Lexington Ins. Co. v. Strayhorn
| Decision Date | 01 December 2006 |
| Docket Number | No. 04-0429.,04-0429. |
| Citation | 209 S.W.3d 83 |
| Parties | LEXINGTON INSURANCE COMPANY, Landmark Insurance Company, and American International Specialty Lines Insurance Company, Petitioners, v. Carole Keeton STRAYHORN, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Respondents. |
| Court | Texas Supreme Court |
Cynthia Hollingsworth, Curtis L. Frisbie Jr., Randy D. Gordon, Samuel Eugene Joyner Jr., Gardere Wynne Sewell LLP, Dallas, Jeremy C. Martin, Irving, Anthony Icenogle, Joseph C. Boggins, De Leon Boggins & Icenogle, Austin, Chester J. Makowski, Royston Rayzor Vickery & Williams, L.L.P., Houston, for Petitioners.
William E. Storie, Office of Atty. Gen. of Texas-Taxation, Greg Abbott, Atty. Gen. of Texas, Barry Ross McBee, Edward D. Burbach, Esteban H. Rodriguez, Office of Atty. Gen., Austin, for Respondents.
Craig T. Enoch, Alexander J. Gonzales, Alejandro Sin Valdes, David Fowler Johnson, Winstead Sechrest & Minick P.C., Austin, for Amicus Curiae, American Insurance Association.
Melvin L. Burner, Long Burner Parks & DeLargy, P.C., Austin, for Amicus Curiae, Scottsdale Insurance Company.
Alene Ross Levy, Haynes & Boone, L.L.P., Houston, for Amicus Curiae, Varco International, Inc.
John Smithee, Templeton Smithee Hayes Heinrich & Russell, L.L.P., Amarillo, for Amicus Curiae, John Smithee.
James W. Paulsen, Houston, for Amicus Curiae, Yorkshire Ins. Co., Ltd.
The Comptroller1 assessed almost $7 million in premium taxes against Lexington Insurance Company, Landmark Insurance Company, and American International Specialty Lines Insurance Company (collectively, "the insurers") for policies issued in the early 1990s.2 After the insurers proved that most of their policies were procured through surplus lines agents licensed in Texas, the Comptroller dropped 70 percent of her claim,3 recognizing that in such cases the agent rather than the carrier was liable for the taxes. But because the insurers could not prove the same as to the rest of their policies, they paid almost $2 million in premium taxes under protest and sought a refund.
We agree with the insurers that the Texas Insurance Code distinguishes between eligible surplus lines carriers and other unlicensed insurers, and often treats the two quite differently. But we agree with the Comptroller that when it comes to collecting premium taxes, the Code treats the two the same if a surplus policy is not placed through a licensed agent. Accordingly, we affirm the court of appeals' judgment remanding the case to the trial court.
Texas law imposes a variety of taxes on insurance premiums.4 Generally those taxes are imposed on and paid by insurers licensed to do business in Texas.5 But premium taxes are assessed even if there is no licensed insurer (as with surplus lines policies) to prevent giving policies by unlicensed insurers an unfair advantage. Thus, the Insurance Code imposes a 4.85 percent premium tax on both unauthorized insurance and surplus lines policies.6 Here, because Lexington was not authorized to issue insurance in Texas other than as an eligible surplus lines carrier, its policies were subject to the 4.85 percent tax.
This suit is about who should pay that tax. On policies issued by unauthorized insurers, the insurer must pay the tax, and the insured must pay it if the insurer does not.7 By contrast, on surplus lines policies, the surplus lines agent must pay the tax after collecting it from the insureds;8 insurers are not liable for the tax. Thus, we must decide whether these policies should be treated as surplus lines insurance (in which case the insurers are not liable) or unauthorized insurance (in which case they are).
The Insurance Code provides that only licensed agents may issue surplus lines policies,9 and requires that such policies bear the agent's name and address.10 In a 1998 audit of records for the years 1992-95, the Comptroller could not confirm whether licensed surplus lines agents placed many of the insurers' policies or paid taxes on them. Accordingly, the Comptroller treated the policies as unauthorized insurance and assessed the insurers almost $7 million in past-due premium taxes.
Although the insurers argued they had no statutory obligation to file or maintain records of those transactions, they nevertheless tried to gather information showing that their policies were in fact placed through licensed surplus lines agents, who either paid or should have paid the taxes. These efforts were largely successful, but because some agents were deceased, unavailable, uncooperative, or unhelpful, the insurers were unable to identify licensed agents who should have paid $1,973,352 in taxes. After administrative hearings and requests for redetermination, the insurers paid the taxes under protest and filed declaratory judgment actions seeking refunds of the taxes, interest, and additional penalties.
The insurers moved for summary judgment on the ground that eligible surplus lines insurers cannot be liable for these premium taxes, whether or not a licensed agent was used. The trial court granted their motions, but the Third Court of Appeals reversed and remanded for further proceedings.11
We begin with the premium tax on unauthorized insurance — the one the Comptroller seeks to collect. As in any case of statutory construction, we look first and foremost to the words of the statute.12
Throughout the tax years here, the Insurance Code required unauthorized insurers to pay a tax on premiums, with certain exceptions:
Except as to premiums on insurance procured by a licensed surplus lines agent from an eligible surplus lines insurer as defined in Article 1.14-2 and premiums on independently procured insurance on which a tax has been paid pursuant to this Article or Article 1.14-2, every unauthorized insurer shall pay to the comptroller, on a form prescribed by the comptroller, before March 1 next succeeding the calendar year in which the insurance was so effectuated, continued or renewed or another date as prescribed by the comptroller a premium receipts tax of 4.85 percent of gross premiums charged for such insurance on subjects resident, located or to be performed in this state.13
While the full passage is somewhat cumbersome, the introductory exception is not — surplus lines premiums are carved out if two conditions are met: (1) the insurance is procured by a licensed surplus lines agent (2) from an eligible surplus lines insurer. The insurers' argument that eligible surplus lines carriers are always exempted from this tax would effectively remove the first of these conditions. As the statutory exception contains two conditions, we are not at liberty to disregard one of them.
The insurers' primary argument is that this provision requires only that "every unauthorized insurer" must pay the premium tax, a class it asserts does not include eligible surplus lines insurers. We disagree. First, the insurers' argument would render the introductory exception superfluous — if eligible surplus lines carriers can never be "unauthorized insurers," there would be no need for an exception carving them out. We must presume that the entire statute — including the introductory exception — was intended to be effective.14
Moreover, we concluded ten years ago in Mid-American Indemnity Insurance Co. v. King that "the general term `unauthorized insurers' does include eligible surplus lines insurers."15 Because "legislative history makes plain that the term `unauthorized' refers to insurers who are unlicensed," we held that eligible surplus lines insurers would be included "because by definition [they] are unlicensed."16 While we noted several distinctions between eligible surplus lines insurers and "ordinary unauthorized insurers,"17 that holding constrains us from adopting the insurers' construction today.
The insurers point to the separate premium tax provision in the surplus lines statute (imposed on insureds and paid by agents), and argue that the specific statute applicable to surplus lines policies should prevail over the general statute applicable to all unauthorized carriers.18 But that rule of construction applies only when overlapping statutes cannot be reconciled;19 we believe these statutes can. Here, one statute imposes a tax on insureds for surplus lines premiums; the other imposes a tax on insurers for unauthorized premiums except when procured by a licensed agent from an eligible surplus lines carrier. Because a licensed agent and eligible carrier are prerequisites for all surplus lines policies,20 these two statutes can be reconciled by applying the former when both conditions are met, and the latter when one or both conditions are not.
We have recognized that the Legislature has amended these statutes several times "to clarify the distinction between eligible surplus lines insurers and unauthorized insurers."21 But that does not mean the Legislature intended to make the two categories mutually exclusive, or to exclude the former from treatment as the latter in all cases.22 Accordingly, we agree with the Comptroller that the words of the unauthorized insurance statute appear to make its premium tax collectible from an eligible surplus lines carrier if the policy was not procured through a licensed surplus agent.
In construing these statutes, we may also consider the purposes of the Insurance Code.23 Both the surplus lines and unauthorized insurance statutes include among their purposes "protecting the premium tax revenues of this state."24 These and other purposes of these statutes would be frustrated if we were to treat all policies by eligible carriers as surplus lines, whether procured through a licensed agent or not.
The surplus lines statute relies heavily on licensed surplus lines agents. It is the agent who determines and certifies that coverage is...
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