Prudential Insurance v. Benjamin

Background

A New Jersey insurance company, Prudential, challenged South Carolina’s requirement that foreign insurers pay an annual three percent tax on premiums from business done in the state as a condition of getting a license. The tax applies only to out-of-state (foreign) insurance corporations and not to South Carolina corporations. Prudential argued the tax discriminated against interstate commerce and could not stand under prior Supreme Court decisions; South Carolina defended the tax and relied on the recent federal law known as the McCarran Act, which declared state regulation and taxation of insurance to be in the public interest.

Reasoning

The Court assumed, for argument’s sake, that Prudential’s business in the State might be interstate and that the tax might appear discriminatory. It then examined the McCarran Act’s language and context and concluded Congress intended to support existing and future state systems for regulating and taxing insurance. The Court held that Congress’s explicit declaration permits states to continue taxation and regulation of insurance and that coordinated action by Congress and a State carries full governmental authority to sustain such a tax. The Court therefore affirmed the state court’s judgment upholding the tax.

Real world impact

The ruling means states may keep imposing and collecting similar taxes from out-of-state insurance companies so long as Congress has signaled approval like it did in the McCarran Act. The decision resolves Prudential’s challenge against South Carolina’s tax and confirms that Congress can protect state insurance regulation and taxation from commerce-clause attacks.