Epmeier v. United States

• Decision Date: 29 October 1952
• Docket Number: No. 10608.,10608.
• Citation: 199 F.2d 508
• Parties: EPMEIER v. UNITED STATES.
• Court: U.S. Court of Appeals — Seventh Circuit

199 F.2d 508 (1952)

EPMEIER v. UNITED STATES.

No. 10608.

United States Court of Appeals Seventh Circuit.

October 29, 1952.

Clyde J. Cover, O. Wendell Lanning, Fort Wayne, Ind., for appellant.

Charles S. Lyon, Acting Asst. Atty. Gen., Hilbert P. Zarky, Sp. Asst. to the Atty. Gen., Gilmore S. Haynie, U. S. Atty., Ft. Wayne, Ind., Ellis N. Slack, Acting Asst. Atty. Gen., Robert N. Anderson, George F. Lynch, Sp. Assts. to the Atty. Gen., for appellee.

Before MAJOR, Chief Judge, and DUFFY and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiff's action to recover an income tax paid by him for the year 1945 having resulted in judgment for defendant, he appeals. The facts are undisputed. For several years, plaintiff had been employed by the Lincoln National Life Insurance Company. During the first six months of 1945, while ill, he was paid by the company, $1800 in sickness benefits. Plaintiff did not include these payments in his income tax return, believing, as he said, that they were exempt from taxation under Section 22(b) (5) of the Internal Revenue Code then in effect. 26 U.S.C. 1946 Ed. § 22(b) (5). The Commissioner, in redetermining the tax liability, included in plaintiff's gross income the entire amount received by him for sickness benefits, resulting in a tax deficit. Plaintiff paid the additional tax assessed, filed a claim for refund, and, upon denial of the latter, brought the present suit.

The employer has statutory authority to engage in the business of insuring risks relating to life and health, and was, in the year 1945, as well as in earlier years, engaged in writing disability insurance as compensation for personal injuries or sickness. It had in effect a life and health insurance plan for its employees, pertinent provisions of which follow. "Those fulltime salaried Home and Branch Office employees * * * who, * * * at the time of employment * * * pass a satisfactory medical examination, are * * * eligible for free sickness and death benefits. * * * Applicants * * * unable to pass * * * may in exceptional cases be engaged as temporary employees, * * * not entitled to sickness * * * benefits. If at some future time such temporary employees are able to pass * * * they will be transferred to the permanent salary roll. * * * It is our general rule than an employee whose disability continues beyond expiration of his sickness benefit period, will be removed from the payroll, and future sickness benefits will not be paid. * * * The administering of the sickness and death benefit plan rests with the Office Administration Department. * * * The sickness benefits * * * shall not accrue in favor of any employee who * * * is paid compensation under any Workmen's Compensation Act for illness or disability * * *. The Company, however, will pay to such employee * * * the difference between the amount of compensation * * * and the amount specified herein, whenever the compensation * * * is less than the amount specified herein. * * * The Company has provided its employees with an unusually liberal plan of sickness benefits. The payment of these benefits presupposes that the employee is carrying out the instructions of the Company doctor or the employee's private physicians during the period of recuperation. The Company reserves the right to cancel sickness benefits being paid employees, if there is an indication that the fullest cooperation is not forthcoming from the employee * * *." The plan provided also for medical facilities, hospitalization, surgery, retirement plan and life insurance. It concluded with the statement that: "Constructive suggestions from employees are always welcome. Suggestions of the following nature are particularly solicited: Savings in cost of operation, improvements in service to policyholders, expediting the work without decreasing the quality, an increase in business, and improvement in safety and health of employees." Payment of benefits was not required by statute. Plaintiff made no contribution by way of premium other than the labor and service he rendered in his employment.

The only question presented is whether, under Section 22(b) (5) of the Internal Revenue Code, 26 U.S.C. 1946 Ed. § 22(b) (5), in effect in 1945 and under the agreed facts, the sickness benefits paid plaintiff, constituted amounts "received through * * * health insurance * * * as compensation for * * * sickness." Plaintiff claims that they are within this statutory definition, while defendant insists that they are not.

Insurance, of ancient origin, involves a contract, whereby, for an adequate consideration, one party undertakes to indemnify another against loss arising from certain specified contingencies or perils. Fundamentally and shortly, it is contractual security against possible anticipated loss. Risk is essential and, equally so, a shifting of its incidence from one to another. Physicians' Defense Co. v. Cooper, 9 Cir., 199 F. 576; Jordon v. Group Health Ass'n, 71 App.D.C. 38, 107 F.2d 239; Old Colony Trust Company v. Commissioner of Internal Revenue, 1 Cir., 102 F.2d 380; Alliance Ins. Co. v. City Realty Co., D.C., 52 F.2d 271; Meyer v. Building & Realty Co., 209 Ind. 125, 196 N.E. 250, 100 A.L.R. 1442; 44 C.J.S., Insurance, § 1, p. 471; 29 Am.Jur. 47, Sec. 3; 1 Bouvier's Law Dict., Rawle's Third Revision, p. 1613; Webster's International Dictionary, 2d Ed. 1942, p. 1289.

In determining whether the benefits under consideration are within the statute and in accord with these general principles, we observe, first, that the plan under which...