Again, the “Re” Part of Reinsurance is Important

If you’re not an insurer, can you buy reinsurance?  “No” would seem to be the simple answer.  OK, what if you sell a stop-loss policy to a self-funded benefit plan?  The benefit plan is kind of like an insurer, so that would make you sort of a reinsurer, right?

Not in Texas.  In Texas Dept. of Ins. v. Am. Nat. Ins. Co., the Texas Supreme Court addressed this very situation and held that a stop-loss policy sold to self-funded benefit plans was not reinsurance.  As such, the state Department of Insurance could regulate stop-loss insurers as insurers and require them to contribute to the state health insurance risk pool and comply with other regulations governing insurers (which was the underlying dispute).

The reason?  The Department had a rule that said that stop-loss and excess health policies were direct insurance, not reinsurance, because “reinsurance is the redistribution of risk between sophisticated insurers in the business of insurance.”  In other words, only an insurer can buy reinsurance.  And that longstanding rule was entitled to deference by the courts.  So, as we’ve said before (see here), the “re” part of reinsurance is important, especially in Texas.

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About Brian Jones

I represent clients in all aspects of business litigation, but focus my practice on complex litigation and arbitration matters in life, property and casualty, disability, and professional lines insurance and reinsurance. I also represent clients in disputes regarding ERISA, lending, receiverships, securities, commercial leases, real estate disputes, construction, and employment matters. I am the co-chair of the Bose McKinney & Evans Insurance Group. I was named a "Rising Star" in Business Litigation by Super Lawyers in Indiana in 2013 and 2012, and I was also named a 2010 “Rising Star” in Business Litigation in Texas. I am a member of the State Bars of Indiana and Texas, the Defense Research Institute, a former member of the Pro Bono College of the State Bar of Texas, and am licensed to practice before all state courts in Indiana and Texas, as well as all federal courts in Indiana, the Northern, Western, and Southern Districts of Texas, the Northern District of Illinois, and the United States Court of Appeals for the Fifth Circuit. I received my bachelor’s degree, cum laude, in political science and my master’s degree in teaching from Trinity University, where I was elected to Phi Beta Kappa. I received my doctor of jurisprudence degree from the University of Texas School of Law, where I was the Director of Communications for the Legal Research Board and a member of the Phi Delta Phi Honor Society. Before attending law school, I taught high school geography, government and economics in San Antonio, Texas.
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2 Responses to Again, the “Re” Part of Reinsurance is Important

  1. Charley Barr says:

    This is similar to the purchase of excess workers’ compensation insurance by a “qualified self-insurer” in a state. Such self insurer is not a licensed/regulated insurer, even though it must meet certain credit and fitness standards with the state to lawfully self insure (and meet any obligation to provide a workers’ compensation scheme of some kind under state law so as to provide medical and indemnity to injured workers). Often qualified self insurer status includes the purchase of excess insurance or posting of a bond, etc.. The “specific excess” or “aggregate excess” insurance the self-insurer purchases is not reinsurance. The providing of excess WC insurance is typically done by a licensed insurer under a miscellaneous indemnity type power under state law. That licensing as an insurer implicates the type of regulation and assessments the benefits risk bearer apparently attempted to avoid in Texas.

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