Reinsurer Prevails in HMO Excess Reinsurance Dispute

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You don’t see a lot of healthcare reinsurance disputes but in the case discussed below a dispute arose after a heart transplant took place. A motion to dismiss the complaint was granted (or at least recommended by the Magistrate Judge). It involves statutory construction.

In Health First Health Plans, Inc. v. American National Insurance Co., No. 3:20-cv-00226 (S.D. Tex. Sep. 13, 2021), a health insurance company sued its reinsurer under an HMO Excess Reinsurance Agreement for breach of contract and statutory claims under Texas law for wrongful denial and prompt payment claims for failing to reimburse the insurer after it paid for a heart transplant. The reinsurer moved to dismiss the statutory claims.

In granting the motion to dismiss, the Magistrate Judge found that the cedent was barred from bringing the statutory claims against the reinsurer. The court pointed to the Texas Insurance Code, section 593.055, which provides that “[a] person does not have a right against a reinsurer that is not specifically stated in: (1) the reinsurance contract; or (2) a specific agreement between the reinsurer and the person.” According to the Magistrate Judge, based on the plain language of this provision, a cause of action against a reinsurer must be based on the terms of the reinsurance contract or other agreement between the parties.

The Magistrate Judge rejected the cedent’s attempt to avoid the import of the statute by arguing that the reinsurance agreement was not a true reinsurance agreement. Besides the reference to reinsurance throughout the reinsurance agreement, the Magistrate Judge found a judicial admission that the reinsurer was the cedent’s reinsurer in the second amended complaint. The Magistrate Judge also rejected the cedent’s other arguments, including that the statute only applied to underlying insureds and that there was no language in the statutes that precluded a claim by a cedent.

The Magistrate Judge concluded that the statute prohibited extra-contractual claims brought against reinsurers unless specifically authorized by a reinsurance contract or by a separate written agreement, and it did not matter whether the party bringing the claim is the original insured, a policyholder or the cedent.