Keystone Mut. Casualty Co. v. Driscoll, 1273.
| Decision Date | 21 April 1942 |
| Docket Number | No. 1273.,1273. |
| Parties | KEYSTONE MUT. CASUALTY CO. v. DRISCOLL, Collector of Internal Revenue. |
| Court | U.S. District Court — Western District of Pennsylvania |
Smith, Buchanan & Ingersoll and David B. Buerger, all of Pittsburgh, Pa., for plaintiff.
Charles F. Uhl, U. S. Atty., Elliott W. Finkel, Asst. U. S. Atty., both of Pittsburgh, Pa., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Paul R. Russell, Sp. Assts. to the Atty. Gen., for defendant.
By the present action the complainant seeks to recover $9,272.54 which it alleges was paid by mistake as income taxes for the years 1936, 1937 and 1938. It asserts that it was exempt from payment of income taxes during those years under Section 101(11) of the Revenue Acts of 1936 and 1938, 26 U.S.C.A. Int. Rev.Code, § 101(11). That section, identical in each Act, follows:
* * * * * *
"(11) Farmers' or other mutual hail, cyclone, casualty, or fire insurance companies or associations (including interinsurers and reciprocal underwriters) the income of which is used or held for the purpose of paying losses or expenses."
The quoted provision, being for exemption, must be strictly construed.
This paragraph, repeated from a number of prior Revenue Acts, has been construed by the courts in a number of cases. The consensus of the opinions is that the section contemplates an association of individuals whose sole object is to obtain insurance for themselves at cost, and, if amounts greater than necessary cost had been collected, that excess was to be returned to members in some form. The maintenance of a reasonable reserve is not prohibited, but it must be for the one purpose of paying losses and expenses, with ultimate return of excess to members. In other words, the association is for the benefit of the members, and not the members for the benefit of the association.
The complainant was chartered as a mutual casualty company on July 22, 1936, and has since been operating as such under the supervision of the Insurance Department of Pennsylvania. The principal founder was Mr. H. P. Kann, who was then conducting an ordinary insurance agency. A fairly large proportion of the signers of the petition for charter were the members of his office force who are now employed by the complainant at reasonable salaries. Mr. Kann deposited $10,000 as capital for the proposed association (required by statute), and he and other signers each agreed to an assessment equal to the amount of premiums paid in case of necessity. In two years and a half the company had acquired a very considerable reserve, but one not greater than approved by the Insurance Department of Pennsylvania. No returns of excess in premiums have been made to persons insured, such excess being added to reserve for the purpose of increasing the standard and credit of the company and allowing it, in time, to do business in neighboring states which required larger reserves than demanded by...
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