Health Care Indemnity issued three policies which covered the vast majority of Humana’s hospitals. All of these policies conformed with industry standard practices. For years 1977 to 1979 Humana (the parent) paid total premiums of $21,055,575 to Health Care Indemnity. These payments represented amounts for the parent and its subsidiaries. The sole issue at trial was whether these amounts were deductible as insurance premiums. However, there were two sets of premiums. The first was from the parent company to the captive. The second was from the subsidiaries to the captive. It is important to remember this distinction going forward.
Humana lost the trial case but filed a petition for reconsideration. The tax court withdrew its memorandum opinion and issued a full opinion after review by the 19-person court. The written opinion contains a 12-member majority opinion, an 8-person concurrence, a 2- member concurring and a 7-member dissent. The sole reason for Humana’s petition was to get a long opinion which the company could use for the basis of an appeal.