Attorneys for Appellant

Pamela Carter

Attorney General of Indiana

Brian D. Scott

Deputy Attorney General

Indianapolis, IN	46204-2770

Attorneys for Appellees

Stephen H. Paul

Brian S. Fennerty

Baker & Daniels

Indianapolis, IN	46204

	IN THE

	INDIANA SUPREME COURT

INDIANA DEPARTMENT OF STATE

REVENUE, 

	Appellant (Respondent Below),

	v.

ASSOCIATED INSURANCE

COMPANIES, INC. and SUBSIDIARIES,

	Appellees (Petitioners Below).

)	

)	

)

)	

)	Supreme Court No.

)	49T10-9405-TA-00152

)

)

)

)

)

	APPEAL FROM THE INDIANA TAX COURT

	The Honorable Thomas G. Fisher, Judge

	Cause No. 49T10-9405-TA-00152

	ON  PETITION  FOR  REVIEW

SULLIVAN,  Justice, dissenting.

	The Indiana Tax Court has held that a special tax credit provided by the insurance

code to members of the Indiana Comprehensive Health Insurance Association (“ICHIA”) may be used to reduce the tax liability not only of ICHIA members but also of affiliated

corporations.  Associated Ins. Cos., Inc. v. Indiana Dep’t of State Revenue, 655 N.E.2d 1271 (Ind. Tax 1995).  Our Court has denied the State Revenue Department’s request to review

the Tax Court’s decision.  I respectfully dissent.

	The Indiana Comprehensive Health Insurance Association is a highly specialized

health insurance provider.  It was created by the legislature (not the private sector) in 19811 for the essential purpose of providing health insurance coverage for certain Hoosiers who

have proved to be high insurance risks.  Indiana Comprehensive Health Ins. Ass’n v. Dye, 531 N.E.2d 505, 506 (Ind. Ct. App. 1988).  The basic eligibility requirements for ICHIA

coverage are that the prospective insured be an Indiana resident, not have any current health

insurance coverage, and have been rejected for standard health insurance coverage by two

private health insurers.  Ind.Code § 27-8-10-2(a) & 5(a); Dye, 531 N.E.2d at 506.  Once these conditions are met, ICHIA cannot reject an application.  Ind.Code § 27-8-10-5(a);

Dye, 531 N.E.2d at 506.  After a policy has been issued, ICHIA is obligated to renew the policy until the insured becomes eligible for Medicare coverage and may not increase

premiums except on a class basis after full disclosure.  Ind.Code § 27-8-10-6.

	The statute mandates that, as a condition of writing health insurance in Indiana, each

health insurance carrier is required to be a “member” of ICHIA, Ind. Code § 27-8-10-2(a);

and to pay annual assessments to ICHIA (in proportion to each carrier’s Indiana business)

in order to cover ICHIA losses during the preceding calendar year, Ind. Code § 27-8-10-

2(g).  The statute provides that each “member” of ICHIA is entitled to:

[T]ake a credit against premium taxes, gross income taxes, adjusted gross

income taxes, or any combination of them, or similar taxes upon revenue or

income of member insurers that may be imposed by Indiana, up to the amount

of taxes due for each calendar year in which the assessments were paid and

for succeeding years until the aggregate of those assessments have been offset

by either credits against those taxes or refunds from the association.

Ind.Code § 27-8-10-2(n)(i).2  Member insurers are provided with a “state action” exemption from anti-trust liability with respect to their participation in ICHIA.  Ind.Code § 27-8-10-8.

	As such, the legislature has mandated a highly specialized health insurance program

for otherwise uninsurable Hoosiers.  Indiana health insurers provide the cash flow for

underwriting the ICHIA program but, because of the credit or offset provision, the insurers

are reimbursed for their outlays3 and the ultimate losses sustained by the program are born by the state general fund.4

	At the times relevant, Associated Insurance Companies, Inc. ("Associated"), and

Health Maintenance of Indiana ("HMI"), a wholly-owned subsidiary of Associated, were

health insurance carriers and, as such, members of ICHIA.  For state gross income tax

purposes, Associated and its subsidiaries (including HMI) constituted a single affiliated

group under Ind. Code § 6-2.1-5-5(a)(1982) and filed a consolidated gross income tax return

under Indiana Code § 6-2.1-5-5(b)(1982).  Central to this case is the undisputed fact that

some of Associated's subsidiaries other than HMI were not health insurance carriers and so

not members of ICHIA.  In tax years 1986, 1987, and 1988, the ICHIA assessments paid by

Associated and HMI exceeded the gross income tax liability attributable to those two

entities.  Associated and its subsidiaries claimed the assessments as a credit against the total

tax liability on the consolidated returns, thereby utilizing ICHIA assessments to offset the

tax liability generated by non-ICHIA members. 

	In auditing the returns for those years, the Department of State Revenue disallowed the ICHIA credit to the extent it exceeded the tax liability attributed to Associated and HMI,

finding the credit could not be applied to the tax liability of non-ICHIA members in the

group.  Associated and subsidiaries appealed to the Tax Court.  The parties agreed that there

was no genuine issue as to any material fact and filed cross-motions for summary judgment. 

The Tax Court entered summary judgment in favor of Associated and subsidiaries, reversing

the determination of the Department.  Associated Ins. Cos., 655 N.E.2d at 1276.

	The Department petitioned this Court for review of the Tax Court's decision.  A

majority of the members of this Court have voted to deny the Department's petition for

review.  I respectfully dissent for two reasons.

	I

	Regardless of our ultimate outcome on the merits, I think the particular subject matter

of this case warrants review.  While "[t]his Court extends cautious deference to decisions

within the special expertise of the Tax Court," Indiana Dept. of State Revenue v. Safayan, 654 N.E.2d 270, 272 (Ind. 1995), absolutely central to the resolution of this dispute is

interpreting provisions of the Indiana insurance code.  While this case is clearly within the

exclusive jurisdiction of the Tax Court, see generally State v. Sproles, 672 N.E.2d 1353, 1356 (Ind. 1996), I cannot attribute to the Tax Court "special expertise" in the interpretation

of the insurance code.  It seems to me that where a legal determination on an issue not involving the tax code is central to a Tax Court decision, this Court's standard of review

should be no different than it would be of a determination of the same issue by any other

Indiana court.  Here an issue of insurance law was central to the Tax Court's determination. 

Accordingly, although the summary judgment is clothed with a presumption of validity and

the appealing party bears the burden of persuasion, we should follow our standard practice

in reviewing summary judgments entered by courts below,5 rather than extending the judgment “cautious deference.” 

	II

	At this stage of the proceedings, neither party has fully briefed or argued its position

on the merits to this Court.  See Ind. Appellate Rule 18(E) (providing for the filing of preliminary briefs in support of and opposition to petitions for review).  However, my

review of the papers filed both in our Court and in the Tax Court lead me to believe that the

prospects for the Department's success on the merits are sufficient to warrant granting the

petition for review and allowing the case to proceed to full briefing and argument.   

	First, the ICHIA statute provides that credits for ICHIA assessments may be taken

against  "taxes upon revenues or income of member insurers."  Ind. Code § 27-8-10-2(n)(i) (emphasis supplied).  The effect of the Tax Court decision is to extend the tax credit beyond

"member insurers" to non-ICHIA members that happen to be a part of an affiliated group

filing a consolidated tax return with an ICHIA member.  The legislature has not provided for

extending ICHIA assessment credits to member insurers’ corporate brothers and sisters that

are not in the health insurance business at all; the Tax Court’s conclusion that the statute

does so warrants review.

	Second, and more important, even a relatively cursory review of the ICHIA statute

makes clear that, while using the words “tax credit,” this is no conventional tax credit

program.  Rather, in the words of our Court of Appeals, its “essential purpose is to provide

health insurance coverage for certain high risk individuals.”  Dye, 531 N.E.2d at 506.  Health insurers are required to be members of ICHIA.  They are required to pay assessments to underwrite ICHIA’s costs.  But because the legislature has determined that participation

in ICHIA is to be a “wash” for member insurers, those insurers are entitled to reimbursement

for their assessments from the state general fund.  The mechanism for such reimbursement

is claiming a dollar-for-dollar “credit” or “offset” against “taxes upon revenues or income

of member insurers that may be imposed by Indiana,” up to each respective insurer’s total

liability for that year and then carried over until the insurer has been reimbursed in full.  

The legislature’s intent here is to provide reimbursement for mandated expenditures to those so mandated, not tax benefits to either those mandated or members of those mandated’s

corporate family.

	This is made clear, I think, if we contrast a conventional tax credit.  I use the example

of the Historic Rehabilitation Credit, Ind.Code § 6-3.1-16-1 et seq. (1993), but there are many others.6  In contrast to the ICHIA program where the ICHIA assessments are manda tory, participation in the historic rehabilitation program is optional — the historic rehabilita tion statute provides a tax credit to taxpayers who elect to complete the preservation or

rehabilitation of historic property.  Ind.Code § 6-3.1-16-7 (1993).  In contrast to the ICHIA

program where there is no statutory limit on the amount of ICHIA assessments that may be

recouped in a single year, the historic rehabilitation statute limits the dollar amount of the

credit that can be claimed in any one year.  Ind.Code § 6-3.1-16-14 (1993).  In contrast to

the ICHIA statute which contains only a generic reference to the taxes that may be “offset”

by assessments, the historic rehabilitation statute contains explicit cross-references to the tax

statutes and places the administration of the credit under the State Revenue Department. 

Ind.Code § 6-3.1-16-6 & 15 (1993).  In contrast to the ICHIA credit or offset which is

authorized in the insurance code, the historic rehabilitation credit is authorized in the tax code.  Ind.Code ss§ 6-3.1-16-1 et seq. (1993).

	A conventional tax credit mechanism provides a tax benefit in return for the taxpayer

making certain optional expenditures the legislature wishes to encourage.  The ICHIA tax

credit mechanism provides reimbursement for certain required expenditures mandated by the

legislature.  The legislature, by the terms of the statute, limited this reimbursement to those

that paid the assessments — the “member insurers.”  It is not a conventional tax credit and

the fact that the Tax Court treated it as such warrants review.

O:\ASSOC2.DIS