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Validus Reinsurance, Ltd. v. United States

United States Court of Appeals, District of Columbia Circuit

May 26, 2015


Argued February 20, 2015

Appeal from the United States District Court for the District of Columbia. (No. 1:13-cv-00109).

Ellen Page DelSole, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Tamara W. Ashford, Acting Assistant Attorney General, Ronald C. Machen, Jr., U.S. Attorney, and Gilbert S. Rothenberg and Richard Farber, Attorneys.

Joseph R. Guerra argued the cause for appellee. With him on the brief were Erika L. Maley, R. Lee Christie, and Tracy D. Williams.

M. Kristan Rizzolo was on the brief for amici curiae International Underwriting Association of London, Ltd., et al. in support of appellee.

Before: ROGERS and BROWN, Circuit Judges, and GINSBURG, Senior Circuit Judge.


Page 1040

Rogers, Circuit Judge

The United States appeals the grant of summary judgment to Validus Reinsurance, Ltd., in its suit for the refund of excise taxes imposed under 26 U.S.C. § 4371, which taxes certain types of " reinsurance." Validus, a foreign reinsurer, paid the excise tax on reinsurance policies it had purchased from other foreign reinsurance companies. The government contends that " the best reading of the statute" establishes its applicability to reinsurance purchased by a reinsurer because such

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policies (known as " retrocessions" ) are " a type of reinsurance," Appellant's Br. 24, and also that interpretation carries out Congress's intent " to level the playing field" between domestic (U.S.) insurance companies subject to U.S. income taxes and foreign insurance companies that are not so burdened, id. at 21. Validus responds that the plain text, considered in the context of reinsurance, and the statutory structure make clear the excise tax does not apply to retrocessions, and further, the presumption against extraterritoriality resolves any doubt that the tax is inapplicable to Validus's purchases of reinsurance from a foreign reinsurer ( i.e., to wholly foreign retrocessions). Because both parties offer plausible interpretations, we conclude that the text of the statute is ambiguous with respect to its application to wholly foreign retrocessions. The ambiguity is resolved upon applying the presumption against extraterritoriality because there is no clear indication by Congress that it intended the excise tax to apply to premiums on wholly foreign retrocessions. Accordingly, we affirm the grant of summary judgment, albeit on narrower grounds, on Validus's refund claims.


Validus, a foreign corporation, both (1) sells reinsurance to insurance companies, including insurance companies that are incorporated in the United States or do business in the United States, and (2) purchases reinsurance to protect itself against losses suffered on the reinsurance policies it sells. The former, or first-level reinsurance, is not at issue here. Rather, what is at issue is second-level reinsurance ( i.e., " retrocessions" ) where the purchase and sale of reinsurance occurs outside of the United States between foreign reinsurance companies. Validus seeks refunds only with respect to the excise taxes imposed on nine reinsurance policies that it purchased from wholly foreign insurance companies.


According to the parties' joint statement of undisputed material facts, Validus is a corporation organized under the laws of Bermuda with its principal place of business in Bermuda. It is in the reinsurance business, providing insurance to insurance companies. During the relevant period, Validus did not conduct business in the United States. Although Validus does not itself operate in the United States, it sells reinsurance to insurance companies that sell policies covering risks, liabilities, and hazards within the United States.

Validus also buys insurance covering portions of its own reinsurance agreements. Transactions in which a reinsurer buys reinsurance are known as " retrocessions," and the party selling retrocessions is a " retrocessionaire." Section 4371, in subchapter A of chapter 34 of the Internal Revenue Code, taxes premiums on certain policies of insurance and reinsurance issued by foreign insurers. Validus paid the 2006 excise tax under section 4371 on premiums for nine retrocessions, all purchased from foreign retrocessionaires. These policies were negotiated, executed, and performed outside the United States and are herein referred to as wholly foreign retrocessions.

The Internal Revenue Service (" IRS" ) determined that Validus owed section 4371 excise taxes on the portions of its 2006 wholly foreign retrocessions relating to underlying U.S. risks. Validus paid the assessed tax, with interest, and timely filed claims for refunds under 26 U.S.C. § 6511, on the grounds that the excise tax did not apply and, alternatively, that if it did, then the tax was unconstitutional. When the IRS did not act on the refund claims within

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six months, Validus filed suit in the federal district court.

The district court granted summary judgment to Validus, ruling that, under the plain text of section 4371(3), the excise tax reached only reinsurance policies (level one), not retrocessions (level two). Validus Reinsurance, Ltd. v. United States, 19 F.Supp.3d 225, 229 (D.D.C. 2014). The government contends that the district court erred because it focused on section 4371, the provision setting the tax rate, in isolation and as a result " adopted an overly narrow interpretation" of the statutory term " policy of reinsurance," failing to give effect to other relevant statutory text. Appellant's Br. 27. Our review of the grant of summary judgment is de novo. See McCormick v. District of Columbia, 752 F.3d 980, 986, 410 U.S. App.D.C. 31 (D.C. Cir. 2014). Our ...

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