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Nonetheless, we agree that some significant factual
distinctions exist between the present case and Humana, Inc. v.
Commissioner, supra. We next consider the effect of those
differences.
One significant factual distinction between the instant case
and Humana is the presence of the comfort letter that HCA gave to
Ideal Mutual whereby HCA agreed to indemnify Ideal Mutual against
Parthenon's nonperformance relating to workers' compensation
liabilities that Ideal Mutual reinsured with Parthenon. Humana
had taken no steps to insure HCI's performance. Humana Inc. v.
Commissioner, 881 F.2d at 253. Malone & Hyde, however, gave
Northwestern, the insurance company primarily liable for
insurance risks reinsured by Eastland, a hold harmless agreement
relating to Eastland's reinsurance obligations. Malone & Hyde,
Inc. v. Commissioner, 62 F.3d at 836.
In Malone & Hyde, Inc., the Court of Appeals stated that the
presence of the hold harmless agreement, along with the fact that
Eastland was undercapitalized, indicated that the captive
insurance arrangement was a sham. Id. at 841. Eastland's
activities, however, were limited to providing reinsurance for
risks primarily insured by Northwestern, and the indemnity
agreement applied to all of those reinsured risks. In the
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