Complete Healthcare Res. – E., Inc. v. Pac. Life Ins. Co., 2006 U.S. Dist. LEXIS 90794 (D. Pa. 2006)

Complete Healthcare Resources Eastern, Inc. sought a declaratory judgment that it was not liable to an insurer in subrogation and that it was not obligated to mediate and/or arbitrate the insurer’s subrogation claim. Complete Healthcare had entered into a management agreement with a nursing home. A claim arose on November 16, 2002, when Bertha Small died as a result of being overfed by continuous tube feedings. When Complete Healthcare refused to defend the claim, the insurer did, eventually settling for $800,000. The insurer then informed Complete Healthcare of its subrogation claim and demanded mediation or binding arbitration consistent with Complete Healthcare’s management services agreement with the nursing home. Complete Healthcare preemptively filed suit against the insurer in Pennsylvania. The insurer sought to enforce the arbitration agreement and have the action transferred to Maryland, consistent for a forum selection clause in the management services agreement. The court denied both of the insurer’s motions, finding that the insurer was not a party to the agreement. “Pacific cites no authority for the proposition that an insurer can enforce an arbitration provision contained in a service agreement between its insured and a third party…. Without legal or factual support for this claim, the Court declines to adopt Pacific’s position as a matter of first impression. or that the parties intended the contract’s arbitration provision to encompass claims brought by a non-signatory. Without legal or factual support for this claim, the Court declines to adopt Pacific’s position as a matter of first impression.”

Note: The Court’s treatment of this business claim appears to be inconsistent with the trend in consumer arbitration disputes. For example, if a nursing home resident signed an arbitration clause buried in an admission contract, then the resident’s non-signing heirs would likely be bound by that agreement if wrongful death litigation ensured. This case appears to be an example of how industry arguments in favor or arbitration fall short when put to the test.