Watson v. Employers Liability Assurance Corp.

Background

A Louisiana woman and her husband sued a foreign insurance company after she was injured using a hair-waving product bought and used in Louisiana. The product-maker is an Illinois company owned by Gillette, whose headquarters were in Massachusetts. The disputed insurance policy was negotiated and issued in Massachusetts and delivered in Massachusetts and Illinois, and it included a "no-action" clause that barred direct suits against the insurer until the manufacturer’s liability was finally decided. Louisiana statutes, however, allow injured people to sue insurers directly for injuries occurring in the State and require foreign insurers to consent to such suits as a condition of doing business there.

Reasoning

The core question was whether Louisiana must apply the law of Massachusetts or Illinois to the out-of-state insurance contract, or whether it may apply its own rules to protect people injured in Louisiana. The Court found Louisiana has a legitimate, strong interest in protecting persons hurt in the State and in ensuring payment of local injuries. The Justices rejected claims that the direct-action law and the condition-of-entry requirement violated equal protection, the Contract Clause, due process (basic fairness rules), or the Full Faith and Credit Clause. The Court reversed the lower courts and allowed Louisiana to apply its direct-action rules despite the out-of-state "no-action" clause.

Real world impact

The ruling makes it easier for people hurt in Louisiana to bring claims directly against insurers and lets Louisiana require foreign insurers to accept such suits as a condition of doing business. Businesses and insurers that sell or insure products nationwide may face more local suits in states where injuries occur.

Dissents or concurrances

Justice Frankfurter agreed with the result but would base the decision specifically on the State’s power to condition a foreign company’s entry on reasonable obligations.