Smith v. PacifiCare Behavioral Health of California, Inc.,
Nos. B142321, B145004 (Cal. App. 2d Dist. Oct. 25, 2001)

Two members of PacifiCare Health Plan alleged that the plan failed to provide promised plan benefits and failed to timely authorize or extend needed treatment by health providers. PacifiCare moved to compel arbitration, based on language in its Subscriber Agreement mandating arbitration. The plaintiffs argued that the arbitration provisions did not comply with statutory disclosure requirements. PacifiCare conceded that the arbitration provisions did not comply with the disclosure requirements, but argued that such failure was irrelevant because the California law was preempted by the Federal Arbitration Act ("FAA"). The California Court of Appeal held that health care service plans such as PacifiCare are engaged in the "business of insurance" as defined in the McCarran-Ferguson Act and thus are not covered by the FAA.