ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, May 27, 2014

Third Circuit Rejects Insurer's Motion to Compel Arbitration of Medical Device Suppliers' Claims

3rd cirPlaintiffs in Cardionet, Inc. v. CIGNA Health Corp supply medical devices that permit patients to monitor heart function while away form a hospital.  CIGNA insured these businesses beginning in 2007, but in 2012, CIGNA announced that it would no longer do so because the services the plaintiffs  provide are "considered experimental, investigational or unproven."  CIGNA sent out a "Physician Update" informing them that it would no longer insure the plaintiffs' businesses.  The plaintiffs allege that CIGNA was in possession of no information relating to their services in 2012 that CIGNA did not already possess in 2007.  Tehy were miffed that services that were insureable in 2007 had become uninsureable in 2012.  They sued on their own behalf and on behalf of their patients, seeking damages and injunctive relief and alleging causes of action sounding in breach of contract, tortious interference and trade libel.  

CIGNA moved to compel arbitration pursuant to the original 2007 agreement which included a clause requiring arbitration of all disputes "regarding the performance or interpretation of the Agreement."  The District Court found that the arbitration provision applied and granted CIGNA's motion to compel  arbitration.  The Third Circuit reversed.

As to the plaintiffs' claims brought on their own behalf, the court noted that they all arose out of the following common set of factual allegations: 

CIGNA made false and misleading statements in the Physician Update about the nature and quality of OCT; CIGNA conveyed the false impression that OCT would never be covered under any health plans CIGNA administers; and the Physician Update injured them by decreasing the number of physicians willing to use OCT services.

The Third Circuit determined that the plaintiffs' claims related to the Physician Update and not to the plaintiffs' agreements with CIGNA.  If the Physician Update indeed contained material misstatements as plaintiffs allege, it would harm them whether or not they were insured by CIGNA because it informs doctors that, in CIGNA's view, the services plaintiffs provide are unproven.

The Third Circuit also determined that the claims brought on behalf of patients were not subject to arbitration, even if they would have been arbitrable if brought by the plaintiffs on their own behalf.  First, the patients were not signatories to the arbitration agreement and thus could not be brought within its ambit.  Second, the fact that plaintiffs took on their patients' claims as assignees did not bring the assigned claims within the scope of the arbitration provision, because that provision does not require arbitration of assigned claims.

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