D.C. insurance regulators on Tuesday ordered the Washington region’s largest health insurer to spend $56 million on community health needs in the District, calling the billion-dollar cash reserves of CareFirst BlueCross BlueShield legally “excessive.”

The order, signed by Acting Insurance Commissioner Chester A. McPherson, is a landmark moment in a decade-long battle over the reserve holdings belonging to a nonprofit subsidiary of CareFirst.

The company has long said the reserve is a prudent hedge against possible catastrophes that could cause a surge in claims, as well as the uncertainty created by national efforts at health-care reform.

But a band of public advocates holds that the surplus is well beyond what is necessary to protect CareFirst members. And because the subsidiary, known as Group Hospitalization and Medical Services Inc., was chartered by Congress in 1939 as a “charitable and benevolent institution,” the advocates say that the excess is owed to the community.

McPherson ruled that the holdings — valued at $964 million at the end of 2011, the year under review — exceeded the appropriate reserve level by $268 million. It is the first time the surplus has been declared excessive by an insurance regulator.

Walter Smith, executive director of the D.C. Appleseed Center for Law and Justice, the nonprofit group that has led the surplus fight, hailed the decision.

“It not only frees up a lot of money that, frankly, came from overcharging people, but it also means going forward that a standard has been set for what is permissible in the future,” Smith said. “A methodology is now in place . . . which is good, because D.C. Appleseed does not want to fight this every year.”

But CareFirst warned Tuesday that the ruling could raise concerns among regulators in Maryland and Virginia, where the subsidiary also does business.

“We are still reviewing today’s decision but believe it is flawed and directly conflicts with an order we have received from another jurisdiction,” spokesman Scott Graham said in a statement. “We believe it will raise serious concerns in both Maryland and Virginia as it may be damaging to subscribers in all three jurisdictions.”

In 2012, CareFirst agreed with the Maryland Insurance Administration to maintain a surplus level between 10 and 13 times its “authorized control level” — a minimum reserve below which regulators can take control of the company.

The D.C. order issued Tuesday holds that any surplus beyond about seven times that level — about $700 million — is impermissible.

CareFirst had emerged unscathed from prior surplus reviews in the District and Maryland. But a 2009 act of the D.C. Council requiring triennial reviews and a subsequent D.C. Court of Appeals ruling clarifying the standards for those reviews meant that the company was facing steeper odds in the 2011 review. Another review — of the 2014 surplus level — is set to begin next year.

The subsidiary’s most recent filing with regulators, dated Sept. 30, pegged its surplus at $842 million, down more than $100 million since 2011.

The amount that McPherson ordered CareFirst to disburse is far less than the hundreds of millions of dollars that D.C. Appleseed had sought. McPherson found that only about one-fifth of the $268 million excess surplus in 2011 was “attributable” to the company’s activity in the District.

In a statement, McPherson said the $56 million figure was the result of a “complex regulatory and insurance determination that was based on the factual findings and legal conclusions reached after an extensive review.”

“Obviously we would have liked more,” Smith said, “but we’ve known for some time that even a small victory was going to be huge.”

Under D.C. law, any excessive surplus is to be spent on “community health reinvestment,” according to a plan devised by the company and approved by the District insurance commissioner.

McPherson’s order said that plan could include premium reductions for D.C. policyholders, direct funding for community health programs, even corporate sponsorship of health-related events.

But the potential for a conflict with Maryland and Virginia regulators — as well as the possibility that CareFirst will go to the courts — looms over Tuesday’s decision.

Maryland’s insurance commissioner, Therese M. Goldsmith, told D.C. regulators in October that premium relief would be the only “fair and equitable manner” to spend down the surplus. And an official from Virginia’s Bureau of Insurance said in September that regulators there would have to examine any D.C. finding of excessive surplus.

According to figures cited by Goldsmith, about 29 percent of the CareFirst subsidiary’s 728,000 members are District residents, while 39 percent are Marylanders and 32 percent are Virginians.

Smith said he believes the potential for conflict with neighboring jurisdictions is overstated. He predicted that officials in Maryland and Virginia could warm to the notion of tapping CareFirst’s surplus to address their own community health needs.

“That’s a lot of money that could do a whole lot of good in Prince George’s County, Montgomery County and in Northern Virginia,” he said.