Court Opinion

ID: 4480531
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:22.780028+00
Date Added: 2024-06-11T08:48:28.448504
License: Public Domain

SimpsoN, J., dissenting: I agree with the conclusions of the majority concerning the first four issues, but I must disagree in part with the conclusions in issue 5. It seems to me that the guaranteed renewable policies issued by the petitioner were not issued for 5 years within the meaning of section 809(d) (5). The purpose of allowing the 3-percent deduction provided in section 809(d) (5) was to permit insurance companies issuing nonparticipating policies to accumulate additional surplus tax-free. Companies issuing participating policies can charge larger premiums and in this manner retain surplus to protect against unanticipated adverse experience. The additional surplus which can be accumulated by reason of section 809(d) (5) provides similar protection for companies issuing nonparticipating policies. Although the legislative history fails to explain the reason for the requirement that the policy be issued for 5 years, it seems clear that the accumulation of increased surplus was necessary only when the insurance company was committed for a 5-year or longer period. If the company is free to adjust its rates at any time when its experience proves to be more unfavorable than expected, there is no need for allowing the tax-free buildup of increased surplus. In the case of nonoancellable accident and health policies, the company cannot adjust its rates notwithstanding unfavorable experience. However, in the case of the guaranteed renewable policies involved herein, petitioner could alter its rate schedule. It could not increase the rates of an individual policyholder merely because he 'became an increased risk, but it could increase the rates for the class of policies if it became apparent that the risks for the whole class were greater than expected. In deciding whether a guaranteed renewable policy is issued for 5 years, I recognize that such a policy may be continued for 5 or more years and that in some respects the company is committed — it cannot decline to renew the policy at the end of any year and can make only limited changes in its terms. However, since the company is free to adjust its rate schedule, there is no reason to permit the tax-free accumulation of additional surplus to protect against unanticipated risks in connection with these guaranteed renewable policies; and accordingly, I have concluded that these policies are not issued for 5 years within the meaning of section 809(d) (5). Eattmc and Tannenwald, JJ., agree with this dissent.