Health Net of California, Inc. v. Department of Health Services

Civil Code section 1668 provides: “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud ... or violation of law, whether willful or negligent, are against the policy of the law.”

In this case, we are called upon to resolve whether section 1668 invalidates a contractual clause that prohibits any recovery of damages (but not equitable relief) for any violation of statutory or regulatory law not made part of the parties’ contractual obligations. Based on the clear intent of section 1668, as expressed in its plain language, and consistent with the case law, we find that section 1668 prevents a party from imposing such a contractual prohibition against the recovery of damages for any future violations of statutory or regulatory law.

Plaintiff Health Net of California, Inc. (Health Net) contracted with the California Department of Health Services (DHS) to be one of two health plans providing managed care services to Medi-Cal patients in Tulare County. But in violation of Welfare and Institutions Code section 14087.305, subdivision (j), and its implementing regulations, DHS assigned all “default…