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Court Holds ‘Stop-Loss’ Policies Sold to Self-Funded Benefit Plans Constitute Reinsurance Under Texas Law
Insurance Law Update
January 2010
Texas Court of Appeals
In American National Ins. Co. v. Texas Dept. of Ins., 2009 WL 4878676 (Tex. App. – Austin December 16, 2009), a Texas Court of Appeals held that stop-loss policies sold to self-funded benefit plans are reinsurance and not insurance under Texas law. Therefore, such policies are not regulated by the Texas Department of Insurance.
American National Insurance Company and American National Life Insurance Company sold stop-loss insurance coverage to various governmental and private self-funded employee benefit plans. The companies treated the policies as reinsurance. The department, however, contended that the policies were direct insurance because only insurers can purchase reinsurance, and that self-funded plans are not “insurers” as defined by Texas law. Treating the stop-loss coverage as direct insurance would have required the companies to seek approval from the department for their policy contracts, provide certain reports on the sale of insurance in their financial and regulatory filings, and pay assessments to the Texas Health Insurance Risk Pool.
The companies contested the department's interpretation of the law and sought administrative relief through the department's two-level administrative appeals process. Both levels of administrative appeals affirmed the department's interpretation of the law. The companies then filed suit for declaratory judgment in a state district court, but the district court affirmed the administrative rulings.
On appeal, the prior holdings were overruled. The Court of Appeals noted that self-funded plans make insurance contracts; receive insurance applications; receive premiums as consideration for insurance; deliver insurance contracts; and provide expense indemnification, expense reimbursement, or direct payment of medical expenses to individuals domiciled in Texas. As such, the court held that self-funded plans are insurers engaged in the business of insurance under Texas law, and therefore stop-loss insurance sold to self-funded plans is reinsurance. As a result, the court found the companies properly reported and were not required to pay assessments to the Texas Health Insurance Risk Pool or follow the other insurance reporting requirements.
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