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Milwaukee Safeguard Insurance Company v. Selcke

July 17, 2001

MILWAUKEE SAFEGUARD INSURANCE COMPANY, ALPHA PROPERTY AND CASUALTY INSURANCE COMPANY, MILWAUKEE MUTUAL INSURANCE COMPANY, MILWAUKEE CASUALTY INSURANCE CO., NATIONAL AMERICAN INSURANCE COMPANY, NORTHWESTERN NATIONAL CASUALTY COMPANY, VASA NORTH ATLANTIC INSURANCE COMPANY, SENTRY LIFE INSURANCE COMPANY, DAIRYLAND INSURANCE COMPANY, SENTRY INSURANCE A MUTUAL COMPANY, LIBERTY MUTUAL FIRE INSURANCE COMPANY, LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, LIBERTY INSURANCE CORPORATION, LIBERTY MUTUAL INSURANCE COMPANY, ALBANY INSURANCE COMPANY, ATLAS ASSURANCE COMPANY OF AMERICA, UTICA MUTUAL INSURANCE COMPANY, GRAPHIC ARTS MUTUAL INSURANCE COMPANY, CUNA MUTUAL INSURANCE SOCIETY, CUMIS INSURANCE SOCIETY, INC., FORTIS INSURANCE COMPANY, MUTUAL SERVICE CASUALTY INSURANCE COMPANY, AUTO-OWNERS INSURANCE COMPANY, OWNERS INSURANCE COMPANY, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN, MORTGAGE GUARANTY INSURANCE CORPORATION, WISCONSIN MORTGAGE ASSURANCE CORPORATION, TRAVELERS CASUALTY & SURETY COMPANY, TRAVELERS CASUALTY SURETY COMPANY OF AMERICA, TRAVELERS COMMERCIAL INSURANCE COMPANY, THE AUTOMOBILE INSURANCE COMPANY OF HARTFORD, CONNECTICUT, FARMINGTON CASUALTY COMPANY, THE PHOENIX INSURANCE COMPANY, THE TRAVELERS HOME AND MARINE INSURANCE COMPANY, THE TRAVELERS INDEMNITY COMPANY, THE TRAVELERS LIFE AND ANNUITY COMPANY, THE TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, THE STANDARD FIRE INSURANCE COMPANY, THE CHARTER OAK FIRE INSURANCE COMPANY, TRAVELERS CASUALTY COMPANY OF CONNECTICUT, CHURCH MUTUAL INSURANCE COMPANY, WEST BEND MUTUAL INSURANCE COMPANY, ROYAL MACCABEES LIFE INSURANCE COMPANY, MOTORS INSURANCE CORPORATION, CIM INSURANCE CORPORATION, MIC PROPERTY AND CASUALTY INSURANCE CORPORATION, MIC LIFE INSURANCE CORPORATION, MIC GENERAL INSURANCE CORPORATION, NATIONAL GENERAL INSURANCE COMPANY, NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, NATIONWIDE LIFE INSURANCE COMPANY, NATIONWIDE GENERAL INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE CO., NATIONWIDE PROPERTY & CASUALTY INSURANCE COMPANY, NATIONAL CASUALTY COMPANY, WAUSAU UNDERWRITERS INSURANCE CO., EMPLOYERS INSURANCE OF WAUSAU A MUTUAL COMPANY, AMERICAN ECONOMY INSURANCE COMPANY, AMERICAN STATES LIFE INSURANCE COMPANY, AMERICAN STATES INSURANCE COMPANY, AMERICAN STATES PREFERRED INSURANCE COMPANY, EMPLOYERS HEALTH INSURANCE COMPANY, AMERICAN CONTINENTAL INSURANCE COMPANY, AMERICAN CONTINENTAL LIFE INSURANCE COMPANY, PHARMACISTS MUTUAL INSURANCE COMPANY, PLAINTIFFS-APPELLANTS AND APPELLEES
v.
STEPHEN F. SELCKE, DIRECTOR, THE DEPARTMENT OF INSURANCE, AND PATRICK QUINN, TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS-APPELLEES AND APPELLANTS



Appeal from the Circuit Court of Cook County No. 93 L 50663, etc. (consolidated) The Honorable Alexander P. White, Judge Presiding

The opinion of the court was delivered by: Justice Cousins

UNPUBLISHED

In this interlocutory appeal filed pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308), the plaintiffs are a group of insurance companies incorporated outside Illinois that filed a complaint against defendants, the Director of the Illinois Department of Insurance and the Treasurer of the State of Illinois. Plaintiffs alleged that they were subject to an unconstitutional privilege tax that was not imposed on domestic insurance companies incorporated in Illinois. The plaintiffs further sought a refund of the privilege tax monies paid by them and deposited into a protest fund.

The trial court found that the privilege tax violated the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §2), as well as the equal protection clauses of the Illinois Constitution (Ill. Const. 1970, art. I, §2) and United States Constitution (U.S. Const., amend. XIV). Defendants appealed. The Illinois Supreme Court affirmed that the privilege tax violated the uniformity clause of the Illinois Constitution and found it unnecessary to consider plaintiffs' equal protection claims. Milwaukee Safeguard Insurance Co. v. Selcke, 179 Ill. 2d 94, 104-05, 688 N.E.2d 68 (1997). The cause was remanded for further proceedings. Selcke, 179 Ill. 2d at 105.

On remand, as the trial court began to consider remedial issues, the defendants asserted the "pass-on" defense, which states: in order for the plaintiffs to be entitled to a tax refund, they must show that they bore the burden of the tax and did not pass it on to their policyholders, thereby receiving a windfall. The trial court held in favor of the defendants, ruling that the pass-on defense applied as a matter of law. The trial court then certified the following four questions for immediate interlocutory appeal: (1) whether the "pass-on defense" applies as a matter of law; (2) whether the plaintiffs have the burden of establishing that they bore the burden of the tax and did not receive a windfall; (3) whether defendants waived the issue of windfall; and (4) whether there should be further proceedings with respect to the amount of the windfall.

BACKGROUND

Plaintiffs are a group of insurance companies doing business in Illinois but incorporated in other states. Beginning in 1993, plaintiffs filed numerous suits challenging a privilege tax that was formerly imposed on foreign insurers. 215 ILCS 5/409 (West 1992). *fn1 As foreign companies, plaintiffs were required to pay a tax equal to 2% of their net premium income "for the privilege of doing business in this State." 215 ILCS 5/409(1) (West 1992). In count I of their complaints, plaintiffs sought a declaration that the privilege tax was unconstitutional and an order for a refund of the protested payments. In count II, plaintiffs sought a declaration that if the privilege tax was found to be unconstitutional, they would not be required to pay an additional retaliatory tax under section 444 of the Insurance Code. 215 ILCS 5/444 (West 1992). Plaintiffs each paid the privilege tax under protest. 30 ILCS 230/2a.1 (West 1992). The trial court consolidated the suits.

In 1996, the trial court granted plaintiffs' motion for partial summary judgment on count I. The trial court held that the privilege tax unconstitutionally discriminated against foreign insurers in violation of the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §2) and the equal protection clauses of the Illinois Constitution (Ill. Const. 1970, art. I, §2) and the United States Constitution (U.S. Const., amend. XIV).

On October 23, 1997, the Illinois Supreme Court affirmed the trial court's decision, declaring that the privilege tax was unconstitutional under the uniformity clause because it exempted domestic insurance companies that met certain qualifications from payment of the tax but required foreign companies that met those same qualifications to pay the tax. Selcke, 179 Ill. 2d at 101-03. The court held that this requirement violated the uniformity clause because it was not reasonably related to any real and substantial difference between foreign and domestic insurance companies. Selcke, 179 Ill. 2d at 101-03. The cause was remanded for further proceedings.

After the Illinois Supreme Court's ruling, defendants paid refunds of the privilege tax to two plaintiffs. On remand, the trial court granted plaintiffs' motion for partial summary judgment on count II in June 1999, holding that retrospective application of the retaliatory tax would unconstitutionally discriminate against plaintiffs. Defendants filed a motion for reconsideration of the court's decision on count II. Although the motion was fully briefed and argued to the trial court in September 1999, the trial court has not yet ruled on that motion.

On February 8, 2000, defendants filed a motion to postpone ruling on their reconsideration motion, asking the court to delay its ruling because there might be arguments not made previously that bore on the constitutionality of the application of the retaliatory tax. Plaintiffs filed a motion to strike defendants' motion to postpone ruling. In response, on March 9, 2000, defendants raised the pass-on defense for the first time, arguing that plaintiffs should not be unjustly enriched by a tax refund or credit that they passed on to their policyholders. Defendants also indicated that the Governor had appointed a task force to draft an executive order to help resolve remedial issues raised in Selcke.

On May 23, 2000, defendants filed a discovery motion to proceed on the windfall issue. In the motion, defendants argued that the pass-on defense was applicable to these proceedings, that the plaintiffs had the burden to prove that they did not pass on the expense to their policyholders, and that the court should grant defendants discovery with respect to the pass-on defense. Plaintiffs opposed the discovery motion at a hearing two days later on May 25, arguing that the court should reject the pass-on defense as a matter of law. Plaintiffs also argued that defendants had waived their right to assert the pass-on defense.

On June 1, 2000, the trial court ruled in favor of defendants concerning the availability of the pass-on defense. The court then issued an order certifying four questions relating to the availability of the pass-on defense, noted above, for immediate interlocutory appeal pursuant to Rule 308.

Plaintiffs filed a timely application for leave to appeal on June 15, 2000. Although defendants were the prevailing party on the certified issues and not required to petition for leave to appeal, defendants also filed an application for leave to appeal. The court ...


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