Aetna Cas. & Sur. Co. v. Smith

• Decision Date: 12 April 1957
• Parties: AETNA CASUALTY AND SURETY COMPANY et al., Plaintiffs, v. Harry S. SMITH, Commissioner of Insurance for the State of Delaware, et al. Defendants, The Mayor and Council of Wilmington, a municipal corporation of the State of Delaware, Intervenor, and AETNA CASUALTY AND SURETY COMPANY et al., Plaintiffs, v. Harry S. SMITH, Commissioner of Insurance for the State of Delaware, et al., Defendants, The Mayor and Council of Wilmington, a municipal corporation of the State of Delaware, Intervenor. Delaware Volunteer Firemen's Association, a non-profit Delaware corporation, Additional Intervenor.
• Court: United States State Supreme Court of Delaware

Page 168

131 A.2d 168

36 Del.Ch. 391

AETNA CASUALTY AND SURETY COMPANY et al., Plaintiffs, v. Harry S. SMITH, Commissioner of Insurance for the State of

Delaware, et al. Defendants, The Mayor and Council of Wilmington, a municipal corporation of the State of Delaware, Intervenor, and AETNA CASUALTY AND SURETY COMPANY et al., Plaintiffs, v. Harry S. SMITH, Commissioner of Insurance for the State of

Delaware, et al., Defendants,

The Mayor and Council of Wilmington, a municipal corporation

of the State of Delaware, Intervenor.

Delaware Volunteer Firemen's Association, a non-profit

Delaware corporation, Additional Intervenor.

Supreme Court of Delaware.

April 12, 1957.

Clyde M. England, Jr., of Killoran & Van Brunt, Wilmington, for plaintiffs.

Herbert L. Cobin, Chief Deputy Atty. Gen., and Wilfred J. Smith, Jr., Deputy Atty. Gen., for defendant Harry S. Smith.

William F. Lynch, 2d Asst. City Solicitor, Wilmington for intervenor The Mayor and Council of Wilmington.

William S. Potter and James L. Latchum, of Berl, Potter & Anderson, Wilmington, for additional intervenor Delaware Volunteer Firemen's Ass'n.

SOUTHERLAND, C. J., and WOLCOTT and BRAMHALL, JJ., sitting.

BRAMHALL, Justice.

Plaintiffs are insurance companies engaged in the business of insuring risks of fire in the State of Delaware. The original defendant is the State Insurance Commissioner. Because of their interest, The Mayor and Council of Wilmington, a municipal corporation of the State of Delaware, and the Delaware Volunteer Firemen's Association, a non-profit Delaware corporation, were permitted to intervene as parties defendant.

Plaintiffs seek a declaratory judgment and a preliminary injunction. They allege the existence of a controversy between plaintiffs and defendants concerning the constitutionality of House Bill No. 597, 50 Delaware Laws, Ch. 156, 18 Del.C. § 2705--providing for an increase from 2% to 3 1/2% in the tax rate on gross premiums of fire insurance companies insuring risks in this state for the purpose of increasing the funds available for the firemen's pension fund--and House Bill No. 361, as amended, 50 Delaware Laws, Ch. 358, 18 Del.C. §§ 2710 to 2713, imposing a tax of 2% on gross insurance premiums of companies insuring risks in this state covering burglary, robbery, theft, automotive and personal property damage, liability, automotive medical payments, automotive collision and automotive comprehensive, for the purpose of augmenting the state, county and municipal police pension systems. These Acts were all passed at the Session of the 118th General Assembly of this State. A preliminary injunction was granted by the Chancellor enjoining the Insurance Commissioner from paying over to the State Treasurer the moneys raised under these Acts.

The controversy arises because that official demanded and received the tax so imposed but plaintiffs objected to the payment thereof on the ground that the amendatory acts are unconstitutional. Because of public importance and urgency for a prompt determination, the issues of law having been framed, the Chancellor has certified to this court in cases Nos. 39 and 40, 1956, certain questions relating to the constitutionality of these Acts. The questions which apply to both cases are as follows:

Are House Bills No. 361 (50 Del.Laws, Ch. 358) and No. 597 (50 Delaware Laws, Ch. 156) unconstitutional:

(1) Because they violate Art. 8, § 4 of the Constitution of the State of Delaware in that they appropriate public money to counties and municipalities and were not passed by a vote of three-fourths of the members elected to each House of the General Assembly?

(2) Because they violate Art. 8, § 4 of the Constitution of the State of Delaware in that they appropriate public money to a corporation and were not passed by three-fourths of the members of each House of the General Assembly?

(3) Because they appropriate public money for other than public purposes?

In No. 40, 1956, 50 Delaware Laws, Ch. 156--appropriating money for the benefit of the Firemen's Pension Fund of the City of Wilmington and volunteer fire companies in the state, outside of Wilmington--the following additional question is raised:

Is House Bill No. 361 (50 Del.Laws, Ch. 358) unconstitutional:

(4) Because it violates the equal protection and due process clauses of the Fourteenth Amendment to the Federal Constitution and the due process clause of Art. 8, § 1 of the Constitution of the State of Delaware in that it is discriminatory and imposed a classification upon plaintiffs which has no reasonable relation to the object of the legislation?

We consider these questions in the order presented. Any additional facts which may be necessary for the proper determination of any question will be considered in the discussion of that question.

I. Are House Bills Nos. 361 (50 Del.Laws Ch. 358) and 597 (50 Delaware Laws, Ch. 156 unconstitutional because they violate Art. 8, § 4 of the Constitutions of the State of Delaware in that they appropriate public money to counties and municipalities and were not passed by a vote of three-fourths of the members elected to each House of the General Assembly?

House Bill No. 361, 50 Del. Laws, Ch. 358, added an amendment to the Revised Code of 1953 as 18 Del.C. § 2711, which provided as follows:

'Every insurance company doing business in this State shall annually pay to the Insurance Commissioner on or before the first day of March, in addition to other taxes, fees, and charges required by law, a tax equal to two per cent of the gross premiums, less return and reinsurance premiums received from other companies or by an agent or agents of such company for such company, in cash or otherwise from the insurance on insurable risks covering burglary, robbery, theft, automotive personal and property damage liability, automotive medical payments, automotive collision, and automotive comprehensive within the limits of this State during the preceding calendar year. In case of mutual companies the dividends paid or credited to members on such premiums shall be construed to be return premiums. No insurance company affected by provisions of this section shall increase the rate of insurance premiums upon any insurable risk affected by this section because of the tax provided for in this section, unless the Insurance Commissioner after hearing on the matter shall be satisfied that an increase is necessary, and in the event that the Insurance Commissioner shall be satisfied after such hearing that an increase in the premium rate is necessary, he shall authorize such reasonable increase as he deems fair and equitable.'

House Bill No. 597 ¹, 50 Delaware Laws, Ch. 156, amended 18 Del.C. §§ 2705 and 2706 which, prior to the amendment, provided as follows:

' § 2705. Special tax on gross premiums of fire insurance companies. For the purpose of assisting in maintaining fire companies or departments in this State, every fire insurance company doing business in this State shall annually pay to the Insurance Commissioner on or before the first day of March in addition to the other taxes, fees and charges required by law, a tax equal to 2% of the gross premiums, less return and reinsurance premiums received from other companies or by any agent or agents of such company for such company, in cash or otherwise, from the insurance of property within the limits of this State during the preceding calendar year. In case of a mutual company, the dividends paid or credited to members on such premiums shall be construed to be return premiums.'

' § 2706. Distribution of the proceeds of the special tax on gross premiums of fire insurance companies. The money received, under section 2705 of this title, shall be set aside as a special fund for assisting in maintaining fire companies or departments in this State and shall be paid out by the State Treasurer to the treasurer of the City of Wilmington, and to the respective treasurers of each county for the sole purpose of assisting in maintaining fire companies or departments in such counties in such manner and in such proportions as provided in this section.'

Plaintiffs assert that House Bill No. 597, amending § 2705 by increasing the special tax on the gross business of certain types of insurance companies, amounts to an appropriation act. They say that this section is so tied-up with § 2706 (providing that the moneys levied under § 2705 shall be used for the benefit of the pension fund of the City of Wilmington and fire companies in the county of New Castle, outside of Wilmington, and in Kent and Sussex counties) that the two sections must be interpreted together.

Defendant Insurance Commissioner and Intervenor Defendant The Mayor and Council of Wilmington contend that House Bill No. 361, 50 Delaware Laws, Ch. 358, which provides for a special tax on certain gross premiums of insurance companies for the benefit of pension funds for any state, county or municipal police department having a pension fund or which shall hereafter by law have police pension funds, is not an appropriation act and therefore did not require passage by a three-fourths vote of all the members elected to each House of the General Assembly. Intervenor defendant Delaware Volunteer Firemen's Association says, in addition, that the funds appropriated under House Bill No. 597, relating to firemen's pensions for the City of Wilmington and volunteer fire companies in other parts of the state, are special funds and therefore do not come within the provision of § 4 of Art. 8 of the Delaware Constitution, Del.C.Ann.; that this special fund is in the nature of a trust fund, dedicated to a specific purpose; that assuming that § 2706 is an appropriation act, that section when it was adopted in the 1953 Code received a three-fourths majority vote; that it was a continuing appropriation of all money of the special fund which continues until properly annulled.

Art. 8, § 4 of the Constitution of 1897 is as follows:

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