Combs v. Stp Nuclear Operating Co.

• Decision Date: 01 May 2007
• Docket Number: No. 03-06-00428-CV.,03-06-00428-CV.
• Citation: 239 S.W.3d 264
• Parties: Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellants, v. STP NUCLEAR OPERATING COMPANY, Appellee.
• Court: Texas Court of Appeals

239 S.W.3d 264

Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellants, v. STP NUCLEAR OPERATING COMPANY, Appellee.

No. 03-06-00428-CV.

Court of Appeals of Texas, Austin.

May 1, 2007.

William E. Storie, Asst. Atty. Gen., Austin, for appellants.

Howard P. Newton, Cox Smith Matthews, Inc., Rene Derrick Ruiz, San Antonio, for appellee.

Before Justices PATTERSON, PEMBERTON and WALDROP.

OPINION

JAN P. PATTERSON, Justice.

Appellants Susan Combs,¹ Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas,² appeal from the trial court's grant of summary judgment in favor of appellee STP Nuclear Operating Company ("STP"). In three issues, the Comptroller argues that the trial court erred in granting summary judgment in favor of STP because the State may properly collect independently procured insurance tax from STP consistent with Due Process, Equal Protection, and the McCarran-Ferguson Act. Alternatively, the Comptroller argues that, even if STP is not liable for the independently procured insurance tax, STP would be liable for unauthorized insurance tax. For the reasons discussed below, we reverse the trial court's judgment and render judgment in favor of the Comptroller.

FACTS AND PROCEDURAL BACKGROUND

STP is a Texas corporation that maintains its principal place of business in Matagorda County. STP operates the South Texas Nuclear Project on behalf of its owners-the City of San Antonio, the City of Austin, and NRG South Texas, L.P., formerly Texas Genco, LLP. As a condition of receiving a license to operate the plant from the Nuclear Regulatory Commission, STP is required to carry primary and excess property insurance. STP procures this insurance from Nuclear Electric Insurance Limited ("NEIL").³

NEIL is a mutual insurance company composed of all of the utility companies who own or operate nuclear power plants in the United States. NEIL is incorporated in Bermuda and headquartered in Delaware. NEIL is not licensed to conduct the business of insurance in Texas or any other state except Delaware.⁴ Even though NEIL insures nuclear power plants across the United States, NEIL has developed "Operating Procedures" to avoid state insurance laws and regulations. For example, NEIL may conduct business meetings in any state, but these meetings "shall not include any activities which could be viewed as conducting the business of insurance, for example . . . soliciting new insurance business or negotiating policy terms with prospective insureds." NEIL's Operating Procedures require its insureds to comply with the exemptions provided in state law wherever necessary to protect NEIL from running afoul of state unauthorized insurance laws. All of NEIL's insureds must follow the Operating Procedures to obtain coverage.

Many states provide various exemptions from state unauthorized insurance laws. Examples of these exemptions include the "independently procured," "industrial insured," and "nuclear insured" exemptions. These exemptions allow insurance companies, like NEIL, to conduct the business of insurance within a particular state without satisfying all of that state's licensing and regulatory requirements. In Texas, the legislature has provided an "independently procured" exemption. See Tex. Ins.Code Ann. § 101.053(b)(4) (West Supp.2006). To satisfy this exemption, STP must report the insurance transaction and pay the premium tax due under chapter 226 of the insurance code. Id. As one of NEIL's insureds, STP is required by NEIL's Operating Procedures to pay any premium taxes due in Texas in order to maintain NEIL's "independently procured" exemption from state unauthorized insurance laws.⁵

STP paid premium taxes as required under section 101.053(b)(4) and chapter 226 of the Texas Insurance Code for the 2002, 2003, and 2004 calendar years.⁶ For each of these three years, STP paid the independently procured insurance tax under protest. In 2003, STP filed suit against the Comptroller seeking a refund of its tax payment for 2002 on the grounds that the independently procured insurance tax was unconstitutional and violated the McCarran-Ferguson Act. STP later amended its petition to include a refund request for its tax payment for 2003. Then, in 2005, STP filed a separate suit against the Comptroller seeking a refund of its tax payment for 2004.

The trial court consolidated both suits, and the parties filed cross-motions for summary judgment. The trial court granted STP's motion for summary judgment and denied the Comptroller's motion for summary judgment finding that the independently procured insurance tax violated the McCarran-Ferguson Act.

ANALYSIS

On appeal, the Comptroller argues that the trial court erred in granting summary judgment in favor of STP because the Comptroller may properly collect the independently procured insurance tax from STP without violating federal law or the Constitution. Alternatively, the Comptroller argues that even if STP is not liable for the independently procured insurance tax, STP would be liable for unauthorized insurance tax. STP counters that the trial court's summary judgment was proper and consistent with Supreme Court precedent in State Board of Insurance v. Todd Shipyards Corp., 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620 (1962), and this Court's precedent in Dow Chemical Co. v. Rylander, 38 S.W.3d 741 (Tex.App.-Austin 2001, pet. denied).

Standard of Review

We review the trial court's grant of summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.2005). The standards for summary judgment are well established. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex.1985). The movant must show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Id. at 548. When determining whether there is a disputed issue of material fact precluding summary judgment, we take all evidence favorable to the non-movant as true. Id. at 548-49. We indulge every reasonable inference and resolve any doubts in favor of the non-movant. Id. at 549. When both parties move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review both parties' summary judgment evidence, determine all questions presented, and render the judgment that the trial court should have rendered. Dow Chem. Co. v. Bright, 89 S.W.3d 602, 605 (Tex.2002); see also City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex.2000).

State Regulation and Taxation of Insurance Activities

We begin with the premise that a state may exercise its police power to regulate and tax the business of insurance, including those insurance activities and transactions occurring within its borders. McCarran-Ferguson Act, 15 U.S.C.A. §§ 1011-12 (West 1997).⁷ Before and after the passage of the McCarran-Ferguson Act, the Supreme Court confirmed that a state may regulate and tax insurance activities occurring within its borders. See, e.g., Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 319, 63 S.Ct. 602, 87 L.Ed. 777 (1946); Osborn v. Ozlin, 310 U.S. 53, 65-66, 60 S.Ct. 758, 84 L.Ed. 1074 (1940); Whitfield v. Aetna Life Ins. Co., 205 U.S. 489, 495, 27 S.Ct. 578, 51 L.Ed. 895 (1907); see also Risk Managers Inc. v. State, 858 S.W.2d 567, 571 (Tex. App.-Austin 1993, writ denied) (recognizing "United States Supreme Court has never held that a state may not regulate [insurance] transactions that occur within its borders").

The Texas Insurance Code provides that no one shall engage in the business of insurance without authorization by statute. Tex. Ins.Code Ann. § 101.102(a) (West Supp.2006). Section 101.051 of the insurance code defines those activities that constitute the business of insurance. Id. § 101.051 (West Supp.2006). These activities are set forth in sections 101.051(b) and (c), and they include:

(1) making or proposing to make, as an insurer, an insurance contract;

(2) making or proposing to make, as guarantor or surety, a guaranty or suretyship contract as a vocation and not merely incidental to another legitimate business or activity of the guarantor or surety;

(3) taking or receiving an insurance application;

(4) receiving or collecting any consideration for insurance, including:

(A) a premium;

(B) a commission;

(C) a membership fee;

(D) an assessment; or

(E) dues;

(5) issuing or delivering an insurance contract to:

(A) a resident of this state; or

(B) a person authorized to do business in this state;

(6) directly or indirectly acting as an agent for or otherwise representing or assisting an insurer or person in:

(A) soliciting, negotiating, procuring, or effectuating insurance or renewal of insurance;

(B) disseminating information relating to coverage or rates;

(C) forwarding an insurance application;

(D) delivering an insurance policy or contract;

(E) inspecting a risk;

(F) setting a rate;

(G) investigating or adjusting a claim or loss;

(H) transacting a matter after the effectuation of the contract that arises out of the contract; or

(I) representing or assisting an insurer or person in any other manner in the transaction of insurance with respect to a subject of insurance that is resident, located, or to be performed in this state;

(7) contracting to provide in this state indemnification or expense reimbursement for a medical expense by direct payment, reimbursement, or otherwise to a person domiciled in this state or for a risk located in this state, whether as an insurer, agent, administrator, trust, or funding mechanism or by another method;

(8) doing any kind of insurance business specifically recognized as constituting insurance business within the meaning of statutes relating to insurance;

(9) doing or proposing to do any insurance business that is in substance equivalent to conduct described by Subdivisions (1)-(8) in a manner designed...