Court Opinion

ID: 4958332
Source: CourtListenerOpinion
Date Created: 2021-09-24 14:10:43.906142+00
Date Added: 2024-06-11T08:15:42.255706
License: Public Domain

FLANDERS, Justice,
concurring.
Although I join the Court’s opinion, I write separately to amplify the reasons why I believe we should affirm the District Court’s judgment in all respects, except for its treatment of the prejudgment-interest issue. In my opinion, the tax administrator lacked the authority and the requisite factual basis to tax $3,281,487.545 to the respondent, insurance-broker Rollins Hudig Hall of Rhode Island, Inc. (Hall-RI), for allegedly procuring certain, surplus-line insurance covering the aviation-liability risks of its client, Textron, Inc. (Textron), a Rhode Island insured. This tax represented 3 percent of the insurance premiums paid by Textron for a portion of the $500 million in surplus-line aviation-liability insurance that Textron obtained from certain out-of-state insurers during the tax years 1988 through 1990. These insurers did not appear on a list maintained by the insurance commissioner for so-called acceptable, or approved, surplus-line insurers.
In assessing this tax against Hall-RI, the tax administrator relied upon affidavits submitted by Hall-RI that purportedly confirmed its procurement of the insurance in question. In my judgment, that reliance was misplaced. The affidavits do not admit procurement of the policies at issue here. Rather, they admit only to Hall-RI’s procurement of surplus-line insurance from certain unauthorized but “approved” carriers; that is, from certain companies that appeared on the insurance commissioner’s list of approved insurers that were not authorized to do business in Rhode Island. Hall-RI has paid whatever taxes were due on this insurance. Moreover, the tax administrator misconstrued G.L. 1956 § 27-3-38 when he concluded that Hall-RI in fact owed taxes on the surplus-line insurance that its sister corporation, Frank B. Hall of Massachusetts, Inc. (Hall-Mass), procured for Textron from certain unauthorized and un approved carriers. The tax in question was a procurement tax on premiums payable on insurance procured from insurers that were not authorized to do business in Rhode Island. Thus, no tax was due unless and until a licensed broker procured the insurance. Here, Hall-RI did not procure the insurance in question; hence, no tax was due thereon. For these reasons, I agree that the judgment of the District Court should be affirmed in this respect.
I look first to the affidavits submitted by Hall-RI for the years in question. In his brief and at oral argument, the tax administrator argued that the affidavits submitted by Hall-RI and Textron for the years 1988-1990 demonstrated that Hall-RI had procured $500 million of surplus-line aviation insurance for its insured customer, Textron. The language in the affidavits, however, did not go this far. The affidavits stated, in relevant part, that Hall-RI “was engaged by the insured [Textron] * * * to obtain insurance against certain risks * * * ” (emphasis added), that its insured client, Textron had “directed” it to do so, and that the “licensed Surplus Line Broker has effected the insurance shown on the reverse side * * On the reverse side, however, the affidavits listed only the insurance that was actually procured from unauthorized but approved insurers^ — -insurance for which Hall-RI has paid whatever taxes were assessed thereon. None of this insurance, however, is at *531issue in this case. Rather, the tax administrator is contending that additional insurance obtained for Textron from various “unapproved” insurers — that is, from unauthorized insurers who were not listed on the insurance commissioner’s list of “approved” insurers and who were not listed in the affidavits — also was subject to the procurement tax. The sole basis for this claim is that the affidavits admit that Hall-RI was engaged and directed to procure this insurance. But merely being engaged and directed to procure insurance is not the same thing as actually doing so. The tax in question falls only on licensed Rhode Island brokers who have procured surplus-line insurance, but not on those who merely were directed or engaged to do so, but never actually did the deed.
Based upon the stipulation of facts submitted to the District Court, it is undisputable that Hall-RI did not procure the insurance that the tax administrator sought to tax. Indeed, the trial justice found Hall-RI’s affidavits “essentially false” because, during the tax period in question, Hall-RI never procured any surplus-line insurance for Textron from any insurers, whether they were approved or not. Moreover, it was never engaged or directed to do so. But merely by misrepresenting — against its financial interests and under the mistaken impression that it was required by law to do so — -that it had proeured surplus-line insurance from certain listed insurers, Hall-RI did not thereby admit to procuring any additional insurance from the unlisted, unauthorized, and unapproved insurers who actually issued the insurance in question to Textron. Thus, the false representations in the affidavits do not add to or change the limited nature of the admissions contained therein.6 Although the affidavits falsely aver that Hall-RI was “engaged” and “directed” to procure $500 million in surplus-line insurance for Textron (in fact, it was not so “engaged” or “directed”), nowhere in the affidavits does Hall-RI admit or aver that it actually procured the insurance at issue (namely, surplus-line insurance from unauthorized and unapproved insurers). Therefore, Hall-RI cannot and should not be held responsible for paying a procurement tax based upon affidavits that do not contain any admission that Hall-RI procured the insurance that the tax administrator claimed was taxable.7
Furthermore, § 27-3-38(d), the statute that the tax administrator invoked to hold Hall-RI responsible for taxes attributable to the surplus-line insurance procured by Hall-Mass did not apply to insurance that Hall-RI did not procure. Section 27-3-38, which was in effect during the 1988 to 1990 audit period, was amended in 1996. But the key statutory language was unchanged by the 1996 amendments, providing that *532the tax was due “for all policies procured by the licensee pursuant to the [surplus-line broker’s] license.” Compare § 27-3-38(d) (as amended by P.L.1996, ch. 188, § 3) with § 27-3-38(d) (1989 Reenactment). Although it was unfortunate that the trial justice, in rejecting the tax administrator’s position, used language in his opinion from the 1996 amendment to the statute when the earlier version was applicable, the 1996 amendment did not affect, and indeed could not have affected, the result in this case because Hall-RI did not procure the insurance that the tax administrator sought to tax. Moreover, both versions of the statute contained the procurement requirement.
In addition, under § 27-3-38 as it existed for the years in question (1988-1990), it is clear that Hall-RI could not legally have procured the insurance in question under the authority of its license. This Court has recognized the appropriateness of judicially noticing interpretive regulations issued by the Department of Business Regulation (DBR). See Sparling v. Bizier, 778 A.2d 808, 810 (R.I.2001); see also Trotta v. Pono, 116 R.I. 702, 709, 360 A.2d 552, 556 (1976). During the years 1988 through 1990, Regulation XI of the Department of Business Regulation, Insurance Division, entitled “Surplus Line Brokers: General Rules; Affidavits, Records And Tax,” provided in subsection (b) of the General Rules section, that a licensed surplus-line broker such as Hall-RI “shall not place risks or effect insurance in unauthorized or non-admitted companies that are not on the Insurance Commissioner’s list of acceptable Surplus Line insurers.” Thus, Hall-RI was barred by this regulation from procuring the insurance in question because all the companies who issued the insurance at issue were “unapproved;” that is, they were not on the insurance commissioner’s list of acceptable surplus-line insurers. As a result, Textron was barred by applicable Rhode Island law from obtaining this insurance through a licensed surplus-line insurance broker such as Hall-RI. On the other hand, contrary to the tax administrator’s position, no law prevented Textron from obtaining this insurance directly or through an out-of-state broker such as Hall-Mass. Sections 27-3-38 and 27-3-40 were not directed to insureds such as Textron or to out-of-state brokers such as Hall-Mass, but only to “any person, firm, or corporation who or which is licensed as an insurance agent in this state.” Section 27-3-38(a).
Other states, however, have enacted definitive statutory provisions addressing this situation, provisions that Rhode Island lacks. For example, the State of Connecticut has provided that “[e]very insured who in this state procures or causes to be procured * * * [surplus lines insurance] other than insurance procured through a surplus fines broker * * * ” is subject to a tax. Conn. Gen.Stat. Ann. § 38a-277(a) (West 2001). (Emphasis added.) This language indicates that the only way for insureds in Connecticut to procure surplus-line insurance is to use a licensed surplus-fine broker located in that state, or subject themselves to the tax for a direct purchase of the insurance. Rhode Island’s surplus-fine insurance statute, however, contains no such language because it is directed solely to in-state insurance brokers such as Hall-RI, and not to insureds such as Textron or to out-of-state brokers such as Hall-Mass. Thus, applicable Rhode Island law did not prevent an out-of-state broker such as Hall-Mass or a Rhode Island insured such as Textron from procuring the insurance in question without incurring the tax liability. Such insurance is not subject to the procurement tax because it was not obtained by Hall-RI or by any other licensed Rhode Island broker. Indeed, as previously noted, an applicable DBR regulation *533actually prevented Hall-RI, as a licensed Rhode Island broker, from procuring such insurance from the unapproved carriers that issued the insurance in question.
The trial justice found “that the testimony, not the affidavits, presents the true picture of what happened here.” In essence, the trial justice determined that Hall-RI had nothing to do with procuring the insurance policies at issue in this case. The trial justice (and the hearing officer before him) both determined as a matter of fact that Hall-Mass had procured the insurance at issue. This Court has held that “[i]f, on review, the record indicates that competent evidence supports the trial justice’s findings, we shall not substitute our view of the evidence for his even though a contrary conclusion could have been reached.” Tim Hennigan Co. v. Anthony A. Nunes, Inc., 437 A.2d 1855, 1357 (R.I.1981) (citing Tefft v. Tefft, 105 R.I. 496, 253 A.2d 601 (1969)). (Emphasis added.) Here, no competent evidence, including the affidavits, supports the contrary conclusion. Therefore, this Court is bound to accept the trial justice’s findings regarding who actually procured this insurance, especially when the affidavits in question, however false they may be on other matters, do not admit to procurement of the insurance at issue.
Conclusion
Because the insurance in question was not “procured” by Hall-RI (whether pursuant to its license or otherwise), no tax is or was ever due on the premiums paid with respect to that insurance.8 Although the affidavits that Hall-RI submitted acknowledge procuring other surplus-line insurance, Hall-RI has paid whatever taxes were due on those policies, does not now seek to recoup those payments, and must pay whatever late fees were owing on those taxes. Given the clear statutory language and DBR regulations in this area, Hall-RI should not be held responsible for any tax on the surplus-line insurance policies that either Textron or Hall-Mass procured from so-called “unapproved” insurers. Hall-RI, as the trial justice concluded, had nothing to do with procuring this insurance, and therefore it should not be held responsible for the 'disputed taxes. Thus, I concur in the Court’s decision to affirm in part the judgment of the District Court and hold that Hall-RI is not liable for the taxes in question, except for the late fees assessed on the taxes paid for the insurance covered by the affidavits. With respect to that insurance, however, I agree that Textron and Hall-RI should be held to the admissions in the affidavits and that the tax administrator properly required Hall-RI to pay late fees on the taxes that were due thereon.

. The administrator’s tax assessment against Hall-RI was $3,058,340.00, but Hall-RI actually remitted $3,281,487.54 to the tax administrator, which included the tax assessment, late fees, and interest. The Superior Court ordered the tax administrator to refund to Hall-RI the total amount it had paid: $3,281,487.54.

. The stipulated facts demonstrated that Hall-Mass procured Textron’s surplus-line insurance and that Hall-RI never in fact procured any surplus-line insurance for Textron. Nevertheless, believing that it was required by law to pay taxes on any surplus-line insurance obtained from unauthorized but approved insurers for a risk located in Rhode Island, Hall-RI submitted affidavits indicating that it had procured surplus-line insurance from the approved insurers listed in its affidavits when in fact it had not done so. And it also paid whatever taxes were due thereon, even though it never actually procured this insur-anee. The tax administrator seized upon this admission and attempted to bootstrap the affidavits into an additional tax liability for insurance not covered by the affidavits.

. Because Hall-RI has paid all taxes due for the policies listed on the affidavits as having been procured by Hall-RI, those taxes are not at issue in this case. Moreover, to the extent the tax administrator’s assessment includes late fees for those taxes, I agree that Hall-RI is bound by their affidavits, and that it must pay the late fees, even though it now attempts to controvert what it swore was true.

. Indeed, under G.L.1956 (1989 Reenactment) § 27-3-40, "No person, licensed to act as a surplus line broker in the state, shall place any insurance with unauthorized insurer unless that insurer * * * ” has met certain financial and other legal requirements. Thus, Hall-RI legally could not have placed the insurance at issue because the insurers in question never met those requirements. In short, it was legally impossible for Hall-RI to procure surplus-line insurance from unapproved carriers pursuant to its state-issued license as a surplus-line insurance broker. The law forbade it from doing so.