Attorney General: Susan F. Cogswell, Insurance Commissioner, Department of Insurance, 2005-010 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

April 15, 2005

Susan F. Cogswell
Insurance Commissioner
Department of Insurance
P.O. Box 816
Hartford, CT 06142-0816

Dear Commissioner Cogswell:

You have asked whether the exclusion under Conn. Gen. Stat. 38a-860(f)(2)(D)(iii) of the Connecticut Life and Health Insurance Guaranty Association Act ("Act") applies to an excess loss health insurance policy issued by Legion Insurance Company ("Legion"), an insurance carrier that is in liquidation, to ProFlow, Inc. ("ProFlow"), a Connecticut corporation, which procured the policy as part of its health benefits plan for its employees. For the reasons that follow, we conclude that benefits that would have been payable by the insurer under the policy are covered by the Act's guarantee of benefits.

Factual Background

The information you provided indicates that ProFlow employs about forty individuals in North Haven. ProFlow purchased an "Aggregate and/[or] Specific Excess Loss Insurance Policy" offered by Legion Insurance Company ("Legion Policy") as part of its health benefit plan for its employees.1 Section 3 of the Legion Policy, entitled "Excess Loss Insurance," states:

The Excess Loss Insurance provided hereunder is comprised of Aggregate and/or Specific Excess Loss Insurance. . . .

Under Specific Excess Loss Insurance, We will reimburse a Plan Sponsor for covered Expenses paid pursuant to a self-insured Employee Benefit Plan (Plan) to the extent the paid Covered Expenses for Covered Persons exceed a Specific and/or Aggregate Deductible."

The Legion Policy defines the term "Plan" as follows:

Plan: - means, for each Plan Sponsor, the self-insured Employee Benefit Plan established under the Employee Retirement Income Security Act of 1974; [sic] "ERISA", as amended, which provide benefits to Covered Persons as described in the Plan Sponsor's Employee Benefit Plan Document. The Plan shall not include any amendments made to the Plan Document without Our written consent, prior to its effective date.

"Plan Sponsor" is defined in the Legion Policy as "the Policyholder", i.e., ProFlow, Inc. See Schedule of Insurance of the Legion Policy.

Under the Legion Policy ProFlow agreed to self-insure or self-fund by virtue of a specific deductible for each contract period in the amount of $17,500 per Covered Family. See Schedule of Insurance. The Legion Policy covered losses to the Policyholder in excess of the specific deductible as follows:

C. Coverage Maximums for each Contract Period:

1. Percentage rate of claim payments You make for covered expenses under Your Plan, in excess of the Specific Deductible (in accordance with the applicable Specific Deductible Satisfaction Option indicated below) will be reimbursed by Legion Insurance Company, is 100%, subject to the;

2. Specific Reimbursement Lifetime Maximum of:
$1,982,500 per Covered Person ($2,000,000 Less
Specific Deductible)

Id.

Legion, a company that was licensed to transact business in Connecticut, was placed into rehabilitation on March 28, 2002 and then into liquidation by a Pennsylvania commonwealth court on July 25, 2003.2 ProFlow had incurred $23,967.25 in claims in excess of its deductible during the period April 18, 2002 to June 3, 2002. As a result of the rehabilitation and liquidation proceedings, ProFlow's claims against its policy with Legion have not been honored.

ProFlow has pursued payment under the Legion Policy through the Connecticut Life and Health Insurance Guaranty Association ("Guaranty Association") under the provisions of Conn. Gen. Stat. 38a-860.3 The Guaranty Association denied coverage on the basis that the group insurance plan ProFlow obtained from Legion was a "stop-loss" policy which is specifically excluded from the statutory coverage.

Analysis

The Connecticut legislature enacted the Connecticut Life and Health Insurance Guaranty Association Act, Conn. Gen. Stat. 38a-858 et seq. ("Act") for the following express purpose:

To provide protection for policyowners, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies, health insurance policies, annuity contracts, and supplemental contracts, subject to certain limitations, against failure in the performance of contractual obligations due to the impairment of the insurer issuing such policies or contracts, an association of insurers is created to enable the guaranty of payment of benefits and of continuation of coverages. Members of the association are subject to assessment to provide funds to carry out the purpose of sections 38a-858 to 38a-875, inclusive, and the association is authorized to assist the commissioner in the prescribed manner in the detection and prevention of insurer impairments.

Conn. Gen. Stat. 38a-859.

We have stated previously that the Act was designed to provide protection to those insured when their insurers cannot meet their obligations to pay valid claims. __ Op. Atty. Gen. __ (Opinion No. 95-020, Morton L. Weinstein, June 14, 1995). There can be no question that the Guaranty Association was established as a prophylactic measure to aid policyholders who have claims under policies issued by impaired insurers, such as Legion.4 Furthermore, the Act expressly states that it "shall be liberally construed to effect the purposes under Section 38a-859 which shall constitute an aid and guide to interpretation." Conn. Gen. Stat. 38a-861.

Against the backdrop of this remedial legislation, you have asked whether the Act's "stop-loss exclusion," Conn. Gen. Stat. 38a-860(f)(2)(D), operates to preclude coverage under the Act for the Legion Policy. Subsection (f) of 38a-860 states, in pertinent part:

(f)(1) Sections 38a-858 to 38a-875, inclusive, shall provide coverage to the persons specified in subsections (a) to (d), inclusive, of this section for direct, nongroup life, health or annuity policies or contracts and supplemental contracts to such policies or contracts, for certificates under direct group policies and contracts, and for unallocated annuity contracts issued by member insurers, except as limited by said sections. . . . (2) Said sections 38a-858 to 38a-875, inclusive, shall not provide coverage for: . . . (D) any plan or program of an employer, association or similar entity to provide life, health or annuity benefits to its employees or members to the extent that such plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association or similar entity under (i) a multiple employer welfare arrangement as defined in Section 514 of the federal Employee Retirement Income Security Act of 1974, as amended from time to time; (ii) a minimum premium group insurance plan; (iii) a stop-loss group insurance plan; or (iv) an administrative services only contract; . . .

(Emphasis added.)

Thus, 38a-860(f)(2)(D) excludes from the Act's coverage, to the extent a health benefits plan or program is self-funded or uninsured, benefits payable by an employer under a stop-loss group insurance plan. Stop-loss insurance provides a cap on an employer's self-funding in the event of a catastrophic loss or an inordinate number of claims. One state court explained the mechanism of stop-loss insurance as follows:

Stop-loss insurance is excess insurance designed to protect a self insured plan against unexpectedly large claims and catastrophic health costs for covered employees. Coverage under the stop-loss policy is triggered when the amount paid by Rockline through its self-insured plan exceeds a specified aggregate amount during the policy term. At the end of the policy term, WPS would reimburse Rockline for the entire amount of plan payments made in excess of the stop-loss limit, if any.

Rockline, Inc. v. Wisconsin Physicians Serv. Ins., 175 Wis. 2d 583, 499 N.W.2d 292, 294 (1993).

ProFlow's current claims arise from payments above the "specified aggregate amount" of ProFlow's deductible, and the Legion policy was designed specifically to reimburse ProFlow for "the entire amount of plan payments made in excess" of ProFlow's deductible. Id. The specific provisions of ProFlow's insurance policy with Legion, therefore, leave no doubt that it is a stop-loss or excess loss insurance policy within the meaning of 38a-860(f).

This does not end our inquiry, however. Each of the four types of benefit plans excluded under 38a-860(f)(2)(D) multiple employer welfare arrangements, minimum premium group insurance plans, stop-loss plans, and administrative service only contracts are benefit plans under which an employer is responsible for all or part of the benefits paid to an employee. The purpose of this provision is to exclude from the Act's coverage benefits that are paid by an employer, as opposed to benefits that are insured and are payable by an insurer. After all, employers are not assessed to fund the Guaranty Fund; insurers are. Conn. Gen. Stat. 38a-866. It was not the intent of the Act to guaranty all health benefits; rather, it was to guaranty insured benefits. Conn. Gen. Stat. 38a-859.

Clearly, benefits for which ProFlow was responsible that is, claim amounts below its deductible are not covered by the Act. ProFlow, however, is not seeking coverage of the claims below its deductible, but rather the amounts above the deductible for which Legion was responsible under its excess loss insurance policy with ProFlow. The operative language of 38a-860(f)(2)(D)'s exclusion is the phrase "benefits payable by an employer. . . ." Benefits that exceeded the excess loss policy's deductible were the responsibility of the insurer Legion and thus are insured benefits. The intent of this exclusion, as evidenced by the language restricting the exclusion to benefits payable by the employer, was to exclude from the Act's coverage only those benefits that would be self-funded by the employer and that would not be the responsibility of the insurer under an excess loss insurance policy such as ProFlow had with Legion.

Moreover, if there was any doubt about this interpretation of 38a-860(f)(2)(D), both the Act itself and the rules of statutory interpretation require that the Act's provisions be construed liberally to effectuate its purposes. Conn. Gen. Stat. 38a-861; Hartford Hospital v. Department of Consumer Protection, 243 Conn. 709, 720 (1998). This is a remedial statute with the clearly stated purpose of protecting insured benefits. Providing coverage for those benefits that would be paid by an insurer under an excess loss policy is entirely consistent with and fulfills the Act's purpose. A contrary interpretation would defeat that important purpose.

Conclusion

For the foregoing reasons we conclude that ProFlow's claims that exceed the deductible under the excess loss insurance policy with Legion are covered under the Act.

Very truly yours,


RICHARD BLUMENTHAL
ATTORNEY GENERAL


1ProFlow has provided us with a copy of the Legion Policy, Policy No: LEG-1623719.

2See M. Diane Koken, Insurance Commissioner v. Legion Insurance Company, No. 183 M.D. 2002 (Pa. Commw. Order of Liquidation, July 25, 2003).

3This provision states, in relevant part,

(a) Sections 38a-858 to 38a-875, inclusive, shall provide coverage for the policies and contracts specified in subsection (f) of this section: (1) To any person, except for a nonresident certificate holder under a group policy or contract, who is the beneficiary, assignee or payee of the person covered under subdivision (2) of this subsection, regardless of where the person resides, and (2) any person who is the owner of, or certificate holder under, such policy or contract and in each case who (A) is a resident, or (B) is not a resident, provided (i) the insurer that issued such policy or contract is domiciled in this state, (ii) the state in which the person resides has an association similar to the association created by this section and sections 38a-837, 38a-838, 38a-845, 38a-853, 38a-862, 38a-863, 38a-865 and 38a-866, and (iii) the person is not eligible for coverage by an association in any other state because the insurer was not licensed in the state at the time specified in the state's guaranty association law.

4When the legislation was first introduced in the Connecticut House of Representatives, Representative Colucci moved for passage of the bill, stating:

Mr. Speaker, I move acceptance of the joint committee's favorable report and passage of the bill. This bill is designed to protect those who purchase life, health and accident insurance in the event the insurance company becomes insolvent. When you and I purchase health and accident policies, we expect the company to live up to its contracts, but if this company becomes bankrupt or insolvent, this contract is in jeopardy. The likelihood of any company licensed in Conn. becoming insolvent is extremely remote because of the high caliber of supervision by the Conn. Insurance Dept. and the strict licensing requirements of this state. This bill will remove even the unlikely possibility and guarantees that the policyholder will be protected within the limits contained in the bill.

15 Conn. H. R. Proc., pt. 5, 1972 Sess. 2174 (April 13, 1972).


Back to the 2005 Opinions Page
Back to the Opinions Page



Content Last Modified on 6/6/2005 2:32:06 PM