Alfa Mut. Ins. Co. v. City of Mobile

• Decision Date: 08 June 2007
• Docket Number: 1051747.
• Citation: 981 So.2d 371
• Parties: ALFA MUTUAL INSURANCE COMPANY, Alfa Mutual General Insurance Company, and Alfa Mutual Fire Insurance Company v. CITY OF MOBILE and the City of Mobile, Alabama, Police and Firefighters Retirement Plan.
• Court: Alabama Supreme Court

981 So.2d 371

ALFA MUTUAL INSURANCE COMPANY, Alfa Mutual General Insurance Company, and Alfa Mutual Fire Insurance Company v. CITY OF MOBILE and the City of Mobile, Alabama, Police and Firefighters Retirement Plan.

1051747.

Supreme Court of Alabama.

June 8, 2007.

As Modified on Denial of Rehearing September 28, 2007.

Frederick G. Helmsing and Patrick C. Finnegan of Helmsing, Leach, Herlong, Newman & Rouse, P.C., Mobile, for appellants.

D. Charles Holtz of Bowron, Latta & Wasden, P.C., Mobile; and Wanda J. Cochran, Mobile, for appellees.

Timothy H. Nunnally, sr. assoc. city atty., Tuscaloosa, for amicus curiae City of Tuscaloosa, in support of the appellees' application for rehearing.

K. Claudia Anderson, asst. city atty., Huntsville, for amicus curiae City of Huntsville, in support of the appellees' application for rehearing.

Lorelei A. Lein, deputy gen. counsel, Alabama League of Municipalities, Montgomery, for amicus curiae Alabama League of Municipalities, in support of the appellees' application for rehearing.

Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for amicus curiae Property Casualty Insurers Association of America in opposition to the appellees' application for rehearing.

STUART, Justice.

The City of Mobile ("the City") and the City of Mobile, Alabama, Police and Firefighters Retirement Plan ("the Retirement Plan") sued Alfa Mutual Insurance Company ("AMIC"), Alfa Mutual General Insurance Company ("AMGIC"), and Alfa Mutual Fire Insurance Company ("AMFIC") (collectively referred to as the "Alfa companies") in the Mobile Circuit Court, alleging that the Alfa companies failed to pay certain license taxes from 1995 through 1998 and failed to make required contributions to the Retirement Plan from 1995 through 1999. The trial court entered a summary judgment in favor of the City and the Retirement Plan, and the Alfa companies now appeal. We reverse and remand.

I.

Municipalities in Alabama are permitted by § 11-51-90, Ala.Code 1975, to impose a license tax on businesses operating within their corporate limits and by § 11-51-91, Ala.Code 1975, to impose a license tax on businesses operating within their police jurisdictions. However, the legislature has specifically capped the rate at which such a license tax may be imposed upon insurance companies. Section 11-51-120, Ala.Code 1975, caps the rate of the license tax municipalities may impose on "any fire or marine insurance company" at 4%:

"No license or privilege tax or other charge for the privilege of doing business shall be imposed by any municipal corporation upon any fire or marine insurance company doing business in such municipality except upon a percentage of each $100.00 of gross premiums, less return premiums, on policies issued during the preceding year on property located in such municipality. Such percentage shall not exceed four percent on each $100.00 or major fraction thereof of such gross premiums...."

Section 11-51-121, Ala.Code 1975, caps the license tax municipalities the size of Mobile may impose on "any insurance company, other than fire and marine insurance companies" at 1% (plus $50):

"(a) No license or privilege tax or other charge for the privilege of doing business shall be imposed by any municipal corporation upon any insurance company, other than fire and marine insurance companies, doing business therein or its agents which shall exceed for the company and its agents the following amounts:

"....

"(4) Each such insurance company, in cities and towns having a population of more than 50,000, $50.00 and $1.00 on each $100.00 and major fraction thereof of gross premiums, less return premiums, received during the preceding year on policies issued during said year to citizens of said cities and towns."

Thus, these two statutes (hereinafter collectively referred to as "the license-tax statutes") set a maximum tax rate of 4% for fire and marine insurance companies and a maximum tax rate of 1% (plus $50) for insurance companies other than fire and marine insurance companies.

In 1994, the City, pursuant to the authority granted it in §§ 11-51-90 and 11-51-91, passed Ordinance No. 34-085 ("the license-tax ordinance"), which imposed the following license taxes upon insurance companies operating in Mobile:

"(a) Fire and marine insurance. Each person, firm or corporation doing business in the City of Mobile shall pay $4.00 on each $100.00 and major fraction thereof of the gross premiums on policies issued for the preceding calendar year on property located in the City of Mobile and police jurisdiction thereof, less premiums returned by cancellation ....

"(b) Other insurance. Each person, firm or corporation doing any other kind of business than those specified in subdivisions (a), (c), and (e) shall pay $50.00 and $1.00 on each $100.00 and major fraction thereof of gross premiums received, less the premiums returned by cancellation, received during the preceding year on policies issued during the preceding year to citizens of the City of Mobile and police jurisdiction thereof.

"(c) Mutual aid association. Same as fire and marine insurance.

"(d) Persons, firms, or corporations writing own insurance shall pay same license as other agents or agencies. Provided, that this shall not apply to Knights of Pythias, Odd Fellows and such incorporated fraternal orders.

"(e) Auto, fire, theft, or collision insurance. Same rate as fire and marine insurance."

Thus, the license-tax ordinance placed no import on whether a company was a "fire or marine insurance company" or an "insurance company, other than fire and marine insurance companies," as those terms are used in the license-tax statutes. Rather, the license-tax ordinance placed a 4% tax on premiums for fire and marine insurance and a 1% tax on premiums for other insurance, regardless of the nature and character of the insurance company issuing the insurance and collecting the premiums. The City reenacted the license-tax ordinance throughout the period in question.

During this time, the Alfa companies operated in the City and sold various types of insurance to customers within the City and its police jurisdiction. Each of the Alfa companies was licensed by the City and paid annual license taxes based on the gross insurance premiums collected. AMFIC sold policies in 1995 and 1996 and paid the City license taxes at the rate of 4% on the premiums collected for all those policies, the rate applicable to fire-insurance companies.¹ AMIC and AMGIC sold policies throughout the period from 1995 through 1998 and paid the City license taxes at the rate of 1% (plus $50) on the premiums collected for all those policies, the rate applicable to insurance companies other than fire and marine insurance companies.

Since 1951, Alabama law has also required certain insurance companies operating in Mobile to make contributions to the Retirement Plan. Act No. 91-701, Ala. Acts 1991 ("the 1991 Pension Act"), states that requirement as follows:

"Each insurance company writing fire insurance on property within the city limits of the city of Mobile and its police jurisdiction on or before the first day of March of each year, shall pay to the city of Mobile a sum equal to four percent (4%) of its gross amount of premiums, including all renewal premiums, less return premiums, collected by such companies on policies in effect during the preceding year in such municipality and its police jurisdiction. One-half (1/2) of said sum shall be credited to said pension fund."

The 1991 Pension Act did not define "fire insurance," and the Alfa companies took the position that the term meant only actual fire-insurance policies, not any insurance policy that provided any coverage against the risk of loss by fire. Only AMIC and AMFIC issued fire-insurance policies in Mobile between 1995 and 1997, and they made contributions to the Retirement Plan during that period in accordance with their interpretation of the 1991 Pension Act. AMGIC did not issue fire-insurance policies; it accordingly made no contributions to the Retirement Plan.

In 1997, the legislature enacted Act No. 97-689, Ala. Acts 1997 ("the 1997 Pension Act"), which was substantially identical to the 1991 Pension Act but which contained in Art. 6, § 6.03(d), an additional provision stating:

"For purposes of this section, `fire insurance' means any line which insures property against the risk of loss by fire, including homeowners' and vehicle policies. Where a policy issued has more than one type of coverage, the company shall pay only on that portion of the premium attributable to the fire coverage."

In spite of this language defining the term "fire insurance," the Alfa companies in 1998 and 1999 continued to make contributions to the Retirement Plan as they had under the 1991 Pension Act, i.e., AMIC making contributions and AMGIC not, based only on the value of actual fire-insurance policies sold.

The City and the Retirement Plan thereafter discovered that the Alfa companies were not paying all the license taxes and making all the contributions to the Retirement Plan that the City and the Retirement Plan believed were required by law. In June 2001, the City and the Retirement Plan sued the Alfa companies seeking to recover the allegedly unpaid sums, plus interest and penalties. In their final amended nine-count complaint, the City claimed in counts one through four ("the license-tax claims") that AMIC and AMGIC owed additional license taxes for the years 1995, 1996, 1997, and 1998. In counts five through nine ("the pension-fund claims"), the City and the Retirement Plan claimed that the Alfa companies were obligated to make additional contributions to the Retirement Plan for the years 1995, 1996, 1997, 1998, and 1999. The Alfa companies denied liability on all counts and counterclaimed to recover license taxes and contributions to the Retirement Plan they alleged they overpaid or paid under the license-tax...