## Facts

- Louisiana enacted an insurance code regulating insurance and authorizing a direct action against a tortfeasor’s liability insurer for injuries occurring in Louisiana.
- The statute applied even if the insurance policy was written and delivered outside Louisiana and included a “no-action” clause barring suit against the insurer until the insured’s liability was finally determined.
- Mrs. Watson, a Louisiana resident, alleged personal injuries in Louisiana after purchasing and using in Louisiana a hair-waving product manufactured by Toni Company of Illinois.
- Employers Liability Assurance Corporation, a foreign insurer, issued liability coverage to the manufacturer; the policy was negotiated, issued, and delivered outside Louisiana and contained a no-action clause enforceable under the law of the issuing states.
- The Watsons brought a direct action against the insurer in Louisiana state court under the direct-action statute.

## Issues

1. Whether applying Louisiana’s direct-action statute to a foreign insurer and an out-of-state policy violates the Equal Protection Clause.
2. Whether the statute, as applied to a policy containing a no-action clause, violates the Contract Clause by impairing contractual obligations.
3. Whether due process limits Louisiana’s ability to apply its direct-action statute to a policy made elsewhere when the injury occurred in Louisiana.
4. Whether the Full Faith and Credit Clause requires Louisiana to apply another state’s law enforcing the no-action clause.
5. Whether due process is violated by conditioning a foreign insurer’s authority to do business in Louisiana on consent to direct actions.

## Decision

- The Supreme Court reversed the judgment that had invalidated portions of the Louisiana statute on federal constitutional grounds.
- The Court held the Louisiana direct-action statute constitutional as applied to an injury occurring in Louisiana, even though the policy was written and delivered elsewhere and contained a no-action clause.
- The statute did not violate equal protection because it applied to insurers on equal terms and was not shown to be discriminatorily applied.
- The statute did not violate the Contract Clause where it was in effect before the insurance contract at issue was made.
- Application of Louisiana law did not violate due process because Louisiana had substantial contacts and a legitimate interest in protecting persons injured within the state.
- Full faith and credit did not compel Louisiana to subordinate its statute to another state’s contract law where Louisiana had a substantial local interest.
- Louisiana could require foreign insurers doing business in the state to accept exposure to direct actions as a condition of operating in the state.

## Legal Principles

- A state with substantial contacts to an occurrence and a legitimate interest in protecting persons injured within its borders may authorize direct actions against liability insurers for in-state injuries.
- A direct-action statute that applies evenhandedly to domestic and foreign insurers does not violate equal protection absent discriminatory classification or application.
- A statute in effect before formation of the contract generally does not violate the Contract Clause when applied to later-made insurance policies.
- Due process permits application of forum law to an insurance contract made elsewhere when the forum has meaningful contacts (including in-state injury and regulated insurance activity) supporting the forum’s regulatory choice.
- Full faith and credit does not require a forum to apply another state’s contract rule when the forum has a substantial interest supporting a different rule.
- A state may impose reasonable conditions on foreign insurers’ authority to do business, including acceptance of direct-action exposure for in-state injuries.

## Conclusion

The Court upheld Louisiana’s direct-action statute as constitutionally applicable to a foreign insurer and an out-of-state policy with a no-action clause where the injury occurred in Louisiana, allowing the injured plaintiffs to sue the insurer directly in Louisiana courts.


Watson v. Emps. Liab. Assurance Corp., 348 U.S. 66 (1954)