Texas Supreme Court Reverses Stop Loss Insurance Categorization Premium Tax Ruling

Locke Lord LLP

On June 17, 2022, the Texas Supreme Court released an opinion in Hegar v. Health Care Serv. Corp. (No. 21-0080) (Jun 17, 2022) regarding whether the Comptroller properly taxed an insurer based on premiums it received from sales of stop-loss insurance policies under Texas Insurance Code Chapters 222 and 257.

In 2012, the insurer paid $3,005,270.13 in premium taxes and $68,691.89 in maintenance taxes in accordance with Texas Insurance Code Chapter 257 and later filed suit to seek a refund of these taxes. In its suit for the refund, the insurer argued that its stop-loss insurance policies do not cover risks on “individuals or groups” and are not “health insurance.” The trial court ruled for the insurer on a motion for summary judgement in 2019 and the court of appeals affirmed the decision in 2020.

The Texas Supreme Court reversed, holding that stop-loss insurance policies cover risks on individuals or groups, and thus the premiums collected are taxable under Chapter 222 if they arise from the business of health insurance.  The Texas Supreme Court further held that (a) the purpose of the maintenance tax as under Chapter 257 is to cover the costs of regulating the health insurance industry and (b) stop-loss insurance policies were treated as accident and health insurance for administrative and regulatory purposes.

Click here to read the Texas Supreme Court decision.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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