- 51 -
shifted from the sister subsidiaries to HCI. The court stated
that "If we look solely to the insured's assets, i.e., those of
the various affiliates of Humana Inc., and consider only the
effect of a claim on those assets, it is clear that the risk of
loss has shifted from the various affiliates to Health Care
Indemnity." Humana Inc. v. Commissioner, 881 F.2d at 252. The
court explained as follows:
The economic reality of insurance between a parent and a
captive insurance company is that the captive's stock is
shown as an asset on the parent's balance sheet. If the
parent suffers an insured loss which the captive has to pay,
the assets of the captive will be depleted by the amount of
the payment. This will reduce the value of the captive's
shares as an asset of the parent. In effect, the assets of
the parent bear the true economic impact of the loss. The
economic reality, however, of insurance between the Humana
subsidiaries and Health Care Indemnity, where the
subsidiaries own no stock in the captive and vice versa, is
that when a loss occurs and is paid by Health Care Indemnity
the net worth of the Humana affiliates is not reduced
accordingly. The subsidiaries' balance sheets and net worth
are not affected by the payment of an insured claim by
Health Care Indemnity. In reality, therefore, when the
Humana subsidiaries pay their own premiums under their own
insurance contracts, as the facts show, they shift their
risk to Health Care Indemnity. [Id. at 253.]
11 (...continued)
the "insured" party to see if that party has, in fact,
shifted the risk. In doing so, we look only to the
insured's assets, i.e., those of Clougherty, to
determine whether it has divested itself of the adverse
economic consequences of a covered workers'
compensation claim. Viewing only Clougherty's assets
and considering only the effect of a claim on those
assets, it is clear that the risk of loss has not been
shifted from Clougherty. [Id. at 1305; emphasis
added.]
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