Palmer v. Superior Court of San Diego County,
No. D037772 (Cal. Ct. App. Dec. 24, 2001)

The California Court of Appeals reversed the trial court, holding that an HMO waived the mandatory arbitration clause in its subscriber's contract by failing to comply with the provisions in its subscriber agreement for processing claims denials. The subscriber in this case was a man in need of new prosthetics. The HMO initially denied coverage for ultralight prosthetics, finding that revision of the stump sockets on the man's current prosthetics would be sufficient. The subscriber appealed. The HMO took seven weeks to issue a written decision on the appeal, far greater than the 30 day turnaround guaranteed by the subscriber agreement. The subscriber initiated a second-level appeal which, due greatly to the unresponsiveness of the HMO, was not resolved for three months.

After being denied coverage for the second time on appeal, the subscriber filed this suit. The HMO moved to compel arbitration. The subscriber argued that the HMO waived its right to compel arbitration by unreasonably delaying the processing of his appeals. The appeals court agreed and reversed the trial court's order compelling arbitration.