Corporation Commission v. Equitable Life Assur. Soc. of U.S.

• Citation: 239 P.2d 360,73 Ariz. 171
• Decision Date: 31 December 1951
• Docket Number: No. 5338,5338
• Parties: CORPORATION COMMISSION et al. v. EQUITABLE LIFE ASSUR, SOC. OF UNITED STATES et al.
• Court: Supreme Court of Arizona

Page 360

239 P.2d 360

73 Ariz. 171

CORPORATION COMMISSION et al. v. EQUITABLE LIFE ASSUR, SOC. OF UNITED STATES et al.

No. 5338.

Supreme Court of Arizona.

Dec. 31, 1951.

Fred O. Wilson, Atty. Gen., Wilbert E. Dolph, Jr., Asst. Atty. Gen. (Edward Jacobson, Phoenix, Snell, Wilmer, Walsh, Melczer & Beauchamp, all of Phoenix, of counsel), for appellants.

Evans, Hull, Kitchel & Jenckes, Norman S. Hull and John E. Madden, all of Phoenix, for appellee.

LA PRADE, Justice.

This action was instituted by The Equitable Life Assurance Society of the United State, a mutual life insurance company, in its own behalf and on behalf of all other insurance companies similarly situated, to obtain a declaratory judgment determining and declaring the construction to be placed upon section 61-328, A.C.A.1939, as amended by ch. 113, S.L.1941, ch. 100, S.L.1945, imposing upon every insurance company doing business in Arizona, an annual tax of two (2) per cent of the gross amount of all premiums received on policies and contracts of insurance covering property or other risks within Arizona. From a judgment declaring that said statute, as amended, does not impose any tax upon considerations received on contracts of annuities by plaintiff and other insurance companies similarly situated and enjoining defendants (agents of the state of Arizona) from collecting or attempting to collect such tax and from withholding or revoking any certificate of authority or license by reason of the nonpayment thereof, the corporation commission and other named defendants have appealed.

The question presented is one of statutory construction to determine the legislative intent from the wording of the statute. The portion of section 61-328, upon which the state relies to tax payments for annuities, reads as follows: '(b) Every insurance company doing business in this state except those companies engaged in the class of insurance business described in paragraph 11, section 61-102, Arizona Code of 1939 (title insurance), shall pay to the state treasurer, through the commission, a tax of two per cent of the gross amount of all premiums received on policies and contracts of insurance covering property or other risks within this state * * * The tax * * * shall be payment in full of all demands of any and all taxes on said company or of licenses for conducting said business of insurance, except the fees prescribed for agents' licenses and for the commission, and the tax prescribed in section 61-340 [on non-admitted companies].' (Emp. and bracketed matter supplied.) For the purpose of clarity, we believe that it should be pointed out right here, that the underscored words in the above section, to wit: 'a tax of two per cent of the gross amount of all premiums received on policies and contracts of insurance covering property or other risks within this state' was first inserted in the law by the amendment appearing in chapter 113, Session Laws 1941, section 3. The law prior to the amendment read that every company should pay 'a tax of two per cent of all premiums collected or contracted for in this state during the year ending December 31 next preceding * * *'

The assignment of error is based on the contention that the above-quoted statute was intended to and does levy a valid tax upon insurance companies for considerations received from annuity policies. The several propositions of law presented in support of the assignment will be severally examined and treated.

Proposition of law No. 1 states: 'The prime rule of statutory construction is to arrive at the legislative intent.' We agree that to determine the legislative intent is a cardinal rule of statutory construction. Just how that intent may be determined requires careful reading and consideration of the statutory language. The state directs attention to other statutes relating to insurance companies and points out that in the various provisions thereof no reference is made to annuities but they refer generally to 'contracts of insurance'. For a definition of 'insurance' the company refers to section 61-101, A.C.A.1939, as amended "Insurance' means: A contract of insurance or an agreement by which one party, for a consideration, promises to pay money or its equivalent or to do an act valuable to the insured upon the destruction, loss, or injury of something in which the insured has a pecuniary interest, or in consideration of a price paid, adequate to the risk, becomes security to the other against loss by certain specified risks;' We observe that this definition does not mention or refer to annuity contracts. A similar statute was construed by the Supreme Court of Oregon as not including a contract of annuity in the definition of 'insurance'. Hall v. Metropolitan Life Ins. Co., 146 Or. 32, 28 P.2d 875, 876. Counsel for the state review the history of the insurance code, quoting from section 3423, R.S.1913, wherein insurance business was classified as follows: '(2) Life insurance, including endowments or annuities, but not including health or accident or sickness insurance, or any casualty insurance except as hereinafter provided.' (Emp. sup.) The comparable code, section 61-102, A.C.A.1939, as amended by S.L.1949, ch. 116, sec. 1, reads: '2. Life insurance, which includes insurance upon the lives of persons or appertaining thereto, and the granting, purchasing, or disposing of annuities.' (Emp. sup.) It is significant that the language was changed from including annuities within the term 'life insurance' to a separate classification using the conjunction 'and' in the amendment. It is generally recognized that contracts for annuities differ from life insurance policies. 29 Am. Jur., Insurance 52, sec. 6; 3 C.J.S., Annuities, § 1, page 1375; Carroll v. Equitable Life Assur. Soc. of United States, D.C.Mo., 9 F.Supp. 223, 224; Rishel v. Pacific Mut. Life Ins. Co. of California, 10 Cir., 78 F.2d 881, 131 A.L.R. 414; Commonwealth v. Metropolitan Life Ins. Co., 254 Pa. 510, 98 A. 1072, 1073, wherein an annuity contract is distinguished from an insurance contract in the following language: 'Insurance, as generally understood, is an agreement to indemnify against loss in case property is damaged or destroyed by fire, or to pay a specified sum upon the death of the insured or upon his reaching a certain age. An annuity is generally understood as an agreement to pay a specified sum to the annuitant annually during life. The consideration for an insurance contract is generally spoken of as a premium, which is payable annually, semiannually, monthly, or weekly. The consideration for an annuity contract is not generally regarded as a premium and is usually covered by a single payment.' The distinction between annuities and life insurance was pointed out in the following cases:

'Annuity contract differs from life policy in that the contract for 'Insurance' provides against contingency of death, while an 'annuity' is a provision for life with no indemnity feature.' In re Sothern's Estate, 170 Misc. 805, 14 N.Y.S.2d 509, 512.

"Annuity' and 'insurance' are opposites in that one neutralizes the risk customarily inherent in the other, and from the insurer's viewpoint, 'insurance' looks to longevity, while 'annuity' looks to transiency.' Helvering v. Le Gierse, 312 U.S. 531, 61 S.Ct. 646, 650, 85 L.Ed. 996.

"Annuity' is a provision for life with no indemnity feature, and 'insurance' is a provision against death and involves risk shifting and risk distributing, and is designed to shift risk of premature death of the one upon whom the beneficiaries were dependent for support, and 'annuity' and 'insurance' are opposites, and, from the insurance company's viewpoint, insurance looks to longevity, and annuity to transiency.' In re Newton's Estate, 177 Misc. 877, 32 N.Y.S.2d 473, 474, 482.

The statute in question imposes a tax on 'the gross amount of all premiums received on policies and contracts of insurance covering property or other risks within this state'. Since annuities are not policies or contracts of insurance, the payments therefor are not generally regarded as 'premiums' even though so called. The nature of a thing must be determined by what it is and not by what it is called. The annuities are not indemnities for death but are investments for life. They are designed as safeguards against misfortune and want during the life of the annuitant and are essential provisions for life and not provisions for death.

The second proposition of law asserts: 'Where a statute is found to be ambiguous, legislative intent may be gathered from statutes in pari materia, i. e., relating to the same subject matter.' If a statute is ambiguous, it should be construed liberally in favor of the taxpayer and strictly against the state. Alvord v. State Tax Commission, 69 Ariz. 287, 213 P.2d 363; Daniel v. Life Ins. Co. of Virginia, Tex.Civ.App., 102 S.W.2d 256. Giving consideration to other statutes in pari materia indicates a distinction in classification for purposes of valuation of life insurance and annuities, section 61-306, A.C.A.1939, as amended, and by definition in sections 61-101 and 61-102, as amended. This distinction was recognized by the corporation commission in the forms it prescribed for annual reports of insurance companies wherein considerations for annuities were reported in one schedule but not in the 'Premium Tax' statement. While the practical interpretation of the law is not controlling, it is entitled to great weight, since the legislature has re-enacted the law with knowledge of such practical interpretation. Alvord v. State Tax Commission, supra; Haggard v. Industrial Comm., 71 Ariz. 91, 223 P.2d 915; State v. Davenport, 61 Ariz. 355, 149 P.2d 360; State v. Boyd, 60 Ariz. 388, 138 P.2d 284; Conway v. Mosher, 55 Ariz. 467, 103 P.2d 465; Austin v. Barrett, 41 Ariz. 138, 16 P.2d 12.

The state's third proposition of law is: 'Where present, a legislative definition of a word or phrase used in a statute is...