Ohio Supreme Court Holds Arbitration Clause in Medical Malpractice Policy Applies to Bad Faith Claims

In U.S. Acute Care Solutions LLC v. Doctors Company Risk Retention Group Insurance Co., the Supreme Court of Ohio ruled that an emergency care service provider must arbitrate its claim for bad faith against its insurer, reversing a decision by Ohio’s Fifth District Court of Appeals.

U.S. Acute Care Solutions LLC provides emergency health care services throughout the United States. In January 2020, a patient filed a medical malpractice lawsuit against U.S. Acute Care, which U.S. Acute Care submitted to its carrier, the Doctors Company Risk Retention Group Insurance Co. (TDC). TDC accepted the claim under the policy and retained counsel on behalf of U.S. Acute Care to defend it against the lawsuit.

During litigation of the lawsuit, U.S. Acute Care disagreed with TDC’s settlement strategy and demanded that TDC settle the lawsuit for a higher amount to reduce exposure to an excess judgment. Without TDC’s consent, U.S. Acute Care contributed its own funds to a settlement with the claimant in December 2022.

Three months later, U.S. Acute Care sued TDC, alleging one count of bad faith claim handling and seeking to recover the amount of its self-funded settlement payout, plus fees and costs. TDC moved to compel arbitration under the policy’s arbitration endorsement that states “any dispute” between the parties relating to the policy “will be resolved by binding arbitration.” The Stark County trial court granted TDC’s motion and U.S. Acute Care appealed to the Fifth District, which held that because the bad faith claim was extracontractual, the arbitration endorsement in the policy did not apply. TDC appealed to the Ohio Supreme Court.

U.S. Acute Care contended that the policy’s arbitration clause does not apply because its bad faith claim, although arising out of a contractual relationship, sounded in tort and was not based on the policy’s language. TDC argued that the arbitration endorsement applied pursuant to Ohio’s presumption of arbitrability and the endorsement’s “any dispute between” language. The Ohio Supreme Court agreed with TDC and reversed the Fifth District’s decision, finding that the lower court disregarded the plain text of the arbitration endorsement and the state’s presumption of arbitrability.

In reaching its conclusion, the court first determined whether the arbitration clause was broad or narrow. Relying on the standard in Academy of Medicine of Cincinnati v. Aetna Health Inc., the court found that the “any dispute between” language was broad and therefore the arbitration endorsement was not limited to claims alleging a breach of contract. The court noted the existence of the presumption of arbitrability, due to the broad nature of the endorsement, which can only be overcome if the arbitration clause cannot reasonably be interpreted to cover the alleged cause of action. To determine whether the presumption of arbitrability had been overcome, the court applied the Sixth Circuit’s Fazio test, which inquires “whether the action could be maintained without reference to the contract or relationship at issue.” Given the express language of the endorsement and the nature of the claim, U.S. Acute Care was unable to overcome the presumption.