CLAY v. SUN INS. OFFICE, LTD.
Legal provision: Article 4, Section 1: Full Faith and Credit Clause
Argument of Paschal C. Reese
Chief Justice Earl Warren: Number 470, John Clay, Petitioner versus Sun Insurance Company.
Mr. Paschal C. Reese: May it please the Court.
This time I would like to request that Mr. James T. Carlisle, Assistant Attorney General, State of Florida and the Member of the Florida Court, but not a member of this Court be allowed to represent the honorable James W. Kynes, the Attorney General of the State of Florida as amicus curiae and that he be allowed 10 minutes of my time.
Chief Justice Earl Warren: Mr. Carlisle might be admitted for that purpose.
Mr. Paschal C. Reese: May it please the Court, this is the second time that this case has been before this honorable body on petition for certiorari from the Fifth Circuit.
On the first occasion, the case was remanded back to the Court of Appeals because the questions involved had not been answered by the Supreme Court, by -- and state in the State of Florida -- any court in the State of Florida.
The question that was outlined by this Court were propounded to the state -- Supreme Court of the State of Florida and after quite an argument with the Court as to whether or not under Section 25.013 of the Florida Statutes 19 and at that time it was 57 of Florida statutes whether or not the Court had constitutional authority to answer questions propounded by federal Courts.
The Court finally held that it did have such constitutional authority and thereafter changed the rules of the Supreme Court rules, the appellate Courts of Florida rather, so that it could accept questions propounded by federal Courts.
The Supreme Court of Florida then answered both questions propounded to it in the affirmative.
It said in effect that under Section 95.03 of the Florida statutes now 19.63 that State of Florida had sufficient interest in the subject matter of the suit since Mr. Clay was a resident of the State of Florida and all of his property was located in the State of Florida, and had been so located since about one month after this contract had been entered to in Illinois and that further more the loss took place in State of Florida, investigation of the loss was made by the insurance company within the State of Florida and the insurance company was authorized to transact business in State of Florida.
At this Personal Property Floater Policy was a policy that guaranteed against loss in any part of the world, it was termed the world wide policy, and that therefore the paramount interests of any state in this matter was with the State of Florida.
The matter was then referred of course back to Court of Appeals and the Court of Appeals then again basing its opinion upon Home Insurance Company versus Dick, Hartford and Delta Pine Land Company reiterated the opinion that it had previously handed down whereas in the first opinion the Court of Appeals said that it believed that the Supreme Court of the State of Florida would take such and such position.
When the State of Florida, the Supreme Court of the State of Florida did not take such a position, then the Court of Appeals took the position that since the Supreme Court of Florida under the (Inaudible) arrangement that we have of Court of Appeals had the jurisdiction of the Supreme Court in State of Florida did not call questions of this sort.
In other words, it should have been according to the as I read the opinion the question should have been propounded to one or the other of the District Courts of Appeal.
Now it so happens that soon after the Supreme Court handed down its decision, the same question came before the second, the District Court of Appeals to the second district, and following the mandate of the Supreme Court of Florida they affirmed that decision.
I cannot -- in every case, even in the Dick case and in Delta and Pine Land Case and most particularly in the Watson case, which is the latest on the subject dealing with the laws of one state being applicable in another state, conflict of laws, this Court has repeatedly held that where the interest of the state was paramount then the laws of the state would control.
We have repeated many times and sometimes it seemed rather few were repeated again, but the only connection (Inaudible) the State of Illinois had with this contract was the fact that John Clay, then a resident of Illinois took out a three-year insurance policy and paid the premium in cash in the state of Illinois, the contract of course was handed to him in the state of Illinois.
Less than two months thereafter according to the records, the transcript of record, Clay his wife, and any connections that he had in Chicago who depended upon him moved to State of Florida and became permanent residents.
They first took up residence in Palm Beach, then in Miami and finally when this loss occurred they were occupying a ranch near Clewiston ward where they had made according to evidence, had made tremendous investments.
They had no intentions of ever returning to the State of Illinois.
All of the damage was done to the property was done in Florida.
According to the laws of State of Florida, a man can steal from his wife and the wife can steal from the husband.
Consequently the acts by which these damages were claimed -- constituted a breech of the criminal law of the State of Florida.
Therefore, they could not have been justified in the State of Illinois.
Now the fact that no criminal action took place -- nevertheless the second question which is not a constitutional question and therefore it is not answered in the Court of Appeals' opinion was a criminal act and the state of Florida had the interest of that criminal act as part of its public policy.
Now the appellee claims (Inaudible) on the insurance statute State of Florida showing that in certain instances the insurance commission as constituted by the statutes of state of Florida, by the legislature that they have changed the policy of the state in reference to numerous insurance policies.
However, nowhere in this laws of State of Florida and the Supreme Court of state of Florida answered that because the insurance code existed and the same argument was made before the Supreme Court of Florida, and the Supreme Court of Florida realized that the legislature cannot delegate to a board in Florida the right to legislate and in no instance have they done it.
They have set up a code.
They have by a statutory act allowed this Court to handle certain types of policies, but it so happened that this Personal Property Floater Policy is nowhere mentioned in the insurance code.
Florida is one of the fastest growing states in the union.
It is most important if 31 other states have the same laws be affected by the decision of this Court, people coming into the State of Florida depend upon this sovereign state to protect their interests.
The legislature of the State of Florida many years ago --
Justice Byron R. White: Who was, who was (Inaudible)
Mr. Paschal C. Reese: Sir, I didn't understand.
Justice Byron R. White: Which state -- would Florida require this insurance company to maintain a reserve to cover this kind of a loss, where the loss were covered by a policy issued in another state?
Mr. Paschal C. Reese: Right they would if it was necessary under the Florida --
Justice Byron R. White: Have they ever -- how would they ever know -- how would they ever know that this policy had issued?
I mean Illinois has certainly included this policy on what reserves this company was require to maintain, isn't it?
Mr. Paschal C. Reese: Well I think the insurance commission -- I am not too familiar with that sir, but I think the insurance commission -- it requires all insurance companies qualify to do business to retain a certain -- to have a certain reserve –
Justice Byron R. White: Measured by what --
Mr. Paschal C. Reese: Measured by the report that's made to the insurance commissioner at the time that the company is qualified to do business in Florida and the insurance commissioner probably knows the amount of business being done, but nevertheless I realize at the objection of the insurance company of the appellee to this, is the fact that when the loss is reported, I think when the loss is reported to them, I am sure that they must set up I think out of their funds sufficient money to cover the loss until it needs to pay or some Court decides it is not a legitimate loss and I presume that, that's the purpose of the one year clause in policy is to give any possibility of a -- for a five year a five year statute limitation.
Appellee says that, that is an old fashioned law.
Well maybe it is, I don't know but the State of Florida is growing legislature maybe inclined it, sometime to change the law, but insofar as the constitution of State of Florida is concerned and insofar as the statutory law of the State of Florida is concerned that is the law. And the Supreme Court of State of Florida has said if this -- that the statute limitations to set out – under the laws of the Florida -- well in the case and under 93, 95.03 the Courts of the State of Florida are required to recognize that as the law of the state.
Chief Justice Earl Warren: Mr. Carlisle.
Argument of James T. Carlisle
Mr. James T. Carlisle: May it please the Court.
I wish to first of all to thank this honorable body for granting me the honor, the privilege of the presenting the interest of the State of Florida.
In Watson versus Employers Liability, this Court held that based on states' duty to protect its citizens, the state may seize hold of local activity of multi state transactions and regulate to protect its own people.
In Carroll v. Lanza, based upon the holding in the Watson case, this Court held to the state could, supplement or dispose of another states' workmen's compensation law if the former state's interest were sufficient.
Florida does not wish to disregard another states law as in Carroll v. Lanza. Florida merely wishes to disregard a suit clause in a contract which is admittedly valid in the State of Illinois.
We may do so, according to the holdings of this Court, if our interest is sufficient.
Now on speaking of the interest of a Court or of the interest of the state rather, we often speak of contacts.
In this case, Mr. Justice Black in the times that the Court previously had occasion to consider this same case, said that shortly after the contract was made, Mr. Clay moved to the State of Florida.
His insured property was there all that time meaning from the time that he moved.
The company knew this fact particularly since the company was licensed to do business in Florida, it must have known that it might be sued there and that the Florida Courts would feel bound by Florida law.
Mr. Reeves has gone through a great many other contacts that the Florida Courts would have had with the case.
Also I would point out that it was only the fortuitous circumstance that Mr. Clay paid his premium in a lump sum for this three-year policy that left that contact of payment in Illinois rather than in Florida.
But I would submit to the Court that when we say significant contacts we are only saying in another, we are using another language to say whether a state has sufficient interest or not.
And so I am here on behalf of the State of Florida to show what the interest of the state is.
Now I am advised by the development commission of the State of Florida based upon figures from the Bureau of Census that 170,000 persons migrate from other states to the State of Florida to become residents, permanent residents of the State of Florida per year.
This is a tremendous growth.
The Florida is numbered three in the rate of growth in the United States.
Many of these people who moved to the State of Florida have entered into contracts of insurance outside of the state.
These contracts undertake to protect our citizens' lives and their property.
Now in the Watson case great emphasis was placed upon Louisiana's interest in protecting its citizens and seeing through that they did not become wards of the states because they were destitute.
Admittedly in the Watson we were concerned with injuries.
Florida in this case occupies a similar position, where a merely technical escape clause in an insurance contract which is violative of Florida law and Florida's public policy, permitted to stand Florida residence could also become destitute while not through injuries this time but because their assets had been destroyed through one means or another or because their providers have died and an insurance company would not pay because of this escape clause.
One other point I think is relevant here is that we are not dealing with a contract which is made in an arms length basis, we are dealing with a forum contract, an insurance company and many of the people who come to Florida are not -- they are at the mercy of an insurance company when they enter into this contract in that one it is a forum contract and even if they have the opportunity to bargain, their educational background makes it impossible for them to do so.
No more cogent reason exist for a state to reach out and lay hold of local activities of multistate transactions then a states' interest and responsibility to enforce its laws for the protection of its residence and their property.
Chief Justice Earl Warren: Mr. Cotton.
Argument of Bert Cotton
Mr. Bert Cotton: Mr. Chief Justice, may it please the Court.
I believe that of all industries which have been subject to the regulations, insurance is probably the leader in the sense that every state has an intricate set of regulations applicable to the insurance industry and to insurance policies.
When this Court decided the South Eastern underwriters' case and held that the business of insurance constituted interstate commerce, Congress passed the McCarran Act for the purpose of leaving the regulation and control of the insurance business with the several states.
Justice Arthur J. Goldberg: (Inaudible)
Mr. Bert Cotton: I beg your pardon sir?
Justice Arthur J. Goldberg: (Inaudible)
Mr. Bert Cotton: I believe they were.
Now it has been said primarily by the Attorney General of Florida that this was a contract forced upon Mr. Clay in Illinois.
I would like to point out that the form of contract which was issued to Mr. Clay in Illinois at the time that he was a resident of Illinois was required by the law of Illinois, the insurance company was required to file the policy, the form of the policy, it would have been illegal to issue to him any other form of policy.
The rates had to be filed and were controlled so that it would have been illegal to have charged him more or less than the filed rates.
The company was required by the law of Illinois to issue the policy through a resident local Illinois agent and in answer to Your Honor's question about reserves, the Illinois statute requires that on all policies issued and delivered in Illinois that reserves be carried in the event of loss.
And under the one yeah suit clause which is legal as been conceded under the law of Illinois, the reserve on this loss could be marked off at the end of one year.
And if this policy subject to a one year suit clause valid under the law of Illinois is to be subject to statutes in other states, which increase the amount of time for which the reserve must be maintained then you have the mushrooming effect of five years of losses which can have a very serious effect on the balance sheet of the company and because of the states' interest in the solvency of insurance companies' premiums can be very seriously affected.
Justice Hugo L. Black: Was the policy cancelable?
Mr. Bert Cotton: Yes Your Honor.
Justice Hugo L. Black: Could it have been canceled when he left for Florida?
Mr. Bert Cotton: Yes, Your Honor, had the insurance company known that he went to Florida.
Justice Hugo L. Black: Didn't they know it?
Mr. Bert Cotton: No sir.
The only evidence in the record having to do with that question is a question was put to Mr. Clay, “After you moved to Florida were you in contact with the agent in Illinois” and he said, “yes,” it does not appear whether that contact was after the loss occurred, because it was alleged in the complaint and it is the fact that Mr. Clay sent notice of this loss directly to (Inaudible) and Clarkton, in Chicago, Illinois and consequently I would not say to Your Honor that this one sentence in the record tells us whether the notification was before or after the loss, but the only contact that the record tells us about is the contact after the loss and the reportable.
Justice Hugo L. Black: (Inaudible) represented by a lawyer when that question was asked (Inaudible)
Mr. Bert Cotton: Certainly sir.
Justice Hugo L. Black: Did they ask anything about (Inaudible)
Mr. Bert Cotton: No sir.
Now I believe before we get to what is really the crux of the issue and that is the study of the contacts of Florida in relation to the contacts elsewhere and the study of whether or not there is a strong and well pronounced public policy in Florida sufficient to warrant imposing its restrictive statute on a contract made elsewhere, we ought to consider what is this evil that is said to be in here and in this clause in the contract.
We don't have a Watson situation here, where Mrs. Watson, a resident of Illinois, uses a Toni home permanent and is injured and were it not for a declaration of very strong interest on the part of Louisiana that Mrs. Watson should have her remedy in Louisiana, she would have to go to Massachusetts or Illinois or wherever she could serve the Toni company or the Gillette company in order to recover.
They created not a new liability in Louisiana.
They created a method by which Mrs. Watson could sue where she lived instead of going elsewhere.
They didn't impose on the insurance company anymore liability than it already had.
They simply made it possible for Mrs. Watson to sue them because she couldn't sue the Toni Company.
Here we are dealing with a limitation on the time to sue, Mr. Clay was not the deprived of any remedy, there is merely a limitation on the time to sue and we study for moment if Your Honors will permit me, the question of what is the evil have – have the legislators concern themselves about this, had they considered this to be an evil.
In the federal field we find that in various areas on which Congress has acted, it has itself imposed or expressly permitted short periods of suit.
In the maritime field, one year of (Inaudible) and in another statute having to do a limited liability, in the railroad field they permitted a two year period; pipeline, two years; motor carriers, two years; actions for charges -- returnable overcharges, two years; SEC violations, civil actions for SEC wrongs, one year.
We take the various states, the Blue Sky laws, two years; the Uniform Commercial Code for various times of actions, one year.
We take the insurance field, the 1943 New York standard fire insurance policy which was adopted by 42 states, contains as one of it's provisions, a section requiring a suit be instituted within one year of the inception of the law, so may I call Your Honors' attention to the fact that the clause involved in this case is one year from discovery and not from inception.
And may I also call Your Honors' attention to something I overlooked emphasizing before that within the suit clause itself in this policy, it says “Provided however that if by the laws of the state within which this policy is issued such limitation is invalid, then the suit must be commenced within the shortest possible period of time committed by the state in which the policy was issued.”
Now we turn to the State of Florida before we examine in to their interest to see whether or not Florida really has a strong abhorrence to limited periods for suit, bearing in mind that the statute that's involved in this case is a 1913 statute passed not as a specific remedy for an evil, but part of its general statute of limitations 1913 and automatically reenacted every two years I think all the statutes are reenacted, but let's look at the Florida insurance law.
Disability and accidental death policies, two year mandatory, Florida insurance law, two year limit, it permits -- Florida insurance law permits a two year suit clause in a life policy issued by a fraternal benefit society.
When the Florida insurance commissioner pursuant to the authority vested in him by the Florida legislature adopted the New York standard fire policy in 43 or 44.
He adopted it as-is including the one year suit clause.
Now I don't claim, because counsel has said well now, the commissioner – Florida insurance commissioner can't overrule the legislature, of course he can.
My point is that we're looking to determine whether or not there is any strong compelling policy, strong compelling abhorrence of limited periods for suit in the State of Florida and I point out that the insurance commissioner didn't think so because he made no amendment in the policy when it was adopted and made required in Florida.
Now I would like to point out further that Florida is fully aware of how to express a strong public policy when it becomes necessary to do so.
This Court upheld in the --
Justice Byron R. White: (Inaudible) the interpretation of the statute that comes to us with the state interpretation, Florida really didn't intend this to apply this particular time of a situation which is just as though -- were written in the insurance code.
Mr. Bert Cotton: As a matter of fact Your Honor according to what the Supreme Court of Florida has said about this statute, Florida has enough contact -- with the contract if you can bring suit on the contract in Florida.
Now as this Court well knows practically every large insurance company is licensed to do business in every state of the union.
And I can have a loss in South Dakota and I can sue the home insurance company in Florida and Florida has the – the Florida Court has jurisdiction and the rule as laid down by the Supreme Court of Florida applies and requires the one year suit clause to be stricken down.
Now Your Honors will observe that the Court of Appeals for the Fifth Circuit had great difficulty applying the rule or conclusion of the Supreme Court of Florida because it was argued on behalf of the insurer that it just can't be that the legislature of Florida when it passed this 1913 statute, what it did to apply to every contract it made anywhere --
Justice Byron R. White: Do you think this is a – this just isn't a question of choice of law or purposes of conflict of law at all of determining whether state has got enough contacts to apply its law to a case, the question of invalidating the provision of the contracts.
Mr. Bert Cotton: It's a question of whether or not the state has the power to invalidate this provision under the Due Process Clause.
Justice Byron R. White: Which means there has to be you think some overwriting state interest expressed other than just some contact.
Mr. Bert Cotton: I will think they would have to be two things Your Honor.
I would think that there would have to be a strong overwriting public interest or public policy to start with and in addition, I think it's another thing that in addition it must have enough contacts because it may have the strongest public policy in the world but if it doesn't have sufficient contact, you can't apply its policy.
And conversely it may have plenty of contacts but if there is no strong public policy to apply, then --
Justice Byron R. White: You certainly think there is -- you certainly would admit there are quite a few contacts there that the State of Florida has.
Mr. Bert Cotton: Your Honor consider Delta & Pine and the contacts there which were held in --
Justice Byron R. White: Let's forget Delta & Pine, what the legal significance of the contacts are, but there are significant contacts here.
I mean the property was there, the insured was there, the insurance company was doing business there.
Mr. Bert Cotton: Well the insurance company was doing business there and in many other states, it's true.
Justice Byron R. White: Well but still there.
Mr. Bert Cotton: But Your Honor the reason that I mentioned Delta & Pine is that rather than have my own characterization of the importance or significance of the contact I would rather use this Court's characterization because in Delta & Pine, I can list many more contacts that Mississippi had with the insurance contract than Florida had with the Clay contract, may I for just one moment.
Justice Hugo L. Black: (Inaudible)
Mr. Bert Cotton: Delta & Pine.
And in Watson, the Court the recognized the Delta & Pine rule within its limits and pointed out that was deciding a different issue in the Watson case, the creating of a remedy to the citizens of Louisiana, we had a contract -- at the time it was issued, it affected people in all -- people all over the country, because when the insurance company issued a policy to Toni or as the Gillette company as I recall it, that sells the Toni home permanent preparation in perhaps at that time 48 states in the union, the transaction commences, as a multi state transaction.
Ladies in 48 states can be heard by Toni home permanent.
Justice Hugo L. Black: To whom all your Chicago – people who take insurance policies and move either to California or Florida or --
Mr. Bert Cotton: I don't know about or I suppose not maybe (Inaudible)
Justice Hugo L. Black: May be they all wouldn't want to?
Chief Justice Earl Warren: When you issue a policy of this kind in Florida, what is your statute of limitations?
Mr. Bert Cotton: Under the terms of this policy, it would have to be the five years, because --
Chief Justice Earl Warren: Now you also issue this kind of a policy in Illinois with the one year limitation, do you not?
Mr. Bert Cotton: Yes sir.
Chief Justice Earl Warren: Are your premiums, comparably cheap than Illinois, cheaper than Illinois than in Florida, or do you charge the same rate?
Mr. Bert Cotton: I would be certain that the rate is not the same, but I would not undertake to make even a guess as to how they come here because --
Justice Hugo L. Black: If it's different (Inaudible)
Mr. Bert Cotton: Well here is why I would not even want to guess because in the city of Chicago the risks of fire are greater, burglary.
Justice Hugo L. Black: You think it be a little more (Inaudible)
Mr. Bert Cotton: It might be I just don't know and I would not want to answer that.
It might be, but by the same token I can't imagine how much more it would be.
If you had to mushroom your reserves for five years instead of one, the to question whether or not premium is low -- in New York city for example, the premiums on this type of policy are fantastic and I'm sure in a rural community in Florida far lower, but that's because of the nature of the risks.
Unknown Speaker: (Inaudible)
Mr. Bert Cotton: Now one more point that I would like to stress, there has been consideration of how the Courts of Florida deal with this decision of their Supreme Court which now says that if there is jurisdiction, i.e. if you can get the defendant in Florida then the statute applies.
They are apparently not interested in the question of whether or not the party protected the plaintiff is a resident or not because in the (Inaudible) case which came shortly after the Supreme Court of Florida issued its ruling in the Clay case, they applied it in favor of a non resident who sustained a loss on a boat in the offshore waters having I think made this contract in New York or New Jersey.
And so as construed by the Supreme Court of Florida as long as the defendant can be sued in Florida, the statute applies.
Unknown Speaker: (Inaudible)
Rebuttal of Paschal C. Reese
Mr. Paschal C. Reese: May it please the Court in reply to the Mr. Cotton, the -- this last case the Circuit Court, the last case he referred to the Circuit Court granted the insurance company a decree and the matter was reversed after the Clay case had gone to the Court of law, to Supreme Court and was reversed by the District Court.
As far as the policy of the State of Florida is concerned, the policy of the State of Florida is it on a contract such as this that the statute of limitation is five years for the protection of the citizen of the state of Florida.
It had never been changed, the Supreme Court has said that is the public policy of Florida, the Attorney General of the State of Florida takes position that it is the public policy of the State of Florida where sufficient contact exists to warrant the State of Florida applying its public policy and its laws and we contend that the Court of Appeals should be reversed because by its own admission in its -- and both of its opinion, it had accepted the theory before a state has sufficient interest to protect its citizens, that the law of the state of the forum should apply.