S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
City of Charleston, Appellant
v.
Government Employees Insurance Company, Respondent.
and
City of Charleston, Appellant
v.
United Services Automobile
Association, USAA Casualty
Insurance Company, USAA
General Indemnity Company,
and USAA Life Insurance
Company, Respondents.
Appeals From Charleston County
Larry R. Patterson, Circuit Court Judge
Opinion No. 24894
Heard November 17, 1998 - Filed February 8, 1999
REVERSED
Robert G. Clawson, Jr. and Timothy A. Domin, both
of Clawson & Staubes, LLC, of Charleston, for
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CITY OF CHARLESTON v. GEICO and
CITY OF CHARLESTON v. USAA
appellant.
W. Jefferson Leath, of Leath, Bouch, & Crawford;
Stephen P. Groves and John Hamilton Smith, both of
Young, Clement, Rivers & Tisdale; and Gedney M.
Howe, III, of Gedney M. Howe, III, P.A., all of
Charleston, for respondent GEICO.
G. Dana Sinkler and Andrea H. Duenas, both of
Warren & Sinkler, of Charleston; and Stephen H.
Orel and Lorna M. McKenzie, both of LeBeouf, Lamb,
Greene & MacRae, of New York, for respondent
USAA.
Roy D. Bates, and William P. Griggs, both of
Columbia, for amicus curiae Municipal Association of
South Carolina.
FINNEY, C.J.: These consolidated cases involve a challenge by
two national insurance companies (GEICO and USAA) to a business license
Ordinance enacted by appellant City of Charleston (Charleston). The circuit
court struck down the Ordinance as violative of the Commerce Clause,1 and
Charleston appeals. We hold the Ordinance is exempt from Commerce
Clause scrutiny because it was enacted pursuant to the State's delegation2
of its McCarran-Ferguson Act3 immunity. Accordingly, we reverse.
1 U.S. Const. art. 1, 8, el. 3.
2 S.C. Code Ann. 38-7460 (Supp. 1997).
3 15 U.S.C. 1011 thru 1015 (1977).
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CITY OF CHARLESTON v. GEICO and
CITY OF CHARLESTON v USAA
For purposes of these appeals, it is conceded that GEICO and USAA4
are similarly situated. Both write insurance on property and risks located in
Charleston, and both have headquarters out-of-state. Neither maintains an
office, nor owns property or has agents in Charleston. Business is conducted
by interstate mail and telephone. Both companies employ adjusters who live
in South Carolina, but not in Charleston, and occasionally use independent
adjusters or investigators to handle claims within Charleston.
GEICO and USAA refused to pay the amounts due under Charleston's
Ordinance. Charleston brought these suits to recover the money. Each party
filed a summary judgment motion, and in both cases the trial judge granted
the insurance company's motion, striking down the Ordinance as violative of
the Commerce Clause. Since the dispositive issue in each case is identical, we
have consolidated the appeals.
The Commerce Clause implicitly limits the power of the State to burden
interstate commerce, a concept known as the "dormant" or "negative"
Commerce Clause. Prior to 1944, the United States Supreme Court (USSC)
consistently held that insurance was not commerce for purposes of the
Commerce Clause. e.g., Paul v. Virginia, 75 U.S. 168, 8 Wall. 168, 19 L.Ed.
357 (1869). Consequently, the regulation and taxation of the insurance
business was left up to the States, free from any impact by the dormant
Commerce Clause. This policy also permitted insurance companies to
cooperate in sharing data, determining risks, and fixing rates because federal
anti-trust legislation only applied to interstate commerce.
In 1944, in the context of anti-trust litigation, the USSC overruled long
standing precedents and held insurance was commerce within the meaning of
the Commerce Clause. United States v. South-Eastern Underwriters Ass'n,
322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) (South-Eastern). The next
year, Congress responded to South-Eastern by enacting the McCarran-
Ferguson Act, 15 U.S.C. 1011 thru. 1015 (1977). The purpose of the
McCarran-Ferguson Act was to restore regulatory and taxing authority to the
4 TSAA Life is in a somewhat different position, only occasionally using
investigators in Charleston. This distinction does not affect our analysis.
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CITY OF CHARLESTON v. GEICO and
CITY OF CHARLESTON v. USAA
States:
Congress hereby declares that the continued
regulation and taxation by the several States of the
business of insurance is in the public interest, and
that silence on the part of Congress shall not be
construed to impose any barrier to the regulation or
taxation of such business by the several States.
15 U.S.C. 1011.
The business of insurance, and every person engaged
therein, shall be subject to the laws of the several
States which relate to the regulation or taxation of
such business.
15 U.S.C. 1012 (a).
No Act of Congress shall be construed to invalidate,
impair, supersede any law enacted by any State for
the purpose of regulating the business of insurance,
or which imposes a fee or tax upon such business....
15 U.S.C. 1012 (b).
South Carolina responded to the McCarran-Ferguson Act by enacting a
comprehensive insurance law, now codified in Title 38 of the South Carolina
Code of Laws.
Charleston's General Business License Ordinance, 1, provides in
pertinent part:
Every person engaged or intending to engage in any
calling, business, occupation, or profession listed in
the classification index portion of this ordinance, in
whole or in part, within the limits of the City of
Charleston, South Carolina is required to pay an
annual license fee and obtain a business license in
compliance with the terms and conditions of this
ordinance.
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CITY OF CHARLESTON v. GEICO and
CITY OF CHARLESTON v. USAA
Prior to 1994, the Ordinance contained the following provision for
insurance companies:
6300 - Insurance Companies
On gross premiums collected through offices of agents
located in the city, wherever the risk is located, or
collected on policies written on property or risks
located in the City, wherever the premiums are
collected.
Section 6300 was amended effective the 1994 tax year, and now reads:
On gross premiums collected on policies written on
property or risks located in the City, wherever the
premiums are collected.
Solicitation for insurance, receiving or transmitting
an application of policy, examination of a risk,
collection or transmitting of a premium, adjust [sic] a
claim, delivering a benefit or doing any act in
connection with a policy or claim shall constitute
doing business within the city whether or not an
office is maintained therein. A premium collected on
property or a risk located within the City shall be
deemed to have been collected within the City.
It is undisputed that, had the State enacted a tax on gross premiums
such as that imposed by the Ordinance, such a tax would be immune from
Commerce Clause scrutiny by virtue of the McCarran-Ferguson Act. See
Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342
(1946). Charleston contends, and we agree, that the State has delegated this
type of taxing authority to it by enacting S.C. Code Ann. 38-7-160 (Supp.
1997), which specifically permits municipalities to collect a business license
fee or tax based upon insurance premiums collected in the municipality or
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CITY OF CHARLESTON v. GEICO and
CITY OF CHARLESTON v. USAA
realized from risks located therein. The McCarran-Ferguson Act restored to
the States the authority to regulate and tax the business of insurance. This
grant includes the power to enact a statute such as 38-7-160. Accordingly,
the circuit court orders declaring Charleston's Ordinance unconstitutional are
REVERSED.
TOAL, MOORE, WALLER, and BURNETT, JJ., concur.
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