-Union Health Benefits
Trust Fund (Plan), his physician, Dr. Endicott, submitted a
preauthorization request to HMSA for an intrathecal infusion pump
to treat Mr. Yogi.2 HMSA denied coverage, initially on the basis
that Mr. Yogi was covered by workers' compensation insurance and
then later, after being informed the workers' compensation
insurer had denied coverage, on the basis that, inter alia, the
intrathecal infusion pump was not medically necessary.

In June 2005, Dr. Endicott requested that HMSA
reconsider its denial of preauthorization for the intrathecal
infusion pump. HMSA upheld its denial.

In January 2006, Mr. Yogi appealed HMSA's denial under
an internal appeal process set out in the Plan. Later that

month, HMSA issued its internal appeal decision denying coverage,

2 HMSA states that "[a]n intrathecal pump consists of a programmable
pump that is surgically implanted in the abdominal area and connected to a
catheter that is inserted into the intrathecal space of the spine. The pump
sends morphine directly into the cerebr0spinal fluid that surrounds the spinal
cord. The morphine blocks the neurotransmitters that the brain perceives as

pain."

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In February 2006, Mr. Yogi sought external review by
initiating a proceeding with the Hawafi Insurance Commissioner.
Such external review was provided for under the terms of the
Plan, as required pursuant to Hawaii Revised Statutes (HRS) §
432E-6 (2005 Repl.). A hearing was held before a three-member
panel selected by the Insurance Commissioner and, in July 2006,
the Insurance Commissioner issued a decision reversing HMSA's
denial of coverage for the intrathecal infusion pump. Mr. Yogi
thereafter underwent the procedure for placement of the
intrathecal infusion pump.

B. The Instant Lawsuit

On January 23, 2008, the Yogis initiated this action in
the circuit court, alleging that HMSA acted unreasonably,
wantonly, and oppressively in denying the preauthorization
request for the intrathecal infusion pump. In their complaint,
the Yogis assert claims for breach of contract, bad faith, IIED
and NIED, and seek damages.

On February l3, 2008, HMSA filed a Motion to Compel
Arbitration. After a hearing on March l8, 2008, the circuit
court issued its April 9, 2008 Order denying the motion, stating

in relevant part:

Defendant failed to identify any provision in the Plan for
disputes involving bad faith claims, and a provision for
further remedies such as those Plaintiffs are pursuing in
this case is also absent from the clause pertaining to a
review by the panel. Chapter 8 of the Plan does not,
therefore, mandate arbitration of Plaintiffs' claims herein.

On May 7, 2008, HMSA filed a Notice of Appeal from the
Order denying the motion to compel arbitration.
II. Standards of Review

A. Motion to Compel Arbitration

We review a ruling on a motion to compel arbitration de
novo and based on the same standards that apply to a summary
judgment ruling. The Hawafi Supreme Court has articulated the

applicable standards as follows:

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The trial court can only decide, as a matter of law, whether
to compel the parties to arbitrate their dispute if there is
no genuine issue of material fact regarding the existence of
a valid agreement to arbitrate. See Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir.1980).
Therefore, we hold that the standard of review applicable to
the trial court's decision in this case should be that which
is applicable to a motion for summary judgment. Accordingly,
we review this case de novo, using the same standard
employed by the trial court and based upon the same
evidentiary materials "as were before [it] in determination
of the motion."

Koo1au Radio1oqV, Inc. v. Queen's Medical Center, 73 Haw. 433,
439-40, 834 P.2d 1294, 1298 (1992) (citations omitted). §§§
also, Brown v. KFC Nat'1 Mqmt. Co., 82 Hawafi 226, 231, 921 P.2d
146, 151 (l996); Peters v. Aipa, 118 HawaiT.308, 312-13, 188
P.:zd 322, 326-27 (App. 2008).
B. Contract Interpretation
The standard of review applicable to the circuit

court's interpretation of the arbitration agreement is as

follows:

As a general rule, the construction and legal effect
to be given a contract is a question of law freely
reviewable by an appellate court. The determination whether
a contract is ambiguous is likewise a question of law that
is freely reviewable on appeal. These principles apply
equally to appellate review of the construction and legal
effect to be given a contractual agreement to arbitrate.

Brown, 82 Hawai‘i at 239, 921 P.2d at 159 (internal quotation
marks and citations omitted).
III. Discussion
As set forth by the Hawai‘i Supreme Court:

"when presented with a motion to compel arbitration, the
court is limited to answering two questions: 1) whether an
arbitration agreement exists between the parties; and 2) if
so, whether the subject matter of the dispute is arbitrable
under such agreement.“ Koblau Radiology, Inc. v. Queen's
Med. Ctr., 73 HaW. 433, 445, 834 P.2d 1294, 1300 (1992); see
also Luke v. Gentry Realty, Ltd., 105 Hawafi 241, 247, 96
P.3d 26l, 267 (2004) ("Even though arbitration has a
favored p1ace, there still must be an underlying agreement
between the parties to arbitrate." (Citation and internal
quotation marks omitted.)).

Hawaii Medica1 Ass'n v. Hawaii Medical Service Ass'n, 113 HawaiU.
77, 91, 148 P.3d 1179, 1193 (2006).

FOR PUBLICATION IN WEST'S HAWAI‘I REPORTS AND PACIFIC REPORTER

Here, there is no dispute that an arbitration provision
is contained as part of Chapter 8 of the Plan. The crux of this
case, therefore, is whether the claims asserted by the Yogis in
this action come within the scope of that arbitration provision.
Because there are no genuine issues of material fact and the
issue presented turns on contract interpretation, we decide the
issue on appeal as a matter of law.

A. The Relevant Provisions Of The Plan

Given that our "principal objective is to ascertain and
effectuate the intention of the parties as manifested by the
contract in its entirety", §rgwn, 82 Hawai‘i at 240, 921 P.2d at
160 (citation omitted), and to give proper context to the
arbitration provision in this case, we set out all of the

pertinent parts of Chapter 8 of the Plan.
Chapter 8: Dispute Resolution

Your Request for an Appeal

Writing Us to Request an Appeal

If you wish to dispute a determination made by HMSA related
to coverage, reimbursement, any other decision or action by
HMSA, or any other matter related to this Aqreement, you
must request an appeal. Your request must be in writing
unless you are requesting an expedited appeal. We must
receive it within one year from the date of the action or
decision you are contestinq. In the case of coverage or
reimbursement disputes, this is one year from the date we
first informed you of the denial or limitation of your
claim, or of the denial of coverage for any requested
service or supply.

We will respond to your appeal within 60 calendar days of our
receipt of your appeal.

Expedited Appeal w
You may request expedited appeal if application of the time
periods for appeals above may:

l Seriously jeopardize your life or hea1th,

l Seriously jeopardize your ability to gain maximum
functioning, or

l Subject you to severe pain that cannot be adequately

managed without the care or treatment that is the
subject of the appeal.

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What Your Request Mnst Include
To be recognized as an appeal, your request must include all
of the following information:

l The date of your request.
l Your name.
l The date of the service we denied or date of the

contested action or decision (or in the case of
precertification for a service or supply, the date of
our denial of coverage for such service or supply).

l The subscriber number from your member card.
l The provider name.
l A description of facts related to your request and why
you believe our action or decision was in error.
l Any other information relating to your appeal

including written comments, documents, and records you
would like us to review.

If You Disagree with Our Appeal Decision

Request for Arbitration

If you disagree with HMSA's appeals decision, you must
either 1) request arbitration before a mutually selected
arbitrator, or 2) request a review by a panel appointed by
the Hawaii State Insurance Commissioner.

. . You must have fully complied with HMSA's appeals
procedures described above and we must receive your request
for arbitration within one year of the decision rendered on
appeal. In arbitration, one person (the arbitrator) reviews
the positions of both parties and makes the final decision
to resolve the disagreement. No other parties may be joined
in the arbitration. The arbitration is binding and the
parties waive their right to a court trial and jury.

. The questions for the arbitrator shall be whether we
were in violation of law, or acted arbitrarily,
capriciously, or in abuse of our discretion. The
arbitration shall be conducted in accord with the Federal
Arbitration Act, 9 U.S.C. §1 et seq., and such other
arbitration rules as both parties agree upon.

Request for Review by Insurance Commissioner

You may request review by a panel selected by the Hawaii
Insurance Commissioner by submitting a request for review
within 60 days of the date of HMSA's appeals decision to the
Insurance Commissioner at:

If your request for review is accepted by the Commissioner,
the Commissioner will appoint a three member panel composed
of a representative from another health plan, a provider not
involved in your care, and a representative from the
Commissioner‘s office. A hearing will be conducted within

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60 days and the panel will issue a decision within 30 days
of the hearing.

You may request expedited review by the Insurance
Commissioner if application of the above time frames may:

l Seriously jeopardize your life or health,

l Seriously jeopardize your ability to gain maximum
functioning, or

l Subject you to severe pain that cannot be adequately

managed without the care or treatment that is the
subject of the appeal.

(Emphasis added.)
In addition to the above, Chapter 10 of the Plan
contains a provision that the Yogis contend is relevant. lt

states:

Chapter 10: General Provisions

Dues and Terms of Coverage

Governing Law

To the extent not superseded by the laws of the United
States, this coverage will be construed in accord with and
governed by the laws of the state of Hawaii. Any action
brought because of a claim aqainst this coverage will be
litiqated in the state or federal courts located in the
state of Hawaii and in no other.

(Emphasis added.)
B. Scope Of The Arbitration Provision

The Hawafi Supreme Court has stated:

"Although the public policy underlying Hawafi law
strongly favors arbitration over litigation, the mere
existence of an arbitration agreement does not mean that the
parties must submit to an arbitrator disputes which are
outside the scope of the arbitration agreement." Brown v.
KFC Nat'l Mgmt. Co., 82 Hawai‘i 226, 244, 921 P.2d 146, 164
(1996) (citation and internal quotation marks omitted).
"What issues, if any, are beyond the scope of a contractual
agreement to arbitrate depends on the wording of the
contractual agreement to arbitrate." Rainbow Chevrolet,
Inc. v. Asahi Jyu)<en (USA), Inc., 73 Hawai‘i 107, 113, 390
P.2d 694, 700 (App.1995), superseded by statute as stated
in, Ueoka v. Szymanski, 107 Hawai‘i 386, 114 P.3d 892 (2005)
(emphasis added).

Hawaii MediCal ASS'n, 113 HaWafi at 92, 148 P.3d at 1194

(emphasis in original).

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Particularly important in this case, "a contract
'should be construed as a whole and its meaning determined from
the entire context and not from any particular word, phrase, or
clause.'" Hawaii Medical Ass'n, 113 Hawafi at 92, 148 P.3d at
1194 (quoting Hawaiian Isles Enters., Inc. v. City & County of
HOnO1ulu, 76 HawaFi 487, 491, 879 P.2d lO70, 1074 (1994)).
Further, "in interpreting contracts, ambiguous terms are
construed against the party who drafted the contract." Luke v.
GentrV Rea1tV, Ltd., 105 HawaiT_241, 249, 96 P.3d 26l, 269
(2004) (refusing to enforce an ambiguous arbitration clause
despite public policy favoring arbitration).

Based on our reading of the Plan, it does not manifest
an intent by the parties to submit to arbitration the Yogis'
claims for breach of contract, bad faith, 1IED or NIED, which
seek money damages. Rather, considering all of its relevant
parts, we construe the Plan to mean that arbitration is one of
two options an enrollee may select ~- arbitration or review by a
panel appointed by the Insurance Commissioner -- to challenge or
dispute an HMSA determination, action or decision that the
enrollee seeks to change. At best, the arbitration provision is

ambiguous.

l. Chapter 8 of the Plan
The starting point for our interpretation of the Plan

is the sentences "[i]f you disagree with HMSA's appeals decision,
you must either 1) request arbitration before a mutually selected
arbitrator, or 2) request a review by a panel appointed by the
Hawaii State 1nsurance Commissioner.“ (Emphasis added). Given
this language, the scope of any potential arbitration is based on
the matters or issues that come within HMSA's appeal process

under the Plan.3

3 While we focus on the specific language of the arbitration provision
in this case, there are similarities to the decision in Hawaii Medical Ass'n.
There, the Hawafi Supreme Court held that an arbitration provision contained
in an HMSA Participating Physician Agreement was triggered after a claim or

dispute had been through an administrative appeal process set out by the
(continued...)

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1n turn, the matters or issues within HMSA's appeal
process are delineated by the following language: "[i]f you wish
to dispute a determination made by HMSA related to coverage,
reimbursement, any other decision or action by HMSA, or any other
matter related to this Agreement, you must request an appeal."
(Emphasis added.) HMSA argues that this language is very broad
and that the arbitration provision applies to any dispute related
to coverage or to any other matter related to the Plan. we do
not read this provision or the Plan so broadly. This language,
when properly construed along with the rest of Chapter 8, does
not convey an intent that HMSA's appeal process encompasses the
type of claims asserted in this case, seeking damages and
alleging a series of actions over time denying and delaying
approval of a medical procedure. 1n this action, the Yogis do
not seek to have HMSA change its decision about covering the
intrathecal infusion pump because that question has already been
addressed by the review panel and Mr. Yogi has received the
medical procedure. Rather, the Yogis bring this action seeking
damages for HMSA's alleged conduct over the approximate year and
a half period from when Dr. Endicott sought preauthorization for
the intrathecal infusion pump to when Mr. Yogi was able to
undergo the procedure.

A fair reading of Chapter 8 is that the appeal process
is intended to deal with a challenge or "dispute" to a
"determination", "decision" or "action" by HMSA in order that an

enrollee may seek to alter or change that determination, decision

3(...continued) 1

agreement. Hawaii Medical Ass'n, 113 HawaFi at 93, 148 P.3d at 1195. Because
the administrative appeal process was limited to disputes between an
individual participating physician and HMSA that arose from a decision by
HMSA, the arbitration provision was similarly limited. ;QL Thus, the court
held that collective claims by groups of participating physicians alleging
unfair methods of competition were not within the scope of the arbitration
provision. ld4 at 94, 148 P.3d at 1196. The court agreed with the plaintiffs
that "the necessary system-wide relief could never be granted in an individual
proceeding where the specific issue being addressed is one isolated decision

or a series of decisions relating to one physician . . . . [T]he Agreement's
administrative remedies by design are not adequate to provide relief for the
types of claims alleged here." Id. (Brackets and ellipsis in original.)

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or action, Indeed, under the appeal process, a request for an
appeal must be received by HMSA within a year from the date of
"the action or decision you are contesting." (Emphasis added.)
Further, the 60 day time period for HMSA to respond to an appeal,
as well as the expedited appeal procedure allowing for an even
quicker appeal if the normal appeal period will seriously
jeopardize the person's life or health, seriously jeopardize the
person's ability to gain maximum functioning, or subject the
person to severe pain, all suggest that the appeal process is not
intended to deal with claims such as bad faith, 1IED or NIED,
which seek money damages.
Similarly, the mandatory contents of an appeal

"request", as detailed in Chapter 8, focus on setting out the
specific action or decision by HMSA that is being challenged.

Under Chapter 8, "[t]o be recognized as an appeal" the request

must contain information including: "[t]he date of the service we

denied", or the "date of the contested action or decision", or
the date of HMSA's denial of coverage for precertification for a
service or supply; the provider's name; and "[a] description of
facts related to your request and why you believe our action or
decision was in error." (Emphasis added.) Requiring this type
of information indicates that the intended scope of an internal
appeal -- and therefore the arbitration provision -- is not as
broad as HMSA contends and it is not contemplated that the claims
for damages brought by the Yogis would be part of the appeal
process.

The arbitration provision itself further suggests its
limited scope. As noted above, if an enrollee disagrees with
HMSA's appeal decision, the enrollee: "must either 1) request
arbitration before a mutually selected arbitrator, or 2) request
a review by a panel appointed by the Hawaii State 1nsurance
Commissioner." (Emphasis added.) Read in its entirety and
within the context of Chapter 8, this language could reasonably

be interpreted to mean that the scope of issues to be addressed

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in arbitration is similar to the scope of issues to be addressed
in a panel review.4 The scope of panel reviews, in turn, is set
out under the statutory scheme provided by HRS Chapter 432E,
entitled "Patients' Bill of Rights and Responsibilities Act."

The parties agree that panel reviews are done pursuant
to HRS § 432E-6. Under HRS § 432E-6(a), a panel reviews a
managed care plan's final internal determination of a
"complaint", and a complaint is defined as "an expression of
dissatisfaction, either oral or written." HRS § 432E-1. The
three-member panels consist of "a representative from a managed
care plan not involved in the complaint, a provider licensed to
practice and practicing medicine in Hawaii not involved in the
complaint, and the commissioner or the commissioner's designee."
The panel is authorized to "issue an order affirming, modifying,
or reversing the decision" and to award reasonable attorney's
fees and costs. HRS § 432E-6(a) and (e). Under this statutory
scheme, given the composition of a panel and the scope of its
authority, such panels are not established to consider, nor are
they authorized to award, damages. Review panels under HRS
Chapter 432E would not address claims such as breach of contract,
bad faith, llED or NIED.

~ In sum, Chapter 8 of the Plan does not establish an
intent by the parties to have the claims in this action subject
to the arbitration provision. Rather, a reasonable reading of
Chapter 8 leads to the contrary conclusion. At a minimum, there
is ambiguity under Chapter 8 regarding the intent and meaning of
the arbitration provision. As the drafter of the Plan, ambiguous
terms are construed against HMSA. §§§ Luk§, 105 Hawafi at 249,

96 P.3d at 269.

4 Even though it is possible this language could be read another way,
it is ambiguous. Moreover, adding further ambiguity, the arbitration
provision goes on to state that "[t]he questions for the arbitrator shall be
whether we were in violation of law, or acted arbitrarily, capriciously, or in
abuse of our discretion." This language does not indicate that an arbitrator
may address the question of damages, and its intended meaning is far from
clear. Simply put, this language is also ambiguous.

ll

)

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2. Chapter 10 of the Plan
Chapter 10 of the Plan covers the following areas:

"Eligibility for Coverage", "When Coverage Begins", "When
Coverage Ends", "Continued Coverage", "Confidential lnformation"
and "Dues and Terms of Coverage". Under the section entitled
"Dues and Terms of Coverage," there is a provision entitled
"Governing Law". As noted above, the Yogis contend the
"Governing Law" provision creates further ambiguity as to the
intent of the arbitration provision contained in Chapter 8. The

"Governing Law" provision states:

Dues and Terms of Coverage

Governing Law

To the extent not superseded by the laws of the United
States, this coverage will be construed in accord with and
governed by the laws of the state of Hawaii. Any action
brought because of a claim against this coverage will be
litigated in the state or federal courts located in the
state of Hawaii and in no other.

(Emphasis added.) Because this provision speaks to litigating
claims against the Plan's coverage in Hawaii's state or federal
courts, it undermines HMSA's argument that arbitration is
required for any dispute as to coverage or "any other matter"
related to the Plan.

HMSA relies on some of the headings within Chapter 10
to contend that the "Governing Law" language applies only where
HMSA denies coverage because of lack of eligibility, termination
of coverage, or non-payment of dues -- in other words, where
coverage as a whole does not exist. We disagree. First, the
headings, structure and language of Chapter 10 do not support
HMSA's argument. Second, such a reading is inconsistent with the
language of the "Governing Law" provision itself. The initial
sentence states "this coverage will be construed in accord with

the laws of the state of Hawaii." If, as HMSA argues, this
provision applied only where coverage did not exist at all (i.e.
for lack of eligibility, termination of coverage, or non-payment

of dues), there would be no need to "construe" the coverage,

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Most importantly, the second sentence applies to "|alny action
brought because of a claim against this coverage" (emphasis
added), and not just claims involving lack of eligibility,
termination of coverage, or non-payment of dues.

The "Governing Law" provision in Chapter 10 clearly
contemplates litigation in Hawaii's state or federal courts for
claims against coverage, and it therefore reflects that the
arbitration provision in Chapter 8 is not as broad as HMSA
contends. We agree with the Yogis that the "Governing Law"
provision adds to the already existing ambiguity of the '
arbitration provision.

IV. Conclusion

we conclude that the Plan does not reflect an intent by
the parties to arbitrate the claims asserted in this action,
including the relief sought for damages. Alternatively, at a
minimum, the arbitration provision is ambiguous. We therefore
affirm the circuit court's denial of HMSA's motion to compel

arbitration.

Charles A. Price
(Koshiba Agena & Kubota)
for Defendant-Appellant

Rafael G. Del Castillo
(Arleen D. Jouxson with
him on the briefs) .
(Jouxson-Meyers & Del Castillo) :K1;,LLA
for Plaintiffs-Appellees

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