Provident Savings Life Assurance Society v. Commonwealth of Kentucky

• Decision Date: 15 November 1915
• Docket Number: No. 328,328
• Citation: 36 S.Ct. 34,239 U.S. 103,60 L.Ed. 167
• Parties: PROVIDENT SAVINGS LIFE ASSURANCE SOCIETY, Piff. in Err., v. COMMONWEALTH OF KENTUCKY, by H. M. Bosworth, Auditor
• Court: U.S. Supreme Court

239 U.S. 103

36 S.Ct. 34

60 L.Ed. 167

PROVIDENT SAVINGS LIFE ASSURANCE SOCIETY, Piff. in Err.,

v COMMONWEALTH OF KENTUCKY, by H. M. Bosworth, Auditor.

No. 328.

Argued October 20 and 21, 1951.

Decided November 15, 1915.

Messrs. William Marshall Bullitt, Charles C. Lockwood, Keith L. Bullitt, and Clarence C. Smith for plaintiff in error.

[Argument of Counsel from page 104 intentionally omitted] Mr. John A. Judy and Mr. James Garnett, Attorney General of Kentucky, for defendant in error.

[Argument of Counsel from page 105 intentionally omitted] Mr. Justice Hughes delivered the opinion of the court:

The Provident Savings Life Assurance Society, a New York corporation, transacted business in Kentucky prior to January 1, 1907, and paid the annual license tax of 2 per cent on premiums. Ky. Stat. § 4226. This suit was brought by the commonwealth to recover the tax on premiums received in the years 1907 to 1911, inclusive. The company answered, denying liability upon the ground that on January 1, 1907, it had entirely ceased to do business in Kentucky, and that all premiums received after that date on policies previously issued in Kentucky were received in New York.

Prior to the amendments made in the year 1906, § 4226 of the Kentucky Statutes provided as follows:

'Sec. 4226. 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 $2 upon each $100 of said premiums as ascertained.' Ky. Stat. 1903 ed.

This section was amended in 1906 by making the fiscal year to end on December 31st instead of June 30th, by prohibiting deductions for dividends, and by amplifying the description of premium receipts. (See Mutual Ben. L. Ins. Co. v. Com. 128 Ky. 174, 107 S. W. 802; Northwestern Mut. L. Ins. Co. v. James, 138 Ky. 48, 127 S. W. 505.) The amended section was as follows:

'Sec. 4226. Every life insurance company, other than fraternal assessment life insurance companies, not or- ganized under the laws of this state, but doing business therein, shall, on the first day of January 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, or business done in this state during the year ending the 31st day of December, and no deduction shall be made for dividends, or since the last returns were made, on all premium receipts, which shall include single premiums, annuity premiums, and premiums received for renewal, revival or reinstatement of policies, annual and periodical premiums, dividends applied for premiums and additions, and all other premium payments received during the preceding year on all policies which have been written in, or on, the lives of residents of this state, or out of this state on business done in this state, and shall at the same time pay into the state treasury a tax of $2 upon each $100 of said premiums as ascertained.'

In 1906, the legislature added the following provision, which is found in § 4230a of the Kentucky Statutes:

'Sec. 4230a. (2) Any insurance company that has been authorized to transact business in this state shall continue to make the reports required herein as long as it collects any premiums as provided for herein, and shall pay taxes thereon, even after it has voluntarily ceased to write insurance in the state or has withdrawn therefrom, or its license suspended or revoked by the insurance commissioner, and for failure to make report of the premiums collected and pay the taxes due thereon, shall be fined $500 for such offense.'

It does not appear that the changes in § 4226 were involved in the present controversy, as there was no dispute as to the amount of the premiums received in the years in question, or as to deductions. But the company insisted that § 4230a was invalid under the contract clause of the Federal Constitution (art. I. § 10), and also that the imposition of the tax on premiums received after the company had withdrawn from the state was contrary to the due process clause of the 14th Amendment. Demurrer to the answer was overruled, the motion of the defendant that the demurrer relate back to the petition was sustained, and the petition was dismissed. Judgment to this effect was reversed by the court of appeals of Kentucky and the cause was remanded with direction to sustain the demurrer to the answer and for further proceedings consistent with the opinion of the appellate court. 155 Ky. 197, 159 S. W. 698.

The company then amended its answer, renewing its constitutional objections. Enlarging the statement of facts, it averred that on January 1, 1907, it had withdrawn all its agents from Kentucky, had closed all its offices, and had ceased to solicit or write insurance, or maintain any agent, or collect any premiums, within that jurisdiction. On January 1, 1911, the Postal Life Insurance Company, a New York corporation, had reinsured all the business of the defendant. Between January 1, 1907, and January 1, 1911, all premiums paid to the defendant upon policies theretofore issued in Kentucky were paid to it at its home office in New York city through the mail.

The Postal Life Insurance Company did not have at any time an officer or agents in Kentucky, or transact any business in that state, and all premiums that it received were paid to it in New York through the mail.

Demurrer to the amended answer was sustained and judgment was entered in favor of the commonwealth. The court of appeals affirmed the judgment (160 Ky. 16, 169 S. W. 551) and this writ of error has been sued out.

The court of appeals did not put its decision upon the provision of § 4230a. This provision, it was said, was declaratory of the existing law, and the company's obligation was taken to be defined by § 4226. The tax was a license tax (Northwestern Mut. L. Ins. Co. v. James, 138 Ky. 48, 52, 127 S. W. 505), payable annually, and by the express terms of the act was payable by the foreign life insurance corporation 'doing business' within the state. Both parties agree that it was imposed 'for the privilege of doing business in Kentucky.' The state contends that it is seeking to enforce an agreement which, by implication from the statutory provision, the company must be deemed to have made when it entered the state. But there is no suggestion that it had ever been decided prior to this litigation that the described companies were bound under § 4226 to pay the annual tax irrespective of the continued transaction of business within the jurisdiction during the years to which the tax related. Nor, as we understand it, was the statute so construed in the present case. It is true that the court stated in its opinion that the company, on being admitted to the state, agreed to pay the tax imposed by § 4226, and that the company did not have 'the right and power to revoke this agreement as it attempted to do the 1st of January, 1907.' But, immediately following this statement, the court proceeded to hold with an explicitness which does not permit us to doubt the basis of its decision that the company was liable to the tax because it continued, despite the asserted withdrawal, to do business within the state during the period for which the tax was sought to be collected. If the tax in controversy was demanded by the state and was enforced upon the ground that it was payable for a privilege which the company admittedly enjoyed in prior years, it was manifestly immaterial to inquire whether or not the company was continuing to transact a local business during the succeeding period. In that aspect, the question would be whether, with respect to the alleged agreement, the decision could be deemed to be one which in reality gave effect to the subsequent legislation (of 1906) and involved the application of the contract clause. If, however, the tax now sought to be imposed was for a privilege exercised during the years to which the tax related, it would be necessary to find that the company was doing business within the state at that time. Evidently in view of this necessity, the court of appeals said upon the first appeal:

'Counsel for appellee mainly rests its case upon the definition of 'what is doing business?' Is a life insurance company doing business in a state only so long as it is writing new business? If this is true, then the appellant has no case. However, counsel for appellant insists that an insurance company is doing business in this state in the meaning of the statute so long as it is insuring the lives of residents of this state and furnishing protection to the beneficiaries named in the policies against loss from death of the insured, this being the chief business for which insurance companies are organized, and we are unable to see how the court [referring to the court of first instance] held, that a company collecting premiums on policies issued in this state, when it was authorized to do business in this state, can be said 'not to be...