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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. 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.

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 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

investigators in Charleston. This distinction does not affect our analysis.

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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. 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. 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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