Baltimore Equitable Soc. v. United States, L—292.
| Decision Date | 08 May 1933 |
| Docket Number | No. L—292.,L—292. |
| Parties | BALTIMORE EQUITABLE SOC. v. UNITED STATES. |
| Court | U.S. Claims Court |
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COPYRIGHT MATERIAL OMITTED
Newton K. Fox, of Washington, D. C. (Adrian C. Humphreys, of Washington, D. C., on the brief), for plaintiff.
Lisle A. Smith and Charles F. Kincheloe, both of Washington, D. C. (Charles B. Rugg, Asst. Atty. Gen., and Walter W. Mahon, of Washington, D. C., on the brief), for the United States.
Before GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.
This action is begun to recover taxes alleged to have been wrongfully collected from plaintiff for the years 1925, 1926, 1927, and 1928.
The plaintiff is a voluntary association doing an insurance business. The Commissioner assessed upon its net income for the years mentioned above the corporation income tax. The plaintiff claims to be exempt therefrom under the provisions of the statute that read as follows:
There is no dispute as to the facts, although there is a dispute as to the ultimate conclusions which may be drawn therefrom. As stated above, the plaintiff is a voluntary association doing a fire-insurance business, without having any capital stock. Its original charter provided for insuring houses from loss by fire and that each member should contribute annually to the losses and share the gains and advantages arising by reason of the covenants of insurance and the payments required from the subscribers or members. Every person insuring was required to deposit a certain sum which was to be returned at the expiration of the policy taken out with a proportionable dividend of the profits that had accrued, deducting losses and incident charges. Under the terms of the charter the members of the society secured insurance policies for a term of seven years, and at the conclusion of the seven-year period each member was required to pay his respective proportion of all losses and charges for that period. Later, in 1865, a plan of perpetual insurance was adopted under which a member on the payment of a fixed deposit was protected against partial or total loss by fire of the property insured to the extent insured, perpetually or to such a time as he ceased to be a member by withdrawing his deposit. Prior to the time when the plan of perpetual insurance was adopted, and in 1858, a resolution was adopted authorizing the society to write term insurance at a fixed premium for a period of less than seven years. The plaintiff contends that under these facts it was at all times a mutual company in which the members were the parties insured and that the provision for writing term insurance was merely incidental.
The defendant on the other hand contends that it is not a mutual company within the meaning of the statute, and that its income is not "used or held for the purpose of paying losses or expenses." The latter objection will first be considered.
Finding 9 shows that the company had a surplus of $1,336,482.57 in 1924 which increased each year thereafter until in 1928 it reached the sum of $1,719,610.44. The defendant contends that this surplus was larger than was necessary to pay the ordinary losses and expenses of the company. The plaintiff practically admits this, but argues in effect that under the circumstances of the case no more is carried than would be dictated by ordinary prudence. The evidence shows that the company limits its risk to buildings in the city of Baltimore, which undoubtedly enhances the amount which it might in event of an extensive fire be called upon to pay. The company was in existence at the time of the great Baltimore fire which so largely depleted its surplus that it needed to be increased and built up. It is now contended that the company carries no more than is proper in view of the fact that such a fire might recur. As we view the situation, while it is not likely that there will be another such great conflagration it is quite possible. Defendant calls attention to the fact that the surplus is increasing somewhat each year, but we do not think that this shows that it is not held for the purpose of paying losses or expenses. The only other disposition that could be made of it is to distribute a certain portion thereof to the stockholders, for which provision has been made by a resolution adopted providing that if at any time the "reserved surplus"...
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