CRS Annotated Constitution

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Fraternal Benefit Society: Member Relationship.—The same principle applies to the relationship which is formed when one takes out a policy in a “fraternal benefit society.” Thus in Royal Arcanum v. Green,119 in which a fraternal insurance association chartered under the laws of Massachusetts was being sued in the courts of New York by a citizen of the latter State on a contract of insurance made in that State, the Court held that the defendant company was entitled under the full faith and credit clause to have[p.859]the case determined in accordance with the laws of Massachusetts and its own constitution and by–laws as these had been construed by the Massachusetts courts.

Nor has the Court manifested any disposition to depart from this rule. In Sovereign Camp v. Bolin,120 it declared that a State in which a certificate of life membership of a foreign fraternal benefit association is issued, which construes and enforces the certificate according to its own law rather than according to the law of the State in which the association is domiciled, denies full faith and credit to the association’s charter embodied in the status of the domiciliary State as interpreted by the latter’s court. “The beneficiary certificate was not a mere contract to be construed and enforced according to the laws of the State where it was delivered. Entry into membership of an incorporated beneficiary society is more than a contract; it is entering into a complex and abiding relation and the rights of membership are governed by the law of the State of incorporation. [Hence] another State, wherein the certificate of membership was issued, cannot attach to membership rights against the society which are refused by the law of domicile.” Consistent therewith, the Court also held, in Order of Travelers v. Wolfe,121 that South Dakota, in a suit brought therein by an Ohio citizen against an Ohio benefit society, must give effect to a provision of the constitution of the society prohibiting the bringing of an action on a claim more than six months after disallowance by the society, notwithstanding that South Dakota’s period of limitation was six years and that its own statutes voided contract stipulations limiting the time within which rights may be enforced. Objecting to these results, Justice Black dissented on the ground that fraternal insurance companies are not entitled, either by the language of the Constitution, or by the nature of their enterprise, to such unique constitutional protection.

Insurance Company, Building and Loan Association: Contractual Relationships.—Whether or not distinguishable by nature of their enterprise, stock and mutual insurance companies and mutual building and loan associations, unlike fraternal benefit societies, have not been accorded the same unique constitutional protection; with few exceptions,122 they have had controversies arising out of their business relationships settled by application of the law of the forum State. In National Mutual B. & L. Assn. v.[p.860]Brahan,123 the principle applicable to these three forms of business organizations was stated as follows: where a corporation has become localized in a State and has accepted the laws of the State as a condition of doing business there, it cannot abrogate those laws by attempting to make contract stipulations, and there is no violation of the full faith and credit clause in instructing a jury to find according to local law notwithstanding a clause in a contract that it should be construed according to the laws of another State.

Thus, when a Mississippi borrower, having repaid a mortgage loan to a New York building and loan association, sued in a Mississippi court to recover, as usurious, certain charges collected by the association, the usury law of Mississippi rather than that of New York was held to control. In this case, the loan contract, which was negotiated in Mississippi subject to approval by the New York office, did not expressly state that it was governed by New York law.124 Similarly, when the New York Life Insurance Company, which had expressly stated in its application and policy forms that they would be controlled by New York law, was sued in Missouri on a policy sold to a resident thereof, the court of that State was sustained in its application of Missouri, rather than New York law.125 Also, in an action in a federal court in Texas to collect the amount of a life insurance policy which had been made in New York and later changed by instruments assigning beneficial interest, it was held that questions (1) whether the contract remained one governed by the law of New York with respect to rights of assignees, rather than by the law of Texas, (2) whether the public policy of Texas permits recovery by one named beneficiary who has no beneficial interest in the life of the insured, and (3) whether lack of insurable interest becomes material when the insurer acknowledges liability and pays the money into court, were questions of Texas law, to be decided according to Texas decisions.126 Similarly, a State, by reason of its potential obligation to care for dependents of persons injured or killed within its limits, is conceded to have a substantial interest in insurance policies, wherever issued, which may afford compensation for such losses; accordingly, it is competent, by its own direct action statute, to grant the injured party a direct cause of action against the insurer of the tortfeasor, and to refuse to enforce the law of the State, in which the policy is issued or delivered, which recognizes as binding a pol[p.861]icy stipulation which forbids direct actions until after the determination of the liability of the insured tortfeasor.127

Consistent with the latter holding are the following two involving mutual insurance companies. In Pink v. A.A.A. Highway Express,128 the New York insurance commissioner, as a statutory liquidator of an insolvent auto mutual company organized in New York, sued resident Georgia policyholders in a Georgia court to recover assessments alleged to be due by virtue of their membership in it. The Supreme Court held that, although by the law of the State of incorporation, policyholders of a mutual insurance company become members thereof and as such liable to pay assessments adjudged to be required in liquidation proceedings in that State, the courts of another State are not required to enforce such liability against local resident policyholders who did not appear and were not personally served in the foreign liquidation proceedings but are free to decide according to local law the questions whether, by entering into the policies, residents became members of the company. Again, in State Farm Ins. Co. v. Duel,129 the Court ruled that an insurance company chartered in State A, which does not treat membership fees as part of premiums, cannot plead denial of full faith and credit when State B, as a condition of entry, requires the company to maintain a reserve computed by including membership fees as well as premiums received in all States. Were the company’s contention accepted, “no State,” the Court observed, “could impose stricter financial standards for foreign corporations doing business within its borders than were imposed by the State of incorporation.” It is not apparent, the Court added, that State A has an interest superior to that of State B in the financial soundness and stability of insurance companies doing business in State B.

Workmen’s Compensation Statutes.—Finally, the relationship of employer and employee, insofar as the obligations of the one and the rights of the other under workmen’s compensation acts are concerned, has been the subject of differing and confusing treat[p.862]ment. In an early case, the injury occurred in New Hampshire, resulting in death to a workman who had entered the defendant company’s employ in Vermont, the home State of both parties. The Court required the New Hampshire courts to respect a Vermont statute which precluded a worker from bringing a common–law action against his employer for job related injuries where the employment relation was formed in Vermont, prescribing a constitutional rule giving priority to the place of the establishment of the employment relationship over the place of injury.130 The same result was achieved in a subsequent case, but the Court promulgated a new rule, applied thereafter, which emphasized a balancing of the governmental interests of each jurisdiction, rather than the mere application of the statutory rule of one or another State under full faith and credit.131 Thus, the Court held that the clause did not preclude California from disregarding a Massachusett’s workmen’s compensation statute, making its law exclusive of any common law action or any law of any other jurisdiction, and applying its own act in the case of an injury suffered by a Massachusetts employee of a Massachusetts employer while in California in the course of his employment.132 It is therefore settled that an injured workman may seek a compensation award either in the State in which the injury occurred or in the State in which the employee resided, his employer was principally located, and the employment relation was formed, even if one statute or the other purported to confer an exclusive remedy on the workman.133

Less settled is the question whether a second State, with interests in the matter, may supplement a workmen’s compensation award provided in the first State. At first, the Court ruled that a Louisiana employee of a Louisiana employer, who was injured on the job in Texas and who received an award under the Texas act, which did not grant further recovery to an employee who received compensation under the laws of another State, could not obtain additional compensation under the Louisiana statute.134 Shortly, however, the Court departed from this holding, permitting Wisconsin, the State of the injury, to supplement an award pursuant to the laws of Illinois, where the worker resided and where the em[p.863]ployment contract had been entered into.135 Although the second case could have been factually distinguished from the first,136 the Court instead chose to depart from the principle of the first, saying that only if the laws of the first State making an award contained “unmistakable language” to the effect that those laws were exclusive of any remedy under the laws of any other State would supplementary awards be precluded.137 While the overwhelming number of state court decisions since follow McCartin and Magnolia has been little noticed, all the Justices have recently expressed dissatisfaction with the former case as a rule of the full faith and credit clause, although a majority of the Court followed it and permitted a supplementary award.138


119 237S..531 (1915), followed in Modern Woodmen v. Mixer, 267 U.S. 544 (1925).
120 305 U.S. 66, 75, 79 (1938).
121 331 U.S. 586, 588–589, 637 (1947).
122 New York Life Ins. Co. v. Head, 234 U.S. 149 (1914); Aetna Life Ins. Co. v. Dunken, 266 U.S. 389 (1924).
123 193 U.S. 635 (1904).
124 Ibid.
125 New York Life Ins. Co. v. Cravens, 178 U.S. 389 (1900). See also American Fire Ins. Co v. King Lumber Co., 250 U.S. 2 (1919).
126 Griffin v. McCoach, 313 U.S. 498 (1941).
127 Watson v. Employers Liability Corp., 348 U.S. 66 (1954). In Clay v. Sun Insurance Office, 363 U.S. 207 (1960), three dissenters, Justices Black, and Douglas, and Chief Justice Warren, would have resolved the constitutional issue which the Court avoided, and would have sustained application of the forum State’s statute of limitations fixing a period in excess of that set forth in the policy.
128 314 U.S. 201, 206–208 (1941). However, a decree of a Montana Supreme Court, insofar as it permitted judgment creditors of a dissolved Iowa surety company to levy execution against local assets to satisfy judgment, as against title to such assets of the Iowa insurance commissioner as statutory liquidator and successor to the dissolved company, was held to deny full faith and credit to the statutes of Iowa. Clark v. Williard, 292 U.S. 112 (1934).
129 324 U.S. 154, 159–160 (1945).
130 Bradford Elec. Co. v. Clapper, 286 U.S. 145 (1932).
131 Alaska Packers Assn. v. Comm., 294 U.S. 532 (1935). The State where the employment contract was made was permitted to apply its workmen’s compensation law despite the provision in the law of the State of injury making its law the exclusive remedy for injuries occurring there. See id., 547 (stating the balancing test).
132 Pacific Ins. Co. v. Comm., 306 U.S. 493 (1939).
133 In addition to Alaska Packers and Pacific Ins., see Carroll v. Lanza, 349 U.S. 408 (1955); Cardillo v. Liberty Mutual Co., 330 U.S. 469 (1947); Crider v. Zurich Ins. Co., 380 U.S. 39 (1965); Nevada v. Hall, 440 U.S. 410, 421–424 (1979).
134 Magnolia Petroleum Co. v. Hunt, 320 U.S. 430 (1943).
135 Industrial Comm. v. McCartin, 330 U.S. 622 (1947).
136 Employer and employee had entered into a contract of settlement under the Illinois act, the contract expressly providing that it did not affect any rights the employee had under Wisconsin law. Id., 624.
137 Id., 627–628, 630.
138 Thomas v. Washington Gas Light Co., 448 U.S. 261 (1980). For the disapproval of McCartin, see id., 269–272 (plurality opinion of four), 289 (concurring opinion of three), 291 (dissenting opinion of two). But the four Justice plurality would have instead overruled Magnolia, id., 277–286, and adopted the rule of interest balancing used in deciding which State may apply its laws in the first place. The dissenting two Justices would have overruled McCartin and followed Magnolia. Id., 290. The other Justices considered Magnolia the sounder rule but decided to follow McCurtin because it could be limited to workmen’s compensation cases, thus requiring no evaluation of changes throughout the reach of the full faith and credit clause. Id., 286.
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