So You Think You Know The Law

January 2020

TRUE OR FALSE?

If small insurance companies have net written premiums or direct written premiums that do not exceed $2.2 million, they will be taxed on earned premiums.

FALSE. If the company elects to be treated as a “micro-captive” under the tax law, the insurance company would only be taxed on investment income, not earned premiums, but the company must prove it transacts in “insurance,” which is based on a number of factors determined by the courts.

TRUE OR FALSE?

An average rate-on-line is an insurance policy’s premium divided by the occurrence limit.

TRUE. With ahigher ROL indicating that the insured has to pay more per dollar of coverage.

TRUE OR FALSE?

In an arm’s-length contract, an insurance purchaser would want to negotiate lower premiums instead of higher premiums.

TRUE. In this instance, the court concludedthat the policies were not arm’s-length contracts due in part to an email from Highland to Alta terminating the program because of a decrease in premiums. The fact that Highland sought higher premiums led the court to believe the contracts were aimed at increasing deductions.

BONUS QUESTION!

What does syzygy mean?

ANSWER. Syzygy means the nearly straight-line configuration of three celestial bodies (such as the sun, moon, and earth during a solar or lunar eclipse) in a gravitational system.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.