Court Opinion

ID: 3626867
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:07:13.835099+00
Date Added: 2024-06-11T14:23:19.592187
License: Public Domain

The relator procured a writ of certiorari to review the official action of the commissioners of taxes and assessments of the city of New York in assessing its capital stock and surplus. The statute provides that the capital stock and surplus of a corporation liable to taxation, after making certain deductions specified, shall be assessed at its actual value. The relator complains that the assessment in this case upon its capital stock and surplus was not limited to its actual value, but that it was assessed for an amount more than such value. The question in the case involves the inquiry whether the assessors in making the assessment proceeded upon legal principles. The relator asserts that in making the assessment the rules of law applicable in such cases were disregarded by the assessors and that in arriving at the actual value of the capital stock the taxing officers proceeded upon erroneous legal principles to the prejudice of the relator. The relator claims that in determining the actual value of its capital stock, its outstanding obligations or policies of insurance should have been considered, and that there should have been deducted from the corporate property what is called the reserve fund or reinsurance reserve required by law, being the amount necessary to reinsure outstanding risks, or so much thereof as fairly represents the amount that the outstanding obligations of the relator diminished the value of its capital stock and surplus, which is a sum shown by experience to be the aggregate of the probable losses upon such obligations. In other words, the relator's contention is that the assessors could not fairly value the capital stock or assets of the corporation without taking into consideration these outstanding liabilities. There seems to be no dispute as to the fact that the relator's obligations in the form of policies and contracts of indemnity can be reduced by calculation and by the use of experience tables, to a sum practically certain, which would represent a fixed liability at the date of the assessment. In other words, what may be called the present value of these outstanding liabilities may be ascertained at any given time and stated in the form of a fixed liability *Page 139 
at the date selected, with sufficient accuracy for all practical purposes. The assessors refused to make any deduction from the corporate assets on account of these liabilities. This appears very clearly from the return to the writ, in which it is explicitly stated that the relator claimed a deduction from the apparent value of the assets on account of unearned premiums held as reinsurance reserve as required by law, being the amount necessary to reinsure outstanding risks, and that such deduction was refused. It is further stated that the assessors were advised that the reserve, or unearned premiums, did not constitute a liability and that it had not been declared exempt from taxation by any law; that the so-called reserve, or unearned premiums, was invested by the relator in interest-bearing and dividend-paying securities, from which a large income was derived, and that no liability could arise to refund the whole or any part thereof unless the policyholders canceled their policies; that the policies had not been canceled nor was there any reason to believe or claim made that they would be canceled, except under certain contingencies that had not arisen at the date of the assessment.
It would seem to be an undisputable proposition that the capital stock of any corporation cannot be fairly valued for the purposes of taxation without taking into account all outstanding liabilities, contingent or otherwise, that affect the value of the capital stock, and it cannot be said with any propriety that outstanding policies of insurance or indemnity contracts issued by such corporations as the relator or by insurance corporations do not materially affect the actual value of the corporate assets at the date of the assessment. Irrespective of any express statute on the subject, the process of ascertaining the value of the capital stock of any corporation must necessarily include a deduction on account of its debts or of any outstanding, contingent liability such as insurance policies, though not due or payable at the time that the assessment is made. The statutes of this state provide methods for ascertaining the real financial condition of corporations of this character at any particular time and for various purposes. The *Page 140 
principle embodied in these statutes applies to the duty of assessors in ascertaining the value of the stock of such corporations for the purposes of taxation. We do not say that the methods indicated in these enactments must be adopted in all cases, but it would seem to be clear that some method must be adopted in the process of valuing the capital stock for ascertaining, as near as possible, the deductions to be made on account of such outstanding obligations. A fund held by this class of corporations to meet a liability certain to accrue and which can be ascertained with practical certainty, should not be included in all cases as a taxable asset. The General Insurance Law, under which the relator is organized and exists, contains provisions which reflect much light upon the question. It provides that every company whose assets and credits are not sufficient to reinsure its outstanding risks in a solvent insurance corporation, should be deemed to be insolvent. (§ 21.) It is also provided that in ascertaining the actual capital of foreign insurance companies seeking to do business in this state, the premiums on risks not yet expired shall be treated as a liability. (§ 27.) Also that the superintendent of insurance in estimating the condition of any life insurance corporation shall charge against it as liabilities, exclusive of capital stock, all outstanding indebtedness of the corporation and the premium reserve on policies and additions thereto in force, computing according to the table of mortality the rate of interest prescribed in the statute. (§ 86.) Also, that upon an examination by the superintendent of insurance into the affairs of a company there shall be charged to it, in addition to the capital stock and all outstanding claims, a sum equal to the total unearned premiums on the policies in force. (§ 178.) By chapter 720 of the Laws of 1893, which is an act relative to guarantors and sureties, and applicable to the relator, it is provided that in estimating the solvency of such companies there shall be charged as liabilities, in addition to the capital stock, all outstanding indebtedness of the company and the premium reserve equal to fifty percentum of the premiums charged by the company *Page 141 
on all risks then in force. It is clear from these provisions of law that in ascertaining the true financial condition of the relator, or other companies organized under the same law, a deduction must be made from the corporate assets on account of outstanding liabilities. The relator offered to show before the assessors and at the hearing at the Special Term upon the writ the amount of such deductions in this case. It requested the court, if necessary, to appoint a referee for that purpose, and on the record now before us we must assume that it was entirely practical to ascertain the amount of such deductions by the use of tables and the experience of similar corporations during a long series of years. The premiums received by the relator up to the date of the assessment were included in the corporate assets, but no allowance was made for the fact that a portion of these premiums was not earned and that the contracts upon which they had been paid subjected the relator to liability for losses. It would seem to be an erroneous method in estimating the value of the relator's capital stock on the day of the assessment to include all its taxable tangible assets without making any allowance whatever for losses which it might be made liable to pay on account of its outstanding contracts. I think that this question is no longer an open one in this court, since it has been expressly decided that it is the duty of assessors in such cases to estimate the contingent liability of an insurance company upon its outstanding policies in force and to deduct such liability in arriving at the basis of taxation on its capital stock. (People ex rel. Glens Falls Ins. Co. v. Ferguson,38 N.Y. 89; People ex rel. Manh. F. Ins. Co. v. Commissioners ofTaxes, 76 N.Y. 64.) In the opinion of the learned judge at Special Term, which was adopted by the court on appeal, it is expressly stated that the case first cited, if it is still law, is conclusive upon the question involved in this appeal. It was suggested, however, that the authority of the case was destroyed by the subsequent decision of this court in the case of Peopleex rel. Union Trust Co. v. Coleman (126 N.Y. 433). We are unable to see how this last decision affects in any way the authority of the former one. On the contrary, *Page 142 
it seems to confirm it. The question involved in the latter case was whether the assessors had the right to estimate the actual value of the company's capital stock according to the market value of the shares, disregarding all other conditions which might appear to show that the market value was not the true value. What this court held was that the assessors were not to be controlled by the market value of the stock. In the opinion the learned judge refers to the Ferguson Case (38 N.Y. 89) in connection with two other cases and says of them: "They relate to the permitted deductions and exemptions and can scarcely be said to bear upon our present inquiry except inferentially, and the inferences which they suggest are certainly not in the direction of the right to value the share stock instead of the capital." The inference is clear from these remarks that the learned judge did not consider that he was running counter to anything decided as to the right to deduct liabilities from assets, which was the point involved in the former case. There is not, in our opinion, the slightest conflict between the two cases. They involve different questions. In the earlier case the only question involved was that now under consideration, viz.: the right to deduct from assets a sum which would represent at the date of the assessment outstanding liabilities. In the latter case the question was whether the value of capital stock could be estimated for the purposes of taxation upon market value and the decision was that the true method of valuation was to ascertain the value of the corporate assets and to deduct therefrom corporate debts; the balance would represent the true value of the stock, whether more or less than the market value. That decision is not in conflict with the contention of the relator in this case, but, on the contrary, sustains it. In the Coleman
case this court undertook to harmonize apparently conflicting decisions concerning the method of ascertaining the value of the capital of a corporation for the purposes of taxation and to formulate a reasonable and rational rule upon that subject. The case of People ex rel. Westchester F. Ins. Co. v. Davenport
(91 N.Y. 574) is not in conflict with these views. In that case it seems that the record presented *Page 143 
no data or facts for determining whether more or less than fifty per cent of receipts for premiums upon unexpired policies was deducted. The court said: "We have no evidence before us which shows that the assessors did not deduct from the conceded assets of the relator all that it was entitled to have deducted on account of its contingent liabilities. * * * It was held by this court in the case of People ex rel. Glens Falls Ins. Co. v.Ferguson (38 N.Y. 89) that when the assessors absolutely refused to deduct any sum from the assessment for personal property of an insurance company on account of its contingent liability to refund unearned premiums, that they erred, and that such liability should be taken into account in arriving at the actual value of its assessable property." It will be seen that the court in that case did not refuse to approve of the doctrine announced in the Ferguson case, for instead of being in conflict with it, the doctrine there stated is approved. It follows that the relator was entitled to give proof before the assessors and before the court at Special Term concerning the proper amount which should be deducted from the value of the assets on account of the outstanding obligations. The court had power to take this proof or to order a reference, in its discretion, but since it refused to do either, the orders of the Appellate Division and the Special Term should be reversed, with costs, and the proceedings remitted to the Special Term for further hearing.
BARTLETT, HAIGHT, MARTIN and VANN, JJ., concur with PARKER, Ch. J., for affirmance; LANDON, J., concurs with O'BRIEN, J., for reversal.
Order affirmed, with costs. *Page 144