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Allgeyer v. Louisiana

Supreme Court of the United States · 1897 · Constitutional Law

Constitutional LawPropertyDue ProcessLiberty of ContractInsurancedue processlibertyliberty of contract

Facts

The Atlantic Mutual Insurance Company of New York issued an open marine policy that, as conceded, was entered into in New York City. The insurer was not doing business in Louisiana and had no agent there, and it was not claimed that it violated the Louisiana constitutional provision governing foreign corporations doing business in the state. The plaintiffs in error, while in Louisiana, mailed a letter or sent a telegram to New York describing cotton on which they wanted the existing open policy to attach. Louisiana treated that in-state notification as a prohibited act under its 1894 statute and imposed penalties.

Issue

May Louisiana, consistently with the Fourteenth Amendment, punish its citizens for mailing within the state a notice to a foreign insurer when that notice is sent pursuant to a valid insurance contract made outside Louisiana, to be performed outside Louisiana, and the insurer is not doing business within Louisiana?

Rule

A state may prohibit foreign insurance companies from doing business within its borders and may regulate or forbid acts done within the state by such companies or their agents in violation of state law. But the Fourteenth Amendment's protection of liberty includes the right to make proper, necessary, and lawful contracts, and a state may not prohibit its citizens from making valid contracts outside the state's jurisdiction, or from performing within the state a mere collateral act necessary to carry out such a valid out-of-state contract, when the insurer is not doing business within the state.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel owns a grain-export business in Baton Rouge. While visiting New York City, she purchases a valid open cargo policy from Empire Harbor Indemnity, a fictional New York insurer that has no office, agent, or business activity in Louisiana; under the policy, she must later send shipment details to New York before coverage attaches to each load. Back in Louisiana, Nina mails a notice identifying a barge shipment departing from New Orleans, and Louisiana imposes a penalty under a statute forbidding residents from taking steps in the state to effect insurance with unauthorized foreign insurers.

If Nina challenges the penalty under the Fourteenth Amendment, which is the strongest argument for invalidating the statute as applied?

Explanation. The majority held that liberty protected by the Fourteenth Amendment includes the right to make lawful contracts and to perform acts necessary to carry them out. Where the insurance contract was validly made outside the state, was to be performed outside the state, and the insurer was not doing business within the state, the in-state act of mailing notice was merely collateral and could not constitutionally be punished. The Court did not say all insurance regulation is invalid, nor did it deny state power over foreign insurers doing business in the state.