October 4, 2001 | Read Time: 2 minutes
In a ruling that could save charities millions of dollars, a federal district court judge has overturned a U.S. Postal Service regulation that virtually barred fraternal organizations from mailing out insurance-policy offers at a lower postage rate than is available for other nonprofit mailings.
The decision, by U.S. District Court Judge William B. Bryant in Washington, came in a case brought five years ago by the Aid Association for Lutherans, a nonprofit fraternal organization in Appleton, Wis., whose mission includes offering its members the opportunity to buy various sorts of insurance.
Unlike commercial insurance policies, the association’s benefits are available only to members and are guaranteed — meaning that if it does not have enough money to meet promised benefits, members can be assessed extra payments beyond their normal premiums to cover the shortfall.
In 1991 Congress passed a law designed to crack down on abuse of the lower nonprofit postal rates by organizations that were selling commercial insurance. The law included an exemption that would allow mailings of insurance offers at the lower nonprofit rate if they met three criteria: The organization involved must be a valid nonprofit group, its insurance policies must be designed for its members, and must be “not generally otherwise commercially available.”
In August 1992, the Postal Service ruled the association met the first two criteria, but not the third. The group filed a series of administrative appeals with the Postal Service over the next four years, all of which were rejected. In December 1996, it sued the Postal Service.
The association argued that its insurance is distinct from commercially available policies in a number of ways. For instance, the premiums pay not only for insurance reserves but also for other non-insurance benefits. Judge Bryant agreed, ruling that the service’s regulations interpreting the law made it virtually impossible for any organization to meet that criterion, holding all insurance to be commercially available. The Postal Service, he wrote, “has not interpreted the exemption, it has eviscerated it.”
Geoffrey W. Peters, a lawyer for the Aid Association for Lutherans, estimated that the Postal Service owes his client about $6-million for higher postage costs it has paid since 1992. He added that other organizations that offer similar types of benefits could also be eligible for reimbursements.
“You could be looking at $100-million easily,” Mr. Peters said.
Gerry Kreienkamp, a spokesman for the Postal Service, said last week that its lawyers were reviewing the ruling but had not decided whether it would be worthwhile to appeal.
