Kathryn D. Meardon, Plaintiff-Appellee,
Freedom Life Insurance Company of America and Robert J. Pavese, Defendants-Appellants.
and County of Denver District Court No. 16CV32553 Honorable
Catherine A. Lemon, Judge
& Giovanini, LLC, Doug E. Meier, Lakewood, Colorado, for
Roca Rothgerber Christie LLP, Hilary D. Wells, Frances
Scioscia Staadt, Denver, Colorado, for Defendants-Appellants
1 The defendants, Freedom Life Insurance Company of America
and Robert J. Pavese (collectively Freedom Life), denied
health insurance benefits claimed by plaintiff Kathryn D.
Meardon under a health insurance policy (policy) issued to
her by Freedom Life. We must decide a novel issue: whether
that policy's mandatory arbitration clause is displaced
by section 10-3-1116(3), C.R.S. 2017, which allows denied
claims to be contested in court before a jury. We conclude
that it is.
2 The policy purchased by Ms. Meardon sets forth a three-step
procedure for contesting a denied claim. Step one is
negotiation, step two is mediation, and step three is binding
arbitration. At issue here is the last step - final and
binding arbitration; the policy expressly prohibits the
filing of any state or federal court action. Section
10-3-1116(3), by contrast, provides that an insured who is
wholly or partially denied a claim for health benefits
"shall be entitled" to de novo review in any court
with jurisdiction and to a trial by a jury, after exhausting
administrative remedies. Thus, the question before us is
whether Ms. Meardon is bound by the policy's arbitration
clause or whether she may seek relief from a jury in a court.
3 To resolve this case, we first analyze the "conformity
clause" that Freedom Life elected to include in its
policy. Then we address the difficult issues presented both
by the Federal Arbitration Act (FAA), 9 U.S.C. §§
1-16 (2012), and the arcane doctrine of reverse-preemption
under the McCarren-Ferguson Act, 15 U.S.C. §§
1011-1015 (2012), which may or may not preempt section
10-3-1116(3) and render the arbitration clause operative.
4 Freedom Life appeals the trial court's order that
denied their motion to dismiss or compel arbitration. Because
we conclude that the state statute displaces the arbitration
clause for those claims that fall within the ambit of the
statute, we affirm the trial court's order as to those
claims. However, because some of Ms. Meardon's claims
fall outside the scope of the statute, we reverse the
court's order to that extent and remand with directions.
5 Ms. Meardon alleged that Mr. Pavese, acting as a Freedom
Life insurance agent, sold her a policy that did not comply
with the Affordable Care Act, even though she requested one.
She further alleged that the policy did not cover a
pre-existing condition, which the Act also required.
6 Later that year, Ms. Meardon underwent surgery, and she
submitted a claim to Freedom Life. Freedom Life denied the
claim because it decided that the surgery resulted from a
pre-existing condition that was not covered by the plan. Ms.
Meardon tried to resolve the dispute by sending letters and
documents showing that the surgery did not result from her
pre-existing condition. Freedom Life reaffirmed its decision
to deny Ms. Meardon's claim, and she filed this lawsuit.
7 Freedom Life moved to compel arbitration and to dismiss the
case. It relied on the policy's mandatory arbitration
clause, which states as follows:
(1) The policyholder was required to resolve "[a]ny
[d]ispute" through "mandatory and binding
arbitration." (The policy defines "[d]ispute"
to include practically every claim "in any way arising
out of or pertaining to, or in connection with th[e]
(2) The policyholder does not have a right to seek resolution
of her claim in a federal or state court.
(3) If the policyholder tries to file a complaint in a
federal or state court, the court should dismiss the
8 The policy also contains a "conformity clause, "
which states that "[a]ny provision of this [p]olicy
which, on its effective date, is in conflict with the laws of
the state in which [y]ou live on that date, is amended to
conform to the minimum requirements of such laws."
9 The trial court denied Freedom Life's arbitration
motion. Relying on the conformity clause, the court decided
that (1) section 10-3-1116(3) gives a policy holder a right
to a judicial resolution of her claim; and (2) this statutory
right voids the policy's arbitration clause. Expanding on
the second point, the court wrote that subsection 1116(3)
"effectively forbids mandatory arbitration clauses in
[health insurance] policies, and confers specifically upon .
. . policy holders the statutory right to pursue denial of
benefits claims in a court before a jury."
10 Freedom Life contends that (1) section 10-3-1116(3) cannot
be applied because it is preempted by federal law, namely the
FAA; (2) even if the FAA does not preempt the statute, the
arbitration clause remains in effect for those claims that
fall outside the statute; and (3) Ms. Meardon must arbitrate
her claims to "exhaust her administrative remedies"
under section 10-3-1116(3). It further argues that even if,
as a matter of contract law, the conformity clause operates
to invalidate the arbitration clause, under FAA preemption
rules, the arbitration clause prevails.
11 Ms. Meardon responds that the trial court correctly
interpreted the conformity clause to invalidate the
arbitration clause, and that even if FAA preemption would
otherwise prohibit this operation of the conformity clause,
reverse-preemption, a doctrine unique to statutes that
regulate the insurance business, preempts FAA preemption
(thus the term "reverse-preemption"). We proceed to
separately address the effects of the conformity clause and
the various preemption arguments and counterarguments.
Standard of Review and Legal Principles
12 We must interpret the policy and subsection 1116(3) to
resolve this appeal. We review questions of statutory
interpretation and insurance contract interpretation de novo.
Goodman v. Heritage Builders, Inc., 2017 CO
13, ¶ 5; Allstate Ins. Co. v. Huizar, 52 P.3d
816, 819 (Colo. 2002).
13 When we interpret a statute, we must ascertain and give
effect to the legislature's intent. Colo. Dep't
of Revenue v. Creager Mercantile Co., 2017 CO
41M, ¶ 16. "We construe the entire statutory scheme
to give consistent, harmonious, and sensible effect to all
parts, " and "we give effect to words and phrases
according to their plain and ordinary meaning."
Denver Post Corp. v. Ritter, 255 P.3d 1083, 1089
(Colo. 2011). If a statute's language is clear, we apply
it as written. Id. But "[i]f the statutory
language is ambiguous, we may use other tools of statutory
interpretation to determine the General Assembly's
14 Similarly, the words of an insurance policy "should
be given their plain meaning according to common usage, and
strained constructions should be avoided." Allstate
Ins. Co., 52 P.3d at 819. As pertinent here,
"[b]ecause of the policy favoring arbitration, we
construe any ambiguities [in the insurance policy] in favor
of arbitration, and when an arbitration clause is broad or
unrestricted, the strong presumption favoring arbitration
applies with even greater force." BFN-Greeley, LLC
v. Adair Grp., Inc., 141 P.3d 937, 940 (Colo.App. 2006).
"A valid and enforceable arbitration provision divests
the courts of jurisdiction over all disputes that are to be
arbitrated pending the conclusion of arbitration."
Mountain Plains Constructors, Inc. v. Torrez, 785
P.2d 928, 930 (Colo. 1990).
15 Parties to an insurance contract cannot agree to disregard
statutory requirements. See Peterman v. State Farm Mut.
Auto. Ins. Co., 961 P.2d 487, 492 (Colo. 1998)
(examining a consent-to-sue clause in an insurance contract
and explaining that "[p]arties may not privately
contract to abrogate statutory requirements or contravene the
public policy of this state"). To reflect this reality,
Freedom Life elected to include a conformity clause in its
insurance policy. The general effect of a conformity clause
is to modify the contract to conform to the laws in the
insured's state. See 2 Steven Plitt, Daniel
Maldonado, Joshua D. Rogers & Jordan R. Plitt,
Couch on Insurance § 19:3, Westlaw (3d
ed. database updated Dec. 2017). A conformity clause can be
triggered when an insurer is prohibited from, or required to,
include a certain provision in the policy. Id. Thus,
when an insurance policy contains a conformity clause, that
clause amends the policy terms that conflict with state law.
See Traders & Gen. Ins. Co. v. Pioneer Mut.
Comp. Co., 127 Colo. 516, 517-19, 258 P.2d 776, 777
(1953) (finding that a conformity clause requiring conformity
to the motor vehicle financial responsibility law made the
statute part of the insurance contract); see also Peters
v. Time Ins. Co., No. 10-CV-02962-RPM, 2011 WL 2784291
(D. Colo. July 14, 2011) (unpublished opinion) (concluding
that a conformity clause reformed the pre-existing condition
exclusion in the insurance policy to conform with the state
statute); Burke v. First Unum Life Ins. Co., 975
F.Supp. 310, 316 (S.D.N.Y. 1997) (finding that policy's
conformity clause "dictates that the policy be
considered as if it contained the statutory language");
Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d
792, 802 (Minn. 2004) ("When an insurance policy
contains a conformity clause, as Farmers' policies do,
that clause amends all policy terms in conflict with
Minnesota law to conform to those laws.").
16 Importantly, a predicate for operation of the conformity
clause is a true conflict with state law. A mere
"difference" between the contract and state law is
insufficient to trigger the conformity clause. See Grant
Farms, Inc. v. Colo. Farm Bureau Mut. Ins. Co., 155 P.3d
537, 538 (Colo.App. 2006) ("A statute and [a] policy