               IN THE SUPREME COURT OF TEXAS
                                         444444444444
                                           NO . 13-0573
                                         444444444444


             THE FREDERICKSBURG CARE COMPANY, L.P., PETITIONER,

                                                 v.

   JUANITA PEREZ, VIRGINIA GARCIA, PAUL ZAPATA, AND SYLVIA SANCHEZ,
 INDIVIDUALLY AND AS ALL HEIRS OF ELISA ZAPATA, DECEASED, RESPONDENTS

           4444444444444444444444444444444444444444444444444444
                             ON PETITION FOR REVIEW FROM THE
                    COURT OF APPEALS FOR THE FOURTH DISTRICT OF TEXAS
           4444444444444444444444444444444444444444444444444444


                                    Argued October 14, 2014


       JUSTICE GREEN delivered the opinion of the Court.

       This case involves a federal statutory exception to the general rule that federal law preempts

state law. One of the federal laws at issue, the McCarran-Ferguson Act (MFA), 15 U.S.C.

§§ 1011–1015, provides an exemption from preemption that applies to state statutes enacted for the

purpose of regulating the business of insurance. The trial court found that the MFA applied,

triggering the exemption under which the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16, would

not preempt section 74.451 of the Texas Civil Practice and Remedies Code, relating to agreements

to arbitrate health care liability claims. The trial court denied the defendant’s motion to compel

arbitration because the arbitration clause did not comply with section 74.451 and was therefore

invalid. The defendant filed an interlocutory appeal, and the court of appeals affirmed. 406 S.W.3d
313, 315 (Tex. App.—San Antonio 2013). We hold that the MFA does not apply to section 74.451

and reverse the court of appeals’ judgment.

                             I. Factual and Procedural Background

       The Fredericksburg Care Company, L.P. (Fredericksburg), operates a health care

facility—commonly known as a nursing home—that specializes in providing long-term care to

patients. Elisa Zapata was a patient and resident under the care and supervision of Fredericksburg

at the time of her death. Zapata’s death and survival beneficiaries (the Beneficiaries) sued

Fredericksburg for negligent care and wrongful death. Fredericksburg moved to compel arbitration

based on an arbitration clause contained in an agreement that Zapata signed prior to her admission

into the nursing home.

       It is undisputed that the pre-admission agreement’s arbitration clause did not comply with

section 74.451’s requirement that an agreement to arbitrate a health care liability claim must contain

a written notice in bold-type, ten-point font that conspicuously warns the patient of several important

rights. See TEX . CIV . PRAC. & REM . CODE § 74.451(a). Nonetheless, Fredericksburg’s motion to

compel arbitration asserted that federal law should determine the enforceability of the arbitration

clause because the underlying patient–provider transaction involved interstate commerce, which

made the FAA applicable to the pre-admission agreement. In Fredericksburg’s view, the FAA

preempted section 74.451 because the two laws directly conflicted, and the FAA therefore prevented

the arbitration clause from being invalidated.

       The Beneficiaries did not dispute Fredericksburg’s position that the FAA would normally

preempt section 74.451. Rather, they argued that section 74.451 was part of a state law enacted for

                                                  2
the purpose of regulating the business of insurance and fell within the protection of the MFA. The

MFA trumped preemption under the FAA, the Beneficiaries argued, because Congress created an

exemption from preemption for any federal law that could be “construed to invalidate, impair, or

supersede any law enacted by any State for the purpose of regulating the business of insurance.” See

15 U.S.C. § 1012(b). The trial court denied Fredericksburg’s motion to compel arbitration, and

Fredericksburg filed an interlocutory appeal.

         The court of appeals affirmed the trial court’s ruling. 406 S.W.3d at 315. The court of

appeals noted that section 74.451 is part of the Texas Medical Liability Act (TMLA), and that

Chapter 74 succeeded the Texas Medical Liability Insurance Improvement Act (TMLIIA). Id. at

320. After examining the reasoning of courts interpreting the earlier, substantially identical TMLIIA

provision, the court of appeals concluded that “section 74.451 is part of a law enacted for the purpose

of protecting and managing the performance of insurance policies in the area of medical malpractice

and health care liability,” and therefore fell within the MFA’s protection. Id. at 324. In making this

determination, the court of appeals looked to the legislative purpose behind Chapter 74 as a whole

in deciding that it, much like its TMLIIA predecessor, was enacted to regulate the business of

insurance in Texas. Id. at 324–25. The court of appeals held that the MFA applied to exempt

section 74.451 from FAA preemption, and the trial court properly denied Fredericksburg’s motion

to compel arbitration because the arbitration clause was unenforceable under section 74.451. Id. at

325–26. We granted Fredericksburg’s petition for review. 57 TEX . SUP . CT . J. 305, 307 (Mar. 21,

2014).


                                                  3
                                       II. FAA Preemption

       The parties do not dispute that the FAA, when applicable, preempts section 74.451 except

when an exemption applies. The trial court and court of appeals both assumed without deciding that

the FAA applied in this case, allowing them to reach the MFA question. See id. at 322. This

approach is consistent with the approach other courts of appeals have taken. See In re Sthran, 327

S.W.3d 839, 845–46 (Tex. App.—Dallas 2010, orig. proceeding); In re Kepka, 178 S.W.3d 279, 288

n.9 (Tex. App.—Houston [1st Dist.] 2005, orig. proceeding), disapproved of on other grounds by

In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009) (orig. proceeding). We note, however,

that if the FAA does not apply, then section 74.451 is not preempted and it is unnecessary to address

whether the MFA provides an exemption from FAA preemption.

       The FAA applies to arbitration clauses in contracts that affect interstate commerce. In re L

& L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999) (orig. proceeding) (per curiam)

(recognizing that the FAA “extends to any contract affecting commerce, as far as the Commerce

Clause of the United States Constitution will reach”) (citing Allied-Bruce Terminix Cos.v. Dobson,

513 U.S. 265, 273–77 (1995)). We have previously concluded that evidence of Medicare payments

made to a health care provider on a patient’s behalf was “sufficient to establish interstate commerce

and the FAA’s application” to the case. In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69

(Tex. 2005) (orig. proceeding) (per curiam). The record in this case reflects that Fredericksburg

received Medicare payments on behalf of the deceased patient, Zapata, and the parties have never

challenged the applicability of the FAA in this case. See id. We therefore assume, as did the trial

court and court of appeals, that the FAA applies here.

                                                 4
        In 2005, this Court held that the FAA preempted a Texas Arbitration Act (TAA) requirement

that an attorney sign a client’s agreement to arbitrate a personal injury claim. Id. This was because

the TAA required an additional element—the attorney’s signature—that the FAA did not, and the

laws were in direct conflict. Id. Applying that precedent here, section 74.451’s requirement that an

arbitration clause provide a bold and conspicuous warning of a patient’s right to consult an attorney

and the requirement that an attorney must sign the agreement are additional requirements that

directly conflict with the FAA, which contains no such requirements. See id.; see also Doctor’s

Assocs., Inc. v. Casarotto, 517 U.S. 681, 683 (1996) (finding that the FAA preempted a nearly

identical statute that required a specific notice to appear on the first page of an agreement containing

an arbitration clause). Compare 9 U.S.C. § 2, with TEX . CIV . PRAC. & REM . CODE § 74.451(a).

Thus, the FAA preempts section 74.451 and the parties will be compelled to arbitrate—despite the

arbitration clause’s deficiencies under section 74.451—unless the MFA exempts the Texas law from

FAA preemption.

                                       III. MFA Applicability

        The MFA provides that the regulation and taxation of the business of insurance is a matter

of state law. See 15 U.S.C. § 1012(a). The MFA provision at issue here, section 1012(b), states in

full:

        No Act of Congress shall be construed to invalidate, impair, or supersede any law
        enacted by any State for the purpose of regulating the business of insurance, or
        which imposes a fee or tax upon such business, unless such Act specifically relates
        to the business of insurance: Provided, That after June 30, 1948, the Act of July 2,
        1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as
        amended, known as the Clayton Act, and the Act of September 26, 1914, known as


                                               5
       the Federal Trade Commission Act, as amended, shall be applicable to the business
       of insurance to the extent that such business is not regulated by State law.

Id. § 1012(b) (first emphasis added) (citation omitted). This case requires us to interpret and apply

federal preemption law, and therefore United States Supreme Court precedent controls the outcome.

See Eichelberger v. Eichelberger, 582 S.W.2d 395, 401 (Tex. 1979). In analyzing the MFA, the

Supreme Court observed that section 1012(b) is divided into two clauses. U.S. Dep’t of Treasury

v. Fabe, 508 U.S. 491, 504 (1993). The second clause deals with antitrust matters, see id., and is not

at issue here. This case concerns the MFA’s first clause, which applies to laws “enacted by any State

for the purpose of regulating the business of insurance.” 15 U.S.C. § 1012(b). Courts have analyzed

the MFA’s first clause under a three-part test that determines whether: “(1) the federal statute does

not specifically relate to the ‘business of insurance,’ (2) the state law was enacted for the ‘purpose

of regulating the business of insurance,’ and (3) the federal statute operates to ‘invalidate, impair,

or supersede’ the state law.” Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir.

1998); see also Davister Corp. v. United Republic Life Ins. Co., 152 F.3d 1277, 1279 n.1 (10th Cir.

1998). The MFA applies here if each part of the test is satisfied. See Davister Corp.,152 F.3d at

1280 n.2 (“[The] three-part test must be satisfied before the [MFA] can apply.”).

       Regarding the first part of the test, every court that has considered the FAA in this context

has concluded that the FAA does not specifically relate to the business of insurance. See, e.g.,

Munich Am. Reinsurance Co., 141 F.3d at 590; Am. Bankers Ins. Co. of Fla. v. Crawford, 757 So.

2d 1125, 1131 (Ala. 1999). We agree that “[t]here is no question that the FAA does not relate

specifically to the business of insurance,” Munich Am. Reinsurance Co., 141 F.3d at 590, and


                                                  6
therefore part one of the test is satisfied. Moreover, the third part of the test is satisfied by our

conclusion that the FAA directly conflicts with, and preempts, section 74.451 absent an exemption,

and therefore operates to “invalidate, impair, or supersede” our state law. See 15 U.S.C. § 1012(b).

Thus, only the second part of the test remains, and we must decide whether the state law in question

was “enacted by [the State of Texas] for the purpose of regulating the business of insurance.” See

id.

         We first consider exactly which state law is in question. Both parties’ main arguments focus

on whether courts performing an MFA analysis should look at the specific statutory provision in

dispute (section 74.451) or the state law in its entirety (Chapter 74). The parties highlight instances

where courts have employed each approach. The court of appeals analyzed Chapter 74 as a whole

in finding the MFA applicable. 406 S.W.3d at 325.

         Fredericksburg contends that Fabe requires us to analyze section 74.451—a law that

regulates the contents of an agreement to arbitrate a health care liability claim between a patient and

a health care provider1—in isolation from the statutory scheme that surrounds it. Because we cannot

look any further, according to Fredericksburg, section 74.451 cannot be viewed as a law enacted for

the purpose of regulating the business of insurance to warrant MFA protection. See Garcia v. Island

Program Designer, Inc., 4 F.3d 57, 61–62 (1st Cir. 1993) (citing Fabe, 508 U.S. at 508–10)

(analyzing a single provision in an insurance company liquidation and insolvency statute instead of



         1
          More accurately, section 74.451 is directed at agreements between a physician, professional association of
physicians, or other health care provider and a patient or potential patient. T EX . C IV . P RAC . & R EM . C ODE § 74.451(a).
For ease of reference, we refer to section 74.451 as applying to an agreement between a health care provider and a
patient.

                                                              7
examining the statute as a whole), abrogated on other grounds by Quackenbush v. Allstate Ins. Co.,

517 U.S. 706 (1996); see also Allen v. Pacheco, 71 P.3d 375, 383 (Colo. 2003) (analyzing a specific

statute and finding it “irrelevant” that other sections of the greater statutory scheme “address medical

malpractice issues not involving the relationship between an insurer and insured”).

       Fabe’s guidance for how to evaluate a statute under the MFA is not as clear as

Fredericksburg suggests, however. As recognized by the United States Court of Appeals for the

Fifth Circuit:

       Fabe’s holding and analysis suggest that a statute may require parsing to determine
       the extent of its pre-emptive power under the [MFA]. At the same time, however,
       the Court stopped short of directing that this approach be taken in every case. See
       [Fabe, 508 U.S. at 509 n.8.]. Fabe’s holding in this respect is simply unclear.

Munich Am. Reinsurance Co., 141 F.3d at 592 (emphasis added). In addition, the Beneficiaries point

to an instance in which a court has taken the approach of evaluating the entire state statutory scheme

in performing an MFA inquiry. See Stephens v. Am. Int’l Ins. Co., 66 F.3d 41 (2d Cir. 1995). The

United States Court of Appeals for the Second Circuit analyzed an anti-arbitration provision that was

part of a state law that regulated insurance company liquidations, and that court refused to limit its

focus to the anti-arbitration provision. See id. at 45. Instead, the court evaluated how the anti-

arbitration provision related to the comprehensive regulatory scheme of the liquidation act as a

whole. See id.

       In determining whether to look at the entire act or the specific statute that conflicts with

federal law, we cannot ignore the language of the MFA itself, which exempts from preemption “any

law enacted by any State for the purpose of regulating the business of insurance.” 15 U.S.C.


                                                   8
§ 1012(b) (emphasis added). Thus, determining a state’s purpose in enacting a law is fundamental

to a first-clause MFA inquiry. We do not read Fabe to alter the applicability of our well-established

rules for discerning a statute’s purpose, under which “[w]e determine legislative intent from the

entire act and not just isolated portions.” 20801, Inc. v. Parker, 249 S.W.3d 392, 396 (Tex. 2008)

(citing State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002)). Further, “we will try to avoid construing

a statutory provision in isolation from the rest of the statute; we should consider the act as a whole,

and not just single phrases, clauses, or sentences.” City of Austin v. Sw. Bell Tel. Co., 92 S.W.3d

434, 442 (Tex. 2002) (citation omitted); accord Calvert v. Tex. Pipe Line Co., 517 S.W.2d 777, 781

(Tex. 1974) (“An equally fundamental rule of statutory construction is that the intention of the

Legislature must be ascertained from the entire Act, and not from isolated portions thereof.”) (citing

City of Mason v. W. Tex. Utils. Co., 237 S.W.2d 273 (Tex. 1951)); see also TEX . GOV ’T CODE

§ 311.023 (establishing principles to assist courts in construing statutes); cf. Lexecon Inc. v. Milberg

Weiss Bershad Hynes & Lerach, 523 U.S. 26, 36 (1998) (describing a “central tenant” of statutory

interpretation “that a statute is to be considered in all its parts when construing any one of them”).

        Accordingly, to decide whether section 74.451 is a “law enacted by [the State of Texas] for

the purpose of regulating the business of insurance,” 15 U.S.C. § 1012(b), we first consider how that

section fits within the framework of Chapter 74 as a whole. See 20801, Inc., 249 S.W.3d at 396

(stating that “when interpreting [a specific statutory section], we must consider its role in the broader

statutory scheme”). This is consistent with the approach taken in Fabe. See Fabe, 508 U.S. at

494–97.


                                                   9
                                            A. Chapter 74

        At the outset of the Fabe opinion, the Supreme Court carefully explained how the disputed

statutory provision—an Ohio law that established a priority distribution hierarchy for claimants

against insolvent insurance companies—fit within a broader legal structure. Id. at 494. The Court

began by recognizing that “[t]he Ohio priority statute was enacted as part of a complex and

specialized administrative structure for the regulation of insurance companies from inception to

dissolution.” Id. (emphasis added). Then the Court quoted the Ohio law’s self-stated purpose,

detailed the entire chapter’s framework, and outlined some of the broad powers the chapter granted

to state administrators in performing the law. Id. The Court concluded that “[i]t seems fair to say

that the effect of all this is to empower the liquidator to continue to operate the insurance company

in all ways but one—the issuance of new policies.” Id. In other words, the Supreme Court did not

analyze the specific state statutory provision that conflicted with federal law until it first considered

the overall purpose, structural framework, and effect of the entire state law. We will do the same.

        In evaluating the purpose and overall structure of Chapter 74, we must keep in mind the

necessary focus of an MFA analysis. The MFA focuses “upon the relationship between the

insurance company and its policyholders.” Id. at 501. “Statutes aimed at protecting or regulating

this relationship [between the insurer and the insured], directly or indirectly are laws regulating the

‘business of insurance.’” SEC v. Nat’l Sec., Inc., 393 U.S. 453, 460 (1969). “The broad category

of laws enacted ‘for the purpose of regulating the business of insurance’ consists of laws that possess

the ‘end, intention, or aim’ of adjusting, managing, or controlling the business of insurance.” Fabe,

508 U.S. at 505 (quoting BLACK’S LAW DICTIONARY 1236, 1286 (6th ed. 1990)). A tenuous

                                                   10
connection to the ultimate aim of insurance, however, is insufficient to escape preemption. Id. at 509

(citing with approval Langdeau v. United States, 363 S.W.2d 327 (Tex. Civ. App.—Austin 1962,

no writ)).

         “The relationship between insurer and insured, the type of policy which could be issued, its

reliability, interpretation, and enforcement—these were the core of the ‘business of insurance.’”

Nat’l Sec., Inc., 393 U.S. at 460. Fabe noted that the category of laws “enacted by any State for the

purpose of regulating the business of insurance” necessarily encompasses “more than just the

‘business of insurance.’” Fabe, 508 U.S. at 505. Nonetheless, Fabe stated that an analysis of what

activities constitute the “business of insurance” can be relevant to the inquiry of whether a law was

enacted for the purpose of regulating the business of insurance. See id. at 502–05. Courts apply

three non-dispositive criteria in evaluating whether a practice is part of the “business of insurance,”

considering whether: “(1) the practice has the effect of transferring or spreading a policyholder’s

risk; (2) the practice is an integral part of the policy relationship between the insurer and the insured;

and (3) the practice is limited to entities within the insurance industry.” Munich Am. Reinsurance

Co., 141 F.3d at 590–91 (citing Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982)).2


         2
            It is unclear whether courts must apply the three “business of insurance” criteria (the Pireno factors) when
analyzing a state law under the MFA’s first clause. See Autry v. Nw. Premium Servs., Inc., 144 F.3d 1037, 1044 n.5 (7th
Cir. 1998) (“W e confess some uncertainty as to whether Fabe counsels us to employ the Pireno test in cases involving
the first clause of [the MFA].”). First, Fabe addressed an argument favoring application of the Pireno factors to
minimize the analysis of National Securities, the only other Supreme Court case to deal with the MFA’s first clause. See
Fabe, 508 U.S. at 502. The Supreme Court distinguished its previous precedent as having applied the Pireno factors
to evaluate the phrase “business of insurance” as used in the second MFA clause relating to antitrust immunity. Id. at
504. Nonetheless, the Supreme Court noted that the Pireno factors “are relevant in determining what activities constitute
the ‘business of insurance,’” id. at 502, and the Supreme Court proceeded to address the three factors as part of its
analysis of the first clause of the MFA. Id. at 502–05. Second, adding to the confusion, the Supreme Court later
considered the applicability of the MFA in the context of the ERISA savings clause and noted that in its prior precedent
“we called the [Pireno] factors ‘relevant’; we did not describe them as ‘required.’” UNUM Life Ins. Co. of Am. v. Ward,

                                                           11
         “Insurance companies may do many things which are subject to paramount federal regulation;

only when they are engaged in the ‘business of insurance’ does the [MFA] apply.” Nat’l Sec. Inc.,

393 U.S. at 459–60. Examples of practices that fall within the scope of the MFA include the fixing

of rates, the selling and advertising of policies, and the licensing of insurance companies and their

agents. See id. at 460. Other examples include the writing of insurance contracts and the actual

performance of those contracts. Fabe, 508 U.S. at 503. One court has summarized that “[t]he

‘business of insurance’ refers to the marketing, selling, entering into, managing, servicing, and

performing of insurance contracts.” Life Partners, Inc. v. Morrison, 484 F.3d 284, 294 (4th Cir.

2007).

         With the Supreme Court’s guidance in mind, we evaluate the Legislature’s purpose in

enacting Chapter 74. We have previously explained Chapter 74’s history:

         The TMLIIA was enacted in 1977 to relieve a medical “crisis having a material
         adverse effect on the delivery of medical and health care in Texas.” Act of May 30,
         1977, 65th Leg., R.S., ch. 817, § 1.02(6), 1977 Tex. Gen. Laws 2039, 2040 (repealed
         2003). In 2003, facing another “medical malpractice insurance crisis” and a
         corresponding “inordinate[]” increase in the frequency of [health care liability
         claims] filed since 1995, the Legislature repealed the TMLIIA, amending parts of the
         previous article 4590i and recodifying it as Chapter 74 of the Texas Civil Practice
         and Remedies Code.




526 U.S. 358, 373 (1999) (emphasis added) (citing Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 743 (1985)).
Finally, cumulating the chaos, the Supreme Court ultimately rejected application of the Pireno factors as being beneficial
to interpret the phrase “law . . . which regulates insurance” in cases involving the ERISA savings clause. Ky. Ass’n of
Health Plans, Inc. v. Miller, 538 U.S. 329, 340–42 (2003).
          Here, the court of appeals concluded that “a thorough analysis [of the MFA’s first clause] should include
consideration of the Pireno factors.” 406 S.W .3d at 324. W e do not disagree, but we need not decide whether
application of these factors is a mandatory component of a first-clause MFA inquiry. Instead, we address the three
factors in response to the parties’ arguments and the court of appeals’ analysis.

                                                           12
Tex. W. Oaks Hosp., LP v. Williams, 371 S.W.3d 171, 177 (Tex. 2012) (alterations in original)

(citation omitted). Regarding Chapter 74’s predecessor, article 4590i, we have stated that:

       As its title suggests, the “Medical Liability and Insurance Improvement Act of
       Texas” was expressly intended to reduce costs of medical insurance. See art. 4590i,
       § 1.01. The reason for enactment was a “medical malpractice insurance crisis in the
       State of Texas.” Id. § 1.02(a)(5) (emphasis added). Of the 13 legislative findings
       stating why Article 4590i was adopted, virtually every one is expressly related to the
       cost of malpractice insurance. See id. § 1.02(a).

Aviles v. Aguirre, 292 S.W.3d 648, 649 (Tex. 2009) (per curiam). Concerning Chapter 74’s

structure, we have recognized that “[t]he TMLA provides a statutory framework governing health

care liability claims.” CHCA Woman’s Hosp., L.P. v. Lidji, 403 S.W.3d 228, 232 (Tex. 2013).

Specifically relating to insurance, we have acknowledged that:

       [Chapter 74] was enacted in 2003 as part of House Bill 4, a top-to-bottom overhaul
       of Texas malpractice law to “make affordable medical and health care more
       accessible and available to the citizens of Texas,” and to “do so in a manner that will
       not unduly restrict a claimant’s rights any more than necessary to deal with the
       crisis.” The omnibus bill makes explicit findings describing the Legislature’s
       concern that a spike in healthcare-liability claims had fueled an insurance crisis that
       was harming healthcare delivery in Texas. The Legislature specifically found that
       the crisis had often made insurance unavailable at any price.

Methodist Healthcare Sys. of San Antonio, Ltd. v. Rankin, 307 S.W.3d 283, 287 (Tex. 2010)

(citations omitted). “Fundamentally, the goal of the [TMLIIA] and the [TMLA] has been to make

health care in Texas more available and less expensive by reducing the cost of health care liability

claims.” Scoresby v. Santillan, 346 S.W.3d 546, 552 (Tex. 2011). Most recently, we described that

the TMLA “was aimed at broadening access to health care by lowering malpractice insurance

premiums.” Tenet Hosps. Ltd. v. Rivera, 445 S.W.3d 698, 707 (Tex. 2014).



                                                 13
        Thus, we have made it abundantly clear that the TMLA and its predecessor were laws enacted

for the purpose of making health care more affordable in Texas. As noted, the TMLA sought to

achieve this goal by “reducing the cost of health care liability claims.” Scoresby, 346 S.W.3d at 552.

In other words, Chapter 74 was a law enacted for the purpose of imposing tort reform to further the

goal of making health care more affordable in Texas. But this says little about how Chapter 74

regulates the “business of insurance” as the Supreme Court has explained that phrase.

        The court of appeals focused entirely on how Chapter 74 impacts the relationship between

malpractice insurers and health care providers, but failed to consider how Chapter 74 related to the

relationship between patients and their insurance companies. Cf. Nat’l Sec. Inc., 393 U.S. at 460

(“The crucial point is that here the State has focused its attention on stockholder protection; it is not

attempting to secure the interests of those purchasing insurance policies.”). The Beneficiaries

contend that the preamble to the TMLIIA, which was copied into the legislative findings for the

TMLA but did not make it into the statutory text, establishes the Legislature’s purpose of enacting

“a comprehensive statutory scheme to protect the relationship between health care provider

policyholders and insurers.” Although ignored by both the court of appeals and the Beneficiaries,

several of the legislative findings also addressed how the so-called “medical malpractice crisis”

impacted health care patients:

        (8) the direct cost of medical care to the patient and public of Texas has materially
        increased due to the rising cost of malpractice insurance protection for physicians and
        hospitals in Texas;

        (9) the crisis has increased the cost of medical care both directly through fees and
        indirectly through additional services provided for protection against future suits or
        claims, and defensive medicine has resulted in increasing cost to patients, private

                                                   14
       insurers, and Texas and has contributed to the general inflation that has marked
       health care in recent years;

       (10) satisfactory insurance coverage for adequate amounts of insurance in this area
       is often not available at any price[.]

Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 10.11(a)(8)–(10), 2003 Tex. Gen. Laws 884–85.

Another finding summarized the effect of the law: “the adoption of certain modifications in the

medical, insurance, and legal systems, the total effect of which is currently undetermined, will have

a positive effect on the rates charged by insurers for medical professional liability insurance.” Id.

§ 10.11(a)(12) (emphasis added).

       These legislative findings stop short of establishing a purpose of regulating the “business of

insurance” under relevant Supreme Court precedent. Although the future effect of the changes were

uncertain when the Legislature enacted Chapter 74, it is possible the reform that was implemented

ultimately “result[ed] in cost savings to [the insurer] which may be reflected in lower premiums if

the cost savings are passed on to policyholders.” Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205, 216 (1979). But in Royal Drug, the Supreme Court recognized that even when

insurance companies lowered rates and passed along cost savings, that was too broad for purposes

of the MFA, “which exempts the ‘business of insurance’ and not the ‘business of insurance

companies.’” Id. at 216–17. Such aspirations of lower insurance rates were the entire reason

Chapter 74 was enacted—to place limitations on health care liability claims so that medical

malpractice insurers would lower rates for health care providers in hope that those cost savings

would trickle down to patient policyholders and their insurers. This tenuous impact on the “business

of insurance” is insufficient to extend MFA protection to Chapter 74. See id; see also Fabe, 508

                                                 15
U.S. at 508–09 (“Royal Drug rejected the notion that such indirect effects are sufficient for a state

law to avoid pre-emption under the [MFA].”) (citations omitted).

        Although Chapter 74 as a whole has too tenuous of a connection to the “business of

insurance” for purposes of the MFA, we must not forget Fabe’s directive that “[t]he broad category

of laws enacted ‘for the purpose of regulating the business of insurance’ consists of laws that . . . .

necessarily encompass[] more than just the ‘business of insurance.’” Fabe, 508 U.S. at 505 (quoting

BLACK’S LAW DICTIONARY 1236, 1286 (6th ed. 1990)). This broader category includes “laws that

possess the ‘end, intention, or aim’ of adjusting, managing, or controlling the business of insurance.”

Id.

        The court of appeals examined Chapter 74 as a whole, relied on opinions of several other

courts of appeals that have analyzed the TMLA or its predecessor, and concluded that “section

74.451 is part of a law enacted for the purpose of protecting and managing the performance of

insurance policies in the area of medical malpractice and health care liability, and is therefore within

the broad category of laws enacted ‘for the purpose of regulating the business of insurance.’” 406

S.W.3d at 324. In reaching this conclusion, the court of appeals believed it was necessary to

consider the three Pireno criteria. Id. It emphasized Fabe’s recognition that “performance of an

insurance contract satisfies all three Pireno criteria because without performance there is no transfer

of risk, and performance of a policy is integral to the insurer/insured relationship and is confined to

entities within the insurance industry.” Id. (citing Fabe, 508 U.S. at 503–04). In essence, the court

of appeals focused on the relationship between medical malpractice insurers and health care



                                                  16
providers, and joined other Texas courts that have held “that section 74.451 was enacted as part of

an effort to regulate the business of medical malpractice insurance in Texas.” Id. at 326.

        The court of appeals and the Beneficiaries both reach bare, unsupported conclusions that

Chapter 74 is aimed at managing or enforcing the performance of insurance contracts. In Fabe, the

Supreme Court held that the Ohio priority statute was “integrally related to the performance of

insurance contracts” because it was “designed to carry out the enforcement of insurance contracts

by ensuring the payment of policyholders’ claims despite the insurance company’s intervening

bankruptcy.” Fabe, 508 U.S. at 504. In contrast, Chapter 74 has no bearing on whether a claim is

paid or coverage is denied, nor does it prescribe the terms of insurance contracts or set the rates that

insurance companies can charge. See id. at 502–04. Chapter 74 is also silent about “the type of

policy which could be issued, [or] its reliability, interpretation, and enforcement.” Nat’l Sec., Inc.,

393 U.S. at 460. In fact, the only possible thread tying Chapter 74 to insurance contracts is the

aspiration of lower premium rates, which, as noted, is not enough to qualify for the MFA’s

protection under Royal Drug. See Royal Drug, 440 U.S. at 216–17. Once the parties to an insurance

contract agree upon a premium rate, Chapter 74 ceases to matter to the relationship between the

insurer and the insured.

        The Beneficiaries have failed to show that Chapter 74 is aimed at protecting or regulating the

performance of an insurance contract in satisfaction of all three Pireno factors. See Fabe, 508 U.S.

at 504–05 (concluding that performance of an insurance contract satisfies all three Pireno factors,

and laws “‘aimed at protecting or regulating’ the performance of an insurance contract” fall within

the MFA). The Beneficiaries offer no other support for the court of appeals’ conclusion that Chapter

                                                  17
74 was enacted to regulate the business of insurance. For purposes of the MFA, we are satisfied that

Chapter 74, as a whole, was not a law enacted by the Texas Legislature for the purpose of regulating

the business of insurance. The court of appeals erred in concluding otherwise.

                                          B. Section 74.451

        Because the test to determine whether laws are enacted for the purpose of regulating the

business of insurance is broad, it is possible that a law, in its entirety, would fail to qualify for the

MFA’s exemption from preemption, but a specific statutory provision could qualify by “possess[ing]

the end, intention, or aim of adjusting, managing, or controlling the business of insurance.” Fabe,

508 U.S. at 505 (internal quotations omitted); see, e.g., Pacheco, 71 P.3d at 383 (“It is irrelevant that

other sections of the [Colorado Health Care Availability Act], outside of sections 13–64–403(3)

and (4), address medical malpractice issues not involving the relationship between an insurer and

insured.”). As one court of appeals has recognized, “Fabe teaches that the entirety of a statute need

not be treated in such a way as to overlook the particularized goals of discrete statutory provisions.”

Villas of Mount Pleasant, LLC v. King, __ S.W.3d __, __, No. 06-14-00045-CV, 2014 WL 7447926,

at *6 (Tex. App.—Texarkana Dec. 31, 2014, no pet.). Therefore, it is necessary to also analyze

whether section 74.451 was enacted for the purpose of regulating the business of insurance.

        The court of appeals considered the greater statutory scheme that section 74.451 was enacted

under but failed to give meaning to Fabe’s holding that the parts of a state law that conflict with a

federal law are exempt from preemption under the MFA only “to the extent that [the state statute]

regulates policyholders.” Fabe, 508 U.S. at 508. In other words, we interpret Fabe to mean that

courts must also look to the specific provision of state law that conflicts with federal law to

                                                   18
determine whether the clashing parts of the state law were enacted for the purpose of regulating the

business of insurance. Id. at 509 (“By this decision, we rule only upon the clash of priorities as

pronounced by the respective provisions of the federal statute and the Ohio Code.”); see also Am.

Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 708 (5th Cir. 2002) (“The party seeking to avail itself

of the [MFA] must demonstrate that application of the FAA would invalidate, impair, or supersede

a particular state law that regulates the business of insurance.”) (emphasis added). This approach

aligns with the fact that the FAA does not conflict with all of Chapter 74, but only with section

74.451.3

         At the outset, Fabe expressly recognized that the Ohio priority statute was enacted as part

of an “administrative structure for the regulation of insurance companies.” Fabe, 508 U.S. at 494.

Yet merely being a part of an overall scheme that was enacted to regulate insurance companies was

insufficient to exempt the entire priority statute from preemption, see id. at 508–09, and the Supreme

Court expressly rejected an all-or-nothing approach that would treat the statute “as a package which

stands or falls in its entirety.” Id. at 509 n.8. Instead, the Court looked closely at the statute and

parsed through it to determine which parts of the priority scheme regulated policyholders. Id. at

508–09.

         Here, although the court of appeals recognized this essential part of Fabe’s holding, it

distinguished Fabe by concluding that section 74.451 did not share the same sort of “dual goals” as


        3
          Moreover, refusal to consider the purpose for which the conflicting, specific statutory section was enacted
opens the door for manipulation. At least one other court has recognized this possibility by noting that “a state could
avoid a federal preemption by simply putting the statutes into a section of the state’s statutes dealing with a general
unaffected subject.” Triton Lines, Inc. v. Steamship Mut. Underwriting Ass’n (Bermuda) Ltd., 707 F. Supp. 277, 279
(S.D. Tex. 1989).

                                                          19
the Ohio statute that led to the Court’s careful parsing in Fabe. 406 S.W.3d at 325. The court of

appeals held, albeit incorrectly, that section 74.451 was part of a law enacted for the purpose of

regulating the business of insurance, and it looked no further. Id. at 324. In an opinion that the court

of appeals relied on heavily, another court of appeals reached a different conclusion. See Kepka, 178

S.W.3d at 291. Kepka noted how the arbitration provisions in the TMLIIA related to the

Legislature’s overall statutory purpose and took care to point out that “the Legislature not only

intended to protect patients by it, but could also have determined that the section’s protections could

reduce litigation over arbitration agreements’ enforceability—thereby keeping down this aspect of

litigation cost.” Id. We agree with Kepka in this limited respect, and bearing in mind the greater

statutory framework in which it was enacted, we look to whether the Legislature enacted section

74.451 for the purpose of regulating the business of insurance.

        Much like the rest of Chapter 74, section 74.451 has little to do with “the relationship

between the insurance company and its policyholders.” See Fabe, 508 U.S. at 501; see also Villas

of Mount Pleasant, LLC, __ S.W.3d at __, 2014 WL 7447926, at *7 (“[Section 74.451] has nothing

to do with the relationship between insurers and insureds and is not integral to that relationship.”).

Relevant here, section 74.451(a) states:

        No physician, professional association of physicians, or other health care provider
        shall request or require a patient or prospective patient to execute an agreement to
        arbitrate a health care liability claim unless the form of agreement delivered to the
        patient contains a written notice in 10-point boldface type clearly and conspicuously
        stating:

        UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL
        EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN
        CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT

                                                  20
        LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT
        SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN
        ATTORNEY.

TEX . CIV . PRAC. & REM . CODE § 74.451(a). Section 74.451 concerns the relationship between the

patient and the health care provider. It recognizes the patient’s right to assert a health care liability

claim against the health care provider and requires the health care provider to give specific notice

to the patient to effectuate an agreement to arbitrate a claim. See id. Section 74.451 is not an

arbitration statute of general applicability, which courts have routinely held to fall beyond the scope

of the MFA, e.g., Hart v. Orion Ins. Co., 453 F.2d 1358, 1360 (10th Cir. 1971), because it applies

only to agreements to arbitrate health care liability claims. See Pacheco, 71 P.3d at 381–82

(concluding that the contested arbitration statute “is not a statute of general applicability because it

targets only arbitration agreements contained in medical services contracts”). Conversely, section

74.451 is also not an arbitration statute that relates specifically to insurance contracts, which courts

have found to fall under the MFA’s protection. See e.g., Nat’l Home Ins. Co. v. King, 291 F. Supp.

2d 518, 529 (E.D. Ky. 2003) (surveying cases and concluding that “both federal and state courts have

held that state statutes that invalidate arbitration clauses specifically as to insurance contracts are

indeed ‘enacted for the purpose of regulating the business of insurance’ and thus not preempted by

the FAA by virtue of the [MFA]”). Section 74.451 is therefore an arbitration statute of specific

applicability that applies to agreements to arbitrate health care liability claims. Section 74.451 does

not, however, apply directly to insurance contracts. See Life Partners, Inc., 484 F.3d at 293 (citing

Pireno, 458 U.S. at 130) (“A contract of insurance is one by which an insured transfers risks to an

insurer for the payment of a premium.”).

                                                   21
         The Beneficiaries nonetheless contend that “section 74.451 applies to the processing of

disputed claims against policyholders, which has a direct and substantial effect on the performance

of an insurance company’s defense and indemnity obligations under its insurance contract with the

policyholders.” Once again, both the Beneficiaries and the court of appeals fail to explain how

enforcement of the arbitration clause in Zapata’s pre-admission agreement with Fredericksburg

relates to the performance of the insurance contract between either the patient and her insurer or the

health care provider and its insurer. The pre-admission agreement was not “between insurer and

insured.” See Royal Drug Co., 440 U.S. at 216. Rather, it was a separate contractual arrangement

between an insured patient and a presumably insured health care provider engaged in performing

services other than insurance.4 See id.; see also St. Bernard Hosp. v. Hosp. Serv. Ass’n of New

Orleans, Inc., 618 F.2d 1140, 1145 (5th Cir. 1980) (holding that a contract for the purchase of goods

and services did not fall within the meaning of “business of insurance”). In other words, section

74.451 “may serve to protect someone who happens to be an ‘insured,’ but it does not protect that

person in his capacity as a party to a contract of insurance.” See Autry, 144 F.3d at 1044.

         Thus, the Beneficiaries’ argument stretches the scope of the MFA too far by suggesting that

the inclusion of particular terms in an insurance contract can invoke the MFA’s protection. The

correct focus of the MFA inquiry is to identify the “law enacted by any State for the purpose of


         4
          It is unknown whether Fredericksburg maintained a medical malpractice insurance policy. As its counsel
conceded at oral argument, because this is an interlocutory appeal, the record has not been developed to reveal whether
Fredericksburg was insured. W hen this dispute arose, nothing in Chapter 74 or elsewhere required nursing homes to
carry malpractice insurance.
         W e also note this underdeveloped record to briefly address amici’s concerns about the impact of our decision
on Health Maintenance Organizations (HMOs). Because there is no evidence that Fredericksburg operates as an HMO,
amici’s concerns are not properly before the Court at this time.

                                                          22
regulating the business of insurance.” 15 U.S.C. § 1012(b) (emphasis added). The only law at issue

here—section 74.451—is a law that regulates the relationship between patients and health care

providers, and “it is not attempting to secure the interests of those purchasing insurance policies.”

Nat’l Sec., 393 U.S. at 460. Moreover, no component of section 74.451 seeks to ensure that

“policyholders ultimately will receive payment on their claims.” Fabe, 508 U.S. at 506. The

Beneficiaries have failed to show that section 74.451 is aimed at protecting or regulating the

performance of a contract of insurance—either between the health care provider and its malpractice

insurer, or the patient and its insurer—to satisfy all three Pireno factors. See id. at 504–05

(concluding that performance of an insurance contract satisfies all three Pireno factors, and laws

“‘aimed at protecting or regulating’ the performance of an insurance contract” fall within the MFA).

Section 74.451 is not a law enacted for the purpose of regulating the business of insurance for

purposes of the MFA.

                                          IV. Conclusion

       Section 74.451 of the Texas Civil Practice and Remedies Code was not a law enacted by the

Texas Legislature for the purpose of regulating the business of insurance. It simply applies to

agreements to arbitrate health care liability claims between patients and health care providers.

Accordingly, the MFA does not exempt section 74.451 from preemption by the FAA, and the trial

court should have granted Fredericksburg’s motion to compel arbitration. We reverse the court of

appeals’ judgment and remand this case to the trial court to proceed in a manner consistent with this

opinion.



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                                   _______________________________________
                                   Paul W. Green
                                   Justice

OPINION DELIVERED: March 6, 2015




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