Heritage Healthcare Services, Inc. v. The Beacon Mutual Insurance Co., 109 A.3d 373

Beacon Mutual was established by statute as a domestic mutual, state-chartered workers’ compensation insurer and “carrier of last resort,” with its board given discretionary authority to declare dividends to policyholders.
Plaintiffs (a certified class of ~14,000 Beacon policyholders) alleged Beacon diverted over $101 million by providing selective "consent-to-rate" premium discounts to large policyholders instead of equitably distributing surplus as dividends.
Plaintiffs sought an accounting, restitution/damages, and injunctive relief; Beacon moved for judgment on the pleadings arguing the claims were derivative.
The Superior Court applied the Delaware Tooley test and concluded the harms alleged were suffered by Beacon and any recovery would inure to Beacon — thus the claims were derivative.
Plaintiffs did not make the written demand on Beacon required by G.L. 1956 § 7-1.2-711(c) nor plead with particularity efforts to obtain relief from Beacon’s board as required by Rule 23.1; the complaint was dismissed for noncompliance.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the claims are direct or derivative	Plaintiffs: they have a direct right to an equitable distribution of excess surplus and suffered individual harm	Beacon: the alleged injury was to the corporation and any recovery would benefit Beacon	Held: Derivative — Tooley two-part test favors Beacon (harm to and remedy for the corporation)
Whether plaintiffs’ alleged disproportionate harm makes the claim direct	Plaintiffs: some policyholders were harmed more, so relief should run to them	Beacon: the diversion reduced Beacon’s collected premiums; harm accrues to Beacon	Held: Disproportionate harm argument rejected; harm was corporate in nature
Whether lack of a formal dividend declaration makes plaintiffs’ claims direct	Plaintiffs: entitlement to surplus does not depend on a formal declaration	Beacon: surplus distribution is effective only when declared; no declared surplus here	Held: Rejected — policyholders only acquire distribution rights when company declares surplus
Consequence of failing to satisfy statutory demand/Rule 23.1 before suit	Plaintiffs: (did not dispute directness on this point)	Beacon: failure to make demand and plead efforts mandates dismissal of derivative suit	Held: Because claims are derivative and plaintiffs failed to meet § 7-1.2-711(c) and Rule 23.1, dismissal was proper

Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031 (Del. 2004) (articulates two-part test for direct vs. derivative claims)
Halliwell Associates, Inc. v. C.E. Maguire Services, Inc., 586 A.2d 530 (R.I. 1991) (claims redressing a corporate wrong are derivative)
Penn Mutual Life Insurance Co. v. Lederer, 252 U.S. 523 (mutual insurer surplus concept and policyholder interest in declared surplus)
Kimberly-Clark Corp. v. Factory Mut. Ins. Co., 566 F.3d 541 (5th Cir. 2009) (policyholders’ equitable rights in surplus attach upon an announced distribution)
Kramer v. Western Pacific Indus., 546 A.2d 348 (Del. 1988) (disproportionate shareholder harm did not convert corporate injury into a direct claim)
Giuliano v. Pastina, 793 A.2d 1035 (R.I. 2002) (failure to comply with demand/pleading requirements requires dismissal of derivative suits)
Hendrick v. Hendrick, 755 A.2d 784 (R.I. 2000) (same)