United Mutual Life Insurance Co., of Indianapolis v. State, ex rel. Attorney General

• Decision Date: 28 June 1937
• Docket Number: 4-4712
• Citation: 108 S.W.2d 484,194 Ark. 371
• Parties: UNITED MUTUAL LIFE INSURANCE COMPANY OF INDIANAPOLIS v. STATE, EX REL. ATTORNEY GENERAL
• Court: Arkansas Supreme Court

108 S.W.2d 484

194 Ark. 371

UNITED MUTUAL LIFE INSURANCE COMPANY OF INDIANAPOLIS v. STATE, EX REL. ATTORNEY GENERAL

4-4712

Supreme Court of Arkansas

June 28, 1937

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor reversed.

Judgment reversed and cause dismissed.

House Moses & Holmes and H. B. Solmson, Jr., for appellant.

Jack Holt, Attorney General, Leffel Gentry, Assistant, and Paul X Williams, for appellee.

OPINION

GRIFFIN SMITH, C. J.

Appellant declined to pay a tax of 2 1/2 per cent. on certain gross premium receipts from 1931 to 1935, inclusive, for which the chancery court gave judgment in the sum of $ 5,566.30, with a direction that interest on such amount at six per cent. per annum should be computed and collected from December 1, 1936, to date of payment.

The state's claim is based upon § 9968 of Crawford & Moses' Digest, as amended by act 235 of 1935. Act 235 requires every life insurance company doing business in Arkansas to file with the insurance commissioner, at the time of making its annual report, a statement of gross premium receipts, upon which a tax of 2 1/2 per cent. is payable on or before March of each year.

Appellant's defense is that the laws of Arkansas exempt from the tax in question all fraternal beneficiary orders or societies, and such exemption may be claimed in answer to the state's suit, for the reason that the gross premium receipts which the State is undertaking to tax arose from payments made by members of appellant's predecessor, the Supreme Lodge Knights of Pythias, a fraternal beneficiary society. Appellant admits that it is an old line legal reserve insurance company. The question to be determined, therefore, as stated in substance in appellee's brief, is this: Is a legal reserve mutual insurance company liable for taxes on premiums collected from policyholders in this state on business acquired from a fraternal beneficiary company when the fraternal beneficiary company is itself exempt from the payment of such taxes?

The issues were presented to the trial court on an agreed statement of facts, the essential parts of which follow:

"Defendant's predecessor, The Supreme Lodge Knights of Pythias, was a fraternal benefit society, organized in 1868 by an act of Congress and incorporated in the District of Columbia. Some years subsequent thereto this Association began the writing of fraternal life insurance. Said Association carried on fraternal activities in a number of states, and a number of years ago was admitted by the insurance commissioner of the state of Arkansas to operate in this state as a fraternal benefit society, under and within the contemplation of the fraternal benefit society statutes of this state. Said Supreme Lodge Knights of Pythias did so operate as a fraternal benefit society in the state of Arkansas and was yearly licensed to do business as a fraternal benefit society within the contemplation of the fraternal benefit statutes within this state. Said Association has an active lodge society, representative form of government, ritualistic form of work, operated without profit, and carried on only fraternal activities as contemplated by the statutes of this state.

"It is further stipulated and agreed that the same fraternalistic activities that were carried on by the members of the Supreme Lodge Knights of Pythias prior to reorganization in 1930, have also been carried on subsequent to that time, and are being carried on at the present time by that organization, among the membership that existed prior to said reorganization date.

"In the year 1930, the Congress of the United States passed an act authorizing fraternal and benefit corporations theretofore created by special acts of Congress to divide and separate the insurance activities from the fraternal activities by an act of its supreme legislative body, subject to the approval of the Superintendent of Insurance of the District of Columbia. In accordance with the provisions of this act, on August 18, 1930, the Supreme Lodge Knights of Pythias did separate its insurance activities from its fraternal activities, and the United Mutual Life Insurance Company was organized as an old line legal reserve insurance company, and it has continued as such until the present time.

"On or about the first of April, 1931, the United Mutual Life Insurance Company made application for and received a license from the state of Arkansas to carry on an old line mutual legal reserve business, and has continued to transact such business since that time. At the same time this defendant, United Mutual Life Insurance Company, was licensed to carry on an old line life insurance business in the state of Arkansas, the Insurance Commissioner and Attorney General of the state of Arkansas, after conference and consideration of the reorganization and conversion into an old line mutual legal reserve company, informed defendant, United Mutual Life Insurance Company, that the business written in this state subsequent to reorganization date would be taxable as old line insurance business, but that the business written by the Supreme Lodge Knights of Pythias, same having been written as fraternal business, would not be taxable under the statutes of the state of Arkansas.

"By an act of Congress of 1932 the United Mutual Life Insurance Company was authorized to reincorporate under the laws of any state so permitting, and in accordance with an act of Indiana of 1933 the United Mutual Life Insurance Company reincorporated in that state and since then has been known as the United Mutual Life Insurance Company of Indianapolis, Indiana, which corporation assumed all the liabilities of every kind and description existing against the United Mutual Life Insurance Company at the time of its reincorporation under the laws of the state of Indiana."

The stipulations bring appellant's predecessor into this record as a fraternal beneficiary society belonging to a group or class which may claim exemption from payment of gross premium taxes. If The Supreme Lodge Knights of Pythias had continued to transact its business here, exercising the fraternal or beneficiary characteristics pertaining to it at the time the certificates were issued, admittedly the gross premiums would not be taxable. But, acting under authority of Congress, appellant's predecessor separated its insurance activities from its fraternal functions, and insurance activities were assumed by the United Mutual Insurance Company. In April, 1931, this corporation was authorized to do business in Arkansas as an old line company. In 1932 congress passed an act permitting reincorporation, and in 1933 appellant did reincorporate under the laws of Indiana.

From April, 1931, the United Mutual Life Insurance Company (and the same company as reorganized in 1933 under the laws of Indiana) have been doing business in Arkansas under permits issued by the insurance commissioner, in pursuance of an agreement made by such commissioner, and concurred in by the attorney general. This agreement was an opinion, expressed in writing, that taxes on gross premiums on policies of insurance written subsequent to 1930 would be taxable, but that premiums on certificates issued by The Supreme Lodge Knights of Pythias would be exempt--this on the theory that the fraternal, or lodge, or ritualistic features of the original contract, having once attached, were not altered by the fact that thereafter premium maturities would be payable to an old line company.

It is contended by appellant that the judgment should be reversed on authority of Modern Woodmen of America v State ex rel. Attorney General, 193 Ark. 458, 103 S.W.2d 38. We do not think that decision is conclusive of the issues now before us. No contention was there made that the appellant had by any formal act of reorganization or reincorporation changed its characteristics from those of a fraternal beneficiary society to those of an old line insurance company. On the contrary, it was shown that for many years the appellant had operated under the guise of a fraternal agency through permits annually renewed by the insurance commissioner. It was also shown that a lodge system of...