07-2165 Edstrom Industries, Inc., v. Companion Life Ins. Co.

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Insurance
Reinsurance

A stop-loss insurance policy is not a reinsurance policy.

"The magistrate judge's ruling that stop-loss insurance is reinsurance under Wisconsin law is perhaps understandable, because 'unlike traditional group-health insurance, stop-loss insurance is akin to reinsurance in that it does not provide coverage directly to plan members or beneficiaries.' Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 723 (2d Cir. 1993), reversed on other grounds, 514 U.S. 645 (1995). But kinship is not enough. It is a mistake to think that anything someone does to 'insure' someone else against a risk is 'insurance' within the meaning of statutes that regulate insurance. If you sign an accommodation note, you guarantee another's debt; in effect, you 'insure' the creditor. If a contract contains a warranty, the promisor is 'insuring' the promisee against the consequences of a defect in the product covered by the warranty. Strict products liability is likewise a system of insurance against product defects (though that is not all it is). A debtor's promise to indemnify his creditor for the costs of collection if the debtor defaults is still another example of 'insurance' in the broad sense. And if a company promises a 'golden parachute' to one of its executives, it is 'insuring' the executive against not being able to find as good a job should he lose his present one. But as in the other examples, the golden parachute is not an 'insurance' policy within the meaning of the insurance statutes. Finally, a person who has a $5,000 deductible in his automobile collision policy is 'self-insured' for damage up to the amount, but that does not make him an insurance company and his auto insurance policy a reinsurance policy. Stop-loss insurance is an insurance policy for losses that the insured self-insures up to the limit of the deductible."

Reversed and Remanded.

07-2165 Edstrom Industries, Inc., v. Companion Life Ins. Co.

Appeal from the United States District Court for the Eastern District of Wisconsin, Goodstein, Mag. J., Posner, J.

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