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courts below, brought suit against the defendant in error, herein called defendant, to recover the sum of $209.79, with interest, the amount of taxes paid by plaintiff under protest to defendant.
The tax was levied under a law of the state requiring every insurance corporation or company transacting business in the state to be taxed upon the excess of premiums received over losses and ordinary expenses incurred within the state during the year previous to the year of listing in the county where the agent conducts the business, properly proportioned by the corporation or company at the same rate that all other personal property is taxed. It is provided that the agent shall render the list, and if he refuses, or to make affidavit that the same is correct to the best of his knowledge and belief, the amount may be assessed to the best knowledge and discretion of the assessor. The corporation and companies are subject to no other tax under the laws of the state except on real estate, and the fees imposed by law.
It was alleged in the complaint that the "tax was and is illegal, unlawful and void for that said defendant was without jurisdiction to levy or collect said tax, and the levy and collection thereof was and is a burden upon interstate commerce, contrary to Section 8 of Article I. of the Constitution of the United States.”
A summary of the allegations of the complaint, which is very long, is as follows:
The plaintiff is a New York corporation, with its home office in New York City, and has transacted and does transact the business of life insurance on a large scale in all of the states of the United States, and with persons residing in every country of the civilized world. It commenced to transact its business with residents of Montana in 1869, and its business has progressively increased until its total insurance in force in that state amounts to $10,023,445, calling for premiums amounting to $343,664.93. This total insurance is made up of policies averaging $2,000 each, and these are subject to sale, assignment and transfer and are used for collateral security and other commercial purposes, and are valuable for such purpose and for other general purposes of trade and commerce.
The company transacts its business through agents, who solicit insurance, collect the first premium and deliver the policy, which is prepared and transmitted from the home office to him for such purpose. The company also employs an agency director by contract in writing directly with the home office through the mails, who supervises the work of soliciting agents and recommends those who desire to become such. The company also employs medical examiners, with specified duties, their employment being negotiated through the mails, and their reports are made through the mails, and if further information is desired, the home office obtains it by correspondence through the mails. It has also a confidential employee called an inspector, whose employment is intended to be secret and who transmits information through the mails. In Butte, in the state of Montana, the company maintains a cashier, appointed from the home office, whose authority, however, is limited to making and supervising such records as the business of the office requires, receiving from the soliciting agents and medical examiners applications for new insurance solely for transmission to the home office, receiving the reports of the home office of its action on such applications, and receiving policies, and the premiums which are paid on the new policies and not transmitted directly to the home office, mailing premium notices made out at the home office, and sent to him for that purpose; receiving renewal premiums when specially authorized; depositing the amount thereof in bank at Butte to the credit of the company and to be drawn upon by it and not by him; keeping account of the insurance obtained by the soliciting agents and settling with such agents the commission. The company has never had any office or place of business except said office at Butte and one other at Helena, with like duties and authority.
Forms for the use of the several transactions are prepared at the home office and transmitted by mail to the company's employees. No agent is authorized to accept risks of any kind or make or modify contracts, nor have they ever done so. The officers of the company reside and have always resided in and near the city of New York and had and have their offices and places of business at the home office. All risks are accepted and contracts made, modified and discharged at the home office.
The manner of taking applications for insurance and the final issue of policies is alleged, which shows that the ultimate judgment of their character and acceptance is reserved for the home office. The manner of paying premiums is alleged to be either directly to the home office through the mails, or to the cashier of the company at its office in Butte, and that the several policies provide for advances and that the company has outstanding advances or loans to its policyholders in the state aggregating the sum of $432,878. The loan is made by transmitting an application to the home office, where it is considered and acted upon, and, if accepted, a loan agreement is transmitted to the applicant, who, after executing it, returns it to the home office and the proceeds of the loan forwarded by mail to the policyholder by the company's check on its bank account in New York. And the use of the mails is alleged in payment of premiums and proofs of death.
On account of this manner of doing business it is alleged on information and belief to be interstate commerce and within the meaning of the Commerce Clause of the Constitution of the United States.
The laws of the state by virtue of which the tax was imposed are set out. They finally became section 4073 of the Revised Codes, 1907.
The company did not have any property within Deer Lodge County at any time during the year 1910. It paid without protesting the tax imposed by section 4017 of the Revised Codes for the year 1909, amounting to $3,496.85. It also, during said year, paid to the state licenses and fees aggregating the sum of $234. In 1909 it received from policyholders residing in the county, premiums aggregating the sum of $14,233.41. Its losses and expenses amounted to the sum of $8,888.41. The excess of premiums over losses for said year was the sum of $5,345, upon which there was imposed the sum sued for. The company paid the tax under protest.
A demurrer was sustained to the complaint and a judgment entered dismissing the action. It was sustained by the Supreme Court of the state.
The same contention is made here as in the state courts, that is, that the tax is a burden on interstate commerce, and an elaborate argument is presented to distinguish this case from those in which this court has decided that insurance is not commerce. These cases are: Paul vs. Virginia, 8 Wall. 168 (1808); Ducat vs. Chicago, 10 Wall. 410; Liverpool Ins. Co. vs. Massachusetts, 10 Wall. 566; Philadelphia Fire Ass'n vs. New York, 119 U. S. 110; Hooper vs. California, 155 U. S. 648; Noble vs. Mitchell, 164 U. S. 367; New York Life Ins. Co. vs. Cravens, 178 U. S. 389; and Nutting vs. Massachusetts, 183 U. S. 553.
If we consider these cases numerically, the deliberation of their reasoning, and the time they cover, they constitute a formidable body of authority and strongly invoke the sanction of the rule of stare decisis. This we especially emphasize, for all of the cases concerned, as the case at bar does, the validity of state legislation, and under varying circumstances the same principle was applied in all of them. For over forty-five years they have been the legal justification for such legislation. To reverse the cases, therefore, would require us to promulgate a new rule of constitutional inhibition upon the states, and which would compel a change of their policy and a readjustment of their laws. Such result necessarily urges against a change of decision. In deference, however, to the earnestness of counsel, we will consider more particularly (1) what the cases decide, and (2) whether they are wrong in principle.
Paul vs. Virginia is the progenitor case. A law of Virginia precluded any insurance company not incorporated under the laws of the state doing business in the state without previously obtaining a license for that purpose, which could only be obtained by a deposit with the state treasury of bonds of a specified character to an amount varying from thirty to fifty thousand dollars. A subsequent law required the agent of a foreign insurance company to take out a license.
Paul was appointed the agent of several fire insurance companies incorporated in the state of New York. He applied for a license, offering to comply with all the provisions of the law excepting the deposit of bonds. The license was refused and he, notwithstanding, undertook to act as agent for the companies, offered to issue policies in their behalf and in one instance did issue a policy in their name to a citizen of Virginia. For this violation of the statute he was indicted and convicted in one of the state courts and the judgment was affirmed by the Supreme Court of Appeals of the state. Error was prosecuted from this court based on, as one of its grounds, the alleged violation of the Commerce Clause of the Constitution of the United States.
Replying to the argument to sustain the contention, the court said, by Mr. Justice Field, that its defect lay in the character of the business done. “Issuing a policy of insurance is not a transaction of commerce. The policies are simply contracts of indemnity against loss by fire, entered into between the corporations and the assured, for a consideration paid by the latter. These contracts are not articles of commerce in any proper meaning of the word. They are not subjects of trade and barter offered in the market as something having existence and value independently of the parties to them. They are not commodities to be shipped or forwarded from one state to another, and then put up for sale. They are like other personal contracts between parties which are completed by their signature and the transfer of the consideration. Such contracts are not interstate transactions, though the parties may be domiciled in different states. The policies do not take effect-are not executed contracts-until delivered by the agent in Virginia. They are, then, local transactions, and are governed by the local law. They do not constitute a part of the commerce between the states any more than a contract for the purchase and sale of goods in Virginia by a citizen of New York, whilst in Virginia, would constitute a portion of such commerce.”
The doctrine announced, that insurance was not commerce but a personal contract, was emphasized by illustrations. than vs. Louisiana, 8 How. 73, was cited, where a tax on money and exchange brokers who dealt in the purchase and sale of foreign bills of exchange was sustained as not conflicting with the constitutional power of Congress to regulate commerce. The individual thus using his money, it was said (quoting the cited case), "is not engaged in commerce but in supplying an instrument of commerce. He is less connected with it than a ship builder, without whose labor foreign commerce could not be carried on.” The doctrine was further illustrated by bills of exchange foreign and domestic, which it was said were subject to the regulating and taxing laws of the states. And it was pointed out that the Federal Government taxed not only foreign bills but domestic bills and promissory notes, whether issued by individuals or banks, a power the Government could not have, it was said, if bills and notes were commerce. It was finally said: "If foreign bills may thus be the subject of state regulation, much more so may contracts of insurance against loss by fire."
We have taken the trouble to make this long excerpt from the opinion because, as we have said, the case is the primary one, and because its argument is really exhaustive of the general principle. We shall consider presently whether there is anything in the case at bar which takes it out of the principle.
In Ducat vs. Chicago, a law of Illinois came up for review. It was a regulation of insurance companies not incorporated by the state, and required their agents to be licensed upon the performance of certain conditions. Subsequently by the act incorporating Chicago the Legislature imposed on all foreign insurance a tax of $2 upon the $100 and at that rate upon the amount of all premiums which should be received. It was made unlawful for any company to transact business until the payment was made. The State Supreme Court sustained the tax and this court affirmed its action, resting the decision on Paul vs. Virginia, the reasoning of which, it was said, it was not necessary to repeat.
Liverpool Ins. Co. vs. Massachusetts: The subject came up again for consideration in passing upon a statute of Massachusetts which levied a tax upon all premiums charged or received by any fire, marine and fire and marine insurance company not incorporated under the laws of the state. The law was sustained. It was said: “The case of Paul vs. Virginia decided that the business of insurance, as ordinarily conducted, was not commerce, and that a corporation of one state, having an agency by which it conducted that business in another state, was not engaged in commerce between the states."
Philadelphia Fire Ass'n vs. New York: A statute of New York imposing taxes and conditions upon insurance companies of other states was considered and sustained. Paul vs. Virginia was cited for the view that "issuing a policy of insurance is not a transaction of commerce."
We may say here that Paul vs. Virginia was also cited for the proposition that the right of a foreign corporation to do business in a state other than that of its creation depends wholly upon the will of such other state. This proposition, it was said, was sustained by previous cases, and it has been sustained by many subsequent cases. Necessarily it could not be applied to foreign insurance companies if the business of insurance is commerce. In other words, that right exists and has only an exception, as was said in Hooper vs. California, 155 U. S. 648, "where a corporation created by one state rests its right to en