TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-08-00535-CV
American National Insurance Company and American National Life Insurance Company
of Texas, Appellants
v.
Texas Department of Insurance; Honorable Mike Geeslin, Commissioner of Insurance; and
Honorable Danny Saenz, Senior Associate Commissioner, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. D-1-GN-04-003621, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
Appellants American National Insurance Company and American National Life
Insurance Company of Texas ("the Companies") sued the Texas Department of Insurance ("the
Department") seeking a judgment declaring that the Department's interpretation of several insurance
code provisions was erroneous. The parties stipulated to the facts and filed cross-motions for
summary judgment. The Department alleged that the Companies were incorrect when they reported
stop-loss insurance policies that they sold to self-funded employee benefit plans as reinsurance
instead of direct insurance. The district court granted the Department's motion for summary
judgment, thereby agreeing with the Department that self-funded plans are not insurers under Texas
law. We will reverse the trial court's judgment and render judgment for the Companies.
FACTUAL AND PROCEDURAL BACKGROUND The Companies are insurance companies licensed by the Department to sell insurance
in the state of Texas. The Companies sold stop-loss insurance coverage, also known as excess-loss
insurance, to various governmental and private self-funded employee benefit plans. The policies at
issue were sold by the Companies between 1998 and 2002. (1)
The dispute in this case concerns the classification, for regulatory purposes, of
stop-loss insurance policies sold to self-funded employee benefits plans. The Companies have
always treated the policies as "reinsurance," which has been defined as "[i]nsurance of all or part of
one insurer's risk by a second insurer, who accepts the risk in exchange for a percentage of the
original premium." Black's Law Dictionary 1290 (7th ed. 1999). The Department, on the other
hand, claims that the policies are direct insurance, not reinsurance, because only insurers can
purchase reinsurance, and the Department asserts that the self-funded plans are not "insurers" as
defined by Texas law. The classification is important because, as the Department concedes, it has
no authority to regulate reinsurance, but can and does regulate direct insurance extensively. If the
insurance in question is direct insurance, then the law required the Companies to pay certain fees on
the sale of direct health insurance that were not required to be paid on reinsurance, seek approval
from the Department for their policy contracts, and report the sale of direct insurance differently in
their financial and regulatory filings.
A self-funded plan operates by maintaining a pool of funds that are contributed by
an employer, the employees of that employer, or both, from which the plan pays covered medical
expenses to the employees and their families. The plan accepts the risk of having to pay for its
employees' expenses rather than shifting the responsibility for payment entirely to a third-party
insurer. Many of these plans qualify as "employee welfare benefit plans" as that term is defined by
the Employee Retirement Income Security Act ("ERISA"). 29 U.S.C.A. § 1002(1) (West 2008).
Some plans are governmental plans, which are specifically exempted from many provisions of
ERISA. See id. § 1002(32) (West 2008) (defining governmental plans); § 1003(b)(1) (West 2008)
(exempting governmental plans). The Companies sold stop-loss coverage to both types of plans,
using the same policy contract for both governmental and non-governmental self-funded plans.
Stop-loss coverage is an insurance product that allows self-funded plans to minimize
the chances of catastrophic loss by shifting some of their risk onto an insurance carrier. Such
policies generally contain an "attachment point." When an employee covered by a self-funded plan
suffers a loss greater than the attachment point, or the plan as a whole has to pay out an amount
greater than the total annual aggregate attachment point, the plan pays the employee or employees
and then seeks reimbursement from the provider of stop-loss coverage. Stop-loss insurance may
reimburse the plan for all of its losses above the attachment point or some percentage as agreed by
the insurer and the plan. Stop-loss insurance usually also contains a maximum payment limit, either
per employee or in the aggregate or both. A stop-loss policy is a contract made directly between the
insurer and the plan or the sponsors of the plan. A stop-loss insurer has no contractual relationship
with employees who participate in the self-funded plan.
The Department first discovered the alleged misclassifications during a routine
examination of the Companies' finances for the period of January 1, 1998 through December 31,
2002. In its examination report dated October 26, 2004, the Department alleged that the Companies
violated former articles 3.10(a) and 3.77 of the Texas Insurance Code by "improperly recording the
direct stop-loss policy premiums obtained from the self-insured employers as 'assumed reinsurance'"
instead of "direct written premium," and by failing to pay the required fees to the Texas Health
Insurance Risk Pool. See Act of June 14, 1995, 74th Leg., R.S., ch. 614, § 2, 1995 Tex. Gen. Laws
3468, 3468-69, repealed by Act of June 16, 2005, 79th Leg., R.S., ch. 727, § 18(a)(3), 2005 Tex.
Gen. Laws 1752, 2186-87 (hereinafter "former Tex. Ins. Code art. 3.10"); Act of June 16, 1989,
71st Leg., R.S., ch. 1094, § 2, 1989 Tex. Gen. Laws 4484, 4484-91, repealed by Act of
June 21, 2003, 78th Leg., ch. 1274, § 26(a)(1), 2003 Tex. Gen. Laws 3611, 4138 (hereinafter "former
Tex. Ins. Code art. 3.77"). The Department also alleged that the Companies violated title 28,
section 3.4002 of the Texas Administrative Code, which requires the Companies to submit for
review to the Department any policy forms used to issue "all life and accident and sickness"
insurance policies, see 28 Tex. Admin. Code § 3.4002 (2000) (Tex. Dep't of Ins., All Forms To Be
Filed For Review Unless Exempted), and former article 3.42 of the Texas Insurance Code, which
contained substantially similar requirements to the administrative rule. See Act of May 23, 1995,
74th Leg., R.S., ch. 176, § 1, 1995 Tex. Gen. Laws 1889, 1889-92, repealed by Act of June 21, 2003,
78th Leg., R.S., ch. 1274, § 26(a)(1), 2003 Tex. Gen. Laws 3611, 4138 (hereinafter "former Tex. Ins.
Code art. 3.42"). 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. After exhausting their
administrative remedies, the Companies filed suit for declaratory judgment in Travis County district
court pursuant to section 2001.038 of the Texas Government Code and section 36.202 of the Texas
Insurance Code. See Tex. Gov't Code Ann. § 2001.038 (West 2008); Tex. Ins. Code Ann. § 36.202
(West 2009).
The Companies and the Department stipulated to the facts, and both sought summary
judgment on their respective interpretations of the relevant law. The Companies requested the trial
court to render judgment declaring that: (1) the Companies did not violate former article 3.10(a) of
the Texas Insurance Code; (2) the Companies did not violate former article 3.77 of the Texas
Insurance Code; (3) the Companies were not required to file their stop-loss policy forms with the
Department for review pursuant to title 28, section 3.4002 of the Texas Administrative Code
and former Texas Insurance Code article 3.42, nor to file an exemption pursuant to title 28,
section 3.4004(e)(2)(J) of the Texas Administrative Code; and (4) the amended final Examination
Reports issued by the Department are invalid insofar as they assert that the Companies violated any
of the above-referenced statutes and rules. The Companies also requested that the district court
enjoin the Department from acting on its conclusions in the examination reports insofar as they are
inconsistent with the law. After a hearing, the district court granted the Department's motion,
affirmed the Department's examination reports, and denied the Companies' motion. The Companies
perfected this appeal.
STANDARD OF REVIEW
Our review of the Department's findings, rulings, decisions, and orders is based on
the substantial evidence standard of review under the Administrative Procedure Act. See Tex. Ins.
Code Ann. § 36.202 (authorizing judicial review from decision of insurance commissioner); Tex.
Gov't Code Ann. § 2001.174 (West 2008) (defining scope of substantial evidence review). When
faced with questions of statutory interpretation, our aim is to give effect to the legislature's intent.
Tex. Gov't Code Ann. § 312.005 (West 2005); Mid-Century Ins. Co. v. Ademaj, 243 S.W.3d 618,
621 (Tex. 2007). We look first to the plain meaning of the statute, read as a whole. Mid-Century
Ins. Co., 243 S.W.3d at 621. We should not read any part of a statute in a way that would invalidate
another part. See id. (citing State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002)). We give deference
to the Department's interpretation of the statutes it is tasked with administering as long as that
interpretation is reasonable and does not contradict the plain language of the statute. City of Corpus
Christi v. Public Util. Comm'n, 51 S.W.3d 231, 261 & n.142 (Tex. 2001); see also State v. Public
Util. Comm'n, 883 S.W.2d 190, 196 (Tex. 1994) ("[T]he contemporaneous construction of a statute
by the administrative agency charged with its enforcement is entitled to great weight."). This is
particularly true when the statute deals with complex subject matter that may create ambiguity in the
statute. See City of Plano v. Public Util. Comm'n, 953 S.W.2d 416, 412 (Tex. App--Austin 1997,
no writ). "[I]f the statute can reasonably be read as the agency has ruled, and that reading is in
harmony with the rest of the statute, then the court is bound to accept that interpretation even if other
reasonable interpretations exist." Id.
DISCUSSION
The Companies assert on appeal that the trial court erred as a matter of law when it
denied their motion for summary judgment and granted the Department's motion. The parties agree
that the resolution of their dispute turns on whether the insurance sold by the Companies to the
self-funded plans should be classified under Texas law as reinsurance or direct insurance. The
answer to that question depends on whether self-funded plans are insurers under Texas law.
(i) Statutory interpretation and applicability of former article 3.10
The parties agree that reinsurance is not regulated by the Department and is not
specifically defined in the insurance code. However, former article 3.10 of the insurance code
provides a contextual definition. As it existed during the time period relevant to this appeal, former
article 3.10 was entitled "May Reinsure." The article was a permissive provision establishing
regulatory guidelines for insurers who buy reinsurance to reinsure a risk or part of a risk with another
insurer. Former article 3.10(a) stated in pertinent part:
Any insurer authorized to do the business of insurance in this state may reinsure in
any solvent assuming insurer, any risk, or part of a risk which both are authorized
to assume; provided, however, no credit for reinsurance, either as an asset or a
deduction of liability, may be taken by the ceding insurer except as provided in this
article, and, provided further, no insurer operating under Section 2(a) of Article 3.02
shall reinsure any risk or part of a risk with any insurer which is not licensed to
engage in the business of insurance in this state. This article applies to all insurers
regulated by the State Board of Insurance. . . . No such insurer shall have the power
to reinsure its entire outstanding business to an assuming insurer unless the assuming
insurer is licensed in this state and until the contract therefor shall be submitted to the
Commissioner and approved by him as protecting fully the interests of all policy
holders. . . . This article is supplementary to and cumulative of other provisions of
this code and other insurance laws of this state relating to reinsurance to the extent
those provisions are not in conflict with this article.
Former Tex. Ins. Code art. 3.10(a) (emphases added).
The Companies contend that the self-funded plans are insurers as defined by the
insurance code and thus qualify under the contextual definition of former article 3.10(a) to buy
reinsurance like any other insurer, allowing the Companies to classify the insurance they sold to the
plans as reinsurance. The definition of insurer is found in the section of the insurance code
prohibiting the unauthorized business of insurance. An "insurer" is defined under the current
code--and was defined by the code for all time periods applicable to this appeal--as a "corporation,
association, partnership, or individual engaged as a principal in the business of insurance." Tex. Ins.
Code Ann. § 101.002(1)(A) (West 2009). Conduct that constitutes the "business of insurance" is
defined broadly and includes the acts of:
(1) making or proposing to make, as an insurer, an insurance contract;
(2) making or proposing to make, as guarantor or surety, a guaranty or suretyship
contract as a vocation and not merely incidental to another legitimate business or
activity of the guarantor or surety;
(3) taking or receiving an insurance application;
(4) receiving or collecting any consideration for insurance, including:
(A) a premium;
(B) a commission;
(C) a membership fee;
(D) an assessment; or
(E) dues;
(5) issuing or delivering an insurance contract to:
(A) a resident of this state; or
(B) a person authorized to do business in this state;
. . . .
(7) contracting to provide in this state indemnification or expense reimbursement for
a medical expense by direct payment, reimbursement, or otherwise to a person
domiciled in this state or for a risk located in this state, whether as an insurer, agent,
administrator, trust, or funding mechanism or by another method;
(8) doing any kind of insurance business specifically recognized as constituting
insurance business within the meaning of statutes relating to insurance;
. . . .
(10) any other transaction of business in this state by an insurer.
Id. § 101.051 (West 2009).
The Companies argue that because the self-funded plans do most, if not all, of the acts
listed in section 101.051, they are insurers under the code. First, they claim that a plain-meaning
interpretation of the insurance code leads to this result. Second, to buttress their reading of the
statute, they assert that the Department's interpretation of the plans as non-insurers would lead to
preemption of former article 3.10 by ERISA because it would single out ERISA plans for regulation.
This result would then be contrary to legislative intent because, in construing a statute, we must
assume the legislature did not intend to pass a meaningless law. See Tex. Gov't Code Ann.
§ 311.021(4) (West 2005) ("In enacting a statute, it is presumed that . . . a result feasible of execution
is intended."). In this case, the plans make insurance contracts with the employees of the employer
sponsors; they collect premiums for their service from the plan sponsor or the employees or both;
they deliver insurance contracts to the employees; and they provide expense indemnification,
expense reimbursement, or direct payment of medical expenses to individuals domiciled in this state.
Because the self-funded plans do many of the acts that constitute doing the business of insurance,
we agree with the Companies' interpretation of the statute and hold that self-funded plans are
insurers under Texas law.
Our holding here is in agreement with the Fourteenth Court of Appeals' decision in
Harris County Hospital District v. Alief Independent School District, No. A14-91-00019-CV,
1992 Tex. App. LEXIS 558 (Tex. App--Houston [14th Dist.] Mar. 5, 1992, writ denied) (not
designated for publication). In that case, the court held that a self-funded plan set up by the Alief
Independent School District was an insurer under the code. Id. at *8. Citing the substantially similar
predecessor statute to insurance code section 101.051, the court noted that self-funded plans make
insurance contracts, receive insurance applications, receive premiums as consideration for insurance,
and deliver insurance contracts. Id.
(ii) Former article 3.10 of the Texas Insurance Code
Without regard to whether self-funded plans are insurers under Texas law, the
Department argues that the plain language of former article 3.10(a) does not permit self-funded plans
to purchase reinsurance. As support for this assertion, the Department notes that former article
3.10(a) permitted any "insurer authorized to do the business of insurance in this state" to reinsure,
and that "[t]his article applies to all insurers regulated by the State Board of Insurance." Former Tex.
Ins. Code art. 3.10(a) (emphasis added). Thus, the Department contends that even if the self-funded
plans were insurers under the code, they were not "authorized" insurers as that term is used in the
statute because they were not regulated by the Department. Since they were not authorized insurers,
the argument goes, former article 3.10 did not apply to them. Because former article 3.10 is the grant
of permission to purchase reinsurance and because the plans were not covered within its ambit, they
lacked authorization to reinsure. Lacking authorization to purchase reinsurance, the plans were
prohibited from doing so.
We agree with the Department that former article 3.10 does not apply to self-funded
plans and other non-regulated insurers. However, we do not agree with the Department's conclusion
that because former article 3.10 does not apply to the plans in this case they are prohibited from
purchasing reinsurance. Although not stated by the Department, its conclusion relies on the
assumption that without an affirmative legislative grant of permission to the plans to reinsure they
lack the right to do so. We think this incorrect for two reasons. First, former article 3.10 is a
permissive statute. The mere fact that it authorizes regulated insurers to reinsure does not mean that
it forbids non-regulated insurers from reinsuring. The Department does not point us to any other
state or federal law that prohibits the plans from reinsuring. Second, ERISA plans do not need the
state's permission to reinsure, and an attempt to prevent them from reinsuring would be preempted
under ERISA. (2) See FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990) (when state law subjects plan
to state regulations, it has "connection to" ERISA and therefore is preempted); see also Sharp
v. Caterpillar, Inc., 932 S.W.2d 230, 236 (Tex. App.--Austin 1996, writ denied) (state law is
preempted if law specifically targets ERISA plans).
The conclusion that former article 3.10 does not apply to ERISA plans does not affect
the ability of the Companies to sell reinsurance to the plans, since the statute does not regulate the
seller of reinsurance. See former Tex. Ins. Code art. 3.10(a) (insurer "may reinsure in any solvent
assuming insurer") (emphasis added). Nor does it negate the ability to use the contextual definition
of reinsurance, as found in former article 3.10(a), to classify the policies at issue as reinsurance.
(iii) Stop-loss insurance is reinsurance in this case
The Department argues that the main issue on appeal is "whether the stop-loss
coverage provided by Appellants is stop-loss 'insurance' and whether Appellants were acting as
'insurers' in issuing the stop-loss coverage to the self-funded employers." It appears that the
Department is asserting that by selling stop-loss coverage the Companies are "insurers" and not
"reinsurers." Accepting this conclusion would require acceptance of an unstated assumption, argued
by the Department, that stop-loss insurance cannot be reinsurance under the insurance code. Under
that theory, regardless of our decision that self-funded plans are insurers, the Companies must still
classify the stop-loss policies at issue here as direct insurance because, by definition, such coverage
is always direct insurance. For support, the Department cites the insurance code at former
article 3.77, which, for purposes of that section, defines insurer as "an entity that provides health
insurance in Texas, including stop-loss or excess loss insurance." Former Tex. Ins. Code art. 3.77,
§ 2(11). The Department cites this as evidence that the legislature considered stop-loss coverage to
be a type of health insurance. It cites similar, limited-use definitions from other places in the code,
and decisions from other jurisdictions construing their respective states' insurance codes in a manner
similar to its own interpretation of Texas law.
The insurance code itself refutes the Department's assertion that stop-loss insurance
can never be reinsurance. In at least one other context, the legislature has classified stop-loss
insurance as reinsurance. See Act of June 17, 1993, 73d Leg., R.S., ch. 685, § 13.02, 1993 Tex. Gen.
Laws 2559, 2668, repealed by Act of June 21, 2003, 78th Leg., ch. 1274, § 26(a)(1), 2003 Tex. Gen.
Laws 3611, 4138 (former Tex. Ins. Code. art. 4.11, § 2(c)) ("For the purposes of this article, a stop-loss or excess loss insurance policy issued to a health maintenance organization . . . shall be
considered reinsurance.").
Also, two well-respected secondary authorities cited by the Department undercut the
assertion that stop-loss coverage is not reinsurance. Black's Law Dictionary, as quoted by the
Department, defines reinsurance as "insurance of all or part of one insurer's risk by a second insurer,
who accepts the risk in exchange of a percentage of the original premium." Black's Law Dictionary
1290 (7th ed. 1999). Appleman on Insurance, an often-cited treatise on insurance--as quoted by the
Department--states that:
Reinsurance, to an insurance lawyer, means one thing only--the ceding by one
insurance company to another of all or a portion of its risks for a stipulated portion
of the premium, in which the liability of the reinsurer is solely to the reinsured, which
is the ceding company, and in which contract the ceding company retains all contract
with the original insured, and handles all matters prior to and subsequent to loss.
13A John Alan Appleman & Jean Appleman, Insurance Law and Practice § 7681, at 479-80 (1976).
The way the policies in this case function is undisputed. In exchange for ceding a
portion or all of its risk, a self-funded plan pays premiums to the Companies. If a covered loss
occurs, the Companies make payments directly to the plans. The Companies have no contact with
the individuals insured by the plans. All losses are handled by the plans and then sent to the
Companies for indemnification. The Companies do not make coverage decisions with respect to
individuals insured by the plans. The Companies have no contractual relationship with the
individuals insured by the plans and cannot be sued by them. These are the classic characteristics
of reinsurance as defined by Black's and Appleman. The statute gives no indication that the
legislature intended stop-loss insurance in this context to have a meaning other than reinsurance.
We therefore conclude that the stop-loss insurance in the context of this case is reinsurance. Because
the Department's interpretation of the statutes in this care is contrary to their plain meaning, we need
not defer to its interpretation. See City of Corpus Christi, 51 S.W.3d at 261.
Our holding accords with the Fifth Circuit's decision in Brown v. Granatelli,
897 F.2d 1351 (5th Cir. 1990). Analyzing the substantially similar predecessor to current Texas law,
the court held that stop-loss insurance purchased by a self-funded plan was not direct accident or
sickness insurance, but rather reinsurance. Id. at 1353-54. While our holding is based solely on
Texas law, cases from other jurisdictions are in agreement that stop-loss insurance is not direct
insurance. See, e.g., United Food & Commercial Workers & Employers Ariz. Health & Welfare
Trust v. Pacyga, 801 F.2d 1157, 1161 (9th Cir. 1986) (holding stop-loss insurance not equivalent
to direct health insurance); Cuttle v. Federal Employees Metal Trades Council, 623 F.Supp. 1154,
1157 (D. Me. 1985) ("Stop-loss insurance is not group health insurance providing insurance
to individuals through a sponsor group. Rather, it is insurance obtained to protect self-insurers
from risks . . . .")
(iv) No absurd results
In the court below and at oral argument before this Court, the Department asserted
that the Companies' interpretation of the law would set up absurd situations in which any individual
who pays healthcare expenses for her family could be an insurer under the code and thus could buy
"reinsurance" instead of direct insurance. Allowing the individual to "reinsure" one-hundred percent
of her potential loss would bypass regulation of direct health insurance altogether. This scenario is not possible under the plain language of the statute. An insurer is a
"principal in the business of insurance." Tex. Ins. Code § 101.002(1)(A) (emphasis added). An
individual providing healthcare for her family is not a principal. She is merely self-insured, which
means only that the individual herself bears the risk of loss. Self-insured in this context is a
misnomer and must not be equated with self-funded. See Hertz Corp. v. Robineau, 6 S.W.3d 332,
335-36 (Tex. App.--Austin 1999, no pet.) ("[I]n effect, a self-insurer does not provide insurance
at all." (Emphasis in original.)). Self-insured simply means that the entity or individual retains the
risk of loss instead of shifting it to others. A self-funded plan, on the other hand, is a pool of money
made up of contributions from employees or from an employer on the employees' behalf. Instead
of paying for their own healthcare expenses out of pocket, employees shift their risk to the plan by
paying premiums or having premiums paid on their behalf to the self-funded plan. The plan acts as
a principal, providing insurance for the employees. The Department's scenario has neither a
principal nor a shifting of risk, and therefore does not establish an "insurer" under Texas law.
(v) No violation of former article 3.42(a) or rules 3.4002 or 3.4004(E)(2)(J)
We next address whether the Companies violated former article 3.42(a) and
rules 3.4002 and 3.4004(E)(2)(J). See former Tex. Ins. Code art. 3.42(a); 28 Tex. Admin. Code
§ 3.4004(E)(2)(J) (2000) (Tex. Dep't of Ins., Exempt Forms); 28 Tex. Admin. Code § 3.4002.
Former insurance code article 3.42(a) and rule 3.4002 required the Companies to file certain policy
contract forms with the Department for review. The rule only applies to "life and accident and
sickness policy forms and annuity contracts." 28 Tex. Admin. Code § 3.4002. Because we hold
that the stop-loss insurance sold to self-funded plans is reinsurance, rule 3.4002 and former
article 3.42(a) do not apply to the Companies in this case. Rule 3.4004(E)(2)(J) allows insurers to
request an exemption from the review process for certain policies. Id. § 3.4004(E)(2)(J). The rule
applies only to "group and individual accident and/or health policies." This rule does not apply to
the Companies in this case for the same reasons that rule 3.4002 does not apply to them.
(vi) Former article 3.77 fees
Next we turn to whether the Companies improperly failed to pay fees that the
Department alleges are due under former article 3.77. The definition of "insurer" under former
article 3.77 is broad enough to encompass the Companies in this case. Insurer is defined in the
article as
any entity that provides health insurance in this state, including stop-loss or excess
loss insurance. For the purposes of this article, "insurer" includes but is not limited
to an insurance company . . . [and] an insurer providing stop-loss or excess loss
insurance to . . . any benefit arrangements to the extent permitted by Section 3,
Employee Retirement Income Security Act of 1974.
Former Tex. Ins. Code art. 3.77. That definition is sufficiently broad to encompass all the stop-loss
policies sold to ERISA welfare benefit plans.
Having decided that the Companies are insurers for the purposes of former
article 3.77 insofar as they sold stop-loss policies to ERISA plans, we must determine if they have
to pay fees to the Texas Health Insurance Risk Pool as the Department asserts. The amount any one
insurance company must pay bears a relationship to its share of the health insurance premium market
in Texas. The statute provides that:
The assessment imposed against each insurer shall be in an amount that is equal to
the ratio of the gross premiums collected by the insurer for health insurance in this
state during the preceding calendar year . . . to the gross premiums collected by all
insurers for health insurance . . . in this state during the preceding calendar year.
Former Tex. Ins. Code art. 3.77, § 13(d) (emphasis added). During the relevant time period for this
appeal--1998 to 2002--the article defined health insurance in pertinent part as:
individual or group health insurance [including] any hospital and medical expense
incurred policy . . . or any other health care plan or arrangement that pays for or
furnishes medical or health care services whether by insurance or otherwise.
Id. § 2(7). The definition of "health insurance" does not include any reference to stop-loss or
excess-loss insurance despite the fact that "insurer" is specifically defined to include stop-loss
policies. The legislature could have deemed stop-loss insurance to be health insurance for the
purposes of this article, but we find no evidence in the text of the statute for that proposition.
We hold that former article 3.77 does not apply to the stop-loss policies sold by the
plans in this case. Section 13(d) sets out the ratio by which each insurer must reckon its assessment.
Section 13(d) does not prohibit assessing fees on stop-loss policies, but rather is a mandatory
instruction from the legislature about how to calculate each insurance company's individual share
of the total assessment. If stop-loss insurance was included in the assessment, but not included in
the ratio calculation because it is not health insurance, then the true ratio of assessments paid by any
one insurer would be different from the ratio set out by the legislature. The stop-loss insurer would
be paying into the pool, but none of the other insurers' assessments would be reduced
proportionately as section 13(d) requires. Since that result would be contrary to statute, we must
conclude that former article 3.77 does not apply to the Companies in this case.
CONCLUSION
For the foregoing reasons, we sustain the Companies' point of error. We reverse the
district court's judgment and render judgment declaring that, by selling the stop-loss policies at issue
in this case to self-funded benefits plans and reporting their sale to the Department as a sale of
assumed reinsurance: (1) the Companies did not violate former article 3.10(a) of the Texas
Insurance Code; (2) the Companies did not violate former article 3.77 of the Texas Insurance Code
and thus were not required to pay assessments to the Texas Health Insurance Risk Pool for the
premiums received for the policies at issue in this case; (3) the Companies did not violate former
article 3.42 of the Texas Insurance Code and its associated rules, title 28, sections 3.4002 and
3.4004(e)(2)(J) of the Texas Administrative Code; and (4) the Department's amended Final
Examination reports of October 26, 2004 are invalid insofar as they contradict our holdings in
this opinion.
__________________________________________
J. Woodfin Jones, Chief Justice
Before Chief Justice Jones, Justices Waldrop and Henson
Reversed and Rendered
Filed: December 16, 2009
1. Any references to statutes or rules will be as they existed during 1998 to 2002 unless
otherwise noted.
2. We note that our holding in this case is based on Texas statutory law, not
federal preemption.