Gallagher v. Motors Ins. Corp.

• Decision Date: 23 July 1992
• Docket Number: No. 79061,79061
• Parties: 17 Fla. L. Week. S468 Tom GALLAGHER, etc., et al., Appellants/Cross Appellees, v. MOTORS INSURANCE CORPORATION, et al., Appellees/Cross Appellants.
• Court: Florida Supreme Court

Page 62

605 So.2d 62

17 Fla. L. Week. S468

Tom GALLAGHER, etc., et al., Appellants/Cross Appellees, v. MOTORS INSURANCE CORPORATION, et al., Appellees/Cross

Appellants.

No. 79061.

Supreme Court of Florida.

July 23, 1992.

Robert A. Butterworth, Atty. Gen. and Joseph C. Mellichamp, III, Sr. Asst. Atty. Gen., Tax Section, and Daniel C. Brown, Marguerite H. Davis and Brian M. Nugent of Katz, Kutter, Haigler, Alderman, Davis, Marks & Rutledge, P.A., Tallahassee, for appellants/cross appellees.

Kenneth R. Hart, Steven P. Seymoe and Robert A. Pierce of Ausley, McMullen, McGehee, Carothers & Proctor, Tallahassee, for appellees/cross appellants.

KOGAN, Justice.

We have on appeal a judgment declaring Florida's insurance premium tax scheme, sections 624.509, .512, .514, Florida Statutes, as it existed prior to July 1, 1988, ¹ unconstitutional under the Equal Protection and Due Process Clauses of the Fourteenth Amendment of the United States Constitution and the Due Process Clause of the Florida Constitution. The judgment also upheld Florida's retaliatory tax, section 624.429, Florida Statutes (1983-1987), against various constitutional challenges. We have jurisdiction pursuant to article V, section 3(b)(5) of the Florida Constitution. We reverse that portion of the judgment declaring the premium tax unconstitutional but affirm that portion upholding the retaliatory tax.

Prior to July 1, 1988, ² section 624.509(1)(a) The Appellees/Cross Appellants (Taxpayers) are foreign corporations licensed to write insurance in Florida who were subject to Florida's insurance premium tax during the years 1983 through 1988. The Taxpayers sought a declaratory judgment that the premium tax scheme unconstitutionally discriminated against them and demanded a refund of all premium taxes paid for the years 1983 through 1988. The Taxpayers also sought relief under 42 U.S.C. section 1983. The Appellants/Cross-Appellees (the State) took the position that Florida's premium tax was constitutional because it advanced legitimate state regulatory goals not set forth in the statute. ⁶

³ imposed a two percent tax on gross premiums collected on certain insurance policies written in this state. Section 624.512 ⁴ exempted from this tax insurance companies that were organized under Florida law, maintained their home offices in Florida, and complied with the requirements of sections 628.271 and 628.281 by maintaining their records and assets in Florida. Section 624.514 ⁵ granted a fifty percent reduction in the tax rate imposed by section 624.509 to insurers organized under the laws of other jurisdictions that elected to own and maintain a regional home office in Florida and to keep therein certain records pertaining to their activities within the state. Under this statutory scheme, all foreign insurers were liable for premium tax at either the full or the reduced rate; while domestic insurers who complied with the requirements of section 624.512 were exempt.

After the complaint was filed, the State sought to impose assessments for additional premium tax and retaliatory tax, ⁷ against several of the Taxpayers for the period 1983 through 1988. The Department also issued pro forma assessments for an increase in retaliatory taxes, for the period 1983 through 1988, which would offset any refund due the Taxpayers should the premium tax be declared unconstitutional.

In response, the Taxpayers amended their complaint to challenge section 624.429, Florida Statutes (1983-1987), as violative of the Equal Protection Clause and the Privileges and Immunities Clause of the United States Constitution and as constituting an unlawful delegation of legislative authority under article II, section 3 of the Florida Constitution. The 1983 and 1984 proposed and pro forma assessments also were challenged as barred by section 95.091, Florida Statutes (1989).

After an evidentiary trial, the trial court found, in connection with the challenge to the premium tax, that: 1) on its face, the premium tax statute discriminates against foreign insurance companies; 2) the purposes set forth in the statute are not legitimate; however, as a matter of law, the State is not limited to those purposes and may rely on purposes not contained in the statute; 3) the purpose advanced--to acquire a greater degree of regulatory control over insurance companies--is a legitimate state purpose; 4) regardless of the activities a foreign insurance company undertakes, the company may only attain the exemption provided to domestic companies if it changes its state of domicile to Florida; 5) forcing a company to change its state of domicile is not a legitimate state purpose for imposing a discriminatory tax; 6) based on the evidence, the premium tax does not, in fact, cause an insurance company to change its state of domicile; however, the legislature could have believed that the tax would have the effect of causing a company to do so and therefore increase the State's ability to regulate it; ⁸ 7) because the premium tax lacks a legitimate state purpose, it violates the Equal Protection and Due Process Clauses of the Fourteenth Amendment of the United States Constitution and the Due Process Clause of the Florida Constitution. The court also found the assessment of additional premium taxes void because the premium tax statute was invalid and rendered judgment in favor of the State on the Taxpayers claim under 42 U.S.C. section 1983.

Although the court found the proposed assessments of retaliatory tax for the years 1983 and 1984 barred by section 95.091, it rejected the remainder of the challenges raised in connection with section 624.429, and ordered the premium tax refunds offset by the amount of retaliatory tax owed under the pro forma assessments. Both parties appealed and the district court of appeal certified the cause to this Court as involving a question of great public importance requiring immediate resolution.

HISTORICAL BACKGROUND

From 1869 to 1944 insurance was not considered "commerce" under the Commerce Clause of the United States Constitution. New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332 (1913); Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357 (1869). During that period, state regulation and taxation of the business of insurance was free of Commerce Clause restraints. Then in 1944 the United States Supreme Court receded from its earlier rulings and held insurance to be commerce within the meaning of the Commerce Clause. United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). In response to South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act Sec. 1, 15 U.S.C. Secs. 1011-1015 (1982) (original version at ch. 20, Sec. 1, 59 Stat. 33 (1945), which expressly exempted the business of insurance from the restraints of the dormant Commerce Clause, ⁹ thereby restoring the states' pre-South-Eastern Underwriters power to impose taxing and regulatory requirements on the business of insurance. Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648, 653-55, 101 S.Ct. 2070, 2075, 68 L.Ed.2d 514 (1981); Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946). By 1985, at least 28 states employed differential premium taxes similar to that challenged in this case. Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 892, 105 S.Ct. 1676, 1689, 84 L.Ed.2d 751 (1985).

After the enactment of the McCarran-Ferguson Act, it was clear that the Commerce Clause no longer limited a state's power to condition the right of foreign insurers to do business within its borders. State Bd. of Ins. v. Todd Shipyards Corp., 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620 (1962); Prudential Ins. Co. v. Benjamin, Prudential Ins. Co. v. Hobbs, 328 U.S. 822, 66 S.Ct. 1360, 90 L.Ed. 1602 (1946). However, it was not until 1981 that the United States Supreme Court explicitly held that the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution limits a state's authority to exclude a foreign corporation from doing business within its boundaries. The Court explained that under this provision more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations are justified only where "the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose." Western & Southern Life, 451 U.S. at 668, 101 S.Ct. at 2083. Applying this rational basis test, the Western & Southern Life Court upheld a California retaliatory tax which was imposed on foreign insurers when the insurers' home states imposed a discriminatory tax on California insurers doing business within their borders. Four years after Western & Southern Life, a premium tax scheme similar to that at issue in this case was held violative of the Equal Protection Clause in Metropolitan Life Ins. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985).

FLORIDA'S PREMIUM TAX

The Taxpayers base their challenges to Florida's premium tax on the United States Supreme Court's decision in Ward. Florida's premium tax scheme is similar to that struck down in Ward. As was the case in Ward, under the Florida scheme, foreign insurance companies were taxed at a higher rate than domestic companies and regardless of actions taken by a foreign company, it could never reduce its gross premiums tax rate to the level paid by The Taxpayers correctly point out that since the Ward decision similar tax schemes have been held unconstitutional in a number of states. See, e.g., Principal Mutual Life Ins. Co. v. Division of Ins., 780 P.2d 1023 (Alaska 1989); Penn Mutual Life Ins. Co. v. Dept. of Licensing and Regulation, 162 Mich.App. 123, 412 N.W.2d 668 (1987); State v. American Bankers Ins. Co., 374 N.W.2d 609 (S.D.1985); Metropolitan Life Ins. Co. v. Commissioner of the Dept. of Ins., 373 N.W.2d 399 (N.D.1985). However, based on...