Opinion ID: 1287094
Heading Depth: 1
Heading Rank: 3

Heading: Lack of Statutory Authority to Regulate Foreign Insurers

Text: American Bankers contends that the complaint fails to state a claim upon which relief can be granted because the state is without express or implied authority to regulate or tax a nonresident foreign insurance company when that company is not doing business within its borders. As we previously observed, American Bankers is doing insurance business within the state within the meaning of SDCL 58-1-2(15). The more particularized inquiry is whether American Bankers' activities are sufficient to warrant the imposition of a tax by the State of South Dakota on premiums collected from South Dakota insureds. The McCarren-Ferguson Act, enacted by Congress in 1949, empowers the states to regulate and tax all insurance companies doing insurance business within their respective borders. 15 U.S.C. §§ 1011-15 (1949). The breadth of the state's authority to regulate and tax interstate insurance transactions under this act was examined by the United States Supreme Court in State Bd. of Insurance v. Todd Shipyards, 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620 (1962). In Todd, the Court cites the House report contained in the legislative history of the Act, which states in part: We should provide for the continued regulation and taxation of insurance by the states, subject always, however, to the limitations set out in the controlling decisions of the United States Supreme Court, as, for instance, in Allgeyer v. Louisiana (165 U.S. 578 [17 S.Ct. 427, 41 L.Ed. 832]), St. Louis Cotton Compress Co. v. Arkansas (260 U.S. 346 [43 S.Ct. 125, 67 L.Ed. 297]), and Connecticut General Life Ins. Co. v. Johnson (303 U.S. 77 [58 S.Ct. 436, 82 L.Ed. 673]), which hold, inter alia, that a state does not have power to tax contracts of insurance or reinsurance entered into outside its jurisdiction by individuals or corporations resident or domiciled therein covering risks within the state or to regulate such transactions in any way. 370 U.S. at 455-56, 82 S.Ct. at 1383, 8 L.Ed.2d at 624. American Bankers has since 1981 assumed ownership and responsibility for insurance policies taken out by residents of South Dakota for which it has continuously received premiums and paid claims. These are not isolated transactions having no relationship to South Dakota. Rather, American Bankers has established a continuing contractual relationship with residents of this state. Furthermore, it is not a contradiction, as American Bankers argues, to be at once an unauthorized insurer and at the same time be subject to a tax on premiums collected from South Dakota insureds. South Dakota law permits an unauthorized insurer to engage in a limited degree of insurance business within the state under specified circumstances, including the collection of premiums and payment of claims on existing insurance policies. See SDCL 58-6-4.