Synergy Blog

From Roger Baron: Texas Supreme Court relies on ERISA’s “Saving Clause” to approve state regulation of Stop Loss Insurers

Reprinted with permission from Roger Baron

On May 18th, the Texas Supreme Court handed down an opinion that will disappoint ERISA stop loss insurers seeking to avoid state regulatory law by seeking shelter under the notion of ERISA preemption.  In Texas Department of Insurance v. American National Insurance Company, 2012 WL 1759457, (Tex. May 18, 2012), the issue for resolution was whether ERISA stop loss insurers were subject to state regulation. The Texas Dept. of Insurance (“TDI”) conducted an investigation and found that stop loss insurers were evading regulation.  TDI found that the stop loss insurers were failing to pay assessments due the state risk pool and that the insurers had failed to submit policy forms for approval to TDI.  Both the trial court and the Texas Court of Appeals ruled in favor of the stop loss insurers.  The Texas Supreme Court reversed in a unanimous decision, one justice not participating.  The Court seized upon ERISA’s “saving clause” as the basis for upholding state regulation, stating,

[T]he questions are (1) whether the state can regulate stop-loss insurers who contract with such plans, as it does other direct health-care insurers … and (2) whether it has chosen to do so. The answer to the first question is clearly yes under ERISA’s “insurance savings clause” and the Supreme Court’s decision in Metropolitan.

The Court rejected the argument that a stop loss insurer insures “the plan” and not the “individual participants,” stating,

We agree with [TDI] and hold that stop-loss insurance sold to a self-funded employee health-benefit plan is not reinsurance, but rather direct insurance subject to regulation under the Insurance Code.

To view the opinion click HERE

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