TEX. DEP’T OF INS. V. AM. NAT’L INS. CO.,
Supreme Court of Texas, May 18, 2012.
The defendant sells stop-loss insurance to self-funded employee heath-benefit plans. Under self-funded benefit plans, an employer assumes the risk of providing health insurance to its employees instead of ceding the risk to an insurance company. The employer then may purchase stop-loss insurance to limit financial exposure for catastrophic losses. The issue in this case was whether stop-loss insurance sold to self funded employee health-benefit plans is direct insurance or reinsurance. This was an issue because in Texas direct insurance is subject to state insurance regulations while reinsurance is not because it does not deal with a consumer-insurance transaction.
The defendant here sold stop-loss insurance policies to employers without paying taxes or complying with Texas state regulations applicable to insurers and stated that it was selling “assumed reinsurance” rather than direct insurance. The Texas Department of Insurance found that the policies sold were direct insurance rather than reinsurance. The trial court agreed with the Department, but the appellate level court concluded that the self-funded employee health-benefit plans were insurers under Texas law and that the stop-loss policies were therefore reinsurance.
The defendant argued that the stop-loss insurance was a redistribution of risk from the employer, who is an insurer, to the stop-loss insuring defendant, and was thus reinsurance. The Department argued that reinsurance is redistribution of risk between sophisticated insurers in the insurance business and an employer in an employee health-benefit plan is not an insurer as a matter of law.
The court noted that neither stop-loss insurance nor reinsurance was defined in the Texas Insurance Code. The court likened stop-loss insurance to both reinsurance and excess insurance. After discussing the arguments of the Department and the defendants, the court noted that if the statute regarding insurance was vague or ambiguous, it would defer to the agency’s interpretation unless it was plainly erroneous or inconsistent with the language of the statute. Because the Texas insurance code does not define reinsurance or stop-loss insurance or use them consistently, the court went with the Department’s interpretation, that the stop-loss insurance on self-funded employee health-benefit plans is direct rather than reinsurance. The court noted that the Department’s construction was reasonable, formally promulgated and not contradicted by the Insurance Code directly. Therefore the court found the stop-loss insurance to be direct insurance rather than reinsurance and the defendant was subject to Texas insurance regulations.
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