Retaliation Guide—December 2023
CASE LAW-10 © 2023 National Association of Insurance Commissioners
Chartis Casualty Co. v. Tennessee, 475 S.W.3d 240 (Tenn. 2015). In separate actions, Pennsylvania-
domiciled workers’ compensation insurers doing business in Tennessee filed complaints seeking refund
of retaliatory insurance taxes paid under protest. In each case, the Tennessee Claims Commission issued
five identical judgments denying refunds. The central issue presented is whether Pennsylvania’s
surcharges or assessments for three Workmen’s Compensation funds are imposed upon Tennessee-
domiciled insurance companies doing business in Pennsylvania and, therefore, fall within Tennessee’s
retaliatory insurance premium tax statute. The Tennessee Claims Commission ruled in favor of the state
and all of the Pennsylvania insurance companies appealed. The Court of Appeals affirmed, but on
consolidated review, the Supreme Court reversed the decision and held that amended Pennsylvania
workers’ compensation statute directing that insurers collect assessments for three special funds from
policyholders and remit those payments to the Department of Labor and Industry did not impose direct
financial burden on Tennessee workers’ compensation insurers doing business in Pennsylvania, as basis
for imposing retaliatory insurance tax on Pennsylvania workers’ compensation insurers doing business in
Tennessee.
Myers v. State Bd. of Equalization, 240 Cal. App. 4th 722 (Ct. App. 2d 2015). This case addresses the
issue of whether entities issuing health care service plans (“HCSPs”) can be taxed as insurers under the
California constitution. Plaintiff, taxpayer, filed a writ of mandamus and a declaratory judgment action to
compel state officials to collect a gross premium tax from two entities, Blue Shield and Blue Cross
(collectively, “the Blues”), as insurers, rather than the corporate franchise tax imposed on all other
businesses. Taxpayer argued that the PPO products sold by the Blues, which constitute a majority of their
business, are indemnity health insurance contracts, making them insurers. The Blues filed a demurrer
seeking to dismiss the case, arguing that they were HCSPs under the Knox-Keene Act and not insurers.
The trial court agreed, relying on the fact that, as HCSPs, the Blues were not subject to regulation by the
Department of Insurance. On appeal, the Court of Appeal reversed that decision, finding that taxpayer’s
complaint contained sufficient facts to support that the Blues were insurers subject to the gross premium
tax. Relying on two California Supreme Court cases, the Court held that the trial court should have looked
beyond regulatory labels to determine whether a significant proportion of the Blues’ business was based
on indemnification.
Johnson & Johnson v. Dir., Div. of Taxation & Comm’r, 2019 WL 4658534 (N.J. Super. Ct. App. Div.
2019). Insurance premium tax due by taxpayer was based on all premiums for risks located within United
States, and not solely on allocation of risks within taxpayer’s home state, despite contention that imposing
taxes on risks located outside of home state violated due process. The Tax Court of New Jersey found that
even though risks were not all in taxpayer’s home state, insurance premium tax was excise tax based on
amount of premium paid to taxpayer’s captive insurance subsidiary, and transactions for all United States
policies were connected in some way to taxpayer’s corporate management group in home state, either
through negotiation, placement, issuance of premium payment, or receipt of claims payments.
On appeal to the Superior Court of New Jersey, Appellate Division, the Court reversed the lower court’s
decision. The Court examined the nature of the entity procuring the coverage as well as the intent of the
Nonadmitted and Reinsurance Reform Act (“NRRA”) in creating a home state tax allocation rule. The
subsidiary is a pure captive insurance company providing coverage exclusively to Johnson and Johnson.
The plaintiff challenged the Director’s position that the Legislature intended the home state rule, allowing
New Jersey to collect 5% premium tax regardless of the location of exposure, to apply to independently
procured insurance. The Court agreed with Johnson & Johnson, holding that the plain language of the
state statute limited applicability to surplus lines insurers. The captive was not a surplus lines insurer and
coverage was not procured from a surplus lines’ agent. The Supreme Court of New Jersey affirmed the
Appellate Division’s decision in Johnson & Johnson v. Dir., Div. of Taxation & Comm’r, 244 N.J. 413
(N.J. 2020).