Can a consumer sue a company for being too profitable?
That question is at the heart of a lawsuit against Highmark Inc., alleging the Pittsburgh health insurance firm is raking in too much profit and sitting on cash reserves that are too big.
But the suit also revolves around the issue of whether the courtroom is the wrong venue to carp about "excess" premiums, which in turn lead to those profits.
Attorneys for Herman Wooden and Thomas Logan, two Philadelphia residents who filed the suit, think they have standing and a good case to boot. Highmark believes they do not, and has asked the Court of Common Pleas of Philadelphia to dismiss the complaint.
"The nonprofit law permits the nonprofit to earn 'incidental' profits," said David S. Senoff, an attorney with Caroselli Beachler McTiernan & Conboy, based in Pittsburgh.
In other words, "You happen to make this money -- it's not like you were trying hard."
Highmark made $444.7 million in 2011, or about 3 percent of the company's overall 2011 revenue of $14.78 billion. It made $462.5 million in 2010.
Wooden filed suit in September of last year and Logan filed weeks later. In January, the two complaints were combined into a single case.
On Feb. 6, Highmark asked that the case be dismissed; on Feb. 27, the plaintiffs responded; on March 7, Highmark again asked for dismissal. Both the plaintiffs and Highmark are still awaiting word from the Common Pleas Court on whether Highmark's request will be granted, a ruling that could come any week now.
The case resembles one filed in 2002,in which the plaintiffs argued that Philadelphia-based IBC, also a nonprofit insurer, made too much money and stored too much in reserves.
The Commonwealth Court tossed that complaint, after IBC argued that the "jurisdiction over the complainants' rate-related claims based on an alleged excessive surplus is exclusively with the Insurance Department," not the courts.
IBC also argued that the litigants "are not among the persons upon whom the Nonprofit Law confers standing or allows to inspect corporate records."
In other words, they were policyholders, but not "members" of the company. The case was then appealed to the Supreme Court, which in 2006 agreed with the Commonwealth Court.
A settlement between the parties was later reached.
This new case hopes to sidestep that issue by relying on two plaintiffs who were also "members" of Highmark. Before 2009, when Highmark amended its corporate bylaws, Wooden was considered a "professional member" of the company. He also was a "lay member of the corporation."
Logan also served as a professional member and a lay member. Essentially, professional and lay "members" were health experts, employers, businessmen and medical professionals who served at the pleasure of the corporate board. In 2009, Highmark's bylaws were rewritten to create "regional advisory boards," doing away with corporate members.
Both Wooden and Logan also have ties to labor -- Wooden, the United Food and Commercial Workers international union, and Logan, the AFL-CIO.
Neither could be reached.
The plaintiffs and their attorneys say it's reasonable for Highmark to keep a surplus that will allow it to pay its immediate claims and other short-term obligations. "By no means are we saying that they can't keep anything in the bank," Mr. Senoff said.
Ill-defined, however, is what amounts to greater than "incidental" profit. Other states have done a better job of defining it, said attorney Bill Caroselli.
In California, he noted, California Blue Shield agreed to voluntarily restrict its net income to 2 percent of total revenues.
As a result of the pledge, California Blue Shield returned $180 million in "excess" 2010 income to its customers, via premium credits.
Reach Bill Toland at btolandpost-gazette.com. For more stories visit scrippsnews.com
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