Validus Reinsurance, Ltd. v. United States
| Decision Date | 05 February 2014 |
| Docket Number | Civil Action No. 13–0109 ABJ |
| Citation | 19 F.Supp.3d 225 |
| Parties | Validus Reinsurance, Ltd., Plaintiff, v. United States of America, Defendant. |
| Court | U.S. District Court — District of Columbia |
Joseph Robert Guerra, Sidley Austin LLP, Washington, DC, for Plaintiff.
Anne E. Oliver, Norah Elizabeth Bringer, U.S. Department of Justice, Washington, DC, for Defendants.
Plaintiff Validus Reinsurance, Ltd. filed this case against defendant United States of America, alleging that the Internal Revenue Service (“the Service”) improperly assessed and collected excise taxes on plaintiff's foreign retrocession transactions pursuant to 26 U.S.C. § 4371 (2012). Plaintiff seeks to recover the full amount of the excise tax and related interest that it paid in connection with the challenged 2006 tax assessment. Compl. at 5 [Dkt. # 1].
The material facts in this case are undisputed, and the parties filed two joint statements of undisputed material facts. Joint Statement of Undisputed Material Facts (“1st Joint SOF”) [Dkt. # 15–1]; Addendum to Joint Statement of Undisputed Material Facts (“2d Joint SOF”) [Dkt. # 17–1]. Both parties also filed cross-motions for summary judgment. Pl.'s Mot. for Summ. J. [Dkt. # 15]; Def.'s Cross–Mot. for Summ. J. [Dkt. # 17]. Because the Court finds that the excise tax assessed was not authorized by the statute, it will grant plaintiff's motion for summary judgment, and it will therefore deny defendant's cross-motion for summary judgment.
This case involves the taxation of a particular type of insurance transaction. In a direct insurance transaction, a person or entity contracts with an insurance company to receive protection against casualty loss or to obtain life insurance coverage. A reinsurance transaction occurs when the insurance company that directly insured the person or entity buys insurance from another insurance company (“the reinsurer”) to cover the risks associated with the direct insurance policy. In other words, reinsurance is insurance for insurance companies, and it covers an insurer in the event it is required to pay out funds under one or more of the direct insurance policies that it has issued.1
A third type of insurance transaction—and the one that serves as the basis for the challenged excise tax in this case—is called a retrocession. A retrocession is a form of reinsurance one more step removed from the original direct insurance policy: it occurs when a reinsurer buys insurance from yet another insurance company (“a retrocessionaire”) to protect the reinsurer in the event it is required to pay claims under one or more of the reinsurance policies that it has issued to the direct insurers.
Section 4371 of title 26 of the U.S. Code aims to tax insurance transactions involving policies issued by foreign insurers or reinsurers. 26 U.S.C. § 4371. Specifically, section 4371 provides:
Id. § 4371(1)–(3).
The statute defines the “policy of reinsurance” upon which the tax will be imposed as “any policy or other instrument by whatever name called whereby a contract of reinsurance is made, continued, or renewed against, or with respect to, any of the hazards, risks, losses, or liabilities covered by contracts taxable under paragraph (1) or (2) of section 4371.” Id. § 4372(f). It does not mention retrocessions.
Generally, the party paying the premium—instead of the foreign insurer or reinsurer receiving the premium payment—has the duty to remit the tax. See Treas. Reg. § 46.4374–1(c) (2002). The tax owed is reportable by tax return. 26 U.S.C. § 4374.
The following facts are taken from the parties' two joint statements of undisputed, material facts. Plaintiff Validus Reinsurance, Inc. is a Bermuda corporation that “is engaged in the business of reinsurance.” 1st Joint SOF ¶¶ 1, 4. It sells reinsurance policies to other insurance companies, offering “protection against, or compensation or indemnity for, the liability of [that insurance company] to pay valid claims to its policyholders.” Id. ¶ 7.
In an effort to protect itself, plaintiff “sometimes buys reinsurance for a portion of its potential liabilities under the reinsurance contracts it sells.” Id. ¶ 8. These transactions are called “retrocessions,” and they protect plaintiff ‘against the risk that [it] will have to make payments to [other insurance companies] under its reinsurance agreements with those companies.” Id. In 2006, plaintiff paid premiums on nine retrocession policies, and all the retrocessionaires from whom plaintiff obtained insurance are considered “foreign reinsurers” within the meaning of 26 U.S.C. § 4371. Id. ¶¶ 9–10.
In February 2012, the Service first requested that plaintiff “consent to the assessment of [an] Excise Tax ... (totaling $326,340 for 2006).” Id. ¶ 16. Although the taxes were considered over six years delinquent, the Service noted that it would not impose penalties because plaintiff had a reasonable cause for its position of non-taxability. Id. Plaintiff paid the assessment in full, plus the $109,040 later assessed in interest, and it then filed a claim for refund with the Service. Id. ¶¶ 17–19. After six months and no action by the Service, plaintiff filed the instant cause of action, seeking a refund of the excise tax and interest that it paid. Id. ¶ 21; Compl. at 5.
Recognizing that this case presents a pure question of law, the parties have filed cross-motions for summary judgment.
Federal Rule of Civil Procedure 56 provides that summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the “initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.”Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). To defeat summary judgment, the nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324, 106 S.Ct. 2548 (internal quotation marks omitted).
The existence of a factual dispute is insufficient to preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is “genuine” only if a reasonable fact-finder could find for the nonmoving party; a fact is “material” only if it is capable of affecting the outcome of the litigation. Id. at 248, 106 S.Ct. 2505 ; Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C.Cir.1987). In assessing a party's motion, the court must “view the facts and draw reasonable inferences ‘in the light most favorable to the party opposing the summary judgment motion.’ ”
Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (alterations omitted), quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) (per curiam).
In cases where there are cross-motions for summary judgment, “neither party waives the right to a full trial on the merits by filing its own motion; each side concedes that no material facts are at issue only for the purposes of its own motion.” Sherwood v. Wash. Post, 871 F.2d 1144, 1147 n. 4 (D.C.Cir.1989), quoting McKenzie v. Sawyer, 684 F.2d 62, 68 n. 3 (D.C.Cir.1982).
This case presents the straightforward question of whether 26 U.S.C. § 4371(3) imposes an excise tax on retrocession insurance transactions. Plaintiff argues, among other things, that the plain language of section 4371(3) does not apply beyond the first level of reinsurance transactions. Pl.'s Mem. in Supp. of Pl.'s Mot. for Summ. J. (“Pl.'s Mem.”) at 9–12 [Dkt. # 15–2]. Defendant maintains that Congress intended to impose a tax on any and all successive levels of insurance or reinsurance obtained from a foreign issuer. Def.'s Mem. in Supp. of Def.'s Mot. for Summ. J. (“Def.'s Mem.”) at 16–19 [Dkt. # 17–2]. Both parties also raise arguments relating to whether Congress intended to impose the excise tax extraterritorially and to Executive Branch enforcement policies regarding the excise tax, as well as whether imposing the tax on plaintiff comports with international law and the Due Process Clause of the Fifth Amendment. See generally Pl.'s Mem.; Def.'s Mem. Because the Court finds that the plain language of section 4371(3) does not impose an excise tax on retrocession insurance transactions, and plaintiff is entitled to summary judgment, it need not address the parties' additional arguments.2
Section 4371 is the active taxing provision that imposes an excise tax on a variety of insurance transactions that involve a foreign insurer or reinsurer. It is undisputed that the Service invoked section 4371(3) to impose an excise tax on retrocession transactions in which plaintiff purchased insurance to cover policies...
To continue reading
Request your trial
-
CHAPTER § 5.14 Alternative Risk Transfers or Sources of Indemnification
...contract, for a consideration, the risk of loss as a result of an incident or event.")[330] Validus Reinsurance, Ltd. v. United States, 19 F. Supp.3d 225, 227 (D.D.C. 2014), aff'd on other grounds, 786 F.3d 1039 (D.C. Cir. 2015).[331] Glob. Reinsurance Corp. of Am. v. Century Indem. Co., 30......