Prudential Ins. Co. of America v. Barnett

Decision Date10 June 1946
Docket Number36062.
CourtMississippi Supreme Court
PartiesPRUDENTIAL INS. CO. OF AMERICA v. BARNETT, Auditor, et al.

Watkins & Eager, of Jackson, for appellant.

Greek L. Rice, Atty. Gen., and Geo. H. Ethridge Asst. Atty. Gen., for appellees.

ALEXANDER Justice.

Appellant paid under protest certain premium and privilege taxes which had accrued during the last six months of the year 1944 pursuant to the requirements of Code 1942. Section 9537. It propounded its claim for refund in accordance with Chapter 127, Laws of 1944, which was denied, hence this appeal.

Under Section 9537, appellant, a nonresident mutual insurance company authorized to do business in this State, was required to pay an annual privilege or premium tax equal to two and one-fourth per cent. of the gross premiums received from contracts or insurance policies written or covering risks in this State, whereas local companies are required to pay a tax of only one-half that amount against which the amount of their ad valorem taxes may be credited or taken into account. Certain exemptions or deductions applicable alike to both foreign and domestic companies are not here detailed. The attack is upon the constitutionality of Section 9537 as violating Art. 1, Sec. 8, Cl. 3 of the Constitution of the United States, and Sec. 1, Art. XIV of the Bill of Rights, and Sec. 14, Miss. Constitution.

It must at the outset be conceded that the tax is unequal and discriminatory. We address ourselves solely to the necessary effect of such inequality upon the validity of Section 9537.

For three-quarters of a century our Federal Supreme Court resisted all pressures applied to compel a classification of the business of insurance as interstate commerce.

Indeed it disavowed its status even as commerce. By excluding it from this category, it suffered it to be subjected to local regulation, taxation and even discrimination.

The attacks were at the outset with ordinance from the armory of the 14th Amendment. The losing cause lamented its impotency to stem the advance of state control and now and then hefted the long range weapons of the commerce clause, bewailing their unavailability. An early hint that such armament might some day be utilized was insinuated into the opinion in New York Life Ins. Company v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332, where the refusal to set aside discriminatory state regulation of foreign insurance business was based upon assumption that it was not interstate commerce.

While the field of insurance afforded room only for an occasional doubt as to its character as interstate commerce, and repeated contrary decisions began to lend color to congressional action, the boundaries of constitutional limitations under the commerce clause were in other areas being gradually shifted. From the concept that the commerce clause ex proprio vigore prohibits state regulation of interstate commerce, there has evolved a mass of exceptions. Early in the judicial history of this clause divergence asserted itself. In the License Cases, 5 How. 504, 578, 12 L.Ed. 256, Chief Justice Taney expressed the view that as long as Congress had not acted, the states were free to act. This is in contrast with Chief Justice Marshall's ideas as expressed twenty-three years before in Gibbons v. Ogden, 9 Wheat. 1, 6 L.Ed. 23. Later, cases dealing with the same subject matter--the transportation of intoxicating liquors--enlarged the regulatory powers of the states by the congressional device of withholding, by direct enactment, the federal power. Whether this was more than a concession to local police powers, or the early outcropping of a national policy of collaboration, is not here so important as the fact that the constitutional limitations upon state power were found mobile and not susceptible of a rigid and permanent fixation. Cf. In re Rahrer, 140 U.S. 545, 11 S.Ct. 865, 35 L.Ed. 572; Leisy v. Hardin, 135 U.S. 100, 10 S.Ct. 681, 34 L.Ed. 128. [1]

Narrow views as to the exclusive power of the Congress in this regard yielded perceptibly to those evolutionary economic processes which recognized that there was no inherent repugnancy between the mere right of Congress to act and a control exercised by a state on a matter of local concern. [2] The regulation by Congress of merely one aspect of an interstate business no longer carried presumptive evidence of its complete occupation of the entire field. Terminal Railroad Ass'n v. Brotherhood of Railroad Trainmen, 318 U.S. 1, 63 S.Ct. 420, 87 L.Ed. 571. The adoption of the Sherman Anti-Trust Act 15 U.S.C.A. §§ 1-7, 15 note, was held to have exhausted the constitutional powers of the Congress to regulate interstate commerce. See Apex Hosiery Company v. Leader, 310 U.S. 469, 495, 60 S.Ct. 982, 84 L.Ed. 1311, 128 A.L.R. 1044; Atlantic Cleaners & Dyers v. United States, 286 U.S. 427, 435, 52 S.Ct. 607, 76 L.Ed. 1204. The conclusion is there justified that the proper cataloguing of insurance business as interstate commerce involves invocation of both constitutional and statutory questions. The Sherman Act, construed in United States v. Southeastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, as well as other federal acts were enacted during a period when the Congress conceived its powers as much more restricted than in modern years. See American Medical Ass'n v. United States, 317 U.S. 519, 63 S.Ct. 326, 87 L.Ed. 434; Associated Press v. National Labor Relations Board, 301 U.S. 103, 57 S.Ct. 650, 81 L.Ed. 953. Recognition of evolutionary economic and political processes and theories is readily discoverable in the elastic content of the constitution as judicially interpreted. Both the Congress and the Supreme Court interpreted their official acts in terms of the assumed meaning and purpose of the statutes and the expressed interpretation by judicial opinions Even the Sherman Act itself became pliable under the heat generated by friction between state and federal power, and yielded rigidity under the pressure of more realistic notions. [3] In Appalachian Coals, Inc. et al. v. United States, 288 U.S. 344, 359, 53 S.Ct. 471, 474, 77 L.Ed. 825, the court stated: 'the act has a generality and adaptability comparable to that found to be desirable in constitutional provisions.'

Much of the discussion of suitable tests for unlawful discrimination, of course, is derived from problems affecting concededly interstate commerce. Yet, it is in point to sketch some of the trends in view of the final determination to place insurance business in the interstate commerce pigeonhole, in the Southeastern Underwriters case, discussed hereinafter.

After judicial minds had been adjusted to the acceptance of state regulation in local matters and of the implied concessions through failure of federal action, discrimination against interstate commerce was hailed as tainting ex proprio vigore all state control or regulation. This conception was short lived. 'Discrimination' as such was no longer a magic skeleton key with which to unlock the defending gates of state power. Indeed, such discrimination must be more than merely onerous (Lincoln Nat. Life Ins. Company v. Read, 325 U.S. 673, 65 S.Ct. 1220, 89 L.Ed. 1861; City of Jackson v. Mississippi Fire Ins. Company, 132 Miss. 415, 95 So. 845; Miller v. Lamar Life Ins. Company, 158 Miss. 753, 131 So. 282); it must be burdensome. More than this, it must be unduly or unreasonably so. Anderson Nat. Ass'n v. Luckett, 321 U.S. 233, 64 S.Ct. 599, 607, 88 L.Ed. 692, 151 A.L.R. 824; Nelson v. Sears, Roebuck & Company, 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888, 132 A.L.R. 475; General Trading Company v. State Tax Commission, 322 U.S. 335, 349, 64 S.Ct. 1028, 1030, 88 L.Ed. 1309, 1319; McGoldrick v. Berwind-White Coal Mining Company, 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565, 128 A.L.R. 876; South Carolina Highway Department v. Barnwell Brothers, 303 U.S. 177, 58 S.Ct. 510, 82 L.Ed. 734; Nippert v. City of Richmond, 66 S.Ct. 586; 51 Am.Jur. 274. That a statute merely affects or its incidence is upon interstate commerce is not enough. New Orleans, M. & C. R. Company v. State, 110 Miss. 290, 70 So. 355; State of Wisconsin v. J. C. Penney Co., 311 U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267, 130 A.L.R. 1229. Even a 'substantial effect' thereupon is not alone decisive. Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315.

We have held that the power of the states to regulate interstate commerce and contractual rights is not superseded by congressional action to any greater extent than a fair interpretation requires. See Gulf States Creosoting Co. v. So. Finance, etc., Corp., 166 Miss. 714, 146 So. 860.

Yardsticks of undue discrimination fashioned from legalistic concepts were found subject to constant readjustment to local atmospheric conditions. Frequent allowance was found necessary to compensate for fluctuations in the comparative extent of state and national interest. The result of discrimination as a criterion yielded inexorably to the causes therefor, and facts emerged as triumphant over legal theory inasmuch as the law in each case was the creature of its circumstances. Purely mechanistic tests were sometimes applied, as in Parker v. Brown, supra, where the regulation occurred before the interstate journey began. Yet, the Court had stated in McGoldrick v. Berwind-White Coal Mining Company, supra, 'Despite mechanical or artifical distinctions sometimes taken between the taxes deemed permissible and those condemned, the decisions appear to be predicated on a practical judgment as to the likelihood of the tax being used to place interstate commerce at a competitive disadvantage.' [4]

Considerations of public policy and the balancing of the federal and state...

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