Contemporary Business and Online Commerce Law 7th Edition by Henry R Cheeseman

Exercise 7

Equal Protection Clause The state of Alabama enacted a statute that imposed a tax on premiums earned by insurance companies. The statute imposed a 1 percent tax on domestic insurance companies (i.e., insurance companies that were incorporated in Alabama and had their principal office in the state). The statute imposed a 4 percent tax on the premiums earned by out-of-state insurance companies that sold insurance in Alabama. Out-of-state insurance companies could reduce the premium tax by 1 percent by investing at least 10 percent of their assets in Alabama. Domestic insurance companies did not have to invest any of their assets in Alabama. Metropolitan Life Insurance Company, an out-of-state insurance company, sued the state of Alabama, alleging that the Alabama statute violated the Equal Protection Clause of the U.S. Constitution. Who wins and why? Metropolitan Life Insurance Co. v. Ward, Commissioner of Insurance of Alabama, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, Web 1985 U.S. Lexis 80 (Supreme Court of the United States)

Step 1 of 3

Facts of the Case

• An Alabama statute directed that premiums made by insurance companies subject to taxes.

• Out-of-state life insurance companies need to tax at 3% on account of gross premiums they earn on business operations done in Alabama.

• The remaining out-of-state companies engaged in the task of selling other types of insurance are taxed at a rate of 4%.

• Insurance companies incorporated in Alabama are taxed at a rate of 1% on all kinds of insurance premiums.

• Domestic insurance companies did not have to invest any of its assets in Alabama.

• Metropolitan Life Insurance Co., an out of the state insurance company sued the state of Alabama contending that this rule breaches the Equal Protection Clause and therefore it is unconstitutional.