Mutual Ben. Life Ins. Co. v. Commonwealth

• Citation: 128 Ky. 174,107 S.W. 802
• Parties: MUTUAL BENEFIT LIFE INS. CO. v. COMMONWEALTH. NORTHWESTERN MUT. LIFE INS. CO. v. COMMONWEALTH. CONNECTICUT MUT. LIFE INS. CO. v. COMMONWEALTH.
• Decision Date: 18 February 1908
• Court: Kentucky Court of Appeals

107 S.W. 802

128 Ky. 174

MUTUAL BENEFIT LIFE INS. CO. v. COMMONWEALTH.

NORTHWESTERN MUT. LIFE INS. CO. v. COMMONWEALTH.

CONNECTICUT MUT. LIFE INS. CO. v. COMMONWEALTH.

Court of Appeals of Kentucky.

February 18, 1908

O'Rear C.J., and Nunn, J., dissenting.

Appeals from Circuit Court, Franklin County.

"To be officially reported."

Actions by the commonwealth of Kentucky against the Mutual Benefit Life Insurance Company, the Northwestern Mutual Life Insurance Company, and the Connecticut Mutual Life Insurance Company, respectively. The three actions were heard together. From judgments for plaintiff, defendants appeal. Reversed with directions to dismiss.

D. W Lindsay, W. O. Harris, Humphrey & Humphrey, Tyler Barnett Barnett & Barnett, and William Cromwell, for appellants.

N. B. Hays and C. H. Morris, for appellee.

BARKER J.

These three cases involve precisely the same questions, and were heard together. In deciding them we shall use, for the purpose of illustrating the principles of law involved, the data furnished by the record in Mutual Benefit Life Insurance Co. v. Commonwealth of Kentucky, etc. In this action the appellee charges the appellant with having received, and with failing to report for taxation, in each of the years, respectively, ending June 30, 1900, to June 30, 1904, inclusive, certain sums of money as premiums on business done in this state. It is not claimed that it failed to make a regular report for each of the years of premiums received; but the contention on the part of the appellee is that such reports did not embrace all of the premiums received by appellant, but, on the contrary, omitted premiums to the extent of the amounts alleged in the petition for the years respectively mentioned.

The following table will show the dates of the reports made for each year ending June 30th, the amount of the premiums reported for each year, as received in this state or out of this state on business done in this state, the amounts of such premiums appellee claims should have been reported, the alleged deficits in the reports, and the tax claimed by appellee to be due on such deficit:

Date of Report.	Amt. Premiums Reported.	Amt. Premiums Claimed. Deficit.	Alleged	Tax Claimed.
July 1, 1900	$497,587 25	$563,582 03	$65,994 78	$1,319 89
July 1, 1901	545,024 89	607,440 89	62,416 00	1,248 32
July 1, 1902	561,681 78	626,397 74	64,715 96	1,294 32
July 1, 1903	578,399 48	642,093 00	63,693 52	1,273 87
July 1, 1904	601,962 28	666,802 53	64,840 25	1,296 80

It is clearly shown by the evidence, and conceded by counsel for the state, that the reports as made by the appellant company embrace all first, or original, premiums--the premiums receipted for on the face of the policies--and also the subsequent, or renewal, premiums, except to the extent that such renewal premiums were reduced by what is termed "dividends." It is the contention of the appellee that such renewal premiums should have been reported without such reduction or abatement, as having been received by the company "in cash or otherwise"; while the appellant company contends that the reduction from the nominal, or stated, premium, as made, was a contract right of the policy holder, and constituted no premium or part of premium received by the company "in cash or otherwise." And these opposing contentions present the question in this case. The case turns upon what shall be the construction given to section 4226 of the present Kentucky Statutes (Ky. St. 1903), which is the revenue law of 1902 as carried into these statutes. This section (4226) in our present Kentucky Statutes is a revision of section 4227 of the Kentucky Statutes prior to the revenue law of 1902. Section 4227 of the Kentucky Statutes prior to 1902 (Ky. St. 1899) reads as follows: "Every life insurance company, other than assessment life insurance companies, not organized under the laws of this state, but doing business therein, shall, on the first day of July in each year, or within thirty days thereafter, return to the Auditor of Public Accounts, for deposit in the insurance department, a statement, under oath, of all premiums received in cash or otherwise in this state, or out of the state, on business done in this state during the year ending the 30th day of June last preceding, or since the last returns were made, and shall, at the same time, pay into the state treasury a tax of two dollars upon each one hundred dollars of said premiums as ascertained, and upon payment, file a statement thereof with the Secretary of State." The present section (4226) reads as follows: "Every life insurance company, other than fraternal assessment life insurance companies, not organized under the laws of this state, but doing business therein, shall, on the first day of July in each year, or within thirty days thereafter, return to the Auditor of Public Accounts, for deposit in the insurance department, a statement under oath of all premiums receipted for on the face of the policy for original insurance, and all renewal premiums received in cash or otherwise in this state, or out of this state, on business done in this state during the year ending the 30th day of June last preceding, or since the last returns were made, and shall at the same time pay into the state treasury a tax of two dollars upon each one hundred dollars of said premiums as ascertained." The language of section 4227 is: "* * * All premiums received in cash or otherwise in this state or out of the state, on business done in this state during the year ending the 30th day of June last preceding. * * *" The present statute reads: "* * * All premiums receipted for on the face of the policy for original insurance and all renewal premiums received in cash or otherwise in this state or out of this state on business done in this state during the year ending the 30th day of June last preceding. * * *" This difference will be observed: The original statute was: "All premiums received in cash or otherwise in this state." The present statute is: "All premiums receipted for on the face of the policy for original insurance, and all renewal premiums received in cash or otherwise in this state." The significance of this change is apparent when we come to consider the facts. A policy of insurance stipulates for a certain annual premium. It acknowledges the receipt of the first annual premium. This first annual premium may or may not be received in full by the insurance company, but, under our present statute, it matters not whether the original premium is or is not paid in full by the policy holder. The present statute requires a tax on premiums receipted for on the face of the policy for original insurance. The old statute simply provided for all premiums received in cash or otherwise, making no distinction between first premium and subsequent premiums. The present statute does make a distinction requiring the tax to be paid upon the full premium receipted for on the face of the policy for original insurance without regard to whether it was paid in cash or otherwise, or not paid at all. The present statute provides, however, in regard to the other premiums as follows: "All renewal premiums received in cash or otherwise in this state." The appellant, every year before a premium falls due, determines how much of the stipulated premium it will exact from the insured. The diminution, whether it be called a "dividend" or a "surplus," goes in abatement of the renewal premium, and the insured pays only the difference. The insurance company, therefore, receives not the full renewal premium, but the difference between the stipulated premium and this dividend or portion of surplus. All that the insurance company receives in cash or otherwise is this difference. The old statute taxed the insurance company upon the amount which it received in cash or otherwise on the original premium, as well as upon what the insurance company received in cash or otherwise upon subsequent premiums. The present statute taxes the insurance company upon the full amount of the original premium, without regard to whether the insurance company receives it or not; but, in reference to renewal premiums, taxes the company simply upon the amount it receives of these renewal premiums in cash or otherwise. It is obvious that the word "otherwise" means payment by note or payment in some manner other than cash.

The commonwealth is claiming to tax the appellant upon money which it never received at all. The appellant says that it is only required to pay upon money which it receives in cash or otherwise, except that it admits that it is bound to pay the full tax on the original premium receipted for on the face of the policy, without regard to whether it in fact received such premium or not. The answer sets out the course of business of the appellant, and shows what money it has received and what money it has not received, and shows that the difference between it and the commonwealth is that the commonwealth is attempting to charge it with the full amount of premiums stipulated for in the face of the policy, although it does not exact and has not the right to exact such full amount, being required to give to the policy holder the advantage of the dividend or surplus, or whatever it may be called, in diminution of the nominal premium. We will now examine some of the adjudications of other courts on similar or analogous questions.

The case of German Insurance Co. v. Van Cleave, 191 Ill 410, 61 N.E. 94, involved the question whether premiums rebated to the insured upon the cancellation of the policies should be included in the words "gross amount of premiums received," as...