State v. American Bankers Ins. Co.

• Decision Date: 06 September 1985
• Docket Number: No. 14690,14690
• Citation: 374 N.W.2d 609
• Parties: STATE of South Dakota, Plaintiff and Appellee, v. AMERICAN BANKERS INSURANCE COMPANY, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 609

374 N.W.2d 609

STATE of South Dakota, Plaintiff and Appellee, v. AMERICAN BANKERS INSURANCE COMPANY, Defendant and Appellant.

No. 14690.

Supreme Court of South Dakota.

Argued Feb. 4, 1985.

Decided Sept. 6, 1985.

Mark A. Moreno, Asst. Atty. Gen., Pierre, for plaintiff and appellee; Mark V. Meierhenry, Atty. Gen., Pierre, on brief.

David A. Gerdes of May, Adam, Gerdes & Thompson, Pierre, for defendant and appellant.

WOLLMAN, Justice.

This is an appeal from a final judgment entered by the trial court granting summary judgment in favor of the state ordering American Bankers Insurance Company (American Bankers) to pay insurance premium taxes. We reverse and remand with directions to dismiss the state's complaint.

The facts here are generally undisputed.

American Bankers, a Texas based corporation, has never been licensed to transact business in South Dakota. It owns and has in force insurance policies on South Dakota residents.

Prior to September 1, 1981, Mid-America Insurance Company, located in Dubuque, Iowa, and authorized to do business in South Dakota, was a wholly owned subsidiary of American Bankers. On September 1, 1981, Mid-America was sold to one Integon Corporation. Incident to this sale, American Bankers assumed ownership of those policies insuring residents of South Dakota.

Since this acquisition, American Bankers has continued to collect premiums from South Dakota policyholders as well as to pay claims made on their respective policies.

Under South Dakota law, each unlicensed or unauthorized insurer doing business in the state is required to pay an insurance premium tax. SDCL 10-44-2(3). On December 2, 1981, December 7, 1982, July 14, 1983, and August 23, 1983, the State Division of Insurance advised American Bankers that pursuant to SDCL 10-44-2(3) it was liable to the state for taxes on those premiums collected on policies in force in South Dakota.

American Bankers denied that it was doing an insurance business in South Dakota and asserted that it was not subject to the premium tax.

Following issuance of a summons and complaint by the state, American Bankers raised the defense of lack of personal and subject matter jurisdiction, as well as challenging the constitutionality of the taxing statute. Both the state and American Bankers moved for summary judgment. The trial court granted the state's motion for summary judgment, finding American Bankers subject to jurisdiction pursuant to South Dakota's long-arm statute. SDCL 15-7-1 and 15-7-2. The court held the premium tax statute to be constitutional, ordering American Bankers to pay all taxes due and owing since 1981.

I. Personal Jurisdiction

American Bankers first contends that it is not subject to the in personam jurisdiction of the South Dakota courts. Specifically, American Bankers argue that its contacts with the State of South Dakota are insufficient to fulfill the due process requirement of "minimum contacts."

In support of its contention, American Bankers cites the following facts: American Bankers has never solicited the sale of any of the policies in dispute, nor has it directly entered into any contract of insurance with any individual in South Dakota; the policies producing the premiums upon which the state seeks to impose the premium tax were acquired by bulk acquisition from Mid-America; this transaction was entered into and contracted for in the State of Texas; American Bankers has no certificate of authority to do business in South Dakota; no servicing of policies has ever been done in South Dakota; American Bankers does not maintain offices in South Dakota, nor does it own any property within the state; American Bankers does not solicit the sale of new policies in South Dakota and has no salesmen or representatives either within the state or working through the mail to sell insurance policies to South Dakota residents; and claims made by South Dakota policyholders are processed in Texas.

SDCL 15-7-2 provides in part:

Any person is subject to the jurisdiction of the courts of this state as to any cause of action arising from the doing personally, through any employee, through an agent or through a subsidiary, of any of the following acts:

(1) The transaction of any business within the state.

For purposes of SDCL 15-7-2, a corporation is deemed to be a person. SDCL 15-7-1.

SDCL 58-1-2(15), defines "insurance business" as "the transaction of all matters pertaining to a contract, and all matters arising out of that contract or any claim thereunder." Because the collection of premiums and the payment of claims are matters pertaining to and arising out of an insurance contract, SDCL 15-7-2 and 58-1-2(15), when construed together, lend support to the trial court's decision that it had personal jurisdiction over American Bankers.

Our inquiry, then, is limited to whether such an application of our long-arm statute violates the Due Process Clause of the Fourteenth Amendment to the United States Constitution. We hold that it does not.

In Russell v. Balcom Chemicals, 328 N.W.2d 476, 478-79 (S.D.1983), we recapitulated the standards set forth in a long line of United States Supreme Court decisions regarding jurisdiction over nonresidents:

In International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), the Court held that states could exercise jurisdiction if the nonresidents had such "minimum contacts" with the state "that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " 326 U.S. at 316, 66 S.Ct. at 158, 90 L.Ed. at 102 (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278, 283 (1940)). Due process requires "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283, 1298 (1958). Due process also requires that the defendant's conduct and connection with the forum state be such that he should reasonably anticipate being haled into court there. Kulko v. California Superior Court, 436 U.S. 84, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978); Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).

The principal consideration is whether the nonresident defendant "purposefully established minimum contact in the forum state." Burger King v. Rudzewiez, 471 U.S. ----, ----, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528, 542 (1985) (citing International Shoe, supra, at 316, 66 S.Ct. at 158, 90 L.Ed. at 102).

Concerning "interstate contractual obligations," the Court in Burger King stated:

[W]e have emphasized that parties "who reach out beyond one state and create continuing relationships and obligations with citizens of another state" are subject to regulation and sanctions in the other state for the consequences of their activities.

471 U.S. at ----, 105 S.Ct. at 2182, 85 L.Ed.2d at 541 (citing Travelers Health Association v. Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed.2d 1154, 1161 (1950)). The Court further observed:

Where the defendant "deliberately" has engaged in significant activities within a state, or has created "continuing obligations" between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there, and, because his actions are shielded by "the benefits and protections" of the forum's laws, it is presumptively not unreasonable to require him to submit to the burden of litigation in that forum as well.

471 U.S. at ----, 105 S.Ct. at 2184, 85 L.Ed.2d at 543 (emphasis added).

The "purposeful availment" requirement is designed to prevent a nonresident defendant from being haled into a jurisdiction "solely as a result of 'random,' 'fortuitous,' or 'attenuated' contacts." 471 U.S. at ----, 105 S.Ct. at 2183, 85 L.Ed.2d at 542 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984)); Worldwide Volkswagon Corporation v. Woodson, 444 U.S 286, 299, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). It is, however, only necessary that the nonresident defendant's contacts with the forum state proximately result from its actions. 471 U.S. at ----, 105 S.Ct. at 2183-84, 85 L.Ed.2d at 542 (citing McGee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223, 226 (1957)).

In the light of the foregoing principles, we are satisfied that American Bankers is amenable to the personal jurisdiction of the South Dakota courts. As a direct result of its acquisition of insurance contracts from Mid-America, American Bankers has entered into a "continuing obligation" with residents of the State of South Dakota. American Bankers has continuously collected premiums and paid claims on these policies since 1981. Consequently, the quality of American Bankers' relationship with South Dakota cannot reasonably be characterized as "random," "fortuitous," or "attenuated." Moreover, out of this relationship with residents of South Dakota, American Bankers realizes a steady source of economic gain.

The absence of physical contacts with South Dakota does not compel a contrary conclusion. The Supreme Court has long recognized that the methods of transacting business in "modern commercial life" has "obviated the need for physical presence within a state in which business is conducted." Burger King v. Rudzewiez, 471 U.S. at ----, 105 S.Ct. at 2184, 85 L.Ed.2d at 543. "So long as a commercial actor's efforts are 'purposefully' directed toward residents of another state," an absence of physical contacts will not defeat personal jurisdiction there. 471 U.S. at ----, 105 S.Ct. at 2184, 85 L.Ed.2d at 543 (citing Keeton v. Hustler Magazine, supra).

American Bankers, nevertheless, argues that even assuming minimum contacts are present, these contacts are unrelated to the subject matter of this action. Thus, the assertion of...