City of Waco v. Amicable Life Ins. Co.

Citation248 S.W. 332
Decision Date28 February 1923
Docket Number(No. 321-3672.)<SMALL><SUP>*</SUP></SMALL>
PartiesCITY OF WACO v. AMICABLE LIFE INS. CO.
CourtSupreme Court of Texas

Suit by the Amicable Life Insurance Company against the City of Waco. From a judgment of the Court of Civil Appeals (230 S. W. 698) affirming a judgment for the plaintiff, the defendant brings error. Affirmed.

Street, Willis & Coston, of Waco, for plaintiff in eror.

O. L. Stribling, of Waco, for defendant in error.

McCLENDON, P. J.

The Amicable Life Insurance Company, a domestic life insurance corporation, domiciled at Waco, McLennan county, Tex., brought this suit against the city of Waco and its taxing officers to cancel an assessment upon its personal property for the year 1919 amounting to $557,600, and to perpetually enjoin the city and its officers from demanding or collecting any part of the tax under said assessment. The district court upon a trial before the court without a jury granted the relief prayed for, and the Court of Civil Appeals affirmed this judgment. 230 S. W. 698.

The assessment complained of was made under R. S. art. 4764, which reads as follows:

"Insurance companies incorporated under the laws of this state shall hereafter be required to render for state, county and municipal taxation all of their real estate as other real estate is rendered; and all of the personal property of such insurance companies shall be valued as other property is valued for assessment in this state in the following manner: From the total valuation of its assets shall be deducted the reserve, being the amount of the debts of insurance companies by reason of their outstanding policies in gross, and from the remainder shall be deducted the assessed value of all real estate owned by the company and the remainder shall be the assessed taxable value of its personal property. Home insurance companies shall not be required to pay any occupation or gross receipt tax."

The findings of the trial court, which are copied in full in opinion of the Court of Civil Appeals, and which are based upon uncontroverted evidence, show the following facts relative to the assets and liabilities of complaining company: The real estate of the company, which consisted of a 22-story office building at Waco, was valued at $926,652.97. The personal property of the company amounted to $2,287,780.26. Its gross assets, real and personal, were $3,214,432.33. Included in its personal assets, and consequently in its gross assets, were United States government bonds and certificates of indebtedness amounting to $906,050, which were admittedly exempt from state taxation under federal laws. The real estate of the company was assessed for taxation in Waco at $589,650. The legal reserve of the company was $1,631,754.06. In order to secure the benefits of R. S. art. 4749, the company some years prior to 1919 had deposited with the State Treasurer assets to the amount of $1,000,000. This was done by conveying to the Treasurer in trust its real estate at a valuation of $882,000, and depositing with the Treasurer $118,000 in mortgage bonds. The trial court held that the tax-free government securities of the company should be deducted from its gross assets, and that the mortgage bonds deposited with the State Treasurer were not subject to taxation by the city of Waco. If these deductions are made, it is manifest that the assessed value of the company's real estate, plus its reserve, exceeded the total value of its assets and left no remainder subject to personal property tax under article 4764. The Court of Civil Appeals did not consider the question whether the bonds deposited with the State Treasurer were subject to taxation at Waco, but arrived at the same result reached by the trial court by deducting from the gross value of the personal property of the company, less tax-free government securities, the amount of its reserve.

The contentions of the city are, in substance, as follows: That article 4764 literally provides for the total valuation of all the company's assets, which includes its tax-free securities; that the burden of proof was upon the company to show that the reserve was invested in taxable securities, and that, in the absence of such showing, it would be presumed that the property embraced in the assessment was taxable and that the reserve was invested in securities not subject to taxation, and that the deposits at Austin were a part of the total assets of the company, and as such were taxable at Waco.

The finding of the trial court with reference to the reserve of the company is as follows:

"That none of the funds of the company are designated on its books as reserve funds, and that the reserve is a quantity which is constantly changing. That the books of the company are kept on a cash basis, and show all the assets of the company. That at the end of each year the company takes each policy issued and calculates the reserve each policy should have, and adds all these sums together, and this constitutes the reserve of the company. That the company's method of keeping books is that usually employed by life insurance companies, and the company carried no account designating its reserve fund other than as above stated. The reserve fund, as stated, is not taken by the company from a special account on the books, but is calculated at the end of each year, and that item is inserted only in one place in the statement the company carries, and issued annually to its policy holders showing its assets and liabilities."

It will thus be seen that the company carried no fund in which the amount of its reserve was invested, but merely treated the reserve as a liability or debt of the company, and its existence was merely a matter of bookkeeping. Our statutes do not define reserve or prescribe any method of its ascertainment, but the term is well understood in insurance parlance, and its ascertainment is a matter of mathematical calculation after determining what mortality tables and what rate of interest are to be adopted as bases for the calculation. Webster's International Dictionary gives the following definition, which will serve for our present purpose:

"The amount of funds or assets necessary for a company to have at any given time to enable it, with interest and premiums paid as they shall accrue, to meet all claims on the insurance then in force as they would mature according to the particular mortality table accepted. The reserve is always reckoned as a liability, and is calculated on net premiums. It is theoretically the difference between the present value of the total insurance and the present value of the future premiums on the insurance. The reserve, being an amount for which another company could, theoretically, afford to take over the insurance, is sometimes called the reinsurance fund or the self-insurance fund."

In a number of states the amount of the reserve of life insurance companies is required to be invested in a special fund and held in trust for the policy holders, and, in case of insolvency or dissolution, the property in which this fund is invested cannot be applied to claims of general creditors until the policy holders are satisfied. We have no statute in Texas requiring the setting aside of a reserve fund. Articles 4750 and 4751, which by their terms are made optional, authorize domestic companies to deposit with the insurance commissioner the amount of their reserve either in money or other approved securities, and when so deposited the companies are authorized to print upon their policies the following:

"This policy is registered and approved securities equal in value to the legal reserve hereon are held in trust by the Commissioner of Banking of the state of Texas."

When this statute is complied with the fund cannot be withdrawn so long as there are any outstanding policy liabilities of the company, but it may be increased or diminished in order at all times to be equal to the reserve; and the securities are subject to the control of the company with reference to collection of interest and substitution. Where a company has made a deposit under article 4749, the amount of that deposit may be placed within the reserve fund deposit. The complaining company did not avail itself of articles 4750, 4751.

We have reached the conclusion that the trial court and the Court of Civil Appeals correctly held that tax-free government securities cannot be taken into account in estimating the total value of the company's assets. The fallacy in the contentions of the city arises out of treating the reserve as an asset instead of a liability or debt of the company. It may be conceded that, if our statutes required the investment of the reserve in a trust fund, and exempted that fund from taxation, the securities of the company not so invested would be subject to taxation; and, if the company should fail to provide such trust fund, and all its assets were mingled, it would not be entitled to a deduction for its tax-free securities except to the extent that they might exceed the total amount required to be invested in its reserve fund. But we have no such question presented here. The reserve of a life insurance company is not an asset, but a liability. If the amount of that reserve is invested in a trust fund, the fund is, of course, an asset. But even in such case the fund is not exempt from taxation unless expressly so made by statute. Attempts have been made in other jurisdictions, where statutes require a special reserve fund to be maintained, to exempt this fund from taxation...

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8 cases
  • National Life Ins Co v. United States, 228
    • United States
    • U.S. Supreme Court
    • 4 Junio 1928
    ...of tax-exempt obligations, and is in conflict with the Constitution of the United States. See, also, City of Waco v. Amicable Life Ins. Co. (Tex. Com. App. 1923) 248 S. W. 332. Miller et al., Executors, v. Milwaukee, 272 U. S. 713, 47 S. Ct. 280, 71 L. Ed. 487, held: That, where income from......
  • American Bank and Trust Co. v. Dallas County
    • United States
    • Texas Court of Appeals
    • 23 Julio 1984
    ...of assets. Cf. City of Waco v. Amicable Life Insurance Co., 230 S.W. 698, 702 (Tex.Civ.App.--Austin 1921), aff'd, 248 S.W. 332 (Tex.Comm'n App.1923, judgment adopted) (tax on assets of insurance company, after deducting reserves, must exclude federal obligations). In the present case, howev......
  • Highland Park Independent Sch. Dist. v. Republic Ins. Co., 11791.
    • United States
    • Texas Court of Appeals
    • 15 Diciembre 1934
    ...of Austin, 112 Tex. 1, 243 S. W. 778; American Indemnity Co. v. City of Austin, 112 Tex. 239, 246 S. W. 1019; City of Waco v. Amicable Life Ins. Co. (Tex. Com. App.) 248 S. W. 332, affirming (Tex. Civ. App.) 230 S. W. The latter case holds that, for purposes of taxation under this article (......
  • City of Dallas v. Higginbotham-Bailey-Logan Co.
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • 10 Febrero 1930
    ...of equity will interfere to prevent that course, and the rule is recognized by the Supreme Court of Texas. City of Waco v. Amicable Life Insurance Co. (Tex. Com. App.) 248 S. W. 332; Court v. O'Connor, 65 Tex. 335; Davis v. Burnett, 77 Tex. 3, 13 S. W. 613; Johnson v. Holland, 17 Tex. Civ. ......
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