Taxation-Federal Income Tax-Strike Insurance Agreements

Contracts indemnifying persons or corporations for losses and damage resulting from an interruption of business due to strikes have existed at least since the beginning of this century. The Mutual Security Company of Connecticut, for example, wrote such a policy for the Buffalo Forge on April 9, 1906. In more recent times, strike insurance agreements have been instituted in major industries, and their impact on collective bargaining has been the subject of some controversy. The purpose of this comment is to consider the federal income tax questions which arise from such arrangements. Specifically, attention is directed to the deductibility of payments constituting the “premium” for strike insurance, with particular emphasis on whether such payments are connected with the business of the transferor and whether deduction would frustrate public policy. Consideration is also given to the tax treatment of the receipts from a strike insurance contract. Taxation of insurance companies offering strike insurance and reciprocal insurance funds as separate entities is not discussed.