Attorney General's Opinion
Attorney General, Richard Blumenthal
April 15, 2005
Susan F. Cogswell
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.
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:
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."
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.
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:
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;
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.
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:
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:
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.
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,
4When the legislation was first introduced in the Connecticut House of Representatives, Representative Colucci moved for passage of the bill, stating:
15 Conn. H. R. Proc., pt. 5, 1972 Sess. 2174 (April 13, 1972).