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Supreme Court rules on Oxford arbitration case

U.S. Supreme Court (AP photo/J. Scott Applewhite).
U.S. Supreme Court (AP photo/J. Scott Applewhite).

The U.S. Supreme Court seems to have sidestepped questions about how the arbitrator in a health insurance provider network contract case, Oxford Health Plans L.L.C. vs. Florida (Case Number 12-135), handled the arbitration.

The court has issued a unanimous ruling supporting an arbitration ruling that came down in favor of the lead plaintiff in the case, Dr. John Sutter. An arbitrator in the case let Sutter represent a class of about 20,000 New Jersey network providers in a class arbitration proceeding.

The insurer in the case, Oxford Health, argued that it had not anticipated the existence of class arbitration when it wrote its provider network contract, and that the arbitrator should have not let a class arbitration action move forward.

Both a U.S. District Court in New Jersey and the 3rd U.S. Circuit Court of Appeals sided with the physicians.

Justice Elena Kagan has written in an opinion for the Supreme Court that, in the Oxford case, complicated questions about whether ordinary contract arbitration clauses do or do not allow for large-scale "class arbitration" actions are not relevant.

What matters is not whether an arbitrator has applied Supreme Court rulings about arbitration correctly, but that the parties involved have agreed to submit their dispute to a semiformal arbitration process and accept the outcome, Kagan wrote.

"Only if 'the arbitrator act[s] outside the scope  of his contractually delegated authority'—issuing an award that “simply reflect[s] [his] own notions of [economic] justice” rather than 'draw[ing] its essence from the contract'—may a court overturn his determination," Kagan wrote. "So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not  whether he got its meaning right or wrong."

Kagan said the potential for facing mistakes is the price of agreeing to arbitration.

"The arbitrator’s construction holds, however  good, bad, or ugly," Kagan said. "In sum, Oxford chose arbitration, and it must now live  with that choice."

Oxford is now a unit of UnitedHealth Group Inc. (NYSE:UNH).

In the past, some business groups have argued that a ruling against Oxford could open many companies with arbitration clauses written before a 2010 Supreme Court ruling on class arbitration actions to class arbitrations.

In the 2010 ruling, Stolt-Nielsen S. A. vs. AnimalFeeds Intternational  Corp., the court held that an arbitrator could use class arbitration procedures only if the parties had authorized use of those procedures.

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