                                                                  Matthew Baumgartner
                                                                  512.480.5603
                                                                  512.536.9913 (fax)
                                                                  mbaumgartner@gdhm.com

    A Professional Corporation                                    MAILING ADDRESS:
                                                                  P.O. Box 98
                                                                  Austin, TX 78767-9998
                                                                         FILED IN
                                 December 29, 2017                3rd COURT OF APPEALS
                                                                      AUSTIN, TEXAS
                                                                  1/2/2018 8:00:00 AM
Jeffrey D. Kyle
                                                                    JEFFREY D. KYLE
Clerk of Court                                                            Clerk
Third District Court of Appeals, Austin
209 W 14th St., Room 101
Austin, TX 78701

      Re:       Case No. 03-17-0081-CV; PHI Air Medical, LLC v. Texas Mutual
                Insurance Company, et al. and The Texas Department of Insurance,
                Division of Workers’ Compensation

Dear Mr. Kyle:

    Please submit this letter reply of Insurer Appellees Texas Mutual Insurance
Company, et al. to Justices Puryear, Field and Bourland.

      PHI’s December 19, 2017 letter acknowledges that “some” workers
compensation laws regulate the business of insurance. PHI’s effort to avoid
McCarran-Ferguson’s plain text boils down to its urging of a bright-line rule: that
an insurer’s payment of policy benefits directly to an insured is the “business of
insurance,” but payment of policy benefits to anyone else (i.e., a third party) is not
the “business of insurance.”

       PHI’s distinction –– based on the entity to whom policy benefits are paid ––
is foreclosed by both common sense and Supreme Court authority.

       Common sense: Some types of insurance pay policy benefits directly to an
insured (e.g., property), and other types of insurance pay benefits to third parties on
the insured’s behalf (e.g., auto, general liability, health insurance). Texas workers’
compensation insurance is both: it pays income-replacement benefits to the insured
worker, and medical benefits to the provider, on the insured’s behalf.

       Both types of insurance operate in the same fundamental way in which all
insurance operates: the transfer of the risk of a loss-causing event from the insured
to the insurer in exchange for a premium.


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      The Insurers’ payments of medical benefits to providers like PHI is their
discharge of the contractual duty that they acquired when they sold their policies
and accepted the risk that workers will be injured and require medical care.

      Supreme Court authority: U.S. Treasury v. Fabe, 508 U.S. 491, 505
(1993) held that an insurer’s “actual performance of an insurance contract is an
essential part of the ‘business of insurance.’” The insurer “actually performs”
under a policy by paying the benefits the policy requires. Id. at 504.

      Fabe’s clear holding applies equally to both types of insurance –– those that
pay benefits to the insured, and those that pay benefits to a third party on the
insured’s behalf. Fabe made clear that “the actual performance of an insurance
contract falls within the ‘business of insurance’ as we understood that phrase in
[Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) and Group Life &
Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210 (1979)],” the cases on which
PHI relies for its bright-line rule.

       Neither Fabe, Pireno, nor Royal Drug supports the distinction that PHI
urges. PHI cites Eagle Med, LLC v. Cox, 868 F.3d 893, 905 (10th Cir. 2017),
which wrote that, under Royal Drug, an “insurance company’s agreement with
medical providers or pharmacies to fix prices” is not the business of insurance.
Whatever the 10th Circuit meant by that non-binding dicta, it does not say that
state regulations that (i) dictate the terms of an insurance policy, or (ii) regulate an
insurer’s performance of the policy, are not state regulations enacted for the
purpose of regulating the business of insurance. Fabe held that both are. Fabe
also expressly held that Royal Drug created “no doubt” about this. 508 U.S. at
503. Eagle Med did not cite Fabe or address its clarification of Royal Drug.

       PHI also argues that the Texas Department of Insurance’s writing of Texas
policies to require payment of benefits in the amount “required [] by the Texas
workers’ compensation law” is not a state insurance regulation.

      PHI again ignores Fabe, which described state laws that “prescribe[e] the
terms of the insurance contract” as laws that “directly regulate the business of
insurance.” Fabe, 508 U.S. at 502-03.

       PHI urges the Court to disregard this critical, state-imposed policy term as
too “generic,” or, as in oral argument, “only one sentence” that is “too attenuated.”
But it is the insurer’s principal obligation under this insurance contract.


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       And because this is the policy term that defines the scope of the risk being
insured, it is, even under Pireno, the “business of insurance.” Pireno held that “the
fundamental principle of insurance” is “that the insurance policy defines the scope
of risk assumed by the insurer from the insured.” 458 U.S. at 131.1

     In short, PHI’s arguments are contrary to how insurance really works, and
Supreme Court authority.

                                             Sincerely,

                                             GRAVES, DOUGHERTY, HEARON & MOODY
                                             A Professional Corporation


                                         By:        Matthew Baumgartner
                                                    Matthew Baumgartner




1
  In other lines of insurance, insurers define the scope of the risk they assume by writing policy
limits or claim limits into the contract. State law does not permit workers’ compensation
insurers to use these risk-defining tools, and instead defines the scope of the risk being insured
by, inter alia, imposing “maximum allowable” medical benefits that must achieve “effective
medical cost control.” TEX. LAB. CODE § 413.011(d).

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                      CERTIFICATE OF COMPLIANCE


      Pursuant to the parties’ agreement, I certify that this Letter Brief contains

748 words, excluding the addressee, the case number and style, and signature

block. The undersigned relied on the word count of MS Word, the computer

program used to prepare the Letter Brief.



                                   /s/ Matthew Baumgartner
                                   Matthew Baumgartner




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                        CERTIFICATE OF SERVICE


      I certify that on the 29th day of December, 2017, I electronically filed the

foregoing with the Clerk of the Court using TexasOnline E-File System and certify

that a true and correct copy of the foregoing was served electronically on the

following counsel of record:

Craig T. Enoch
Amy Saberian
Shelby O’Brien
ENOCH KEVER PLLC
600 Congress Avenue, Suite 2800
Austin, Texas 78701
cenoch@enochkever.com
asaberian@enochkever.com
sobrien@enochkever.com


Lisa Bennett
State Bar No. 24073910
Office of the Attorney General
P.O. Box 12548, Capitol Station
Austin, Texas 78711-2548
512.936.2923 Telephone
512.474.2697 Telecopier
lisa.bennett@oag.texas.gov


                                     /s/ Matthew Baumgartner
                                     Matthew Baumgartner




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