D.C. Appleseed Ctr. for Law & Justice, Inc. v. Dist. of Columbia Dep't of Ins.

• Decision Date: 13 September 2012
• Docket Number: No. 10–AA–1461.,10–AA–1461.
• Citation: 54 A.3d 1188
• Parties: D.C. APPLESEED CENTER FOR LAW AND JUSTICE, INC., Petitioner, v. DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE, SECURITIES, AND BANKING, Respondent, and Group Hospitalization and Medical Services, Inc., Intervenor.
• Court: D.C. Court of Appeals

54 A.3d 1188

D.C. APPLESEED CENTER FOR LAW AND JUSTICE, INC., Petitioner,

v. DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE, SECURITIES, AND BANKING, Respondent,andGroup Hospitalization and Medical Services, Inc., Intervenor.

No. 10–AA–1461.

District of Columbia Court of Appeals.

Argued June 9, 2011.

Decided Sept. 13, 2012.

Walter A. Smith, Jr., with whom Richard B. Herzog, Marialuisa S. Gallozzi, Washington, and Kurt G. Calia, Redwood Shores, were on the brief, for petitioner.

E. Desmond Hogan, with whom Craig A. Hoover, Dominic F. Perella, and Michael D. Kass, Washington, were on the brief, for intervenor.

Irvin B. Nathan, Attorney General for the District of Columbia, Todd S. Kim, Solicitor General, Donna M. Murasky, Deputy Attorney General, and Richard S. Love, Senior Assistant Attorney General, filed a Statement in Lieu of Brief for respondent.

Mary M. Cheh, District of Columbia Councilmember, filed a brief as amicus curiae in support of petitioner.

Before FISHER and BLACKBURNE–RIGSBY, Associate Judges, and RUIZ, Senior Judge.^*

RUIZ, Senior Judge:

Petitioner D.C. Appleseed Center for Law and Justice, Inc. (Appleseed) seeks our review of the decision and order of the respondent, District of Columbia Department of Insurance, Securities, and Banking (Department or DISB), determining that the 2008 surplus of intervenor, Group Hospitalization and Medical Services, Inc. (GHMSI), was not “excessive” for purposes of the Hospital and Medical Services Corporation Regulatory Act of 1996, as amended by the Medical Insurance Empowerment Amendment Act of 2008, D.C. Act 17–704, 56 D.C.Reg. 1346 (2009), D.C.Code §§ 31–3501 to –3524 (2009 & Supp.2010). Appleseed makes three principal arguments: (1) that the Commissioner incorrectly interpreted the relevant statutory language; (2) that the Commissioner failed to provide adequate reasons in support of the decision finding that the 2008 surplus was not excessive; and (3) that the Commissioner abused discretion in failing to order an immediate review of GHMSI's 2009 and 2010 surpluses. GHMSI opposes these arguments and, in addition, contends that Appleseed does not have standing to seek judicial review of the Commissioner's order. We conclude that Appleseed has standing to bring this petition. We also agree with Appleseed's first two contentions, but we reject the third. We therefore affirm the Commissioner's decision to defer review of GHMSI's 2009 and 2010 surpluses until July 31, 2012, but reverse the Commissioner's determination that GHMSI's 2008 surplus was not unreasonably large or excessive, and remand the matter to the Commissioner for further proceedings not inconsistent with this opinion.

I. Factual and Procedural History

GHMSI was created in 1939 by Congressional charter to provide health care services and medical insurance.¹See Pub.L. No. 76–395, 53 Stat. 1412 (1939).² Organized as a “charitable and benevolent institution,” id. § 8, 53 Stat. at 1414, GHMSI “shall not be conducted for profit, but shall be conducted for the benefit of [its] certificate holders.” Id. § 3, 53 Stat. at 1413. Although initially “not subject to the provisions of the statutes regulating the business of insurance in the District of Columbia,” id. § 7, 53 Stat. 1414, Congress amended the charter in 1993 to place GHMSI under the District's regulatory authority as a result of GHMSI's “deteriorating” financial condition. SeePub.L. No. 103–127 § 138, 107 Stat. 1336, 1349 (1993).³In 1997, GHMSI merged with Blue Cross/Blue Shield of Maryland to form CareFirst, Inc. See Grp. Hosp. & Med. Servs., Inc., No. A–HC–97–01 (Dep't of Ins. & Sec. Regulation, Dec. 23, 1997). Presently, GHMSI enrolls about one million subscribers in the District of Columbia, Maryland, and northern Virginia; approximately 30% of its policies (individual, group and self-insured) are issued in the District and 10% of its individual subscribers reside in the District. According to the Commissioner, approximately 69% of premiums and claims during the 1999–2008 period were attributable to policies issued in the District of Columbia.

A. Appleseed's Report and Action by the Council of the District of Columbia

In 2004, Appleseed issued a lengthy report, CareFirst: Meeting Its Charitable Obligation to Citizens of the National Capital Area, in which Appleseed concluded that “GHMSI has not been meeting [its] charitable obligation to citizens of the National Capital area” in violation of its “federally imposed charitable obligation.” Asserting that “GHMSI is in effect owned by the public” and “[i]ts mission is to serve that public,” the report argued that GHMSI was subject to regulatory oversight and that the D.C. Attorney General had authority to enforce its charitable mission. Appleseed urged GHMSI to engage in more charitable activities and at a higher rate. Specifically, the report recommended that GHMSI could spend “between 2 and 3 percent of its earned annual premiums [equaling $41 to $61 million] and still maintain its current pricing structure, its level of competitiveness, and a high level of surplus.” ⁴ The report also included a legal analysis prepared by Covington & Burling LLP arguing that GHMSI had an obligation, pursuant to its federal charter and District law, to support public health initiatives beyond providing health plans to its current subscribers.

Appleseed's report spurred activity by officials of the District of Columbia and by the Council of the District of Columbia. The following year, 2005, then-D.C. Attorney General Robert J. Spagnoletti issued a memorandum regarding GHMSI's charitable obligations. See Memorandum from Robert J. Spagnoletti, Attorney General, to Robert Bobb, City Administrator 8 (Mar. 4, 2005). The memorandum concurred with Appleseed's assessment that “GHMSI has an obligation to use its profits and excess surplus to serve the purpose of promoting health in its service areas,” and agreed that the D.C. Attorney General has the authority to enforce GHMSI's obligations on behalf of the public. Id. at 8. Moreover, the D.C. Attorney General opined that GHMSI cannot fulfill its charitable mission “simply by allocating a specified percentage of premiums or earnings to distinctly ‘charitable’ activities. Rather, GHMSI is to devote its entire operations to serving, directly or indirectly, the purpose for which it was chartered.” Id. at 2. The D.C. Attorney General's memorandum also concluded that it was up to GHMSI's Board to decide how it would do so, and that GHMSI could choose “to fulfill this obligation in various ways, such as devoting surplus resources to (1) improving the quality, benefits, affordability or accessibility of its non-profit health plans, (2) providinghealth plan benefits or other services to the poor at no charge, and/or (3) funding health-related activities that are conducted by other charitable organizations.” Id. at 8. The D.C. Attorney General's Memorandum did not address whether GHMSI had “in fact been operating consistently with its charter.” Id. at 2.⁵

That same year, also in response to Appleseed's report, the Commissioner made inquiry into the matter. See Report of the District of Columbia Department of Insurance, Securities, and Banking in the Matter of: Inquiry into the Charitable Obligations of GHMSI/CareFirst in the District of Columbia (May 15, 2005). After a public hearing in which Appleseed and its report were prominent, the Commissioner agreed that GHMSI has a legal obligation to engage in charitable activities and that “as a strong and responsible provider of health care insurance in its service area, [GHMSI] can and should do more to promote and safeguard public health of the residents of the District of Columbia.” Id. at 2. The Commissioner concluded that, although by providing nonprofit health insurance GHMSI could meet its legal charitable obligations, GHMSI “can and should engage in more charitable activity” in the District, id. at 10, finding that it has the authority to do so in the area of public health, id. at 11–12, and that its ability “to do more for the community than it is doing currently is beyond doubt.” Id. at 6–10. As a result, the Commissioner found that “GHMSI should be engaging in charitable activity significantly beyond its current activities,” but rejected the level of charitable activity urged by Appleseed (between $41 and $61 million) as “unsound and potentially dangerous.” Id. at 19. Because GHMSI testified that it proposed to reduce its surplus and engage in significant new health care initiatives in the District of Columbia, the Commissioner stopped short, however, of making a recommendation as to the proper level and nature of charitable activity that GHMSI should provide in the District, stating that it was for the GHMSI Board to make that determination in the first instance. Id. at 22.

B. The Medical Insurance Empowerment Amendment Act

Dissatisfied with the state of affairs,⁶ on January 23, 2009, the Council of the District of Columbia passed the Medical Insurance Empowerment Amendment Act of 2008 (MIEAA), D.C. Law 17–369, which authorizes the Commissioner to determine whether a medical services corporation's surplus is “excessive” and to order that any excess surplus be reinvested in the community. See D.C. Act 17–704, 56 D.C.Reg. 1346 (2009), D.C.Code §§ 31–3501 to – 3524 (2009).⁷ In particular, the MIEAA created a new section, entitled “community health reinvestment,” which provides that “[a] corporation shall engage in community health reinvestment to the maximum feasible extent consistent with financial soundness and efficiency.” D.C.Code § 31–3505.01 (2009). The Act also added a new subsection to D.C.Code § 31–3506, which states in relevant part:

[T]he Commissioner shall review the portion of the surplus of the corporation that is attributable to the District and shall issue a determination as to whether the surplus is excessive. The surplus may be considered excessive only if:

(1) The surplus is greater than the...