Attorneys for Appellants Attorneys for Appellees
David J. Bodle Wayne C. Turner
Robert L. Hartley Anne L. Cowgur
Indianapolis, Indiana Michael R. Limrick
John A. Biek
Melissa A. Connell
Attorney for Amicus Curiae
Indiana High School Athletic
Attorney for Amicus Curiae Robert M. Baker III
Physicians Health Plan of Indianapolis, Indiana
Northern Indiana, Inc.
Arend J. Abel
Indiana Supreme Court
M-Plan, Inc., Advantage Health
Plan, Inc., and Partners National
Health Plans of Indiana, Inc.,
Appellants (Plaintiffs below),
Indiana Comprehensive Health
Insurance Association and Sally
McCarty, in her official capacity
as indiana insurance commissioner,
Appellees (Defendants below).
Appeal from the Marion Superior Court, No. 49D07-0207-PL-1136
The Honorable Gerald S. Zore, Judge
On Petition for Transfer from the Indiana Court of Appeals, No. 49A02-209-CV-759
June 8, 2004
The Plan of Operation of the Indiana Comprehensive Health Insurance Association requires any
challenge to the Associations assessment of its members to be presented to the
Associations 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.
See footnote I.C. § 27-8-10-2.1(b). At
ation, 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. Co. v. Ind. Dept 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).
ICHIAs 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 ICHIAs actions. Specifically, if a member wishes to challenge
ICHIAs 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 Boards decision, or if the Board does not act on the
members 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, ICHIAs assessment method allocates a disproportionate share of ICHIAs
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 ICHIAs 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
The HMOs contend that the internal dispute resolution procedure set out in ICHIAs
Plan of Operation is not the exclusive remedy for a member aggrieved by
ICHIAs 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 ICHIAs motion to dismiss for lack
of subject matter jurisdiction was based on failure to exhaust procedures prescribed by
ICHIAs 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. Assn, 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 Operationappeal to the Board of Directors and then to the Commissionerare 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
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 Assn v. Carlberg, 694 N.E.2d
222, 227 (Ind. 1997) (although a students 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 Assn, 551 P.2d
531, 534 (Alaska 1976); In re Chapman, 509 A.2d 753, 756 (N.H. 1986).
Just as an attorney who elects to practice law in a state
with an integrated bar must become a member of the bar association and
abide by the associations internal review procedures, an insurer electing to write health
insurance in Indiana must be a member of ICHIA and adhere to ICHIAs
rules and procedures.
Apart from any general doctrines requiring exhaustion of internal association remedies, ICHIA is
something of a hybrid and has some characteristics of a state agency.
ICHIA is authorized by statute to create a Plan of Operation for carrying
out the requirements of the statute. I.C. § 27-8-10-2.1(c) (2003). The
statute provides that the plan is to be necessary or suitable for the
fair administration of ICHIA. Id. The statute goes on to provide
that ICHIA may include any additional provisions in its Plan of Operation that
are necessary or proper for fair administration of ICHIA. The statute requires
the Commissioners approval of the Plan before it is effective and the Plan
was so approved after notice and a hearing. Upon approval, its status
is essentially the same as an administrative regulation. Id.
The Indiana Court of Appeals has found a similar statutory structure sufficient to
create an administrative remedy that must be exhausted. Ind. State Dept of
Welfare v. Stagner, 410 N.E.2d 1348, 1351 (Ind. Ct. App. 1980). In
that case, a speech and hearing pathologist sued the Indiana Department of Welfare
in trial court based on the Departments denial of the pathologists claim for
Medicaid reimbursement. The Department of Welfare argued that the pathologist was required
to pursue administrative remedies before going to court and the Indiana Court of
Appeals agreed. Id. The court pointed out that it is true
that the exhaustion doctrine assumes an available statutory remedy at the time judicial
relief is sought, but explained that a remedy did exist because the legislature
gave the Department of Welfare the authority to promulgate rules and regulations to
deny payment to any provider for claims made for services or materials determined
not medically reasonable and necessary. The Department, pursuant to this delegated authority,
established standards for the denial of reimbursement claims and provided a procedure for
appeals from claim denial within the Department. Id.
Here we are faced with a similar situation to that in Stagner.
By directing ICHIA to create a plan of operation necessary or proper to
fulfill the goals of the statute, the ICHIA statute gives ICHIA and the
Commissioner broad authority. Pursuant to this authority ICHIA and ultimately the Commissioner
decided that an ICHIA member aggrieved by an ICHIA action is to raise
the matter first with the Board, then with the Commissioner. Therefore, ICHIA
and the Commissioner have provided an administrative remedy pursuant to their statutory authority
that the HMOs must pursue. This process does not foreclose judicial review.
Whatever ICHIAs status, the Commissioner is plainly a state agency. As
such, her decisions are subject to review under AOPA. I.C. § 4-21.5-5-3
(those who have standing to obtain judicial review of an agency action).
The Plans provision for internal dispute resolution in the first instance is grounded
in sound policy. This Court has often addressed the value of completing
administrative proceedings before resorting to suit in trial court. See, e.g., Ind.
Dept Envtl. Mgmt. v. Twin Eagle, L.L.C., 798 N.E.2d 839, 844 (Ind. 2003).
If administrative remedies are utilized, (1) premature litigation may be avoided; (2)
an adequate record for judicial review may be compiled; and (3) agencies retain
the opportunity and autonomy to correct their own errors. Id. The
reasons for requiring exhaustion of administrative remedies apply in full force in this
case. ICHIA and the Commissioner are charged with the very technical duties
of administering the ICHIA statute. This is a task for which ICHIA
and ultimately the Commissioner are particularly suited. In addition, because of the
nature and membership of ICHIA, any decision made as to the liabilities of
the plaintiffs in this case will affect the liabilities of all other members.
As a practical matter, requiring resort first to the Board and then
to the Commissioner may avoid, by negotiation, issues raised by a complex formula
that necessarily works from time to time to the advantage or disadvantage of
individual members. For these reasons, it is appropriate for ICHIA and the
Commissioner to adopt a Plan that requires ICHIAs members to pursue internal appeal
procedures and seek resolution by the Commissioner and once an administrative remedy is
put in place, it is required to be exclusive whether or not a
statute or regulation explicitly requires exhaustion. Austin Lakes, 648 N.E.2d at 644.
In sum, whether ICHIA is viewed as a private association or a state
agency, exhaustion of its internal remedies is required before a member may resort
to litigation to challenge an assessment.
II. Exceptions to the Exhaustion Requirement
The HMOs argue that even if the doctrine of exhaustion of administrative remedies
applies to ICHIAs Plan of Operation, exceptions to that doctrine excuse exhaustion in
The HMOs argue that they need not exhaust their administrative remedies because exhaustion
would be futile. Exhaustion of administrative remedies may be excused if the
exercise would be futile. Town Council of New Harmony v. Parker, 726
N.E.2d 1217, 1224 (Ind. 2000). However, the exhaustion requirement . . .
should not be dispensed with lightly on grounds of futility. Id.
The HMOs argument as to futility is based on the affidavit of the
president of M-Plan in which he reports conversations he had with the president
of ICHIA and the Commissioner of Insurance and says the Commissioner did not
demand that the HMOs pursue administrative appeal and told him that legal action
may be the only option for the HMOs. Even if accepted at
face value, this conversation does not rise to the status of an act
of the Department of Insurance. The HMOs were aware of the administrative
remedy in the plan of operation and do not claim lack of notice
of the procedure. To prevail upon a claim of futility, one must
show that the administrative agency was powerless to effect a remedy or that
it would have been impossible or fruitless and of no value under the
circumstances. Smith v. State Lottery Commn, 701 N.E.2d 926, 931 (Ind. Ct.
App. 1998) (quoting Ind. State Bldg. And Constr. Trades Council v. Warsaw Cmty.
Sch. Corp., 493 N.E.2d 800,806 (Ind. Ct. App. 1986)). The HMOs have
not suggested that either ICHIA or the Commissioner is powerless to effect a
remedy. Even if the HMOs are unsuccessful in an administrative challenge, resort
to the Commissioner may produce a reasoned explanation of the considerations going into
adoption and approval of this allocation of costs of a statutorily mandated program.
That in itself is of value before resort to the courts to
resolve such an issue. Turner v. City of Evansville, 740 N.E.2d 860,
862 (Ind. 2001) (one of the benefits of exhaustion of administrative remedies is
that a record for judicial review may be created).
B. Invalidity of an Administrative Rule
The HMOs contend exhaustion of administrative remedies is not required because the challenged
assessment methodology is both unauthorized and unconstitutional. Citing Indiana Department of Insurance
v. Golden Rule Insurance Co., 639 N.E.2d 339, 342 (Ind. Ct. App. 1994),
the HMOs assert that when an administrative rule is challenged as facially invalid,
administrative remedies are not required. The HMOs challenge the application of ICHIA
Plan of Operation to them, not the fundamental issue of ICHIAs power to
make such allocations. Different members of ICHIA are affected in different ways
by ICHIAs assessment method. The HMOs essentially argue that ICHIAs methods, in
concert with taxation of HMOs, is unfair to HMOs. ICHIA responds that
taxation of HMOs is essentially a function of the HMOs election to do
business in that form. These questions are specific to the HMOs situation
and can best be resolved by the agency in the first instance.
C. Refusal to Act as Required by Law
The HMOs argue that they are relieved from the exhaustion requirement by the
agencys failure to act on their petition. The HMOs cite MHC Surgical
Center Associates, Inc. v. State Office of Medicaid Policy and Planning, 699 N.E.2d
306, 309 (Ind. Ct. App. 1998), for this proposition. In that case,
the court held that the plaintiffs were not required to exhaust administrative remedies
because the agency had not taken action on the petitioners claims in over
four years. Id. No such delay is asserted here. Nor
have the HMOs have shown that ICHIA has otherwise deliberately refused to follow
The judgment of the trial court is affirmed.
Shepard, C.J., Dickson, Sullivan, and Rucker, J.J., concur.
Seven members of the Board are appointed by the Commissioner: four of
these are representatives of members of ICHIA, one is a representative of an
HMO, two represent policyholders and one is a repr
esentative of health care providers.
The remaining two Board members are the state budget director or her
designee and the Commissioner or her designee. The Commissioner appoints the chairman
of the Board. At the time M-Plan filed this claim the Board
consisted of seven members including one HMO representative. I.C. § 27-8-10-2.1(b) (1998).