Court Opinion

ID: 4490112
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:12.065291+00
Date Added: 2024-06-11T07:58:55.565843
License: Public Domain

*722OPINION.
Smith:
Although in the petitions filed in these proceedings numerous errors are alleged on the part of the respondent in the determination of deficiencies, most of these were abandoned at the hearing or else no evidence was offered in support of them. In its brief the petitioner states that one issue is raised by these proceedings, namely, whether the petitioner corporation is entitled to classification as a life insurance company, as defined by section 242 of the Revenue Acts of 1921, 1924, and 1926, for the calendar years 1921 to 1926, inclusive. If this point be decided against the petitioner it presses its claim that, inasmuch as ft kept its books of account and made its returns upon the accrual basis, it is entitled to have regarded as accruals of each calendar year the claims arising in that year which were paid in subsequent years. It likewise admits that upon such basis there should be excluded from the deductions allowed by the Commissioner in the determination of deficiencies the amounts paid in each year in respect of claims arising from injuries or sickness properly belonging to a prior year.
As above indicated, the principal contention of the petitioner is that it is entitled to classification as a life insurance company for the years 1921 to 1926, inclusive, under section 242 of the Revenue Acts of 1921,1924, and 1926. This section provides:
*723That when used in this title the term “life insurance company” means an Insurance company engaged in the business of issuing life insurance and annuity contracts (including contracts of combined life, health, and accident insurance), the reserve funds of which held for the fulfillment of such contracts comprise more than 50 per centum of its total reserve funds.
The genesis of this legislation is explained in part by the reports of the Ways and Means Committee and of the Finance Committee in offering the bill, which later became 'the Revenue Act of 1921, to the respective Houses of Congress. The Finance Committee Report on page 20 states:
Sections 242-246 provide a new plan for the taxation of life insurance companies, substantially similar to the plan embodied in the revenue act of 1918 as first adopted by the Senate. The provisions of the present law applicable to life insurance companies are imperfect and productive of constant litigation.. The proposed plan would tax life insurance companies on the basis of their investment income from interest, dividends, and rents, with suitable deductions for expenses fairly chargeable against such investment income. * * *
See also National Life Insurance Co. v. United States, 277 U. S. 508, especially the dissenting opinion of Mr. Justice Brandéis. Unquestionably the litigation that was referred to in the Finance Report is Mutual Benefit Life Insurance Co. v. Herold, 198 Fed. 199; 201 Fed. 918; Penn Mutual Life Insurance Co. v. Lederer, 252 U. S. 523; New York Life Insurance Co. v. Edwards, 271 U. S. 109; the last two of such cases being cited by Mr. Justice Brandéis in his dissenting opinion in National Life Insurance Co. v. United States, supra.
It is apparent to us that Congress meant to classify as life insurance companies under section 242 those companies which are well recognized as life insurance companies in popular speech and by the laws of several States as distinguished from all other companies. In Ritter v. Mutual Insurance Co. of New York, 169 U. S. 139, it was stated:
Life insurance imports a mutual agreement, whereby the insurer, in consideration of the payment by the assured of a named sum annually or at certain times, stipulates to pay a larger sum at the death of the assured. * * *
Under the laws of practically all of the States, including those of West Virginia, life insurance companies are dealt with differently from all other companies. Laws specifically provide the manner in which the reserve of a life insurance company shall be computed. It is well recognized that this reserve must be built up over a period of years to meet the payment called for by the policy at the expected date of death of the insured. The petitioner admits that it was not a life insurance company or even an insurance company within the contemplation of the statutes of the State of West Virginia.
*724The policies issued by the petitioner as agent of the Inter-Ooean Casualty Co. were not ordinary life policies. It is true that they generally provided that if death resulted within a period of 90 days from an accident, the company would pay a death benefit and where death was not the result of an accident the company would pay a small funeral benefit.
In Jones v. Prudential Insurance Co. of America, 236 S. W. 429, it is stated:
* * * In an ordinary life policy the insurer contracts to pay a certain sum of money when satisfactory proof is made that the insured has died. Death is the contingency which must happen that will create liability under the contract. Liability attaches under such a policy when death occurs, and the policy is in good standing irrespective of the cause of the death, whether it be brought about by natural causes, by intention, or by accident; and, in the broad sense, any life insurance policy is accident insurance, if perchance the death is occasioned by reason of an accident. On the other hand, the primary contingency insured against in an accident insurance policy is that no accident will befall the insured under the terms of the policy and in such time as the policy is kept alive. To be sure, a policy of accident insurance is life insurance in the broad sense, in that the insurer contracts to pay a certain sum of money when satisfactory proof is made that the insured has died as a result of an accident. See Logan v. Insurance Co. 146 Mo. 114, 47 S. W. 948; Woodlock v. Aetna Life Insurance Co. (Sup.) 225 S. W. 994.
In the instant proceedings it is admitted that the State of West Virginia did not recognize the petitioner as an insurance company, but it is nevertheless contended that the State, through its insurance department, did recognize it as carrying on an insurance business, and that the department had checked up the petitioner’s books of account. Elaborate argument is made to the effect that although the petitioner is incorporated and acts as agent of the Inter-Ocean Casualty Co. in West Virginia and other States, it is, nevertheless, an insurance company in fact; that its authorization as agent is so broad as to constitute it an independent company; that it has liabilities to its policyholders and maintains reserves to meet such liabilities ; and that the total of these reserves is held for the fulfillment of its contracts.
We do not think that it is necessary to answer all of the petitioner’s arguments with respect to its claims that it is an insurance company. It is not recognized as such by the Insurance Department of the State of West Virginia. It is recognized only as agent of the Inter-Ocean Casualty Co. The policies which it issues are policies of that company. The fact that under its agreement with the Inter-Ocean Casualty Co. it had very broad powers does not change the fact that it was, nevertheless, an agent of that company. The evidence does not show that the petitioner is required to maintain any reserve funds for the fulfillment of the contracts of its principal. *725The Inter-Ocean Casualty Co. is liable upon all of the policies and the State of West Virginia is satisfied to let it transact business in that State through the petitioner as its agent.
In United States v. Fidelity Trust Co., 222 U. S. 158, the court stated with respect to the proper construction of section 3 of the Act of June 27, 1902:
* * * The statute does not invite speculation in a new nomenclature, or attempt to reach profounder conceptions than those familiar to the law. When it speaks of interests absolutely vested in possession we presume that it uses familiar legal expressions in their familiar legal sense. * * *
Applying this principle to the interpretation of section 242 of the Revenue Acts of 1921, 1924, and 1926, and to the evidence of record in this case, it is impossible to conceive how the petitioner has any valid claim to be classed as a life insurance company.
Reviewed by the Board.

Decision will be entered u/nder Rule 50.