Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-05081/USCOURTS-caDC-14-05081-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 20, 2015 Decided May 26, 2015

No. 14-5081

VALIDUS REINSURANCE, LTD.,

APPELLEE

v.

UNITED STATES OF AMERICA,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:13-cv-00109)

Ellen Page DelSole, Attorney, U.S. Department of Justice,

argued the cause for appellant. With her on the briefs were

Tamara W. Ashford, Acting Assistant Attorney General, Ronald

C. Machen, Jr., U.S. Attorney, and Gilbert S. Rothenberg and

Richard Farber, Attorneys.

Joseph R. Guerra argued the cause for appellee. With him

on the brief were Erika L. Maley, R. Lee Christie, and Tracy D.

Williams. 

M. Kristan Rizzolo was on the brief for amici curiae

International Underwriting Association of London, Ltd., et al. in

support of appellee. 

USCA Case #14-5081 Document #1553941 Filed: 05/26/2015 Page 1 of 19
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Before: ROGERS and BROWN, Circuit Judges, and

GINSBURG, Senior Circuit Judge.

Opinion for the court by Circuit Judge Rogers. 

 

Rogers, Circuit Judge: The United States appeals the grant

of summary judgment to Validus Reinsurance, Ltd., in its suit

for the refund of excise taxes imposed under 26 U.S.C. § 4371,

which taxes certain types of “reinsurance.” Validus, a foreign

reinsurer, paid the excise tax on reinsurance policies it had

purchased from other foreign reinsurance companies. The

government contends that “the best reading of the statute”

establishes its applicability to reinsurance purchased by a

reinsurer because such policies (known as “retrocessions”) are

“a type of reinsurance,” Appellant’s Br. 24, and also that

interpretation carries out Congress’s intent “to level the playing

field” between domestic (U.S.) insurance companies subject to

U.S. income taxes and foreign insurance companies that are not

so burdened, id. at 21. Validus responds that the plain text,

considered in the context of reinsurance, and the statutory

structure make clear the excise tax does not apply to

retrocessions, and further, the presumption against

extraterritoriality resolves any doubt that the tax is inapplicable

to Validus’s purchases of reinsurance from a foreign reinsurer

(i.e., to wholly foreign retrocessions). Because both parties

offer plausible interpretations, we conclude that the text of the

statute is ambiguous with respect to its application to wholly

foreign retrocessions. The ambiguity is resolved upon applying

the presumption against extraterritoriality because there is no

clear indication by Congress that it intended the excise tax to

apply to premiums on wholly foreign retrocessions. 

Accordingly, we affirm the grant of summary judgment, albeit

on narrower grounds, on Validus’s refund claims. 

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I.

Validus, a foreign corporation, both (1) sells reinsurance to

insurance companies, including insurance companies that are

incorporated in the United States or do business in the United

States, and (2) purchases reinsurance to protect itself against

losses suffered on the reinsurance policies it sells. The former,

or first-level reinsurance, is not at issue here. Rather, what is at

issue is second-level reinsurance (i.e., “retrocessions”) where the

purchase and sale of reinsurance occurs outside of the United

States between foreign reinsurance companies. Validus seeks

refunds only with respect to the excise taxes imposed on nine

reinsurance policies that it purchased from wholly foreign

insurance companies.

A.

According to the parties’ joint statement of undisputed

material facts, Validus is a corporation organized under the laws

of Bermuda with its principal place of business in Bermuda. It

is in the reinsurance business, providing insurance to insurance

companies. During the relevant period, Validus did not conduct

business in the United States. Although Validus does not itself

operate in the United States, it sells reinsurance to insurance

companies that sell policies covering risks, liabilities, and

hazards within the United States. 

Validus also buys insurance covering portions of its own

reinsurance agreements. Transactions in which a reinsurer buys

reinsurance are known as “retrocessions,” and the party selling

retrocessions is a “retrocessionaire.” Section 4371, in

subchapter A of chapter 34 of the Internal Revenue Code, taxes

premiums on certain policies of insurance and reinsurance

issued by foreign insurers. Validus paid the 2006 excise tax

under section 4371 on premiums for nine retrocessions, all

purchased from foreign retrocessionaires. These policies were

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negotiated, executed, and performed outside the United States

and are herein referred to as wholly foreign retrocessions. 

The Internal Revenue Service (“IRS”) determined that

Validus owed section 4371 excise taxes on the portions of its

2006 wholly foreign retrocessions relating to underlying U.S.

risks. Validus paid the assessed tax, with interest, and timely

filed claims for refunds under 26 U.S.C. § 6511, on the grounds

that the excise tax did not apply and, alternatively, that if it did,

then the tax was unconstitutional. When the IRS did not act on

the refund claims within six months, Validus filed suit in the

federal district court.

The district court granted summary judgment to Validus,

ruling that, under the plain text of section 4371(3), the excise tax

reached only reinsurance policies (level one), not retrocessions

(level two). Validus Reinsurance, Ltd. v. United States, 19 F.

Supp. 3d 225, 229 (D.D.C. 2014). The government contends

that the district court erred because it focused on section 4371,

the provision setting the tax rate, in isolation and as a result

“adopted an overly narrow interpretation” of the statutory term

“policy of reinsurance,” failing to give effect to other relevant

statutory text. Appellant’s Br. 27. Our review of the grant of

summary judgment is de novo. See McCormick v. District of

Columbia, 752 F.3d 980, 986 (D.C. Cir. 2014). Our

consideration of a pure legal question of statutory interpretation

is also de novo. See United States v. Wilson, 290 F.3d 347, 352

(D.C. Cir. 2002). 

B.

Section 4371 of the Internal Revenue Code provides:

There is hereby imposed, on each policy of insurance,

indemnity bond, annuity contract, or policy of

reinsurance issued by any foreign insurer or reinsurer,

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a tax at the following rates:

(1) Casualty insurance and indemnity bonds. 4

cents on each dollar, or fractional part thereof, of the

premium paid on the policy of casualty insurance or

the indemnity bond, if issued to or for, or in the name

of, an insured as defined in section 4372(d);

(2) Life insurance, sickness, and accident policies,

and annuity contracts. 1 cent on each dollar, or

fractional part thereof, of the premium paid on the

policy of life, sickness, or accident insurance, or

annuity contract; and

(3) Reinsurance. 1 cent on each dollar, or fractional

part thereof, of the premium paid on the policy of

reinsurance covering any of the contracts taxable

under paragraph (1) or (2).

26 U.S.C. § 4371 (emphasis added). This is one of four sections

in subchapter A of chapter 34 on policies issued by foreign

insurers. As relevant, section 4372 provides definitions of

“insured” and “policy of reinsurance.” Id. §§ 4372(d), (f). Two

exemptions are provided in section 4373, one for certain

amounts “effectively connected with” trade or business within

the United States and another for certain indemnity bonds. 

Section 4374 provides that liability for the excise tax is imposed

on both the purchaser and seller when not the United States or

its agencies or instrumentalities. 

Section 4371 derives from an expansion of the excise tax on

foreign insurance enacted during World War II as part of the

Revenue Act of 1942 (“1942 Act”), Pub. L. No. 77–753, § 502,

56 Stat. 798, 955–56. The text of the 1942 statute made clear

that its purpose was not only to raise revenues during a time of

tremendous strain on the national fisc, see H.R. REP. NO.

77-2333, at 1–2 (1942), but also to help U.S. insurance

companies compete with foreign insurers. The stamp tax of 4

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cents for each dollar of premium was extended beyond marine

and fire insurance policies to all kinds of insurance policies

issued to domestic entities and individual residents by foreign

insurers. Compare 26 U.S.C. § 1804 (1940), with id.

§§ 1804(a)–(b) (Supp. II 1942). Congress also, for the first

time, subjected reinsurance policies to the tax. Compare id.

§ 1804 (1940), with id. § 1804(c) (Supp. II 1942). The 1942 Act

exempted from the tax policies “signed or countersigned by an

officer or agent of the reinsurer in a State, Territory, or District

of the United States within which such reinsurer is authorized to

do business.” Id. § 1804(c) (Supp. II 1942); see also id.

§§ 1804(a)–(b) (Supp. II 1942). In other words, the excise tax

did not apply when insurance premiums were subject to U.S.

income taxes, see Neptune Mut. Ass’n, Ltd. of Berm. v. United

States, 862 F.2d 1546, 1549 (Fed. Cir. 1988); 61 CONG. REC.

7180–81 (1921) (discussing the predecessor to § 1804), an

exemption carried forward in current section 4373(1). As the

1942 House Committee Report explains, the excise tax thereby

“eliminate[s] an unwarranted competitive advantage now

favoring foreign insurers.” H.R. REP. NO. 77-2333, at 61; see

also 61 CONG. REC. 7180–81.

II.

“The plainness or ambiguity of statutory language is

determined by reference to the language itself, the specific

context in which that language is used, and the broader context

of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S.

337, 341 (1997). 

A.

At first glance, the plain text of section 4371 appears to

extend the reach of the IRS Commissioner to any casualty and

life insurance policy issued by a foreign insurer anywhere in the

world. Read in conjunction with the statutory definitions,

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however, section 4371’s reach is more modest. Applying the

definition of an “insured,” paragraph (1) of section 4371 taxes

premiums paid on casualty insurance and indemnity bonds

issued by foreign insurers to domestic entities or individual

residents “against, or with respect to, hazards, risks, losses, or

liabilities wholly or partly within the United States,” see 26

U.S.C. § 4372(d)(1); it also taxes premiums paid on such

policies issued to nonresident individuals and foreign entities

“engaged in a trade or business within the United States,” see id.

§ 4372(d)(2). Paragraph (2) taxes only those policies of life,

sickness, or accident insurance, or annuity contracts “made,

continued, or renewed with respect to the life or hazards to the

person of a citizen or resident of the United States.” See id.

§ 4372(e). Paragraphs (1) and (2) thus tax only policies issued

to persons with residence in, or commercial connections to, the

United States, with regard to U.S.-based risks and liabilities.

Paragraph (3) taxes premiums paid on reinsurance policies

“covering” such contracts. Id. § 4371(3). Section 4372 defines

a “policy of reinsurance” to include “any . . . instrument . . .

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). This

statutory definition fits awkwardly into paragraph (3): section

4371(3) apparently taxes any “policy of reinsurance” issued with

respect to U.S.-based risks and liabilities covered by a contract

taxable under paragraph (1) or (2), covering a contract taxable

under paragraph (1) or (2). This apparent redundancy is the

focus of the parties’ dispute. 

The parties offer two plausible interpretations of section

4371(3) based on the plain text; one would tax wholly foreign

retrocessions, and the other would not. “Cover,” the

government points out, may be defined as “to put, lay, or spread

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something over, on, or before (as for protecting . . .),” “to afford

protection or security to,” “to afford protection against or

compensation or indemnification for,” or to “defray the cost of.” 

WEBSTER’S THIRD INTERNATIONAL DICTIONARY OF THE

ENGLISH LANGUAGE UNABRIDGED 524 (1993) (“WEBSTER’S”);

see Appellant’s Br. 27–28. The retrocessionaire “covers” the

risks insured under the original policy, the government

maintains, because the risk of loss is “passed up the insurance

chain” from the insured to the insurer, to the reinsurer, and

finally to the retrocessionaire. Appellant’s Br. 29. Thus,

“[r]etrocessions . . . lie over and protect against the risks covered

under the original insurance policy.” Id. at 28. Further, “the

retrocessionaire ‘affords protection or security to’ the original

ceding company and the original policy holder by effectively

increasing the reserves of the original insurer.” Id. at 30. 

Validus responds that the only relevant definition of

“cover” in the insurance context is “to ‘afford protection against

or compensation or indemnification for.’” Appellee’s Br. 15–16

(quoting WEBSTER’S, supra, at 524). The plain text of section

4371(3) “imposes tax on reinsurance contracts that cover other

contracts, not specified risks.” Appellee’s Br. 11. “[U]nder

well-settled rules of privity in reinsurance law,” Validus

explains, the wholly foreign retrocessions “provide indemnity

only to Validus, for its liability under the first-level reinsurance

policies it issues to direct insurers.” Id. at 10. Section 4371(3)

therefore does not tax Validus’s wholly foreign retrocessions,

Validus concludes, because the retrocessions do not directly

indemnify Validus’s policyholders against, and therefore do not

cover, the contracts those policyholders sold to the original

insured parties — in other words, they do not cover the contracts

taxable under paragraphs (1) and (2).

Neither party demonstrates that the word “covering,”

standing alone, unambiguously should be interpreted according

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to that party’s preferred meaning. The government’s attempt to

define “cover” as “to lie over” cannot be supported in the

insurance context. The definition of “cover” as “to lie over”

refers to one physical object covering another, see WEBSTER’S,

supra, at 524; “cover” has a different meaning when used to

refer to an insurance policy, see id. An out-of-context definition

is no use to a party in support of its interpretation. See Sw.

Airlines Co. v. Transp. Sec. Admin., 554 F.3d 1065, 1069–70

(D.C. Cir. 2009); see also Brown v. Gardner, 513 U.S. 115,

117–18 (1994). On the other hand, Validus has not

demonstrated that “covering” could mean only “directly

indemnifying or compensating for.” The relevant definition of

“cover” includes “to afford protection against or compensation

or indemnification for.” WEBSTER’S, supra, at 524. A

retrocession indirectly “affords protection against or

compensation for” an original insurer’s contract with its

policyholder. See Transcon. Underwriters Agency, S. R. L. v.

Am. Agency Underwriters, 680 F.2d 298, 299 n.2 (3d Cir. 1982). 

The reinsurer “assigns” to the retrocessionaire “all or a portion

of the risk which [the reinsurer] reinsures.” See id. Validus

points to authorities indicating that most retrocessions do not

directly indemnify the original insurer for any losses or give the

original insurer any claim against the retrocessionaire. See

Travelers Indem. Co. v. Scor Reinsurance Co., 62 F.3d 74, 76

(2d Cir. 1995); China Union Lines, Ltd. v. Am. Marine

Underwriters, Inc., 755 F.2d 26, 30 (2d Cir. 1985);

REINSURANCE 9, 20 (Robert W. Strain ed., rev. ed. 1997); H.

ERNEST FEER, APPROACH TO REINSURANCE 10–11 (1951);

Douglas R. Richmond, Reinsurance Intermediaries: Law and

Litigation, 29 U. HAW. L. REV. 59, 59 (2006). Even though

these sources show that some retrocessions do not directly cover

the contracts described in paragraphs (1) and (2), they do not

resolve whether Congress intended “covering” as used in

paragraph (3) to mean only “directly covering” or “directly and

indirectly covering.”

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Looking beyond the dictionary definition of “cover[ing],”

the statutory context does not resolve the interpretation of

section 4371(3). The statutory definition of “policy of

reinsurance” supports a broad application of the excise tax under

section 4371(3). The definition extends, not to policies

“covering” other insurance contracts, but to policies “made . . .

with respect to” U.S.-based “hazards, risks, losses, or liabilities”

covered by another insurance contract. 26 U.S.C. § 4372(f). 

Even if a retrocession triggered, ultimately, by a U.S.-based loss

does not directly “cover” the original contract insuring that loss,

it has been made “with respect to” such a loss. See XIII THE

OXFORD ENGLISH DICTIONARY 732 (2d ed. 1989) (defining

“with respect” as “with reference or regard to something”

(emphasis omitted)); cf. Coregis Ins. Co. v. Am. Health Found.,

241 F.3d 123, 128–29 (2d Cir. 2001). Validus responds that the

“sweeping interpretation” urged by the government is

“foreclosed by the statute’s structure”: “The interplay of the

statute’s definition of ‘reinsurance’ and its tax-imposing

language shows that Congress defined reinsurance broadly to

encompass all policies that relate to underlying U.S. risks, but

taxed only those policies that ‘cover’ casualty and life insurance

policies.” Appellee’s Br. 11. 

Indeed, to interpret paragraph (3) to impose the excise tax

on all policies of reinsurance issued with respect to risks covered

by a contract taxable under paragraph (1) or (2) would be to read

the “covering” clause out of the statute. As courts have long

acknowledged, “[i]t is our duty to give effect, if possible, to

every clause and word of a statute.” United States v. Menasche,

348 U.S. 528, 538–39 (1955) (citation and internal quotation

marks omitted). But “such maxims, while often providing

useful assistance in interpretation, do not always offer

conclusive resolution of statutory ambiguities.” United States

v. Stewart, 104 F.3d 1377, 1387 (D.C. Cir. 1997); see Marx v.

Gen. Revenue Corp., 133 S. Ct. 1166, 1177 (2013); Lamie v.

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U.S. Trustee, 540 U.S. 526, 536 (2004); United States v.

Hansen, 772 F.2d 940, 946–47 (D.C. Cir. 1985) (Scalia, J.). 

This is such a case.

Exempting retrocessions is contrary to a stated

congressional purpose that is apparent from the statutory text

and context. By providing an exemption in section 4373(1),

Congress imposed the excise tax only on the business of

insurance companies not already subject to a U.S. income tax. 

Section 4371, together with section 4373(1), thus operates to

level the playing field between domestic and foreign insurance

and reinsurance businesses. Validus’s interpretation would

create a distinction that limits Congress’s leveling purpose: The

excise tax would not apply where a U.S. reinsurance company

purchases a retrocession from a foreign insurer. Because a

retrocession is merely another kind of reinsurance, i.e.,

“reinsurance for reinsurers,” REINSURANCE, supra, at 19,

Validus’s interpretation of paragraph (3) would create a

distinction between retrocessions and reinsurance issued by

foreign entities to domestic insureds that would be at odds with

a clear purpose of the statute. See United States v. Ron Pair

Enters., 489 U.S. 235, 242–43 (1989); Am. Tobacco Co. v.

Patterson, 456 U.S. 63, 71 (1982). Just as courts are obligated

to avoid construing statutes to create superfluities when

possible, so too must they avoid statutory interpretations that

“bring about an anomalous result” when other interpretations are

available. Stewart, 104 F.3d at 1388 (citing United States v.

Bergh, 352 U.S. 40, 45 (1956)).

Because both parties offer plausible interpretations based on

different readings of the statutory text, we conclude the text of

section 4371 is ambiguous with regard to its application to

wholly foreign retrocessions. This statutory ambiguity is

resolved by the presumption against extraterritoriality.

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B.

“It is a longstanding principle of American law ‘that

legislation of Congress, unless a contrary intent appears, is meant

to apply only within the territorial jurisdiction of the United

States.’” EEOC v. Arabian Am. Oil Co. (“Aramco”), 499 U.S.

244, 248 (1991) (quoting Foley Bros., Inc. v. Filardo, 336 U.S.

281, 285 (1949)). The Supreme Court has instructed that a court

must presume that a statute has no extraterritorial application

“‘unless there is the affirmative intention of the Congress clearly

expressed’ to give a statute extraterritorial effect.” Morrison v.

Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010) (quoting

Aramco, 499 U.S. at 248). Neither party maintains that

retrocessions between wholly foreign parties are not

extraterritorial, and the extraterritoriality of the retrocessions at

issue is evident from the parties’ joint stipulation of material

facts. In looking, then, to the statutory text, context, purpose,

and legislative history for a “clear indication” of Congress’s

intent, Morrison, 561 U.S. at 265; see Kiobel v. Royal Dutch

Petroleum Co., 133 S. Ct. 1659, 1665–68 (2013); Foley Bros.,

336 U.S. at 285–88, the court necessarily avoids any case-bycase attempt to “divin[e] what Congress would have wanted if it

had thought of the situation before the court” so as to “preserv[e]

a stable background against which Congress can legislate with

predictable effects,” Morrison, 561 U.S. at 261 (footnote

omitted). The government has identified no clear indication by

Congress that it intended the excise tax to apply to wholly

foreign retrocessions, and we have found none.

Validus has not challenged the application of the excise tax

to the sale of reinsurance to a U.S. insurance corporation or a

foreign insurance corporation doing business in the United

States. See Appellee’s Br. 5–6 (citing American Bankers Ins.

Co. of Fla. v. United States (“American Bankers II”), 388 F.2d

304, 305 (5th Cir. 1968)). The government interprets the plain

text to rebut the presumption against extraterritorial effect

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because it views the excise tax to have only extraterritorial effect,

applying solely to transactions not “effectively connected with

the conduct of a trade or business within the United States,” 26

U.S.C. § 4373(1), and involving a foreign insurance company. 

But even if the excise tax applies to premiums paid by a U.S.

insured to a foreign insurer or reinsurer, that does not resolve the

issue presented by Validus’s refund claims.

The government does not confront the Supreme Court’s

direction that “when a statute provides for some extraterritorial

application, the presumption against extraterritoriality operates

to limit that provision to its terms,” Morrison, 561 U.S. at 265. 

 The wholly foreign retrocessions at issue are materially different

from the reinsurance contracts in which there is privity of

contract between the foreign reinsurer and a domestic (U.S.)

individual or entity, or entity doing business in the United States. 

Applying the excise tax to retrocessions between wholly foreign

insurers would extend the extraterritorial reach of section 4371

by allowing the tax to compound into perpetuity with the

creation of every new reinsurance contract after the first-level

reinsurance contract, despite the absence of a contractual or other

legal relationship with any U.S. entity. “Under this ‘cascading

tax’ theory, there is no limit to the number of times the United

States can collect excise tax on retrocessions, provided they can

ultimately be traced back, through any number of intermediate

contracts, to U.S.-based risks.” Appellee’s Br. 7. Although

government counsel stated during oral argument that the tax is

unlikely to compound to exceed the amount a U.S. reinsurer

would have to pay in U.S. income taxes, the possibility of a

“cascading” tax so attenuated from any U.S. entity or entity

conducting business in the United States nevertheless

differentiates the tax the government proposes from that clearly

authorized under section 4371. “[C]ourts must find clear and

independent textual support — rather than relying on mere

inference — to justify the nature and extent of each statutory

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application abroad.” Keller Found./Case Found. v. Tracy, 696

F.3d 835, 845 (9th Cir. 2012) (citing Morrison, 561 U.S. at 265).

The government maintains that section 4371(3) should be

interpreted broadly in view of the imposition of the tax “on each

policy of insurance . . . or policy of reinsurance issued by any

foreign insurer,” 26 U.S.C. § 4371 (emphasis added). Yet

Congress’s use of the words “each” and “any” is not a clear

expression of its intent to assert extraterritorial jurisdiction. In

Kiobel, the Supreme Court rejected an extraterritorial application

of the Alien Tort Statute based on such language: “Nor does the

fact that the text reaches ‘any civil action’ suggest application to

torts committed abroad; it is well established that generic terms

like ‘any’ or ‘every’ do not rebut the presumption against

extraterritoriality.” 133 S. Ct. at 1665 (citations omitted); see

also United States v. Ali, 718 F.3d 929, 935 (D.C. Cir. 2013). 

The text remains ambiguous; although the government’s

interpretation is plausible, plausibility does not rebut the

presumption against extraterritoriality. See Aramco, 499 U.S. at

250–51; see also Morrison, 561 U.S. at 264.

Nor is the court persuaded that the statutory text, viewed in

context, unambiguously directs the tax on foreign insurance

policies to follow the U.S.-based risk, as the government

contends. The definition of “policy of reinsurance” includes any

policy “made . . . with respect to” U.S.-based “hazards, risks,

losses, or liabilities.” 26 U.S.C. § 4372(f). In the 1942 Act, the

excise tax was imposed directly “[o]n each policy of

reinsurance” issued by a foreign party “with respect to[] any of

the hazards, risks, losses, or liabilities covered by contracts

described.” Id. § 1804(c) (Supp. II. 1942). When Congress

“rearrange[d]” and “simplif[ied]” the excise tax in 1954, S.REP.

NO. 83-1622, at 482 (1954) — expanding the definition section

and adding the exemption section and the paragraph (3)

“covering” clause, see Internal Revenue Code of 1954 (“1954

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Act”), Pub. L. No. 83–591, 68A Stat. 1, 521–24 — the

committee reports state that Congress did not intend any

substantive changes. See S.REP.NO. 83-1622, at 482; H.R.REP.

NO. 83-1337, at A325 (1954). Since the 1954 Act, the excise tax

provision has no longer taxed “each policy of reinsurance . . .

made . . . with respect to” certain risks, 26 U.S.C. § 1804(c)

(Supp. II. 1942), only “each . . . policy of reinsurance . . .

covering” certain contracts, id. § 4371(3) (2012). To the extent

the principle “follow the risk” underlay the 1942 Act, after the

1954 Act that is no longer certain. 

Moreover, even if the 1942 Act had remained unchanged,

the text of the 1942 Act did not contain a clear indication that

Congress intended to tax wholly foreign retrocessions. In New

York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Insurance Co., 514 U.S. 645, 655 (1995), the Supreme

Court refused “to extend” the term “relate to” “to the furthest

stretch of its indeterminacy” to overcome the presumption

against federal preemption of state law. Similarly, here, the

breadth of the phrase “with respect to” does no more to rebut the

presumption against extraterritoriality than do expansive words

like “each” and “any.”

Nor does the legislative history of the excise tax supply a 

clear indication that Congress intended the broad interpretation

urged by the government. The current version of the tax evolved

from an excise tax on property insurance sold by foreign insurers

to U.S. residents or corporations. See 26 U.S.C. § 1804 (1940). 

That tax excluded reinsurance and thus could not have applied to

any reinsurance transaction between two foreign insurers, much

less a retrocession. Reinsurance was added when Congress

amended the excise tax in the 1942 Act. See 56 Stat. at 955–56. 

The legislative history is limited. The House Committee Report

states: “It is believed that the revised provision will yield an

appreciable amount of revenue, and at the same time eliminate

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an unwarranted competitive advantage now favoring foreign

insurers.” H.R. REP. NO. 77-2333, at 61. In Senate Committee

hearings, a representative of the House of Representatives Office

of Legislative Counsel testified that “[t]he attempt here is to

equalize the situation between domestic corporations engaged in

casualty and other kinds of insurance and foreign corporations

where the insurance is taken out in the United States but the

policy is countersigned abroad.” Hearings on H.R. 7378 Before

the S. Comm. on Finance (“Hearings on H.R. 7378”), 77th Cong.

121 (1942) (statement of John O’Brien).

This history does not evince an unambiguous congressional

intent to apply the excise tax to wholly foreign retrocessions, and

some of it points the other way. Because the Internal Revenue

Code of 1939 did not apply the excise tax to reinsurance, it is

unlikely that Congress intended, without comment, to adopt the

expansive interpretation of the 1942 tax that the government

maintains was carried forward in the 1954 reorganization. This

court has been skeptical of finding major changes in legislation

that have passed unremarked upon in the legislative history. See,

e.g., Lamont v. Haig, 590 F.2d 1124, 1129–30 & n.34 (D.C. Cir.

1978); Laborers’ Int’l Union Local Union No. 1057 v. NLRB,

567 F.2d 1006, 1012–13 & n.41 (D.C. Cir. 1977). The only

relevant indication of Congress’s intent in the legislative history

of the 1942 Act is the testimony from the House Office of

Legislative Counsel that the excise tax was intended to reach

“insurance . . . taken out in the United States,” Hearings on H.R.

7378, supra, at 121 (statement of John O’Brien) (emphasis

added).

Even assuming that applying the excise tax as broadly as

possible would serve Congress’s purposes to “yield an

appreciable amount of revenue, and at the same time eliminate

an unwarranted competitive advantage now favoring foreign

insurers,” H.R. REP. NO. 77-2333, at 61, those purposes are

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served by taxing first-level reinsurance, as well as retrocessions

purchased by U.S. parties. To conclude that Congress also

intended a more expansive application of the tax to wholly

foreign retrocessions would require more than general and

generic statements of purpose, which enable the court to do only

what the Supreme Court has instructed against: attempt to

“divin[e] what Congress would have wanted if it had thought of

the situation before the court,” Morrison, 561 U.S. at 261. 

“‘[N]o legislation pursues its purposes at all costs,’” and “[t]he

task of statutory interpretation cannot be reduced to a mechanical

choice in which the interpretation that would advance the

statute’s general purposes to a greater extent must always

prevail.” United States ex rel. Totten v. Bombardier Corp., 380

F.3d 488, 495 (D.C. Cir. 2004) (quoting Student Loan Mktg.

Ass’n v. Riley, 104 F.3d 397, 408 (D.C. Cir. 1997)); see also

Lamont, 590 F.2d at 1130. The presumption against

extraterritoriality gives this principle particular force.

For the first time, the government on appeal seeks the

benefit of judicial deference under Chevron U.S.A. Inc. v.

Natural Resources Defense Fund, 467 U.S. 837 (1984), to the

U.S. Treasury Department’s interpretation of the excise tax. 

Even assuming this argument is properly before the court, but

see Prime Time Int’l Co. v. Vilsack, 599 F.3d 678, 686 (D.C. Cir.

2010), and that after Morrison the presumption against

extraterritoriality leaves room for such deference, but see Liu

Meng-Lin v. Siemens AG, 763 F.3d 175, 182 (2d Cir. 2014), the

argument is unavailing. To accord deference requires some

indication that the agency has considered the effect of the

presumption against extraterritoriality, see Morrison, 561 U.S.

at 272–73; Keller Found./Case Found., 696 F.3d at 846, and the

government references none with respect to the administrative

rulings on which it relies.

The government also urges the court to construe section

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4371 to align with the holdings in United States v.

Northumberland Insurance Co., 521 F. Supp. 70 (D.N.J. 1981),

and American Bankers Insurance Co. of Florida v. United States

(“American Bankers I”), 265 F. Supp. 67 (S.D. Fla. 1967), aff’d

sub nom. American Bankers II, 388 F.2d 304. But these cases

are either factually distinguishable or lack persuasive force with

respect to the presumption against extraterritoriality. In

Northumberland, the district court upheld the excise tax as

applied to premiums paid on reinsurance and retrocessions issued

to an Australian insurance company by a Swiss company. 521

F. Supp. at 73–75. Not only was the court presented with

different textual arguments than those made here, see id. at 76,

the court did not address the presumption against

extraterritoriality and gave “considerable” deference to the same

Treasury rulings on which the government now relies, id. at 77

— deference that is inappropriate absent consideration of the

presumption. American Bankers I and II similarly do little to

advance the government’s interpretation. Those cases addressed

whether section 4371(3) applied to policies of reinsurance

purchased by domestic insurers from foreign reinsurers —

policies of a type not at issue in the instant case. American

Bankers I, 265 F. Supp. at 72. In fact, the Fifth Circuit rejected

the interpretation that the tax applied only to policies purchased

by foreign insurers from foreign reinsurers because that

interpretation would have caused section 4371(3) to have only

extraterritorial effect. Referencing “problems of the reach of

congressional taxing power” and “extraordinary problems of tax

administration,” that court “decline[d] to follow literalism so

literally to ascribe such an intent to Congress.” American

Bankers II, 388 F.2d at 305. This holding is in obvious tension

with the government’s interpretation of section 4371 here.

Upon considering the sources of statutory meaning, we

conclude that under “the most faithful reading of the text,”

Morrison, 561 U.S. at 265 (citation and internal quotation marks

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omitted), section 4371 does not apply to Validus’s wholly

foreign retrocessions. Section 4371 is ambiguous with respect

to its application to wholly foreign retrocessions. Neither the

text, context, purpose, nor legislative history provide a clear

indication of congressional intent to rebut the presumption

against such expansive extraterritorial application. Accordingly,

we affirm the grant of summary judgment, albeit on narrower

grounds, to Validus on its refund claims. 

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