Learn About the Law
Get help with your legal needs
FindLaw’s Learn About the Law features thousands of informational articles to help you understand your options. And if you’re ready to hire an attorney, find one in your area who can help.
Mr. Alfred A. Wheat, of New York City, and The Attorney General, for the United States.
Mr. Abram R. Serven, of Washington, D. C., for appellee.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Appellee a domestic corporation, carries on the business of issuing fire and marine insurance policies in Massachusetts, New York, and elsewhere. It sued to recover $8,755.92, exacted as income tax for 1916 ( Act Sept. 8, 1916, 39 Stat. 756 (Comp. St. 6336a et seq.)), and maintains that the addition made during the year to its reserve funds, 'in the amount and on account of its liabilities for unsettled loss claims,' as [269 U.S. 197, 198] required by the superintendent of insurance for New York, should have been deducted from gross income in order to determine the net sum subject to taxation. The amount of the deduction claimed was ascertained by subtracting $775,900.10, the reserve for loss claims on December 31, 1915, and required as condition precedent to doing business within New York during the following year, from $1,336,578.53, the amount necessary therefor during 1917
The Revenue Act of 1916 levied an annual tax upon the net income received during the preceding year by domestic insurance companies, and provided:
During 1915, 1916, and 1917, as a condition precedent to the right to do insurance business in the state, the New York superintendent of insurance required the following reserves:
'Stock, Fire and Marine Insurance Companies-
'Stock, Casualty, Surety and Credit Insurance Companies-
The superintendent did not direct that funds to meet liabilities should be kept separate and distinct from other assets. They were specified by book entries as (1) reserves to meet liabilities for unearned premiums; (2) unpaid loss claims; and (3) all other outstanding liabilities, due or accrued. He required all companies to keep on hand sufficient assets to meet every liability.
The opinion of the Court of Claims (58 Ct. Cl. 603) states:
Following Maryland Casualty Co. v. United States, 251 U.S. 342, 350 , 40 S. Ct. 155, 158, that court held the 'loss claims item' was a 'net addition' required by law to be made to 'reserve funds' within the meaning of the act of 1916 and gave judgment for the appellee.
We think McCoach v. Insurance Co. of North America, 244 U.S. 585, 589 , 37 S. Ct. 709, 710, is conclusive of the issue here presented; and appellee's claim must be denied. There a fire [269 U.S. 197, 201] and marine insurance company sought to recover the tax assessed upon the addition during the year to 'reserve funds' held against accrued but unpaid losses. Through Mr. Justice Pitney this court said:
It follows from McCoach v. Insurance Co. that the permitted deductions specified by section 12, Act 1916, do not necessarily include anything which may be denominated 'reserve fund' by state statute or officer. We there distinctly ruled that the 'reserve fund' of the federal act did not include something held by a fire and marine insurance company to cover accrued, but unsettled, claims for losses. We adhere to and reaffirm that doctrine. How far it must be modified, if at all, in respect of insurance companies which issue casualty, surety, or liability policies, or similar obligations, is not now before us.
Our opinion in Maryland Casualty Co. v. United States contains the following passage:
Upon a re-examination of the record, it becomes plain that we misapprehended the opinion and ruling of the lower court; also that the reason advanced to support our conclusion is insufficient. The Commissioner of Internal Revenue had refused to allow the deduction claimed because of addition to the reserve for unpaid loss claims (except liability claims-the net addition to which reserve was allowed). The Court of Claims, in a perplexing opinion approved the Commissioner's action. The finding that the insurance department of Pennsylvania pursuant to statute, had at all times since and including 1909 required claimant to keep on hand, as a condition of doing business in the state, 'assets as reserves sufficient to cover outstanding losses,' without more, was not sufficient to justify the deduction of the reserve as one required by law to be maintained, within the meaning of the act of Congress. This had been announced by McCoach v. Insurance Co.
The Maryland Casualty Company's Case involved many items of complicated returns and reassessments. The record is confused, but the findings supply no adequate ground for any holding contrary to the general doctrine which we had theretofore approved. The principal business of the company was employers' liability, accident, and workmen's compensation insurance, and it may be that considering certain state statutes, practice and general understanding, the term 'reserve fund' when used relative to the affairs of such a company should be given broader significance than when it refers only to fire and marine insurance. But if relied upon these things should be shown. [269 U.S. 197, 204] Appellee's claim is not well founded, and the judgment of the Court of Claims must be
Reversed.
A free source of state and federal court opinions, state laws, and the United States Code. For more information about the legal concepts addressed by these cases and statutes visit FindLaw's Learn About the Law.
Citation: 269 U.S. 197
Docket No: No. 29
Argued: October 09, 1925
Decided: November 23, 1925
Court: United States Supreme Court
Search our directory by legal issue
Enter information in one or both fields (Required)
Harness the power of our directory with your own profile. Select the button below to sign up.
Learn more about FindLaw’s newsletters, including our terms of use and privacy policy.
Get help with your legal needs
FindLaw’s Learn About the Law features thousands of informational articles to help you understand your options. And if you’re ready to hire an attorney, find one in your area who can help.
Search our directory by legal issue
Enter information in one or both fields (Required)