Prudential Ins. Co. of America v. Murphy

Citation35 S.E.2d 586,207 S.C. 324
Decision Date13 September 1945
Docket Number15773.
PartiesPRUDENTIAL INS. CO. OF AMERICA v. MURPHY, Insurance Commissioner.
CourtUnited States State Supreme Court of South Carolina

Original action by the Prudential Insurance Company of America against D. D. Murphy, as Insurance Commissioner of the State of South Carolina, attacking the validity of a license tax which plaintiff had paid on premiums collected in state under Code 1942, §§ 7948, 7949.

McKay & McKay, of Columbia, for appellant.

John M. Daniel, Attorney General, and M. J. Hough and T. C. Callison, Assistant Attorneys General, for respondent.

PER CURIAM.

For a great many years, perforce the decision of the Supreme Court of the United States in Paul v. State of Virginia, 8 Wall 168, 75 U.S. 168, 19 L.Ed. 357, the transaction of the business of insurance across state lines was not interstate commerce and, therefore, was not subject to the control of Congress. 29 Am.Jur., Insurance, Sec. 35. This long standing status was upset by the result of the recent case of United States v. South-Eastern Underwriters Ass'n. 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440. Overruling the earlier case, the latter held that when the insurance business crosses state boundaries, it is interstate commerce. Because of the complexities and colossal nature of this farflung business, it was feared in many quarters that considerable chaos might result from the departure of the Southeastern Underwriters decision from the former rule, but for an Act of Congress which was soon thereafter passed.

The latter is known as the McCarran Act, passed February 27 1945, Public Law 15, 79th Congress, 15 U.S.C.A. § 1011 et seq. The portions pertinent to the present controversy are set out below:

'Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, [Section 1.] That the Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

'Sec 2. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

'(b) No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.'

Unquoted Sections 3 and 4 preserve the applicability of certain provisions of the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, and the applicability of the National Labor Relations Act, 29 U.S.C.A. § 151 et seq., the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., and the Merchant Marine Act, 46 U.S.C.A. § 861 et seq.

The Prudential Insurance Company of America is in this State a 'foreign' life insurance company, that is, it is incorporated under the laws of New Jersey and its home office and the bulk of its property are located in the city of Newark in that State. However, it has solicited business and sold insurance contracts and policies to residents of South Carolina since the year 1897. At the end of 1944 it had in force in this State 26,373 policies insuring the lives of about twenty thousand persons for amounts aggregating over thirty million dollars; and paid claims in that year of $457,602.28 on policies covering the lives of South Carolinians. (In the face of these figures it does not appear that the tax law now resisted was 'hostile in conception' or is 'burdensome in result'--the words of Mr. Justice Cardozo in Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 502, 79 L.Ed. 1032, 101 A.L.R. 55.

The Company brought this action in the Original Jurisdiction of this Court, by permission, in attack upon the validity of the license tax of three per cent which it has heretofore paid on premiums collected here, under the provisions of the present Sections 7948 and 7949 of the South Carolina Code of Laws of 1942. While the tax is a flat one, as indicated, it is subject to a graduated reduction in proportion to the amount of certain financial investments which the company may make and report in the State of South Carolina.

It is not contended that the latter or any other feature of the law under attack is discriminatory against petitioner as compared with any other member of the class to which it belongs, to wit, 'foreign' insurance companies. But it is alleged that this tax which has before been paid without protest by petitioner has become invalid, and therefore unenforceable, by reason of the law declared in the South-Eastern Underwriters case, supra, in view of the Federal constitutional authorization of Congress to regulate commerce among the states, and the many decisions of the Federal Courts thereabout. It is also alleged in the petition that the tax violates a section of our State Constitution, but the point was not argued and is, therefore, deemed to have been abandoned in accord with the established rule.

Petitioner presents a two-pronged attack, first that the tax constitutes a burden upon its interstate business, transacted in part within the state, and, second, that it is discriminatory against petitioner for it is not applicable to insurance corporations of the state, domestic companies, which are exempted from the law's provisions. The respondent, the Insurance Commissioner of the state and charged with the enforcement of the law, first contends that the proceeding is really against the State itself, which is immune from suit without its express permission. His demurrer and return also raise the other issues which will be discussed.

Disposition will be first made of the point of the respondent that the action is not maintainable because it is in reality against the State, without its permission, and, therefore, in violation of its sovereign immunity from suit. This is foreclosed by former pronouncements of this Court, in view of the fact that there is no adequate remedy at law, such as payment of the taxes under protest and suit for recovery, if they are illegally assessed. It was said in Santee River Cypress Co. v. Query, 168 S.C. 112, 167 S.E. 22, as follows: 'It is not only within the power of a Court of equity, but the duty rests upon it, to enjoin the collection of an illegal tax in those cases where no adequate legal remedy is provided for the aggrieved taxpayer. Ware Shoals Mfg. Co. v. Jones, 78 S.C. 211, 58 S.E. 811.' The eleventh amendment to the Federal Constitution, attempted to be invoked by respondent, is expressly applicable only to the Courts of that jurisdiction. Federal Land Bank of Columbia v. State Highway Department, 172 S.C. 174, 173 S.E. 284; State of Missouri v. Fiske, 290 U.S. 18, 54 S.Ct. 18, 78 L.Ed. 145.

We proceed then to the heart of the controversy. It is the clear intent of Congress to refrain for the present from the regulation and taxation of insurance, even as to the activities of it which undoubtedly constitute interstate commerce under the authority of United States v. South-Eastern Underwriters Ass'n, supra, with the exceptions hereinabove noted.

It would be difficult, if not impossible, to compose clearer statements than are contained in Sections 1 and 2(a) of the McCarran Act, which are quoted again for emphasis:

'[Section 1.] That the Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

'Sec. 2(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.'

It should be said for a first ground for refusal of the injunction sought that, upon examination, the license tax which petitioner resists for the first time, and so far apparently alone among the many non-resident insurance companies operating in the state, may not be as burdensome as first appears, or even at all so, and may therefore, be also non-discriminatory against a 'foreign' company, such as petitioner, and in favor of a domestic (resident) company, which latter is expressly exempt from this particular tax. In this view, it is neither a burden upon interstate commerce nor discriminatory against a foreign company. Statistics are included in the petition and uncontested by the return which show the amount of the premiums tax paid by petitioner and certain taxes paid by comparable, competing domestic companies, but they confessedly do not include the property taxes paid by the resident companies on their home office buildings, furniture, equipment, personal property investments, etc.--taxes of a nature which petitioner pays none here which correspond. These petitioner doubtless pays in its home state of New Jersey, but not here, as do the resident companies. It does not appear in the record whether the state of New Jersey has a similar license tax to that of South Carolina (applicable to our and other nonresident insurance companies which may do business...

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2 cases
  • Prudential Ins. Co. of America v. Barnett
    • United States
    • Mississippi Supreme Court
    • June 10, 1946
    ... ... 972; Keehn v. Hi-Grade Coal ... & Fuel Co., 23 N.J.Misc. 102, 41 A.2d 525; Ware v ... Travelers Ins. Co., 9 Cir., 150 F.2d 463; Mendola v ... Dineen, 185 Misc. 540, 57 N.Y.S.2d 219; Prudential ... Ins. Co. v. Benjamin, 66 S.Ct. 1142; Prudential Ins ... Co. v. Murphy, 207 S.C. 324, 35 S.E.2d 586, (S.Car.); ... State v. Prudential Ins. Co., Ind.Sup., 64 N.E.2d ... It is ... our considered conclusion that the Congress, by vouchsafing ... to the states a period of armistice within which to make ... orderly withdrawal from the field with salvage ... ...
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