348 U.S. 66 (1954), 6, Watson v. Employers Liability Assurance Corporation, Ltd.

Docket Nº:No. 6
Citation:348 U.S. 66, 75 S.Ct. 166, 99 L.Ed. 74
Party Name:Watson v. Employers Liability Assurance Corporation, Ltd.
Case Date:December 06, 1954
Court:United States Supreme Court
 
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348 U.S. 66 (1954)

75 S.Ct. 166, 99 L.Ed. 74

Watson

v.

Employers Liability Assurance Corporation, Ltd.

No. 6

United States Supreme Court

Dec. 6, 1954

Argued October 14, 1954

APPEAL FROM THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

1. A Louisiana statute which allows persons injured in Louisiana to bring direct actions against liability insurance companies insuring the tortfeasors held constitutional, even when applied to a policy written and delivered in another state which recognizes as binding and enforceable a provision of the policy forbidding such direct actions. Pp. 67-74.

(a) Since Louisiana's direct action provisions fall with equal force upon all liability insurance companies, foreign and domestic, and there is no evidence of any discriminatory application of them, they do not violate the Equal Protection Clause. P. 70.

(b) Since the direct action provisions became effective before the insurance contract here sued on was made, they do not violate the Contract Clause of Art. I, § 10, of the Constitution. P. 70.

(c) In view of Louisiana's legitimate interest in safeguarding the rights of persons injured there, the direct action provisions do not violate the Due Process Clause. Home Ins. Co. v. Dick, 281 U.S. 397, and Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143, distinguished. Pp. 70-73.

(d) The Full Faith and Credit Clause does not compel Louisiana to subordinate its direct action provisions to the contract laws of Massachusetts, where this insurance policy was issued. P. 73.

(e) Louisiana's law compelling foreign insurance companies to consent to direct actions does not violate the Due Process Clause of the Fourteenth Amendment. Pp. 73-74.

2. Provisions of Louisiana's statute having been held invalid as repugnant to the Federal Constitution, this case is properly here on appeal, and the writ of certiorari is dismissed. P. 70 and n. 7.

202 F.2d 407 reversed.

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BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

Louisiana has an insurance code which comprehensively regulates the business of insurance in all its phases.1 This case brings to us challenges to the constitutionality of certain provisions of that code allowing injured persons to bring direct actions against liability insurance companies that have issued policies contracting to pay liabilities imposed on persons who inflict injury. Cf. Lumbermen's Mutual Casualty Co. v. Elbert, decided today, ante, p. 48. This is such a direct action brought by the appellants, Mr. and Mrs. Watson, in a Louisiana state court claiming damages against the appellee, Employers Liability Assurance Corporation, Ltd., on account of alleged personal injuries suffered by Mrs. Watson. The complaint charged that the injuries occurred in Louisiana when Mrs. Watson bought and used in that State "Toni Home Permanent," a hair-waving product alleged to have contained a highly dangerous latent ingredient put there by its manufacturer. The manufacturer is the Toni Company of Illinois, a subsidiary of the Gillette Safety Razor Company, which has its headquarters in Massachusetts.

The particular problem presented with reference to enforcing the Louisiana statute in this case arises because the insurance policy sued on was negotiated and issued in Massachusetts, and delivered in Massachusetts and Illinois.2 This Massachusetts-negotiated contract contains

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a clause, recognized as binding and enforceable under Massachusetts and Illinois law, which prohibits direct actions against the insurance company until after final determination of the Toni Company's obligation to pay personal injury damages either by judgment or agreement.3 Contrary to this contractual "no action" clause, the challenged [75 S.Ct. 168] statutory provisions permit injured persons to sue an insurance company before such final determination. As to injuries occurring in Louisiana, one provision of the State's direct action statute makes it applicable even though, as here, an insurance contract is made in another state and contains a clause forbidding such direct actions.4 Another Louisiana statutory provision,

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with which Employers long ago complied, compels foreign insurance companies to consent to such direct suits in order to get a certificate to do business in the State.5 The basic issue raised by the attack on both these provisions is whether the Federal Constitution forbids Louisiana to apply its own law, and compels it to apply the law of Massachusetts or Illinois.

After the case was removed to the United States District Court because of diversity, Employers moved to dismiss, contending that the two Louisiana statutory provisions contravened the Equal Protection, Contract, Due Process, and Full Faith and Credit Clauses of the Federal Constitution. With emphasis on the due process contention, the District Court dismissed the case, holding both statutory provisions unconstitutional as to policies written and delivered outside the State of Louisiana. 107

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F.Supp. 494.6 The Court of Appeals agreed with the District Court, and affirmed the dismissal. 202 F.2d 407. Provisions of Louisiana's statutes having been held invalid as repugnant to the Federal Constitution, the case is properly here on appeal.7

[75 S.Ct. 169] The denial of equal protection and impairment of contract contentions are wholly void of merit. The State's direct action provisions fall with equal force upon all liability insurance companies, foreign and domestic. Employers points to no other provisions of the Louisiana law or to facts of any nature which give the slightest support to any charge of discriminatory application of the direct action statute. And since the direct action provisions became effective before this insurance contract was made, there is a similar lack of substantiality in the suggestion that Louisiana has violated Art. I, § 10, of the United States Constitution, which forbids states to impair the obligation of contracts. Munday v. Wisconsin Trust Co., 252 U.S. 499, 503.

Had the policy sued on been issued in Louisiana, there would be no arguable due process question. See Merchants Mutual Auto. Liability Ins. Co. v. Smart, 267 U.S. 126, 129-130. But because the policy was bought, issued, and delivered outside of Louisiana, Employers invokes the due process principle that a state is without power to exercise "extraterritorial jurisdiction," that is, to regulate and control activities wholly beyond its boundaries. Such a principle was recognized and applied in Home Ins. Co. v. Dick, 281 U.S. 397, a case strongly relied on by

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Employers. There, Texas was denied power to alter the terms of an insurance contract made in Mexico between persons then in that country, covering a vessel only while in Mexican waters and containing a provision that the contract was to be governed the laws of Mexico. Thus, the subject matter of the contract related in no manner to anything that had been done or was to be done in Texas. For this reason, Texas was denied power to alter the obligations of the Mexican contract. But this Court carefully pointed out that its decision might have been different had activities relating to the contract taken place in Texas upon which the State could properly lay hold as a basis for regulation. Home Ins. Co. v. Dick, supra, at 408, note 5. The extraterritorial due process doctrine was again applied in Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143. That case denied the power of Mississippi to alter terms of an insurance contract made in Tennessee. Mississippi activities in connection with the policy were found to be so "slight" and so "casual" that Mississippi could not apply its own law in such way as to enlarge the obligations of the Tennessee contract. Again, however, the Court carefully noted that there might be future cases in which the terms of out-of-state contracts would be so repugnant to the vital interests of the forum state as to justify nonenforcement. Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., supra, at 150. See also Griffin v. McCoach, 313 U.S. 498, and cases there cited.

Some contracts made locally, affecting nothing but local affairs, may well justify a denial to other states of power to alter those contracts. But, as this case illustrates, a vast part of the business affairs of this Nation does not present such simple local situations. Although this insurance contract was issued in Massachusetts, it was to protect Gillette and its Illinois subsidiary against damages on account of personal injuries that might be

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suffered by users of Toni Home Permanents anywhere in the United States, its territories, or in Canada. As a consequence of the modern practice of conducting widespread business activities throughout the entire United States, this Court has, in a series of cases, held that more states than one may seize hold of local activities which are part of multistate transactions, and may regulate to protect interests of its own people even though other phases of the same transactions might justify regulatory [75 S.Ct. 170] legislation in other states. See, e.g., Osborn v. Ozlin, 310 U.S. 53; Hoopeston Canning Co. v. Cullen, 318 U.S. 313; Alaska Packers Assn. v. Commission, 294 U.S. 532.

Louisiana's direct action statute is not a mere intermeddling in affairs beyond her boundaries which are no concern of hers. Persons injured or killed in Louisiana are most likely to be Louisiana residents, and even if not, Louisiana may have to care for them. Serious injuries may require treatment in Louisiana...

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