Old Forge School District v. Highmark Inc.

924 A.2d 1205, 592 Pa. 307, 2007 Pa. LEXIS 1366
CourtSupreme Court of Pennsylvania
DecidedJune 27, 2007
Docket61 MAP 2006
StatusPublished
Cited by20 cases

This text of 924 A.2d 1205 (Old Forge School District v. Highmark Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Old Forge School District v. Highmark Inc., 924 A.2d 1205, 592 Pa. 307, 2007 Pa. LEXIS 1366 (Pa. 2007).

Opinions

OPINION

Justice SAYLOR.

This case involves the issue of whether the Commonwealth Court abused its discretion in awarding attorneys’ fees to Highmark, Inc. (“Highmark”) on the ground that Appellants, who are subscribers and policyholders of Highmark, engaged in “vexatious” conduct by commencing several actions seeking to challenge Highmark’s rates and reserves.

On August 3, 2002, the Pennsylvania Insurance Department (the “Department”), announced that it was beginning a review process regarding the surplus and reserve levels maintained by the Pennsylvania Blue Plans, including Capital Blue Cross (“CBC”), Highmark, Inc. (“Highmark”), Hospital Service Association of Northeastern Pennsylvania (“NEPA”), and Independence Blue Cross (“IBC”). Upon analysis of some initial data submitted by the Blue Plans, the Department concluded that the Blue Plans collectively held substantial reserve and surplus amounts. The Department further found that there was a level at which accumulating additional surplus would be inefficient. Pursuant to this finding, the Department requested that the Blue Plans submit applications for approval of their reserve and surplus levels.

On February 9, 2005, Insurance Commissioner M. Diane Koken issued a determination and order concerning the applications submitted by the Blue Plans. See In re Applications of Capital Blue Cross et al., No. MS05-02-006, slip op. (Pa. Ins. Dep’t February 9, 2005). The Commissioner defined the [310]*310term “surplus” as “what a Plan has in capital after all liabilities have been deducted from assets.” Id. at 10. She then described three categories of surplus levels: efficient, sufficient, and inefficient. The Commissioner explained that if a plan was operating with a “sufficient” level of surplus, that plan should not include a premium for a risk and contingency factor in filed rates for the next calendar year. She announced that in calendar year 2003, Highmark, CBC, and NEPA operated within their “sufficient” surplus operating ranges, while IBC operated at an efficient level. Id. at 37. Observing that the Department received many public comments discussing the possibility of rate relief in the form of rebates or premium reductions, the Commissioner noted that retroactive rate relief was not an appropriate method of handling excess surplus:

[Attempting to target accumulated surplus to one group of ratepayers over another is an inherently problematic and potentially inequitable notion. In fact, a rate rollback, or a rate freeze, could prove detrimental to the marketplace.

Id. at 17. She observed, however, that forward-looking rate relief may be appropriate, stating as follows:

[W]here a Blue Plan has sufficient surplus, forward-looking rate relief would assure that additional surplus is not cumulatively derived from premium income. Thus, for example, it would be appropriate to charge rates that do not include a risk and contingency factor when a Plan has a sufficient level of surplus.

Id. at 18.

On March 11, 2005, two petitions for review were filed with the Commonwealth Court challenging the Commissioner’s order and determination. See City of Philadelphia v. Pennsylvania Ins. Dep’t, 889 A.2d 664, 668 (Pa.Cmwlth.2005). The first petition was filed by a group composed of three policyholders, four Blue Cross subscribers, and fourteen public interest groups. The second complaint was filed by the City of Philadelphia based upon its status as an employer who pays premiums to Independence Blue Cross. See City of Philadelphia, 889 A.2d at 668. In both submissions, the petitioners [311]*311argued that they were entitled to an administrative hearing pursuant to the Health Plan Corporations Act, see 40 Pa.C.S. § 6124(b), in which they could conduct discovery as well as cross-examine adverse witnesses and Blue Cross officials. The court held that, under Pennsylvania law, the petitioners had no protected property interest in their rates; therefore, they had no right to a due process hearing or standing to appeal the findings made by the Commissioner regarding the surplus held by each of the plans. See City of Philadelphia, 889 A.2d at 672.1

On May 25, 2005, Appellants filed a class action complaint in the Commonwealth Court’s original jurisdiction. In their complaint, Appellants asserted causes of action grounded on breach of contract and unjust enrichment theories. Specifically, Appellants contended that the Commissioner did not fully approve Highmark’s and NEPA’s applications for approval of their 2003 surplus levels, as it found that both companies were operating with a “sufficient” level of surplus. Relying upon the Commissioner’s order, Appellants alleged that Highmark and NEPA should not have included a risk and contingency factor in their filed premium rates for 2004. Arguing that the Commissioner’s February 9, 2005 determination and order were incorporated into the contracts between Appellants and these companies, Appellants asserted that Highmark and NEPA were in breach of contract for failing to refund moneys received for any risk and contingency factor in their filed premium rates for 2004. In addition, Appellants contended that the companies had no right to keep any funds that they received relating to the inclusion of this factor. As Highmark and NEPA retained all funds that they received, Appellants concluded that the companies were unjustly enriched at their expense. As a remedy, Appellants sought a refund relative to the risk and contingency factor in the premium rates for 2004.

[312]*312Highmark and NEPA filed preliminary objections, in which each of them asserted a lack of subject matter jurisdiction and failure to exhaust a statutory remedy. In addition to those objections, Highmark filed a motion alleging that Appellants lacked standing and NEPA requested counsel fees and costs as to all named Appellants other than Old Forge School District for vexatious conduct in commencing the action. See 42 Pa.C.S. § 2503(9) (providing that a party is entitled to an award of counsel fees when “the conduct of another party in commencing the matter or otherwise was arbitrary, vexatious or in bad faith”). Unlike NEPA, Highmark did not request attorneys’ fees at that time.

The Commonwealth Court held a hearing on September 15, 2005 concerning Highmark’s and NEPA’s preliminary objections.2 In a memorandum opinion issued on February 7, 2006, the court sustained the objections and dismissed Appellants’ complaint. See Old Forge Sch. Dist. v. Highmark, 276 M.D. 2005, slip op. (Pa.Cmwlth.Feb. 7, 2006). The court determined that Appellants, while couching their argument in terms of excess surplus, were actually challenging the Commissioner’s determination that retroactive rate relief is inappropriate. The court indicated that the proper procedure for contesting the Commissioner’s determination was to appeal the decision pursuant to the Commonwealth Court’s appellate jurisdiction. The court noted that Appellants had previously filed such an appeal, see City of Philadelphia, 889 A.2d 664

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Old Forge School District v. Highmark Inc.
924 A.2d 1205 (Supreme Court of Pennsylvania, 2007)

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Bluebook (online)
924 A.2d 1205, 592 Pa. 307, 2007 Pa. LEXIS 1366, Counsel Stack Legal Research, https://law.counselstack.com/opinion/old-forge-school-district-v-highmark-inc-pa-2007.