Maryland Casualty Co v. United States

• Citation: 64 L.Ed. 297,40 S.Ct. 155,251 U.S. 342
• Decision Date: 12 January 1920
• Docket Number: No. 73,73
• Parties: MARYLAND CASUALTY CO. v. UNITED STATES
• Court: United States Supreme Court

251 U.S. 342

40 S.Ct. 155

64 L.Ed. 297

MARYLAND CASUALTY CO.

v UNITED STATES.

No. 73.

Argued Nov. 13, 1919.

Decided Jan. 12, 1920.

[Syllabus from pages 342-343 intentionally omitted] Messrs. Burt E. Barlow and A. R. Serven, both of Washington, D. C., for appellant.

Mr. Assistant Attorney General Frierson, for appellee.

Mr. Justice CLARKE delivered the opinion of the Court.

Under warrant of the Act of Congress approved August 5, 1909 (36 Stat. c. 6, pp. 11, 113), the government collected from the claimant, a corporation organized as an insurance company under the laws of Maryland, an excise tax for the years 1909, 1910, 1911, and 1912, and, under warrant of the Act of Congress of October 3, 1913 (38 Stat. c. 16, pp. 114, 166), it likewise collected an excise tax for the first two months of 1913, and an income tax for the remaining months of that year.

This suit, instituted in the Court of Claims, to recover portions of such payments claimed to have been unlawfully collected, is here for review upon appeal from the judgment of that court.

The claimant was engaged in casualty, liability, fidelity, guaranty and surety insurance, but the larger part of its business was employers' liability, accident, and, in the later of the years under consideration in this case, workmen's compensation insurance.

By process of elimination the essential questions of difference between the parties ultimately became three, viz.:

(1) Should claimant be charged, as a part of its gross income each year, with premiums collected by agents, but not transmitted by them to its treasurer within the year?

(2) May the amount of gross income of the claimant be reduced by the aggregate amount of the taxes, salaries, brokerage and reinsurance unpaid at the end of each year, under the provisions in both the excise and income tax laws allowing deductions of 'net addition, if any, required by law to be made within the year to reserve funds'?

(3) Should the decrease in the amount of reserve funds required by law for the year 1913 from the amount required for 1912 be treated as 'released reserve' and charged to the company as income for 1913?

Of these in the order stated.

Section 38 of the Excise Tax Act (36 Stat. 112) provides that every corporation, organized under the laws of any state as an insurance company 'shall be subject to pay annually a special excise tax with respect to the carrying on or doing business * * * equivalent to one per centum upon the entire net income * * * received by it from all sources during such year.'

The Income Tax Act (38 Stat. 172) provides—section G, paragraph (a)—that the tax shall be levied upon the entire 'net income arising or accruing from all sources during the preceding calendar year.' But in paragraph (b), providing for deductions, gross income is described as that 'received within the year from all sources.' So that, with respect to domestic corporations, it is clear enough that no change was intended by the use of the expression 'arising or accruing' in the Income Tax Act, and that the tax should be levied under both acts upon the income 'received' during the year. Southern Pacific Co. v. Lowe, 247 U. S. 330, 335, 38 Sup. Ct. 540, 62 L. Ed. 1142.

The claimant did business in many states, through many agents, with whom it had uniform written contracts which allowed them to extend the time for payment of the premiums on policies, not to exceed thirty days from the date of policy, and required that on the 5th day of each calendar month they should pay or remit, in cash or its equivalent, the balance due claimant as shown by the last preceding monthly statement rendered to it.

Under the provisions of such contracts obviously the agents were not required to remit premiums on policies written in November until the 5th of January of the next year and on policies written in December not until the following February.

Much the largest item of the gross income of the company was premiums collected on policies of various kinds. Omitting reference to earlier and tenative returns by the claimant and amendments by the government, it came about that claimant took the final position that the only premiums with which it could properly be charged as net income 'received by it * * * during each year' were such as were collected and actually paid to its treasurer within the year. This involved omitting from gross income each year 'premiums in course of collection by agents, not reported on December 31st,' which varied in amount from $584,000 in one year to $1,020,000 in another. The amount, if deducted one year, might appear in the return of the claimant for the next year, but the rate might be different.

The government, on the other hand, contended that the claimant should return the full amount of premiums on policies written in each year, whether actually collected or not.

The Court of Claims refused to accept the construction of either of the parties and held that the claimant should have returned, not all premiums written by it, but all which were actually received by it during the year and that receipt by its agents was receipt by the company, within the meaning of the act of Congress.

The claimant contends that premiums paid to its agents but not remitted to its treasurer were not 'received by it during the year,' chiefly for the reason that while in the possession of the agents the money could not be attached as the company's property (Maxwell v. McGee, 66 Mass. [12 Cush.] 137), and because money, while thus in the possession of agents was not subject to beneficial use by the claimant and therefore cannot, with propriety, be said to have been received by it, within the meaning of the act.

On the other hand it is conclusively argued: That payment of the premium to the agent discharged the obligation of the insured and called into effect the obligation of the insurer as fully as payment to the treasurer of the claimant could have done; that in the popular or generally accepted meaning of the words 'received by it' (which must be given to them, Maillard v. Lawrence, 16 How. 251, 14 L. Ed. 925), receipt by an agent is regarded as receipt by his principal; that under their contract collected premiums in possession of the agents of the claimant were subject to use by it in an important respect before they were transmitted to the treasurer of the company, for the agency contract provided that 'the agent will pay on demand, out of any funds collected by him for account of premium and not remitted to the company, such drafts as may be drawn on him by the company * * * for the purpose of settling claims, deducting the amount from the next succeeding monthly remittance'; and that only imperative language in the statute would justify a construction which would place it in the power of the claimant, by private contract with its agents, to shift payment of taxes from one taxing year into another.

The claimant withheld from its returns collections in the custody of its agents at the end of each year, and because in its amendments the government had included all premiums written in each year whether or not collected, the Court of Claims, having reached the conclusion thus approved by us, allowed the claimant ninety days in which to show the amount of premiums received by it and its agents within each of the years in controversy, but the claimant failed to make such a showing, and thereupon the court treated the return of premiums written as the correct one and very properly, so far as this item is concerned, dismissed claimant's petition.

Second. In the same words the Excise and Income Tax Acts provide that 'the net addition, if any, required by law to be made within the year to reserve funds' may be deducted from gross, in determining the amount of net, income to be taxed.

Finding its authority in this provision of the law the claimant in all of its returns treated as 'reserves,' for the purpose of determining whether the aggregate amount of them each year was greater or less than in the preceding year, and of thereby arriving at the 'net addition to reserve funds' which it was authorized to deduct from gross income, the following, among others, viz.: 'Reserve for unearned premiums,' 'special reserve for unpaid liability losses,' and 'loss claims reserve.' Unearned premium reserve and special reserve for unpaid liability losses are familiar types of insurance reserves, and the government, in its amended returns, allowed these two items, but rejected the third, 'loss claims reserve.'

The Court of Claims, somewhat obscurely, held that the third item should also be allowed. This 'loss claims reserve' was intended to provide for the liquidation of claims for unsettled losses (other than those provided for by the reserve for liability losses) which had accrued at the end of the tax year for which the return was made and the reserve computed. The finding that the insurance department of Pennsylvania, pursuant to statute, has at all times since and including 1909 required claimant to keep on hand, as a condition of doing business in that state, 'assets as reserves sufficient to cover outstanding losses,' justifies the deduction of this reserve as one required by law to be maintained, and the holding that it sould have been allowed for all of the years involved is approved.

But the Court of Claims approved the action of the government in rejecting other claimed deductions of reserves for 'unpaid taxes, salaries, brokerage and reinsurance due other companies.' The court gave as its reason for this conclusion that the 'net addition, if any, required by law to be made within the year to reserve funds,' which the act of Congress permitted to...