M-Plan, Inc. v. INDIANA COMP. HEALTH INS., 49S02-0312-CV-605.

• Citation: 809 N.E.2d 834
• Decision Date: 08 June 2004
• Docket Number: No. 49S02-0312-CV-605.,49S02-0312-CV-605.
• Parties: M-PLAN, INC., Advantage Health Plan, Inc., and Partners National Health Plans of Indiana, Inc., Appellants (Plaintiffs below), v. INDIANA COMPREHENSIVE HEALTH INSURANCE ASSOCIATION and Sally McCarty, In Her Official Capacity as Indiana insurance Commissioner, Appellees (Defendants below).
• Court: Supreme Court of Indiana

809 N.E.2d 834

M-PLAN, INC., Advantage Health Plan, Inc., and Partners National Health Plans of Indiana, Inc., Appellants (Plaintiffs below), v. INDIANA COMPREHENSIVE HEALTH INSURANCE ASSOCIATION and Sally McCarty, In Her Official Capacity as Indiana insurance Commissioner, Appellees (Defendants below).

No. 49S02-0312-CV-605.

Supreme Court of Indiana.

June 8, 2004.

David J. Bodle, Robert L. Hartley, Indianapolis, IN, John A. Biek, Melissa A. Connell, Chicago, IL, Attorneys for Appellants.

Arend J. Abel, Indianapolis, IN, Attorney for Amicus Curiae Physicians' Health Plan of Northern Indiana, Inc.

Wayne C. Turner, Anne L. Cowgur, Michael R. Limrick, Indianapolis, IN, Attorneys for Appellees.

Robert M. Baker III, Indianapolis, IN, Attorney for Amicus Curiae Indiana High School Athletic Association, Inc.

ON PETITION FOR TRANSFER FROM THE INDIANA COURT OF APPEALS, NO. 49A02-209-CV-759.

BOEHM, Justice.

The Plan of Operation of the Indiana Comprehensive Health Insurance Association requires any challenge to the Association's assessment of its members to be presented to the Association's Board, subject to a right of appeal to the Commissioner of Insurance. We hold that these remedies are required to be pursued before a member may challenge an assessment in court.

Factual and Procedural Background

The Indiana Comprehensive Health Insurance Association (ICHIA) was created by statute in 1981. Its purpose is to provide health insurance for those who may not otherwise be able to obtain coverage. Ind.Code § 27-8-10-2.1(a) (2003). Every health insurer, health maintenance organization (HMO), limited service HMO, and self-insurer of health care coverage is required to be a member. Id. Individuals eligible for coverage through ICHIA are Indiana residents who have been denied coverage by a medical insurance carrier without accepting material underwriting restrictions or who are unable to obtain health insurance except at a rate above the ICHIA premium. I.C. § 27-8-10-5.1(a).

A nine-member board of directors manages ICHIA.¹ I.C. § 27-8-10-2.1(b). At its formation, ICHIA was required to submit to the Commissioner a Plan of Operation "necessary or suitable to assure the fair, reasonable, and equitable administration of the association." I.C. § 27-8-10-2.1(c). The Plan and amendments are required to be approved by the Commissioner after notice and hearing, based on a determination that they meet the requirements that they (1) assure the fair and equitable administration of the Association and (2) "provide for the sharing of association losses on an equitable, proportionate basis among the member carriers, health maintenance organizations, limited service health maintenance organizations, and self-insurers." Id.

By statute, ICHIA premiums are to be no greater than 150% of the average charged by the five carriers with the largest premium volume in Indiana during the preceding calendar year. I.C. § 27-8-10-2.1(g). Because its rates are subject to this statutory cap and because ICHIA insures high-risk individuals, ICHIA incurs substantial losses every year. Associated Ins. Cos. v. Ind. Dep't of State Revenue, 655 N.E.2d 1271, 1272 (Ind. Tax Ct.1995). The statute authorizes ICHIA to assess these losses "to all members in proportion to their respective shares of total health insurance premiums ... or any other equitable basis as may be provided in the plan of operation." I.C. § 27-8-10-2.1(n). Members are permitted by statute to take a credit for their assessment payments against their liability for premium tax, adjusted gross income tax, and certain other state taxes up to the aggregate of their assessments less any refunds from ICHIA. I.C. § 27-8-10-2.1(n)(1).

ICHIA's current Plan of Operation has been approved by the Commissioner. It provides for an internal appeal procedure for member associations to follow to present any challenge to ICHIA's actions. Specifically, if a member wishes to challenge ICHIA's Plan of Operation or assessment methodology, the member is directed to appeal first to the ICHIA Board of Directors. If the member is unhappy with the Board's decision, or if the Board does not act on the member's complaint within thirty days, the member can appeal to the Commissioner. The Plan provides that a member association may commence suit against ICHIA or the Commissioner only after this appeal procedure is completed.

The plaintiffs in this case are HMOs who allege they are not subject to the relevant state taxes in amounts sufficient to benefit from the credit. Thus, they argue, ICHIA's assessment method allocates a disproportionate share of ICHIA's losses to the HMOs after taking into consideration their tax effect. The plaintiffs brought this lawsuit in Marion Superior Court against ICHIA and the Commissioner seeking a declaratory judgment that ICHIA's assessments of the plaintiffs violate the fair and equitable apportionment requirements of the Indiana Insurance Code. They also contend the assessments denied rights guaranteed under the Due Course of Law and Privileges and Immunities Clauses of the Indiana Constitution, and resulted in an unconstitutional taking of their property without compensation.

The Commissioner and ICHIA moved to dismiss the case for lack of subject matter jurisdiction, arguing that the HMOs failed to exhaust required administrative remedies because they did not appeal to the ICHIA Board of Directors or to the Commissioner before initiating this suit in court. The trial court granted the motion and dismissed the complaint as to both ICHIA and the Commissioner. The Court of Appeals reversed, holding that the HMOs were not required to exhaust administrative remedies before filing their complaint because ICHIA was not a state agency and therefore could not invoke the requirements of the Indiana Administrative Orders and Procedures Act (AOPA) to exhaust administrative remedies before challenging its action. M-Plan, Inc. v. ICHIA, 784 N.E.2d 546, 551 (Ind.Ct.App. 2003). This Court granted transfer.

I. Exhaustion of Administrative Remedies

Indiana has viewed failure to exhaust administrative remedies as a matter of subject matter jurisdiction of the trial court. Austin Lakes Joint Venture v. Avon Utils., Inc., 648 N.E.2d 641, 644 (Ind.1995). If the facts before the trial court are undisputed, then an issue of subject matter jurisdiction presents a pure question of law and is reviewed de novo. GKN Co. v. Magness, 744 N.E.2d 397, 401 (Ind.2001). That is the case here.

The HMOs contend that the internal dispute resolution procedure set out in ICHIA's Plan of Operation is not the exclusive remedy for a member aggrieved by ICHIA's actions. They further argue that if this procedure is intended to be the exclusive remedy, it cannot be mandatory because it is not statutorily authorized. The first contention is easily resolved. The Plan provides that:

Any member aggrieved by an act of the Association shall appeal to the Board of Directors before appealing to the Commissioner of the Indiana Department of Insurance.... If such member is aggrieved by the final action or decision of the Board, or if the Board does not act on such complaint within 30 days, the member may appeal to the Commissioner within 30 days....

The use of "shall" is normally mandatory. United Rural Elec. Membership Corp. v. Ind. & Mich. Elec. Co., 549 N.E.2d 1019, 1022 (Ind.1990). We see no reason to construe the term differently here. The Plan therefore purports to require an appeal to the Board, and permits an appeal to the Commissioner to resolve any dispute between a member and ICHIA. The issue then becomes whether the Commissioner and ICHIA are authorized to adopt and approve a Plan requiring the administrative remedy at issue. If so, the HMOs must exhaust this remedy.

The Court of Appeals reasoned that because ICHIA's motion to dismiss for lack of subject matter jurisdiction was based on failure to exhaust procedures prescribed by ICHIA's Plan of Operation, the central question is whether ICHIA is an agency subject to the Administrative Orders and Procedures Act. M-Plan, Inc. v. Ind. Comprehensive Health Ins. Ass'n, 784 N.E.2d 546, 549 (Ind.Ct.App.2003). We agree that ICHIA is not a state agency, at least for most purposes. But we do not agree that this issue controls disposition of this case. Rather, we conclude that the procedures prescribed in the Plan of Operation—appeal to the Board of Directors and then to the Commissioner—are required to be pursued because the plaintiffs are members of ICHIA and thereby bound by validly adopted provisions of the Plan of Operation, irrespective of the character of ICHIA.

First, even if ICHIA is viewed as a private association, exhaustion of internal dispute mechanisms may be required. Courts will rarely interfere with the internal affairs of an association. 3 Ind. Law Encyclopedia, Associations, Clubs & Societies § 9, at 263 (1978). Just as a court will not hear a dispute with an administrative agency before the challenger has exhausted available administrative remedies, so may a dispute between an association and one of its members be subject to exhaustion of internal reviews provided by the association. United States Auto Club, Inc. v. Woodward, 460 N.E.2d 1255, 1258 (Ind.Ct.App.1984). Private associations enjoy this deference even where membership in the association is involuntary. See Ind. High Sch. Athletic Ass'n v. Carlberg, 694 N.E.2d 222, 227 (Ind.1997)

(although a student's attendance is not voluntary, because the school is a member of IHSAA, exhaustion of IHSAA remedies is appropriate before bringing suit to challenge an athletics eligibility ruling). Similarly, in states where membership in the state bar association is required of all attorneys, members of those associations must exhaust internal review procedures provided by the association before challenging its acts in court. See Sullivan v. Alaska Bar Ass'n, 551 P.2d 531, 534 (Alaska 1976); In re Chapman, ...