Watson v. Employers Liab. Assur. Corp., Ltd., 348 U.S. 66 (1954)

Author: Justice Black

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Watson v. Employers Liab. Assur. Corp., Ltd., 348 U.S. 66 (1954)

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 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 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, 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 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}

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 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 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; 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 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 Assn. v. Commission, 294 U.S. 532, 544-550. See Griffin v. McCoach, 313 U.S. 498, 506-507. 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. Commission, 306 U.S. 493, 503. But cf. John Hancock Mut. Life Ins. Co. v. Yates, 299 U.S. 178; Hughes v. Fetter, 341 U.S. 609.

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. 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.


1. Title 22, La.Rev.Stat. 1950.

2. The insurance policy was issued to "The Toni Company, a Division of the Gillette Safety Razor Company. . . ." Gillette is a Delaware Corporation, with headquarters in Boston, where the contract was negotiated with the Boston office of Employers. The Toni Company manufactures the hair-waving product in Chicago, Illinois.


12. Action Against Company. No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured’s obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.

Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy. Nothing contained in this policy shall give any person or organization any right to join the company as a co-defendant in any action against the insured to determine the insured’s liability.

Bankruptcy or insolvency of the insured or of the insured’s estate shall not relieve the company of any of its obligations hereunder.


The injured person or his or her heirs at their option, shall have a right of direct action against the insurer within the terms and limits of the policy in the parish where the accident or injury occurred or in the parish where the insured has his domicile, and said action may be brought against the insurer alone or against both the insured and the insurer, jointly and in solido. This right of direct action shall exist whether the policy of insurance sued upon was written or delivered in the State of Louisiana or not and whether or not such policy contains a provision forbidding such direct action, provided the accident or injury occurred within the State of Louisiana. . . . It is the intent of this Section that any action brought hereunder shall be subject to all of the lawful conditions of the policy or contract and the defenses which could be urged by the insurer to a direct action brought by the insured, provided the terms and conditions of such policy or contract are not in violation of the laws of this state.

La.Rev.Stat. 1950, § 22:655, as amended by Act 541 of the Louisiana Legislature of 1950. As to the scope of this provision according to Louisiana courts, see Rome v. London & Lancashire Indemnity Co. of America, La.App., 169 So. 132.


No certificate of authority to do business in Louisiana shall be issued to a foreign or alien liability insurer until such insurer shall consent to being sued by the injured person or his or her heirs in a direct action as provided in Section 655 of this Title, whether the policy of insurance sued upon was written or delivered in the State of Louisiana or not, and whether or not such policy contains a provision forbidding such direct action, provided that the accident or injury occurred within the State of Louisiana. The said foreign or alien insurer shall deliver to the Secretary of State as a condition precedent to the issuance of such authority, an instrument evidencing such consent.

La.Rev.Stat. 1950, § 22:983, as amended by Act 542 of the Louisiana Legislature of 1650.

6. The District Court relied in part on its prior opinions in Mayo v. Zurich General Accident & Liability Ins. Co., 106 F.Supp. 579; Bayard v. Traders & General Ins. Co., 99 F.Supp. 343; Bish v. Employers’ Liability Assurance Corp., 102 F.Supp. 343.

7. 28 U.S.C. § 1254(2). In addition to noting probable jurisdiction of this cause, we granted certiorari. 347 U.S. 958. Since the case is properly here on appeal, the certiorari is dismissed.


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Chicago: Black, "Black, J., Lead Opinion," Watson v. Employers Liab. Assur. Corp., Ltd., 348 U.S. 66 (1954) in 348 U.S. 66 348 U.S. 68–348 U.S. 74. Original Sources, accessed September 29, 2022, http://www.originalsources.com/Document.aspx?DocID=4VMMYZXLIMAC2PL.

MLA: Black. "Black, J., Lead Opinion." Watson v. Employers Liab. Assur. Corp., Ltd., 348 U.S. 66 (1954), in 348 U.S. 66, pp. 348 U.S. 68–348 U.S. 74. Original Sources. 29 Sep. 2022. http://www.originalsources.com/Document.aspx?DocID=4VMMYZXLIMAC2PL.

Harvard: Black, 'Black, J., Lead Opinion' in Watson v. Employers Liab. Assur. Corp., Ltd., 348 U.S. 66 (1954). cited in 1954, 348 U.S. 66, pp.348 U.S. 68–348 U.S. 74. Original Sources, retrieved 29 September 2022, from http://www.originalsources.com/Document.aspx?DocID=4VMMYZXLIMAC2PL.