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Claims against health insurance giant Cigna can be litigated, the Third Circuit has ruled in a reversal of the district court’s decision to compel arbitration.

The dispute, which is over Cigna’s change in coverage for certain medical devices, falls outside of the scope of the service agreement entered into by the two medical service providers who brought the suit, the appeals court ruled. It is the service agreement that includes an arbitration clause.

“The fact that the parties have agreed to arbitrate some disputes does not necessarily manifest an intent to arbitrate every dispute that might arise between the parties,” said Judge Julio M. Fuentes of the U.S. Court of Appeals for the Third Circuit on behalf of the three-judge panel in CardioNet v. Cigna Health.

“Ultimately, then, whether a dispute falls within the scope of an arbitration clause depends upon the relationship between (1) the breadth of the arbitration clause, and (2) the nature of the given claim,” Fuentes said, setting up the framework in which the court would examine the issue presented in the case.

Fuentes—who was joined by Third Circuit Judge D. Michael Fisher and U.S. District Judge Leonard P. Stark of the District of Delaware, who was sitting by designation—noted that federal policy generally favors arbitration, but said also that the U.S. Supreme Court has warned against courts leaning too far in favor of arbitration and emphasizing that ordinary principles of contract law prevail.

“Indeed,” Fuentes said, referring to the Federal Arbitration Act, “while the FAA ‘embodies a strong federal policy in favor of arbitration … the duty to arbitrate remains one assumed by contract.’” He quoted from the Seventh Circuit’s 1993 opinion in Sweet Dreams Unlimited v. Dial-A-Mattress International.

“Thus, the presumption of arbitrability applies only where an arbitration agreement is ambiguous about whether it covers the dispute at hand. Otherwise, the plain language of the contract controls,” Fuentes said.

The language in the contracts between Cigna and both plaintiffs, CardioNet and LifeWatch Services, clearly applies the arbitration clause to only disputes that arise out of the service agreement itself, according to the opinion.

That contract sets the rate at which Cigna is to reimburse its providers for services rendered to patients covered by Cigna, according to the opinion.

CardioNet and LifeWatch provide outpatient cardiac telemetry services, called OCT for short, so that doctors can monitor patients with cardiac arrhythmias in real time while they aren’t in the hospital. OCT is approved by the U.S. Food and Drug Administration and was a covered service by Cigna from 2007 to 2012, according to the opinion.

When Cigna changed its policy on OCT coverage, it said that it considered OCT to be “experimental, investigational or unproven,” according to the opinion.

CardioNet and LifeWatch then brought this suit on their own behalf and as the assignee of the patients who had used their services, according to the opinion.

In the Eastern District of Pennsylvania, Cigna had sought to enforce the arbitration clause of the service agreement and the judge had agreed.

The Third Circuit followed the district judge’s reading of the service agreement, that disputes arising from it would go to arbitration, up until the point at which that judge “intimated … that the statement in the middle of Section 6.4 that ‘arbitration is the exclusive remedy for the resolutions of disputes under this agreement’ broadens the scope of mandatory arbitration,” Fuentes said.

“We believe that the term ‘disputes’ as used here refers solely to those disputes concerning the ‘performance or interpretation of the agreement,’” Fuentes said.

He went further, in a footnote discussing the parties’ argument over whether the arbitration clause is broad or narrow, to say, “Here, the arbitration provision is not ambiguous. In any event, as the arbitration provision here ‘implicate[s only] interpretation or performance of the contract per se,’ it does not sweep beyond the confines of the contract, and is therefore narrow in scope.” Fuentes, again, quoted from Sweet Dreams.

After holding that the arbitration clause applies only to disputes arising from the service agreement, the appeals court went on to decide that neither the direct claims nor the derivative claims brought by CardioNet and LifeWatch arose from issues related to the service agreement.

“The adjudication of [the] direct claims depends on whether the Physician Update—a document completely distinct from the agreement—is deceptive and misleading, and whether any deceptions therein caused a cognizable injury to the providers. The resolution of these claims does not require construction of, or even reference to, any provision in the agreement,” Fuentes said.

As to the derivative claims brought by CardioNet and LifeWatch on behalf of the patients, Fuentes said, “It is a basic principle of assignment law that an assignee’s rights derive from the assignor,” meaning that the medical service providers here stand in the shoes of the patients who are Cigna participants.

“Here, it is undisputed that the participants possess the right to pursue their ERISA claims in court, rather than through mandatory arbitration,” Fuentes said. “That right does not dissipate simply because the claim is brought by assignees who have promised to arbitrate certain direct claims they might bring against the defendant.”

“Just as the burden of arbitration must travel with a claim, so too, must the right to litigate,” Fuentes said.

Mark Gallant of Cozen O’Connor represented CardioNet and LifeWatch. Paul Hummer of Saul Ewing represented Cigna.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 30-page opinion in CardioNet v. Cigna Health, PICS No. 14-0719, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)