Request By:
Paul Shapiro, Esq.
John Lovett Building
Benton, Kentucky 42025
Opinion
Opinion By: Steven L. Beshear, Attorney General; Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising a question pertaining to an ordinance of the city of Benton which imposes an annual license fee of $75.00 upon each life insurance company doing business in the city.
The city was recently informed that Reliable Insurance Company is collecting premiums on life insurance from policyholders now living in the city. The policies were sold to these policyholders while they were living in other states. The insurance company maintains that it is not doing business in the city of Benton and is not subject to the tax. You ask the opinion of this office concerning the insurance company's liability for the tax.
KRS 92.285 which dealt in part with license taxes upon insurance companies was repealed as of July 15, 1982. However, the General Assembly enacted, effective July 15, 1982, KRS 91A.080 dealing in part with license taxes on insurance companies and which is identical to KRS 92.285. Note particularly the provisions of KRS 91A.080(3) and (4) dealing with the license fees or taxes imposed by a city upon insurance companies for insurance policies written on the lives of persons residing within the city limits and on risks located within the city limits. In OAG 69-301, copy enclosed, we said the statute provides that premiums subject to the license fee or tax must be on property located within the city or persons residing in the city or other types of risks that are located in the city.
In connection with the insurance company's contention that it is not doing business in the city, we direct your attention to Couch on Insurance 2d § 21:48 (Vol. 2) where the following appears:
". . . For many years the courts relied primarily upon a determination whether the foreign insurance company was 'doing business' within the state. This test was applied by federal as well as by state courts and a whole body of law developed dealing with questions as to what facts and transactions constitute 'doing business' within the state by a foreign insurance company. In a more recent decision of the United States Supreme Court, however, the above test was abandoned, as far as the state's power to subject a foreign corporation to a suit therein was concerned, and a new test was laid down requiring only that in order to so subject the foreign corporation, certain minimum contacts with the territory of the former must be shown so that the maintenance of the suit does not offend traditional notions of fair play and substantial justice."
See the United States Supreme Court cases of
International Shoe Co. v. Washington, 326 U.S. 310, 90 L. Ed. 95, 66 S. Ct. 154 (1945) and
McGee v. International Life Insurance Co., 355 U.S. 220, 2 L. Ed. 2d 223, 78 S. Ct. 199 (1957).
In Appleman, Insurance Law and Practice (Vol. 19) § 10342, the author states that in connection with the regulation of insurance on the "doing business" premise it should be noted that there has been a distinct split of authority in past years. Furthermore, the swing of authority is in the direction of regulation, even of mail order insurers, which has been approved by the Supreme Court.
In 43 Am.Jur. 2d Insurance § 74, the following appears:
"In recent years the concept of a state's jurisdiction over foreign corporations, including insurance companies, has been greatly expanded by decisions of the United States Supreme Court to the effect that due process requires only the showing of certain minimal contacts with the state so that the maintenance of a suit would not offend traditional notions of fair play and substantial justice. This trend toward expanding the permissible scope of state jurisdiction over foreign corporations is attributable in part at least to the fundamental transformation of the national economy through the increasing nationalization of commerce."
Note also that KRS 304.3-200(1)(d) provides that the Commissioner of Insurance may, in his discretion, refuse to continue or may suspend or revoke an insurer's certificate of authority if he finds after a hearing thereon, or upon a waiver of hearing by the insurer, that the insurer has failed to pay taxes on its premiums as required by law.
While we have not found a specific Kentucky case on the subject, the United States Supreme Court, with respect to foreign insurance companies, has replaced the "doing business" within the state concept with the concept of minimum contacts with the state as the test as to whether a state may subject such an insurance company to a suit in the state. It would appear that the life insurance company in question has such minimum contacts with the city to subject it to the city's tax on insurance companies as persons now residing in the city are sending premiums to that company. Ultimately, the matter will have to be resolved by a court of law after considering all the relevant facts and the applicable principles of law.