Ending a putative class motion, america Court docket of Appeals for the Fifth Circuit examined coverage language and two statutes to carry that an insurer doesn’t owe gross sales tax on prime of an precise money worth fee. The quotation is Taylor v. Root Ins. Co., 2024 U.S. App. LEXIS 18240 (fifth Cir. July 24, 2024).
The policyholder’s contract offered:
Restrict of legal responsibility
A. Our restrict of legal responsibility for loss would be the lesser of the:
1. Precise money worth of the stolen or broken property much less the deductible; or
2. Quantity essential to restore or substitute the property with different property of like variety and high quality much less the deductible.
. . . .
Cost of loss
We might pay for loss in cash or restore or substitute the broken or stolen property. We might, at our expense, return any stolen property to:
1. You; or
2. The deal with proven on this coverage.
If we return stolen property we can pay for any injury ensuing from the theft. We might preserve all or a part of the property at an agreed or appraised worth.
If we pay for loss in cash, our fee will embody the relevant gross sales tax for the broken or stolen property. We might settle any loss with you or the proprietor or lienholder of the property.
Emphasis added.
The insurer decided that the policyholder sustained a complete loss to her hail-damaged automobile. The insurer paid $22,750 to the policyholder in alternate for her automobile’s title, however didn’t pay gross sales tax. The policyholder sued, alleging breach of contract and violation of Texas Insurance coverage Code Chapter 542, Immediate Cost of Claims. The policyholder asserted that she was owed 6.25% gross sales tax pursuant to Texas Tax Code §152.021 which states: “A tax is imposed on each retail sale of each motorized vehicle offered on this state. . . . The tax fee is 6 1/4 % of the entire consideration.”
The Court docket rejected the allegations and held:
The plain language of the coverage requires Root to pay solely the “relevant gross sales tax,” and there’s no gross sales tax relevant right here. The Texas Tax Code imposes a 6.25 % tax “on each retail sale” of a motorized vehicle, id., however a total-loss settlement “is just not thought-about a sale” below Texas legislation, 34 Tex. Admin. Code § 3.62. Taylor identifies no different gross sales tax that might apply. Moreover, Root happy its obligation to pay Taylor the precise money worth of the automobile. We so maintain as a result of, as Taylor concedes and as this court docket lately held, precise money worth, which is the equal of “honest market worth[,] doesn’t embody the taxes and costs payable to buy a substitute automobile” below Texas legislation.
Thus, the Court docket decided that the insurer didn’t breach the contract as a result of the insurer was not required to pay the policyholder gross sales tax along with ACV. As a result of the insurer didn’t owe gross sales tax, the Court docket held that the insurer couldn’t be accountable for violation of Texas Insurance coverage Code Chapter 542.
Taylor is considerably restricted in its utility as a result of the Court docket’s holding will depend on statutes governing cars, relatively than actual property. Nonetheless, courts could be guided by this holding on different contexts.
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