### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

ON MOTION F OR REHEARING

NO. 03-08-00535- CV

Am eric an National In surance Com pany an d Am eric an National L if e Insurance Com pany of T exas, Appellants

v. Texas Depart m ent of In surance; The Honorable Mike G eeslin, Com m ission er of Insu rance; and T he Honorable Dann y Saenz, Senior Associate C om m ission er, A ppellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 261 ST JUDICI AL DISTRICT NO. D-1 -GN-0 4-0 0362 1, H ONO RAB LE O RLINDA NARANJO , JUDGE P RESIDING

M E M O R A N D U M O P I N I O N

We withdraw the opinion and judgme nt issued December 16, 2009, and substitut e the following opinion in li eu of the ear lier one.

Appellants Americ an National I n s uranc e Company and Americ an National L ife I nsuranc e Company of T ex as (“the Companies”) sued the Texas Depa rtment of I nsuranc e (“the Depa rtment”) seeking a judgme nt decla ring th a t th e D epar

tment’s interpre tation of sever al insurance code provisions was err oneous. T he parties stipulated to the fac ts and filed cross-motions for
summary judgme nt. The Depa rtment alleg ed that the Companies wer e incorre ct when they repor ted stop-loss insurance policies that they sold to self-f unded em p l o y ee benef

it plans as reinsura

nceinstead of direc t insurance

. The district court g rante d the Depart m en t ’s motion for summary

judgme nt, there by ag ree ing with the Depa rtment that self-f

unded plans are not insurers under Texas law. We will reve rse the tr ial court’s judg ment and re nder judg ment for the Companie s.

F ACTUAL AND P ROCEDURAL BACK GR OUND The Companies are insurance companies licensed b y th e D e p a r tm e n t to sell insurance in the state of Texas. The Companies sold stop-loss insurance cover ag e, also known as excess-loss insurance , to various g overnme ntal and private self-f unded employ ee benef

it plans. The policies at issue wer e sold by

the Companies betwe en 1998 and 2002. 1 The dispute in this case conce rns the classifica t i o n , fo r reg ulatory purposes, of stop-loss insurance policies sold to self-f unded employ ee ben efits plans. The Companies have alway s trea ted the policies as “re insurance ,” which has been define d as “[i] nsuranc e of all or part of

one insurer’ s risk by a second i n s u re r, who acc epts the risk in exchang e for a perc entag e of the orig inal premium.” Bla ck ’s L aw Dictionary 1290 (7th ed. 1999). The Depa rtment, on the other hand, claims that the policies are direct insurance , not reinsura nce, beca use only insurers can purcha se reinsuran ce , an d the Depa rtment asser

ts that the self-f

unded plans are not “insurer s” as define d by

Texas la w. The classifica tion is important beca use, as the Depa

rtment conce des, it has no authority

to reg ulate re insurance , but can a nd does re g ulate dire ct insuranc e extensively

. I f the insurance in question is direc t insurance , then the law require d the Companies to pay cer tain fee s on the s ale of direc t health ins uranc e that wer e not require d to be paid o n re i n s u ra n ce, seek approval

Any ref ere nces to statutes or rules will be as t h ey exis ted during 1998 to 2002 unless 1 otherwise note d. 2from the Depa rtment for their policy contra cts, and repor t the sale of direc t insurance differ ently in their financ ial and re g ulatory filings. A s elf-f unded plan opera tes by m ai n t ai ning a pool of funds that are contributed by

an employ er, the employ ees of that employ er, or both, from which the pl an pay s cover ed m ed i ca l
expenses to the employ ees and their families. The plan acc ept s t h e risk of having to pay for its employ ee s ’ ex penses rathe r than shifting the responsibility for pay ment entirely to a third-par ty insurer. Many of these plans qualify as “employ ee welfa re benef it plans” as that term is define d by the Employ ee Retirement I ncome Security Act (“ERI SA”). 29 U.S.C.A. § 1002(1) (West 2008). Some plans are g overnme ntal plans, which are specific ally exempted from many provisions of ERI SA. See id. § 1002(32) (West 2008) (def ining g overnme ntal plans); § 1003(b)( 1) (West 2008) (exempting g overnme ntal plans). The Companie s s o l d stop-loss cover ag e to both ty pes of plans, using the same policy

contra ct for both g overnme ntal and non-g overnme ntal self-f unded plans. Stop-loss cover ag e is an insurance product that allows self-f unded plans to minimi ze t h e ch an ce s o f cata strophic loss by shifting some of their risk onto an insurance car rier. Such policies g ener ally contain an “attac hment point.” When an employ ee cover ed by a self-f unded plan suffe rs a loss g rea ter than the attachm en t p o i n t , o r t h e plan as a whole has to pay out an amount g rea ter than the total annual a g g reg ate a ttachment point, the plan pay s the employ ee or employ ees and t h en seeks reimburse ment from the provider of stop-loss cover ag e. Stop-loss insurance may reimburse the plan for all of its losses above the attachme nt point or some perc entag e as ag ree d by the insurer and the plan. Stop-loss insurance usually also contains a maxi mum pay ment limit , either
per employ ee or in the ag g reg ate or both. A stop-loss policy is a contra ct made direc tly betwee n the

3insurer and the plan or the sponsors of the plan. A stop-loss insurer has no contra ctual rela tionship with employ ees w ho participa te in the self- funded pla n. The Depa

rtment first discovere d the alleg ed misclassifications during a routine examination of the Companies’ fin an ce s fo r the period of J anuar y 1, 1998 throug h Dec ember 31, 2002. I n its examination repor t dated October 26, 2004, the Depa rtment alleg ed that the Companies violated former article s 3.10(a) and 3.77 of the Texas I nsuranc e Code by “improper ly

r e c o r d in g the direc t stop-loss policy premiums obtained from the self-insure d employ ers a s ‘ a s s u me d reinsura nce’ ” instead of “dire ct written premium,” and by failing to pay the require d fee s to the Texas Hea lth I nsuranc e Risk Pool. See Act of J une 14, 1995, 74th L eg., R

. S

. , ch. 614, § 2, 1995 Tex. Gen. L aw s 3 4 6 8 , 3 4 68-69, repeale d by Act of J une 16, 2005, 79th L eg ., R.S., ch. 727, § 18(a) (3), 2005 Tex. Gen. L aws 1752, 2186-87 (h er ei n afte r “for mer Tex. I ns. Code art. 3.10”); Act of J une 16, 1989, 71st L eg ., R.S., ch. 1094, § 2, 1989 Tex. Gen. L aws 4484, 4484-91, repeale d by Act of J une 21, 2003, 78th L eg ., ch. 1274, § 26(a)(1 ), 2 0 0 3 T ex. Gen. L aws 3611, 4138 (h ereinafter “for

mer Tex. I ns. Code art. 3.77”). The Depa rtment also alleg ed that the Companies violated title 28, section 3.4002 of the Texas Administrative Code, which re quires the Companies
to submit for revie w to the Depa rtment any policy forms used to issue “all life and acc id ent and sickness” insurance policies, see 28 Tex. Admin. Co d e § 3.4002 (2000) (Tex. Dep’ t of I ns., All For ms To Be Filed F or Review U nless Ex empted), a nd former article 3.42 of the Texas I nsuranc e Code, which contained substan t i al l y s i milar require ments to the administrative rule. See Act of May 23, 1995, 74th L eg ., R.S., ch. 176, § 1, 1995 Tex. Gen. L aws 1889, 1889-92, repeale d by Act of J une 21, 2003, 78th L eg ., R.S., ch. 1274, § 26(a) (1), 2003 Tex. Gen. L aws 3611, 4138 (her einaf ter

4“for

mer Tex. I ns. Code art. 3.42”). The Companies contested the Depa rtment’s interpre tation of the law and soug ht administrative relief throug h the Depa rtment’s two-leve l administrat ive appea ls
proce ss. Both levels of administrative appea ls aff irmed the Depa

rtment’s interpre tation of the law. After exhausting their a dminist rative r emedies, the Companies filed sui t for declar atory judgme nt in Travis County district court pursuant to section 2001.038 of t h e T ex as Gover nment Code and section 36.202 of the Texas I nsuranc e Code. See Tex. Gov’t Code Ann. § 2001.038 (West 2008); Tex. I ns. Code Ann. § 36.202 (West 2009).

The Companies and the Depa rtment stipulated to the fac ts, and both soug ht summary judgme nt on their respe ctive interpre tations of the rele vant law. The Companies reque sted the trial
court to rende r judgme nt decla ring that: (1) the Companies did not violate former article 3.10(a) of the Texas I nsuranc e Code; (2) the C o m panies did not violate former article 3.77 of the Texas I nsuranc e Code; (3) the Companies wer e not require d to file their stop-loss policy forms with the Dep ar tment for revie w pursuant to title 28, section 3.4002 of the Texas Administrative Code and fo rm er Texas I nsuranc e 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 amende d final Ex amination Reports issued by the Department are invalid insofar as they asser t that the C ompanies vi olated any of t he above- ref ere nced statutes and rules. The Companies also reque sted that the district court enjoin the Depa rtment from acting on its conclusions in the examination repor ts insofar as they are inconsistent with the law. After a hear in g, the district court g rante d the Depa rtment’s motion, aff

irmed the Depa rtment’s examination repor ts, a nd denied the Companies’ motion. The Companies perf ecte d this appeal.

5STANDARD OF REVIEW Our revie w of the Depa

rtment’s finding s, ruling s, decisions, and order s is ba sed on the substantial evidenc e standard of revie w under the Administrative Procedur e Act. See Tex. I ns. Code Ann. § 36.202 (authorizing judicial revie w from decision of insurance commission er) ; Tex. Gov’t Code Ann. § 2001.174 (West 2008) (def ining sc ope of substantial e vidence revie w). When fac ed with questions of statutory interpre tation, our aim is to g ive eff ect to the leg islature’s intent. Tex. Gov’t Code Ann. § 312.005 (West 2005); Mid-Century I ns. Co. v

. Ademaj , 243 S.W .3d 618, 621 (Tex. 2007). We look first to the plain meaning of the statute, r ead a s a whole. Mid-Century Ins. Co. , 243 S.W .3d at 621. We should not rea d 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 g ive defe renc e to the Depa

rtment’s interpre tation of the statutes it is tasked with administerin g as long as that interpre tation is rea sonable and does not contra dict the plain lang uag e of the statute. City of Corpus Christ i 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 contempora neous construction of a statute by the administrative ag ency char g ed with its en fo rc em ent is entitled to g rea t weig ht.”). This is particula rly true when the statute deals with complex subject matter that may cre ate ambig uity 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 t h e s t at u t e can rea sonably be rea d as the ag ency has ruled, and that rea ding is in harmony with the rest of the statute, then the court is bound to acc ept that interpre tation even if other

rea sonable interpr etations exist .” Id.

6DISCUSSIO N The Companies asser

t on appea l tha t the trial court err ed as a matter of law when it denied their motion for summary judgme nt and g rante d the Depa rtment’s motion. The parties ag ree that the resolution of their dispute turns on whether the insurance sold by the Companies to the self-f unded pl an s s h o u l d be classified under Texas law as reinsura nce or direc t insurance

. The

answe r to that question depends on w hether self-f unded plans a

re insure rs under

Texas law.
( i) Statutory interpretation and appl icability of former article 3.10 The parties ag re e t h at reinsura nce is not reg ulated by the Depa rtment and is not specific ally define d in the ins u ra n ce co d e. Howeve r, former article 3.10 of the insurance code provides a contextual definition. As it exis ted during the time period rele vant to this appea l, former article 3.10 was entitled “May Reinsure.” The article was a permissi ve provision establishing
reg ulatory g uidelines for insurers who buy reinsura nce to reinsure a risk or part of a risk with another insurer. F ormer a

rticle 3.10(a ) stated in per tinent part:
Any insurer authorized to do the business of insurance in this state may reinsure in any solve nt assuming insurer, any risk, or part of a ri sk which both are authorized to as s u me ; provided, howeve r, no cre dit for reinsura nce, 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 opera ting 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 eng ag e 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 contra ct there for shall be submitt ed to the Commi ssioner and approve d by him as protec ting fully the interests of al l policy

7holders. .

. . This article is supplementary t o and cumulative of other provisions of

this code and other insurance laws of this state relating to reinsurance to the exte nt those provisions are not in conflict wit h this arti cle

.

For mer Te x . I ns. Code art. 3.10(a ) (e mphases adde d).

The Companies contend that the self-f unded plans are insurer s as d efine d by the insurance co d e an d thus qualify under the contextual definition of former article 3.10(a) to buy reinsura nce like any other insurer, allowing the Companies to classify the insurance they sold to the plans as reinsura

nce. The definition of insurer is found in the s ec tion of the insurance code prohibiting the unauthorized business of insurance

. An “insurer ” is define d un d er t h e curr ent code—a nd was define d by the code for all time periods applicable to this appea l—as a “cor poration, association, partne rship, or individual eng ag ed as a principal in the business of insurance .” Tex. I ns. Code Ann. § 101.002(1)( A) (W es t 2009). Conduct that constitutes the “business of i nsuranc e” is define d broadly

and includes the acts of:
(1) making or proposingto make, as a n insurer, a

n insurance contra ct; (2) making or proposing to make, as g uara ntor o r s u re t y , a g uara

nty or surety ship co n t ra ct as a vocation and not mere ly incidental to another leg itimate business or activity of the g uara

ntor or sure ty ; (3) taking or re ceiving an insuranc e application; (4) r ece iving or

collecting any

consideration for insuranc e, including : (A) a premium; (B ) a c ommissi on; (C) a me mbership fe e; (D) a n assessment; or (E) due s; (5) issuing or deliver ing a n insurance contra ct to:

8(A) a resident of

this state; or (B ) a pe rson authorized to do business in this st ate;

. . . . (7) contra cting to provide in this state indemnification or expense reimburse ment for a medical expense by d i re ct pay ment, reimburse ment, or otherwise to a person domiciled in this state or for a risk located in this state, whether as an insurer, ag ent, administrator, trust, or funding mecha nism or by

another method; (8) doing any kind of insurance business specific ally rec og nized as constituting insurance business within the meaning of statutes re lating to insura nce;

. . . . (10) a ny other tra nsaction of business in this state by an insurer

.
Id . § 101.051 (West 2009).

The Companies arg ue that beca use the self-f

unded plans do most, if not all, of the acts listed in section 101.051, they are insur er s under the code. First, they claim that a plain-mea ning interpre tation of the insurance code leads to this result. Second, to buttres s t h eir rea ding of the statute, they as s er t that the Department’s int erpr etation of the pl ans as non-insurer s would lead to
pree mption of former article 3.10 by ERI SA beca use it would single out ERI SA plans for reg ulation. This result would then be contra ry to leg islative intent beca use, in construing a sta t u t e, we must

as s u m e the leg islature did not intend to pass a meaning less law. See Tex. Gov’t Code Ann. § 311.021(4) (West 2005) (“I n enac ting a statute, it is presumed that

. . . a result fea sible of execution is intended.”)

. I n this case , the plans make insurance contra cts with the employ ees of the employ er sponsors; they collect pr emiums for their service from the plan s ponsor or the employ ees or both; they deliver insurance contra cts to the employ ees; and they provide expense indemnification,

9expense reimburse ment, or direc t p a y me n t o f me d ic a l e xp enses to individuals domiciled in this state. Be cause the s elf-f

unded plans do many of t he acts that constitute doing the business of insuranc e,

we ag ree with the Companies’ interpret at i o n of the statute and hold that self-f unded plans are insurers unde r Texas law. 2

Our holding here is in ag ree ment with the Four teenth Court of Appea ls’ decision in Harris County Ho s

p i t a l District v. Alief Indepe ndent School District , No. A14-91-00019- CV, 1992 Tex. App. L EXI S 558 (Tex. App—Houston [14t h Dist.] Mar. 5, 1992, writ denied) (not desig nated for publ ication). I n that case , the court held t hat a self-f unded plan set up by the Ali ef I ndepende nt School District was an insurer under the code. Id. at *8. Citi ng the substantially simil ar prede cessor statute to insura nce code section 101.051, the court noted that self-f unded plans make insurance contra cts, rec eive insurance applications, rec eive premium s a s c o n s id e r a ti o n f o r in s u r ance , and deliver

insurance contra cts. Id.
( ii) Former article 3.10 of the Tex as Insurance Code Wit hout regard t o whether self-f unded plans are insurers under Texas law, the Depa rtment arg

ues that t h e p l ai n lang uag e of former article 3.10(a) does not permit self-f unded plans to purcha se reinsura nce. As support for this asser tion, the De p ar t ment notes that former

ar t i cle 3.10(a) permitted any “insurer authorized to do the business of insurance in this st at e” t o reinsure , and that “[t]hi s article a pplies to all insurers reg ulated by the S tate Board of I nsuranc e.”

We do not addre ss whether self-f unded g overnme ntal risk pools, such as those established 2 pursuant to chapte rs 119 and 172 of the local g overnme nt code and chapte r 2259 of the g overnme nt code, are insurers under Texas law. See Tex. L oc. Gov’t Code Ann. §§ 119.008 , 1 7 2

. 0 1 4 (W es t 2008); Tex. Gov’t Code Ann. § 2259.037 (West 2008). 10For

mer Te x . I ns. Code art. 3.10(a) (emphasis added)

. Thus, the Department conte nds that even if the self-f unded plans wer e insurers under the code, they wer e not “author ized” insurers as that term is used in the statute beca use they we re n o t reg ulated by the Depa rtment. Since they wer e not authorized insurers, the arg ument g oes, former article 3.10 did not apply to the m. Be cause former article 3.10 is the g rant of permission to purcha se reinsura nce and beca

use the plans wer e not

cover ed within its ambit, the y lacke d authorization to re insure. L acking authorization to purcha se reinsura nce, the plans wer e prohibited fr om doing so. We ag ree with the Depa

rtment that former article 3.10 does not apply to self-f unded plans and other non-re g ulated insurers. Howeve r, we do not ag ree with the Depa rtment’s conclusion that beca use former article 3.10 does not ap p l y t o the plans in this case they are prohibited from purcha sing reinsura

nce. Although not stated by the Depa rtment, its conclusion relies on the assumption that without a n aff irmative leg islative g rant of permission to the plans to r einsure they lack the rig ht to do s o . We think this incorre ct for two rea sons. First, former article 3.10 is a permissive statute. The mere fac t that it authorizes reg ulated insurers to reinsure does not mean that i t forbids non-re g ulated insurers from reinsuring

. The Depa rtment does not point us to any o t h er state or fede ral law that prohibits the plans from reinsuring

. Second, ERI SA plans do not ne ed the state’s permission to reinsure , and an attempt to preve nt them from reinsuring would be pree mpted under ERI SA. See FMC Corp. v . Holliday , 498 U.S. 52, 58 (1990) (w hen state la w subjects plan 3
to state reg ulations, it has “conne ction to” ERI SA and there fore is pree mpted); see also Sharp

We note that our holding in this case is based on Texas sta t u t o ry l aw, not fede ral 3 pree mption. 11v. Caterpillar , Inc. , 932 S.W .2d 230, 236 (Tex. App.—Austin 1996, wr i t d enied) (state law is
pree mpted if law spec ifically targ ets ERI SA plans). The conclusion that former article 3.10 does not apply to ERI SA plans does not aff ect the ability of the Companies to sell reinsura nce to the pla

ns, since the statute does not r eg ulate the seller of re insurance

. See former Tex. I ns. Code art. 3.10(a ) (insure r “ma y reinsure in any solve nt assuming insurer ”) (empha sis added)

. Nor does it neg ate the ability to use the contextual definition of re insurance , as found in for mer a rticle 3.10(a ), to classify

the policies at issue a s reinsura nce. ( iii) Stop-loss insurance is reinsurance in this case The Depa

rtment arg ues that the main issue on appea l is “whe ther t h e stop-loss

cover ag e provided by Ap p el l an ts is stop-loss ‘insuranc e’ and whether Appellants wer e acting as ‘insurer s’ in issuing the stop-loss cover ag e to the self-f unded employ ers.” I t appe ar s that the Depa rtment is asser

ting that by selling stop-loss cover ag e the Companies ar e “i n s u rer s” and not “re insurers.” Acc epting this conclusio n would require acc eptanc e of an unstated assumption, arg ued by the Depa

rtment, that stop-loss insurance cannot be reinsura nce under the insurance code. Under that theory , reg ardle ss of our decision that self-f unded plans are insurers, the Companies must still classify the stop-loss poli ci es at issue here as direc t insurance beca use, by definition, such

cover ag e is always direc t insurance

. For support, the Depa rtment cites the insurance code at former article 3.77, which, for purposes of that section, define s insurer as “an entity that provides health insurance in T exas, inc luding stop-loss or excess loss insurance .” For mer Tex. I ns. Code art. 3.77 § 2(11). The Depa

rtment cites this as evidenc e that the leg islature considere d stop-loss cover ag e to be a ty pe of health insurance

. I t cites simil ar, limit ed-use definitions from other place s in the code,

12and decisions from other jurisdictions construing their respe ctive states’ insurance codes in a manner

simil ar to its own interpre tation of Texas law.

The insurance code itself ref utes the Depa

rtment’s asser

tion that stop-loss insurance

can never be reinsura

nce. I n at least one other context, the leg islature has classified stop-loss insurance as reinsura

nce. See Act of J une 17, 1993, 73d L eg ., R.S., ch. 685, § 13.02, 1993 Tex. Gen. L aws 2559, 2668, repeale d by Act of J une 21, 2003, 78th L eg ., ch. 1274, § 26(a) (1), 2003 Tex. Gen. L aws 3611, 4 1 3 8 (f

o rm er Tex. I ns. Code. art. 4.11 § 2(c) ) (“F or the purposes of this article , a

s t o p-loss or excess loss insurance policy issued to a health maintenanc e org anization

. . . shall b e considere d reinsura

nce.” ). Also, two well-re specte d seconda ry authorities cited by the Depa rtment underc ut the
assert i o n t h at stop-loss cover ag e is not reinsura nce. Bla ck’s L aw Dictionary , as quoted by the Depa rtment, define s reinsura

nce as “insuranc e of all or part of one insurer’ s risk by a second insurer, who acc epts the risk in exchang e of a perc entag e of the orig inal premium.” Bla ck’s L aw Dictionary 1290 (7th ed. 1999). Appleman on I nsuranc e, an often-c ited trea tise on insurance —as quoted by the Depa rtment—states that:

Rei n s u ra n ce , to an insurance lawy er, means one thing only —the ceding by one insurance company

to another of

all or a por

tion of its risks for a stipulated portion of the premium, in which the liability of the reinsure r is solely to the reinsure d, which is the ceding company , and in which contra ct the ceding company reta ins all contra ct with the orig inal insured, and ha ndles all matters prior

to and subsequent to loss.

13A J ohn Alan Appleman & J ean Appleman, I nsuranc e L aw and Practice § 7681, at 479-80 (1976).

13The way the policies in this case fu n ction is undisputed. I n exchang e for ceding a

portion or all of its risk, a sel f- fu n d ed p l an pay s premiums to the Companies. I f a cover ed loss

occur s, the Companies make pay ments direc tly to the plans. The Companies have no contac t with the individuals insured by the plans. All losses are handled b y t h e plans and then sent to the C o m p anies for indemnification. The Companies do not make cover ag e decisions with respe ct t o individuals insured by the plans. The Companies have no contra ctual rela tionship with the individuals insured by

the plans and c annot be sue d by them. These are the classic char acte ristics of reinsura

nce as define d by Bla ck’s and Appleman. The statu t e gi v es no indication that the leg islature int ended stop-loss insurance in this context to have a m ea n i ng other than reinsura nce. We there fore conclude that the stop-loss insurance in the context of this case is reinsura nce. Be cause the Depa rtment’s interpre tation of the statutes in this car e is contra ry to their plain meaning , we need not defe r to its interpretation. See City of Corpus Chris ti , 51 S.W .3d at 261.

Our holding acc ords with the Fifth Circuit ’s d ec i sion in Brown v. Granatelli , 897 F.2d 1351 (5th Cir. 1990). Analy zing the substantially simil ar prede cessor to curr ent Texas law, the court held that stop-loss insurance purcha s ed b y a s elf-f unded plan was not direc t acc ident or sickness insurance , but rathe r reinsura nce. Id. at 1353-54. Whil e our holding is based solely on Texas law, case s from other jurisdictions are in ag ree ment that stop-loss insuran ce is not direc t insurance

. See, e.g. , United Food & Commercial W orkers & Employe rs Ariz. Health & W elfare Trust v. Pacyga , 801 F.2d 115 7 , 1 1 6 1 (9th Cir. 1986) (holding s top-loss insurance not equivalent
to direc t health insurance ); Cuttl e v. Fede ral Em ployee s Metal Trades Counc il , 623 F.Supp. 1154,

141157 (D. Me. 1985) (“Stop-loss insurance is not g ro u p health insurance providing insurance to

individuals throug h a sponsor g roup. Rather , it is i nsuranc e obtained to pr otect self- insurers f rom risks . . . .”)
( iv) No absurd results I n the court below and at oral arg ument befor e this Court, the Department asserted that the Companies’ interpre tation of the law would set up absurd situations in which any individual who pay s healthca

re expenses for her family could be an insurer under the code and thus could buy “re insurance ” instead of direc t insurance

. Allowing the individual to “re insure” on e - h u n d r e d p e r c e n t of her potential loss would by

pass re g ulation of direc t health insuranc e altog ether

. This scena

rio is not possible under the plain lang uag e of the statute. An insurer is a

“ principal in the business o f i n s u ranc e.” Tex. I ns. Code § 101.002(1)( A) (empha sis added)

. An individual providing healthca re for her family is not a principal. She is mere ly self-insure d, which

means only that the individual h er s el f b ears the risk of loss. Self-insured in this context is a misnomer and must not be equate d with self-f unded. See Hertz Corp. v. Robineau , 6 S.W .3d 332, 335-36 (Tex

. App.—Austin 1999, no pet.) (“[I ]n eff ect, a self-insure r d o es n o t provide insurance
at all.” (Emphasis in orig inal.)). Self-insured simply means that the entity or individual reta ins the risk of loss instead of shifting it to others. A self-f unded plan, on the other hand, is a pool of money made up of

contributions from employ ees or from an e mploy er on the employ ees’ behalf . I nstead of pay ing for their own healthca re expenses out of pocket, employ ees shift the ir risk to the plan by
pay ing premiums or having premiums paid on their behalf to the self-f unded plan. The plan acts as

15a principal, providing insurance for the employ ees. The Depa rtmen t’s scena

rio has neither a principal nor a

shifting of

risk, and ther efor e does not e stablish 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 addre ss whether the Companies violated former article 3.42(a) and rules 3.4002 and 3.4004(E)( 2)(J). See former Tex

. I ns. Code art. 3.42(a) ; 28 Tex. Admin. Code § 3.4004(E)( 2 )( J ) (2 0 0 0 ) (Tex. Dep’ t of I ns., Ex empt For ms); 28 Tex. Admin. Code § 3.4002. For mer insurance code article 3.42(a) and rule 3.4002 require d the Companies to file cer tain policy
contra ct forms with the Depa rtment for revie w. The rule only applies to “life an d ac ci dent and sickness policy forms and annuity contra cts.” 28 Tex. Admin. Code § 3.4002. Be cause we hold that the stop-loss insurance sold to self-f unded pla n s is r e in s uranc e, rule 3.4002 and former article 3.42(a) do not apply to the Companie s i n this case . Rule 3.4004(E)( 2)(J) allows insurers to reque st an exemption from the revie w proce ss for cer tain policies. Id. § 3.4004(E)( 2)(J). The rule applies only
to “g roup and individual acc ident and/or health policies.” This rule does not apply to the Companies in this case for

the same r easons that r

ule 3.4002 does not apply to them.
( vi) Former article 3.77 fee s Next we turn to whether the Companies improperly faile d t o pay fee s that the Depa rtment alleg es are due under former art i cle 3.77. The definition of “insurer ” under former article 3.77 is broad enoug h t o en co m pass the Companies in this case . I nsurer is define d in the article as

16any entity that provides hea lth insurance in this state, i ncluding stop-loss or excess loss insurance

. For the purposes of this article , “insurer ” includes but is not limit ed to an insurance company . . . [and] an i n surer providing stop-loss or excess loss insurance to

. . . any benef it arr ang ements to the extent permitted by Sect i o n 3 , Employ ee Re tirement I ncome Sec urity Act of 1974.

For mer Tex. I ns. Code art. 3.77. That definition is sufficie ntly broad to encompa ss all the stop-loss policies sold to ERI SA welfa re be nefit plans. Having decide d that the Companies are insu re rs fo r the purposes of former article 3.77 insofar as they sold stop-loss policies to E RI SA pla ns, we must de termine if they have
to pay fee s to the Texas Hea lth I nsuranc e Risk Pool as the Depa rtment asser

ts. The amount any one insurance company must pay bear s a rela tionship to its share of the health insurance premium marke t in Texas. The statute provides that:

The assessment imposed ag ainst eac h insurer sha ll be in an amount that is equal to the ratio of the g ross premiums collec ted by the insurer for health insurance in this state during the prec eding cale ndar y ear . . . to the gross premiums coll ec t ed by all insurers f or health insurance . . . in this st ate dur ing the prec eding cale ndar y ear .

For mer Tex. I ns. Code art. 3.77, § 13(d) (empha sis added)

. During the rele vant time period for this
appea l—1998 to 2002—the article de fined he alth insurance in pertinent par t as:

individual or group health insurance [i ncluding ] an y h o s p ital and medical expense incurre d policy

. . . or any o t h er h ea l t h ca re plan or arr ang ement that pay s for or furnishes medic al or he alth car e ser vices whe ther by

insurance or otherw ise.

Id. § 2(7). The definition of “hea lth insurance ” does not include any ref ere nce to stop-loss or excess-loss insurance despite the fac t that “insurer ” is specific ally define d to include s t o p-loss

17policies. The leg is l at u re co uld have deeme d stop-loss insurance to be health insurance for the

purposes of this ar

ticle, but we f

ind no evidence in the text of the statute f or that proposition. We hold tha t f

ormer article 3.77 does not a pply to the stop-loss policies sold by the plans in this case . Section 13(d) sets out the ratio by which eac h insurer must rec kon its assessment. Section 13(d) d o es not prohibit assessing fee s on stop-loss policies, but rathe r is a mandatory instruction from the leg islature about how to c alculate eac h insurance company ’s individual share of the total asse ssment. I f stop-loss insurance was include d in the assessment, but not included in the ratio calc ulation beca

use it is not health insurance , then the true ratio of assessments paid by any

one insurer would be differ ent from the ratio set out by the leg islature. The stop-loss insurer would b e p ay i ng into the pool, but none of the other insurers’ assessments would be reduc ed proportionately as section 13(d) require s. S i n ce t h at result would be contra ry to statute, we must conclude that former

article 3.77 does not apply to the Companies in this case.

CONCLUSION For the fore g oing rea sons, we sustain the Companies’ point of err or. We reve rse the district court’s judgme nt and rende r judgme nt decla ring that, by selling the stop-loss policies at issue in this case to self-f

unded benef

its plans and repor

ting their sale to the Depa rtment as a sale of assumed reinsura

nce: (1) the Companies did not violate former article 3.10(a) of the Texas I nsuranc e Code; (2) the Companies did not violate former article 3.77 of the Texas I nsuranc e Code and thus wer e not require d to pay assessments t o t h e T exas Hea lth I nsuranc e Risk Pool for the premiums rec eived for the policies at issue in this case ; (3) the Com panies did not violate former article 3.42 of the Texas I nsuranc e Code and i t s associate d rules, title 28, sections 3.4002 and
183.4004(e) (2)( J ) of the Texas Administrative Code; an d (4) the Depa rtment’s amende d Final Ex amination repor

ts of Oct o b er 2 6 , 2004 are invalid insofar as they contra dict our hol dings in this opi nion.

__________________________________________ J . Woodfin J ones, Chief Just ice Be fore Chief J ustice Jones, J ustices Waldrop and He nson Reverse d and Rende red on Motion for Re hear ing Filed: Apr il 22, 2010

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