Calif. Supreme Court to Hear Kaiser Case : Health care: At issue is the HMO’s mandatory arbitration clause.

In what could be its first major review in 20 years of binding arbitration clauses in health plan contracts, the California Supreme Court agreed Thursday to consider a case in which the giant Kaiser Foundation Health Plan is accused of stalling an arbitration hearing until after the claimant died.

The move may have saved Kaiser as much as $250,000 in damages.

At issue in the case is Kaiser’s mandatory arbitration clause, which forces its more than 4.5 million members in California to resolve malpractice and any other claims against the health plan via binding arbitration rather than through jury trials.

Many lawyers and claimants have called the system inherently unfair; Kaiser lawyers administer the program and have been repeatedly accused of such conduct as deliberately stretching out proceedings for months or years to drive up claimants’ costs.

The case accepted Thursday may give the court its best opportunity yet to set guidelines ensuring that Kaiser and other companies that not only mandate arbitration but administer the system themselves adhere to minimal standards of fairness.

The case involves Wilfredo Engalla, a San Francisco Bay Area accountant who contended that Kaiser doctors failed to diagnose his lung cancer over a span of five years by overlooking indications in batteries of tests. When Engalla filed his arbitration claim in 1991, he was terminally ill and his lawyer asked Kaiser to expedite the arbitration so it could be completed before his client died.

Instead, the Engalla family contends, Kaiser failed even to name a neutral arbitrator to hear the case for five months. A day after the arbitrator was named, Engalla died, cutting his family’s possible recovery of damages in half.

A trial judge in Alameda County revoked Kaiser’s right to arbitrate the case, finding its arbitration process to be “corrupt . . . in general.” The judge was overruled by the Court of Appeals, which found that Kaiser’s lawyers’ conduct may have been “morally reprehensible” but was not fraudulent, the only grounds on which an arbitration can be overturned.