Justices Sharply Query Kaiser Lawyers on Arbitration System

Lawyers for Kaiser Foundation Health Plan underwent sharp questioning Tuesday by the California Supreme Court in a case that could change the ground rules for companies that require customers to agree to arbitrate disputes.

Several justices strongly disputed oral arguments that Kaiser’s out-of-court system for resolving malpractice and other claims is a fair and speedy process for Kaiser members.

At issue is Kaiser’s mandatory arbitration clause, which forces members of the state’s largest HMO to resolve disputes through private arbitration rather than through jury trials. The case involves an allegation that Kaiser intentionally delayed an arbitration hearing until after a claimant died, reducing the amount of potential damages by as much as $250,000.

“The record is replete with stalling by Kaiser,” Justice Joyce L. Kennard said.

The outcome of the case could reach beyond Kaiser’s own self-administered arbitration procedures and is being closely watched by other companies that mandate arbitration.

The justices’ questioning of lawyers representing Kaiser had a skeptical and occasionally frustrated tone. Many of their questions focused on evidence that showed Kaiser’s arbitration system is fraught with delays.

A statistical survey of nearly 200 Kaiser arbitrations between 1984 and 1988 found that in only 1% of the cases was a neutral arbitrator appointed within the 60 days specified by the arbitration agreement. The same survey showed that, on average, it took 677 days to agree on a neutral arbitrator and a total of 863 days to resolve the claims.

Kaiser attorney Kennedy P. Richardson acknowledged that most Kaiser arbitrations do not meet the 60-day rule for naming a neutral arbitrator but said plaintiffs’ lawyers are often to blame for the delays. He also noted that state law provides plaintiffs the option of petitioning the court to try to speed up the process.

“So you have to go to court to get what you were supposed to get in the first place?” asked Chief Justice Ronald M. George.

The case involves Wilfredo Engalla, a San Francisco Bay Area accountant who alleged that Kaiser doctors failed to diagnose his lung cancer for about five years. When Engalla filed his arbitration claim in 1991, he was terminally ill. Lawyers for the Engalla family claim Kaiser dragged its feet on choosing a neutral arbitrator for five months. Engalla died a day after the arbitrator was named.