California Court Rules for Surplus Lines Insurers on Taxes

September 11, 2009

A Los Angeles court has ruled that surplus lines insurers need not pay California’s 2.3 percent of gross premiums tax that admitted insurers pay, as well as the 3 percent surplus lines-premiums tax the state imposes.

In the case, Los Angeles Superior Court Judge Holly Kendig ruled that the 2.3 percent tax applies only to admitted insurers, and not to surplus line providers.

The case, which was known as Silvers versus the State Board of Equalization, was filed in April 2008. It sought to have the Lexington Insurance Company, for one, pay back gross premiums tax for the previous 5 years.

The case garnered much attention in the surplus-lines industry, and a number of groups joined together to file an amicus curiae brief with the court in support of Lexington and the others. The groups included the California Insurance Wholesalers Association and the Surplus Lines Association of California.

The groups’ brief argued that the position that surplus lines insurers should have to pay both taxes was contrary to 70 years of case law and legislative history in California.

“Had plaintiffs prevailed, the impact of this double tax would have had a significant detrimental upon surplus lines insurers (and their brokers) and would have increased significantly their cost of doing business,” said the law firm that prepared the amicus curiae brief, Dewey and LeBoeuf, in a statement.

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