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Click here for the full text of this decision FACTS:Lexington Insurance Company, Landmark Insurance Company, and American International Specialty Lines Insurance Company are all surplus line insurers who are not licensed in Texas, but are eligible to issue surplus lines insurance in the state because they’ve met certain minimum capital and surplus requirements mandated by the Texas Insurance Code. In auditing the insurers from 1992 to 1995, the state comptroller found tax deficiencies ranging from nearly $152,000 to more than $6.9 million. To conduct the audits and deficiency determinations, the comptroller used records obtained from the surplus lines stamping office, which is created under the insurance code to review and record surplus lines insurance contracts placed by licensed Texas surplus lines agents and to assist the commissioner of insurance in evaluating the eligibility of surplus lines insurers. Texas-licensed surplus lines agents must file a copy of every policy placed through them with the stamping office within sixty days of a policy’s effective or issue date. The comptroller assessed the taxes on policies that were not reported to the surplus lines stamping office by licensed Texas surplus lines agents. Though each procedural route was different, the three insurers each filed redetermination requests with the comptroller, research commenced on the accounts, each paid the taxes assessed under protest and each filed suit for judicial review of the agency determination. The three consolidated their suits in 2001, and ordering the comptroller to refund the taxes, a trial court granted their motion for summary judgment, which argued that the former Insurance Code Art. 1.14-1, �11(a) did not apply to eligible surplus lines insurers, so they were entitled to a refund of the taxes paid under protest. Former Art. 1.14-1, entitled “Unauthorized Insurance,” affords the Board of Insurance and Texas courts personal jurisdiction over an out-of-state insurer doing business in Texas without a certificate of authority from the board. Before 1993, �11 of the article required unauthorized insurers to pay to the board a premium-receipts tax: “[e]xcept as to premiums on lawfully procured surplus lines insurance and premiums on independently procured insurance on which a tax has been paid pursuant to this Article or Article 1.14-2, every unauthorized insurer shall pay . . . a premium receipts tax of 4.85 percent of gross premiums charged.” On appeal, the comptroller argues: 1. the trial court did not have jurisdiction over the refund suits because the insurers did not exhaust administrative remedies; 2. the trial court did not have jurisdiction to render declaratory judgment because such action cannot stand on its own in the absence of a refund suit; and 3. the insurers are liable for the unauthorized insurance premium tax because they failed to comply with statutory requirements to lawfully conduct surplus lines insurance. HOLDING:Reversed and remanded. The comptroller argues that although the protest letters and tax payments set the stage for a protest suit under Tax Code �112.052, such a suit was required to be filed within 90 days of the letters’ submission, which they weren’t. The insurers counter that they were not filing a protest suit, but were asking for refunds, even if their letters did not include the word “refund.” They also point out that they filed motions for rehearing, which is an administrative requirement, and they filed suit within the required time frame after those motions were denied. Confirming that the tax code envisions two different sets of procedures for protest and refund suits, the court says it is “difficult” to conclude that the protest letters, by themselves, could be considered refund claims. They more clearly lay the ground for a protest suit under the tax code. However, instead of analyzing the letters on their own, the court looks to the context in which they were filed. By the time the insurers filed their letters, they had already been “embroiled in conflict” over the comptroller’s interpretation of the former Art. 1.14-1, �11(a). They had long asserted their legal arguments that they were authorized insurers. And both sides were well aware of the other side’s position. While noting that the policy of the exhaustion-of-administrative-remedies doctrine is to allow agencies to resolve disputed issues of fact and policy, and to assure that the appropriate body adjudicates the dispute, the court also notes several exceptions to this doctrine, such as 1. where an injunction is sought and irreparable harm would result; 2. where the administrative agency cannot grant the requested relief; 3. when the issue presented is purely a question of law; 4. where certain constitutional issues are involved; and 5. where an administrative agency purports to act outside its statutory powers. After the lengthy process that has occurred in this case, the policy behind the exhaustion doctrine is not served by denying the insurers their day in court. Consequently, the court concludes that the insurers have substantially met the requirements of filing refund claims, and the court has jurisdiction over the appeal. The court rules that a declaratory judgment action was permissible in conjunction with the insurers’ refund suit. Nonetheless, the court agrees with the comptroller on the merits. Liability for the premium-receipts tax hinges on whether an insurer is “unauthorized.” To determine if the insurers are unauthorized, the court looks to former Art. 1.14-1, �2, which broadly defines acts that can constitute doing insurance business in Texas. The court interprets the section as saying that an insurer has conducted the unauthorized business of insurance when it engages in any of the listed transactions, such as collecting premiums, in a manner not specifically authorized by statute. The court then turns to former Art. 1.14-2 to determine in what manner a surplus lines insurer is authorized to conduct insurance business in Texas. That statute “reveals a clear legislative intent” that surplus lines insurance be secured through a licensed Texas agent. Consequently, the court concludes that surplus lines insurers who do not place surplus lines insurance through a licensed Texas surplus lines agent have engaged in unauthorized insurance and become “unauthorized insurers” liable for the premium tax under the former code section. Only an insurer who receives premiums on independently procured insurance on which a premium-receipts tax has been paid is excepted from this liability. OPINION:Smith, J.; Law, Smith and Patterson, JJ.

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