CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.
MR. JUSTICE PITNEY delivered the opinion of the court.
This was an action brought by respondent, a fire and marine insurance company of the State of Pennsylvania, to recover a part of the excise taxes exacted of it for the years 1910 and 1911 under the Act of August 5, 1909, c. 6, § 38, 36 Stat. 11, 112. As the case comes here, only two items are in dispute, one for each of the years mentioned, representing the tax upon amounts added in each of those years to that part of what are called its "reserve funds" that is held against accrued but unpaid losses.
The act imposed upon every insurance company organized
under the laws of the United States or of any State an annual excise tax with respect to the carrying on or doing business, equivalent to one per centum upon its entire net income over and above $5,000, with exceptions not here pertinent. The second paragraph of § 38 provided: "Such net income shall be ascertained by deducting from the gross amount of the income of such . . . insurance company . . . (second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation of property, if any, and in the case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve funds."
The italics indicate the particular words upon which the controversy turns; the question being whether, within the meaning of the act of Congress, "reserve funds," with annual or occasional additions, are "required by law," in Pennsylvania, to be maintained by fire and marine insurance companies, other than the "unearned premium" or "reinsurance reserve," known to the general law of insurance.
The District Court rendered a judgment in plaintiff's favor, excluding however the disputed items (218 Fed. Rep. 905); on plaintiff's writ of error the Circuit Court of Appeals reversed this judgment, with instructions to allow the claim in full (224 Fed. Rep. 657); and the case was brought here writ of certiorari.
Plaintiff was chartered by a special act, but is subject to the state insurance law. Its business is confined to fire and marine insurance.
The law of Pennsylvania (Act of June 1, 1911, P.L. 607, 608) creates a State Insurance Commissioner with supervisory control over the companies; provides in § 4 that he shall see that all the laws of the Commonwealth
respecting insurance companies are faithfully executed, authorizing him to make examinations, to have access to all the books and papers of any company, to examine witnesses relative to its affairs, transactions, and condition, to publish the result of his examination when he deems it for the interest of the policy-holders to do so, and to suspend the entire business of any company during its non-compliance with any provision of law obligatory upon it, or whenever he shall find that its assets are insufficient to justify its continuance in business; and whenever he finds any company to be insolvent or fraudulently conducted, or its assets insufficient for the carrying on of its business, he is to communicate the facts to the Attorney General. By § 15 every insurance company is required to file annual ...