Metropolitan Life Ins. Co. v. Forrester

Decision Date27 April 1983
Citation437 So.2d 535
PartiesMETROPOLITAN LIFE INSURANCE CO., et al. v. Tharpe FORRESTER, as Commissioner of Insurance of the Department of Insurance of the State of Alabama. Civ. 3424.
CourtAlabama Court of Civil Appeals

Richard F. Allen of Capell, Howard, Knabe & Cobbs and Henry B. Hardegree of Rushton, Stakely, Johnston & Garrett, Montgomery, for appellants.

Phillip E. Stano, Gen. Counsel Dept. of Insurance, and Warren B. Lightfoot, E. Mabry Rogers, and E. Glenn Waldrop, Jr. of Bradley, Arant, Rose & White, Birmingham, Harry Cole and Robert W. Bradford, Jr. of Hill, Hill, Carter, Franco, Cole & Black, Montgomery, for appellee/intervenors American Educators Life Ins. Co., et al.

Frank J. Kelley, Atty. Gen., and Louis J. Caruso, Sol. Gen., and Harry G. Iwasko, Jr. and William A. Chenoweth, Asst. Attys. Gen., of the State of Mich., for amicus curiae State of Mich.

Steven F. Freudenthal, Atty. Gen., and John W. Renneisen, Asst. Atty. Gen., of the State of Wyo., for amicus curiae State of Wyo.

Mark V. Meierhenry, Atty. Gen., and Douglas E. Kludt, Asst. Atty. Gen., of the State of S.D., for amicus curiae State of S.D.

WRIGHT, Presiding Judge.

This is a constitutional challenge to the Alabama tax on insurance premiums brought as a result of the recent ruling of the United States Supreme Court in the case of Western and Southern Life Insurance Co. v. State Board of Equalization, 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981).

Section 27-4-4, Code of Alabama 1975, imposes a premium tax on "foreign insurers" at a rate higher than the rate imposed on "domestic insurers" engaged in the same type of insurance business in this state. Section 27-4-1(2) defines "foreign insurer" as any insurance company not incorporated in Alabama and not having its principal office or chief place of business in Alabama. The law imposes a tax rate of four percent (4%) on the premiums collected by foreign property and casualty insurers and three percent (3%) on the premiums collected by foreign life insurers. § 27-4-4, Code 1975. In contrast, the tax rate for domestic insurers is one percent (1%) for both life and property-casualty companies. In addition, § 27-4-4(b) provides a progressive deduction from the tax rate for defined capital investments by the foreign insurer in Alabama. Appellants contend that the discriminatory tax rate on foreign insurers is an unconstitutional denial of their fourteenth amendment right to equal protection of the laws.

The appellants in this case are thirty-nine insurance companies, classified as foreign insurers under Alabama law, which have paid their annual premium taxes for each year they have done business in Alabama. In 1981 each foreign insurer paid its premium taxes (where applicable) under protest and filed petitions for refunds for taxes paid for certain open years, alleging that the Alabama discriminatory tax scheme was unconstitutional. The Alabama Commissioner of Insurance denied the petitions, and the foreign insurers filed Notices of Appeal with the Commissioner. Each foreign insurer filed a separate complaint in the Circuit Court of Montgomery County, appealing the Commissioner's decisions and seeking a declaratory judgment as to the constitutionality of the Alabama premium tax classification scheme and a writ of mandamus, or such other remedy as the court deemed appropriate, requiring the Commissioner to refund the premium taxes collected under the statute. The separate cases were consolidated for trial and it was agreed that two cases, those involving Metropolitan Life Insurance Company and the Prudential Property and Casualty Insurance Company, would go to trial and the findings in those cases would control all of the other cases.

Metropolitan paid taxes for the years 1977-80 at the rates imposed on foreign life insurers under the provisions of § 27-4-4, Code 1975. Prudential paid taxes at the rates imposed on foreign property and casualty insurers for 1977. Each claimed and were allowed credit for investments under § 27-4-4(b). Both Metropolitan and Prudential filed timely petitions for refunds of taxes paid, as authorized by § 27-4-11, Code 1975. The petitions were denied by the State on July 8, 1981. Appeal was taken to the circuit court pursuant to § 27-2-32, Code 1975.

Several domestic insurers filed motions in the circuit court to intervene as defendants. The motions were granted. Cross motions for summary judgment were made and heard. On May 17, 1982, the court granted summary judgment to the State. The foreign insurer's motion for a new trial was denied. This appeal followed.

In the circuit court all parties agreed that the case would be governed by the recent Supreme Court decision in Western and Southern Life Insurance Co. v. State Board of Equalization, supra. Western and Southern did not deal with discriminatory tax rates of the nature involved in this appeal. Instead, it dealt with a retaliatory tax, i.e., a tax which imposes the same rate on foreign insurers that is being assessed against the taxing state's domestic insurers by the foreign insurer's state of domicile, when that rate is greater than the standard rate imposed by the taxing state on foreign insurers. Alabama has such a tax, § 27-3-29, Code of Alabama 1975, but it is not challenged here. The court in Western and Southern ruled that the retaliatory tax did not violate equal protection principles.

The first important holding in Western and Southern is: (1) the Commerce Clause does not apply to the insurance business under the McCarran-Ferguson Act (15 U.S.C.A. § 1012 (West 1976)); (2) the Privileges and Immunities Clause does not apply to corporations (see Hemphill v. Orloff, 277 U.S. 537, 48 S.Ct. 577, 72 L.Ed. 978 (1928)); and therefore (3) only the Equal Protection Clause remains as a restriction upon the states' power to tax the insurance business. 101 S.Ct. at 2077. Thus we shall limit our federal constitutional examination of the Alabama taxing scheme to equal protection arguments.

The second holding of Western and Southern was that the case of Lincoln National Life Insurance Co. v. Read, 325 U.S. 673, 65 S.Ct. 1220, 89 L.Ed. 1861 (1945) was overruled. That case held that states may impose taxes on foreign corporations for the "privilege" of doing business in the state, even where the tax had no rational or legitimate state purpose other than raising revenue. In overruling Lincoln National the court said:

"In view of the decisions of this Court both before and after Lincoln National, it is difficult to view that decision as other than an anachronism. We consider it now established that, whatever the extent of a State's authority to exclude foreign corporations from doing business within its boundaries, that authority does not justify imposition of more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations, unless the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose."

101 S.Ct. at 2083.

Thus, classification of the Alabama premium tax as a "privilege" tax will not save it from constitutional attack; it must withstand equal protection analysis. That analysis requires that two questions be answered affirmatively. Vance v. Bradley, 440 U.S. 93, 97-98, 99 S.Ct. 939, 943, 59 L.Ed.2d 171 (1979). First, does the discriminatory tax have a legitimate state purpose? Second, was it reasonable for the Alabama legislature to believe that use of the foreign/domestic classification would promote that purpose? 101 S.Ct. at 2083.

In granting summary judgment for the State, the court found that the tax had at least two legitimate purposes, in addition to raising revenue: (1) encouraging the formation of new insurance companies in Alabama; and (2) encouraging capital investment by foreign insurance companies in Alabama assets and governmental securities. The court also found, based on affidavits of experts in the insurance field presented by both sides, that it was reasonable for the legislature to believe that the statute's classification would promote those purposes. The foreign insurers contend the court erred in both findings and, thus, in the granting of the motion for summary judgment.

On appeal from summary judgment, "we must determine whether there exists any genuine issue of material fact and, if not, whether the substantive law was correctly applied to undisputed facts." Watts Construction Co. v. Cullman County, 382 So.2d 520, 522 (Ala.1980). We shall first consider the question of whether the trial court was correct in finding legitimate state purposes for the discriminatory tax.

At the trial, the State presented a list of conceivable legitimate state purposes for its premium tax policy, with supporting affidavits of experts in the field of insurance. The domestic insurers, as defendant/intervenors, presented four additional purposes. The foreign insurers contend that it was error for the trial court to consider these lists, because the legislature specifically stated its purpose. The foreign insurers contend that the only purpose stated by the legislature is found in the last legislative pronouncement dealing with the premium tax before adoption of the 1975 Code of Alabama, i.e., Act of October 1, 1971, No. 2106, 1971 Ala.Acts 3375; that being "to raise revenue." Therefore there is no basis for considering other possible purposes.

The law is clear that the party attacking a statute has the burden of overcoming the presumption of constitutionality and must negate every conceivable or reasonable basis which might support the classification. Thorn v. Jefferson County, 375 So.2d 780 (Ala.1979). "[A] statutory discrimination should not be set aside if any state of facts reasonably may be conceived to justify it." Id. citing McGowan v. Maryland, 366 U.S. 420, 81...

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5 cases
  • Metropolitan Life Insurance Company v. Ward
    • United States
    • U.S. Supreme Court
    • March 26, 1985
    ...of rational relationship, concluding that summary judgment was inappropriate on that question because the evidence was in conflict. 437 So.2d 535 (1983). Appellants petitioned the Supreme Court of Alabama for certiorari on the affirmance of the legitimate state purpose issue, and the State ......
  • State v. Colonial Pipeline Co.
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    ...by state law from which they were exempted and to which Colonial continues to belong. We stated in Metropolitan Life Insurance Co. v. Forrester, 437 So.2d 535, 538 (Ala.Civ.App.1983), "The law is clear that the party attacking a statute has the burden of overcoming the presumption of consti......
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    ...also Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 210, 55 S.Ct. 187, 192, 79 L.Ed. 281 (1934); Metropolitan Life Ins. Co. v. Forrester, 437 So.2d 535, 540 (Ala.Civ.App.1983) (presumption of constitutionality was not intended to prevent full factual development of challenge to ration......
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    ...challenge to a statute bears the burden of overcoming a presumption of constitutionality. Metropolitan Life Insurance Company v. Forrester, 437 So.2d 535 (Ala.Civ.App.1983). "[A] State is afforded wide leeway when experimenting with the appropriate allocation of state legislative power." Ho......
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