Watson v. Employers Liability Assurance Corporation/Opinion of the Court

Louisiana has an insurance code which comprehensively regulates the business La., for appellee and respondent.

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. 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, 348 U.S. 48, 75 S.Ct. 151. 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. This Massachusetts-negotiated contract contains 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. Contrary to this contractual 'no action' clause, the challenged 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. Another Louisiana statutory provision, 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. 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 F.Supp. 494. 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.

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, 40 S.Ct. 365, 366, 64 L.Ed. 684.

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, 45 S.Ct. 320, 321, 69 L.Ed. 538. 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 'extra territorial jurisdiction,' that is, to regulate and control activites wholly beyond its boundaries. Such a principle was recognized and applied in Home Ins. Co. v. Dick, 281 U.S. 397, 50 S.Ct. 338, 74 L.Ed. 926, a case strongly relied on by 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, 281 U.S. at page 408, note 5, 50 S.Ct. 341. The extra territorial due process doctrine was again applied in Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143, 54 S.Ct. 634, 78 L.Ed. 1178. 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, 292 U.S. at page 150, 54 S.Ct. 636. See also Griffin v. McCoach, 313 U.S. 498, 61 S.Ct. 1023, 85 L.Ed. 1481, 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 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 legislation in other states. See, e.g., Osborn v. Ozlin, 310 U.S. 53, 60 S.Ct. 758, 84 L.Ed. 1074; Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 63 S.Ct. 602, 87 L.Ed. 777; Alaska Packers Ass'n v. Industrial Accident Commission, 294 U.S. 532, 55 S.Ct. 518, 79 L.Ed. 1044.

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 homes or hospitals by Louisiana doctors. The injured may be destitute. They may be compelled to call upon friends, relatives, or the public for help. Louisiana has manifested its natural interest in the injured by providing remedies for recovery of damages. It has a similar interest in policies of insurance which are designed to assure ultimate payment of such damages. Moreover, Louisiana courts in most instances provide the most convenient forum for trial of these cases. But modern transportation and business methods have made it more difficult to serve process on wrongdoers who live or do business in other states. In this case efforts to serve the Gillette Company were answered by a motion to dismiss on the ground that Gillette had no Louisiana agent on whom process could be served. If this motion is granted, Mrs. Watson, but for the direct action law, could not get her case tried without going to Massachusetts or Illinois although she lives in Louisiana and her claim is for injuries from a product bought and used there. What has been said is enough to show Louisiana's legitimate interest in safeguarding the rights of persons injured there. In view of that interest, the direct action provisions here challenged do not violate due process.

What we have said above goes far toward answering the Full Faith and Credit Clause contention. That clause does not automatically compel a state to subordinate its own contract laws to the laws of another state in which a contract happens to have been formally executed. Where, as here, a contract affects the people of several states, each may have interests that leave it free to enforce its own contract policies. Alaska Packers Ass'n v. Industrial Accident Commission, 294 U.S. 532, 544-550, 55 S.Ct. 518, 522-525, 79 L.Ed. 1044. See Griffin v. McCoach, 313 U.S. 498, 506-507, 61 S.Ct. 1023, 1027, 85 L.Ed. 1481. We have already pointed to the vital interests of Louisiana in liability insurance that covers injuries to people in that State. Of course Massachusetts also has some interest in the policy sued on in this case. The insurance contract was formally executed in that State and Gillette has an office there. But plainly these interests cannot outweigh the interest of Louisiana in taking care of those injured in Louisiana. Since this is true, the Full Faith and Credit Clause does not compel Louisiana to subordinate its direct action provisions to Massachusetts contract rules. Pacific Employers Ins. Co. v. Industrial Accident Commission, 306 U.S. 493, 503, 59 S.Ct. 629, 633, 83 L.Ed. 940. But cf. John Hancock Mut. Life Ins. Co. v. yates, 299 U.S. 178, 57 S.Ct. 129, 81 L.Ed. 106; Hughes v. Fetter, 341 U.S. 609, 71 S.Ct. 980, 95 L.Ed. 1212.

What we have already said disposes of the contention that Louisiana's law compelling foreign insurance companies to consent to direct actions is unconstitutional. That contention is that the Due Process Clause of the Fourteenth Amendment forbids a state to compel a foreign corporation to surrender constitutional rights as a condition of being permitted to do business in the state. See Terral v. Burke Construction Co., 257 U.S. 529, 42 S.Ct. 188, 66 L.Ed. 352. That principle is inapplicable to this case because, as we have just decided, Louisiana has a constitutional right to subject foreign liability insurance companies to the direct action provisions of its laws whether they consent or not.

Reversed.