United States District Court, Northern District of Illinois, E.D
September 14, 1965
MORTON POSNER, PLAINTIFF,
THE TRAVELERS INSURANCE CO., A CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Will, District Judge.
This suit arises out of an automobile accident in the state of
Wisconsin between the plaintiff and Mrs. Penelope C. Pallin.
Plaintiff, a resident of Illinois, brings this direct action
against the Travelers Insurance Co., the insurer of Mrs. Pallin.
Mrs. Pallin is a resident of Michigan where the defendant
delivered an automobile insurance policy to her. The
defendant-insurer is a Connecticut corporation which also does
business in Illinois.
The contract of insurance contains a clause, known as a "no
action" clause, which prevents the insurer from being sued
directly. This clause, if given effect, would bar this suit. The
plaintiff, however, contends that a statute of Wisconsin,
Wisconsin Stat. § 260.11(1), as amended, L. 1959 ch. 380, allows
direct actions against automobile insurers despite any "no
action" clause in the contract where the accident takes place in
Wisconsin. The 1959 amendment provides, among other things, that
direct actions can be brought whether or not the contract of
insurance was delivered in Wisconsin. The amendment thus affords
the plaintiff a basis to bring this action, the policy having
been delivered in Michigan.
Had the amendment made only the above change, there is no
question that the plaintiff could rely on the statute to sue the
defendant-insurer in any court outside Wisconsin which, according
to its choice of laws rules, would apply the law of Wisconsin.
The legislature, however, in broadening the statute also included
a provision which purports to limit the scope of the statute to
actions brought in a court in Wisconsin.*fn1 It is
this venue restriction and prior Wisconsin decisions on which we
relied in granting the defendant's motion to dismiss. Upon
reconsideration, however, for the reasons set out below, we hold
that the venue restriction is not a bar to a direct action suit
against the insurer in this court.
By permitting persons involved in automobile accidents in
Wisconsin to sue insurance companies directly, the Wisconsin
legislature created a new substantive right. But by inserting the
words "in this state" into the direct action statute, thus
restricting the place of suit to courts in Wisconsin, the
legislature has placed a venue restriction upon the substantive
right which it created. The question for the court is whether we,
sitting as a court of Illinois in this diversity action, can
allow suit to be brought here under this statute, the venue
In Atchison, Topeka & Santa Fe R.R. v. Sowers, 213 U.S. 55, 29
S.Ct. 397, 53 L.Ed. 695 (1909), the Supreme Court held that such
a restriction placed upon a common law cause of action could not
be given effect so as to bar suit in another state. The landmark
case of Tennessee Coal, Iron & R.R. Co. v. George, 233 U.S. 354,
34 S.Ct. 587, 58 L.Ed. 997 (1914) carried the Atchison principle
even further. In Tennessee Coal, suit was brought in a court of
Georgia under an Alabama statute which created a new right by
making a master liable to an employee for injuries resulting from
defective machinery. This statute also contained a provision
which stated that actions brought under it must be brought in a
court "within the state of Alabama, and not elsewhere."
The Supreme Court held that an employee could sue the master in
a court of Georgia despite the venue restriction. The Court
recognized that in some cases the right and the remedy are so
inextricably woven together that the right can only be enforced
in the prescribed manner. But the Court held that the Alabama
statute was not of that nature and that the venue restriction was
severable from the right which was created. At page 360, 34 S.Ct.
at page 589 the Court stated:
"But venue is no part of the right; and a state
cannot create a transitory cause of action and at the
same time destroy the right to sue on that transitory
cause of action in any court having jurisdiction."
Tennessee Coal has been consistently followed. See Texas Pipe
Line Co. v. Ware, 8 Cir., 15 F.2d 171 (1926). Indeed the Supreme
Court reenforced the principle of Tennessee Coal when it said in
Lauritzen v. Larsen, 345 U.S. 571,
590, 73 S.Ct. 921, 932, 97 L.Ed. 1254 (1953):
"It is pointed out, however, that statutes of at
least one maritime country (Panama) allow suit under
its law by injured seamen only in its own courts. The
effect of such a provision is doubtful in view of our
holding that such venue restrictions by one of the
states of the Union will not preclude action in a
sister state, Tennessee Coal, Iron & R. Co. v.
George, 233 U.S. 354, 34 S.Ct. 587, 58 L.Ed. 997."
Illinois has also recognized the principle that state statutes
cannot prohibit or circumscribe the exporting of causes of
action. James v. Grand Trunk Western R.R. Co., 14 Ill.2d 356,
367, 152 N.E.2d 858, 864, 74 A.L.R.2d 814 (1958).
The Louisiana direct action statute, La.Rev.Stat. § 22:655,
which is quite similar to the Wisconsin statute, contains venue
restrictions which have been the subject of much litigation.
Federal courts in dealing with the venue restrictions in the
Louisiana statute (which say that the suit must be brought in the
parish where the accident occurred or in the parish where the
insured has his domicile) have held that the restrictions are not
binding in other forums. "The more reasonable view, however,
appears to be that these are but requirements of place of suit
which do not carry beyond the limits of a Louisiana forum."
Collins v. American Automobile Insurance Co., 2 Cir.,
230 F.2d 416, 423 (1956). See also 57 Col.L.Rev. 256, 259-262 (1957).
In Chambless v. National Industrial Laundries Corp.,
149 F. Supp. 504 (1957), a case not unlike the present case since
Louisiana's only contact with the suit was that it was the place
of the accident,*fn2 the court held that the direct action
statute created a transitory cause of action and thus Louisiana
could not limit the applicability of the statute to the courts of
Although the venue restrictions in the Louisiana statute are
slightly different from the restriction in the Wisconsin statute,
the reasoning of the Tennessee Coal case is applicable to both
the Louisiana and Wisconsin statutes. Even more important for our
purposes is the fact that Tennessee Coal dealt with a provision
which is the same as the one in question in the present case,
i.e., providing that suits brought under the statute be brought
within the state.
In all pertinent respects the Wisconsin statute is like that
which was involved in Tennessee Coal. A new substantive right was
created by the legislature; the right created is transitory in
that there is no reason why suits under it can be adjudicated
only in Wisconsin; and the legislature placed a venue restriction
upon the right. We conclude that the venue restriction in the
Wisconsin direct action statute is not binding upon this court
and thus does not constitute a bar to this suit.
Having determined that the venue restriction does not prevent
our adjudicating this case, we still must determine whether there
is any other bar to suit in this court.
Direct action statutes are matters of substance within the
meaning of Guaranty Trust Co. of New York v. York, 326 U.S. 99,
109, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). Such a statute does
more than indicate the proper party to sue. By rendering "no
action" clauses ineffectual and by making the insurer directly
liable, a separate right of action is created which substantially
affects the rights of an injured person. Therefore, we, as a
federal court sitting in a diversity action, must apply the law
of Illinois, including Illinois' conflict of laws rules. Klaxon
Co. v. Stentor Electric Mfg. Co.,
313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).
Illinois follows the traditional tort conflict of laws rule
that the law of the place of the tort governs the substantive
rights. Millsap v. Central Motor Transport Co., 41 Ill. App.2d 1,
8, 189 N.E.2d 793, 796 (1963). Thus, absent any restriction on
the application of foreign law, the Wisconsin direct action
statute is a proper basis for suit here against the insurer.
Recent decisions in other states have indicated a movement away
from the traditional view that the law of the place of tort
governs. These decisions rest on the common theory that the place
of the tort is not always the place which has the most
significant contacts with the suit. In Babcock v. Jackson,
12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279, 95 A.L.R.2d 1
(1963), the New York Court of Appeals held that where all the
parties were residents of New York, New York law would be applied
even though the accident took place in Ontario, Canada.
Illinois, however, has not departed from the traditional rule,
and thus even though we are bound to follow that rule, it should
be noted that this case involves a fact situation not unlike that
in Babcock. Wisconsin only has one contact with this case — it
was the place where the accident occurred. Perhaps future
Illinois decisions will show a departure from the present rule,
but as of now we must apply the "place of tort" doctrine in this
The defendant, however, contends that the Wisconsin direct
action statute is unenforceable in Illinois on the ground that to
allow suit against an insurer directly is against the public
policy of Illinois. Illinois does not permit direct actions, but
the Millsap decision, supra, indicates that a difference between
Illinois law and the applicable foreign law will itself not
create a public policy barrier to enforcement of the foreign law.
The starting point for an analysis of the Millsap case is an
earlier decision. In 1960, Justice Friend of the Illinois
Appellate Court in Mutual Service Casualty Insurance Co. v.
Prudence Mutual Casualty Co., 25 Ill. App.2d 429, 166 N.E.2d 316
(1960) held that the Wisconsin direct action statute and the
Wisconsin statute permitting contribution amongst joint
tort-feasors were both unenforceable in Illinois as they were
against Illinois public policy.
Three years later, however, Justice Friend writing in the
Millsap case stated:
"It is true that in Mutual Serv. Cas. Ins. Co. v.
Prudence Mut. Cas. Co., 25 Ill. App.2d 429,
166 N.E.2d 316 (1960), we said that the Wisconsin statute
relating to joint tort-feasors is opposed to our
public policy. We also held that the action was
properly dismissed under the provision of our
Practice Act which prevents direct actions against
liability insurers. On reconsideration of that case,
and in the light of authorities not heretofore cited
in this proceeding or in the Mutual Service case, it
seems clear that to create a public policy barrier to
the enforcement of a foreign law, more is required
than a mere difference between the law of the forum
and that of the sister state." 41 Ill.App.2d at page
21, 189 N.E.2d 793 at page 803.
The Millsap case involved enforcement of the Wisconsin statutes
on contribution amongst joint tort-feasors and comparative
negligence, neither of which has an Illinois counterpart. Both
were given enforcement. The common point between Mutual Service
and Millsap was the rule regarding contribution amongst joint
tort-feasors. Both cases involved another rule in addition.
Mutual Service involved the direct action statute, and Millsap
involved the comparative negligence rule. Justice Friend
carefully indicated in Millsap that public policy could not be a
barrier to the enforcement of either of these Wisconsin rules. In
fact, as quoted above, he specifically mentioned the direct
action statute and applied his reasoning to it as well as the
rule on contribution.
Indeed, had Justice Friend let the earlier decision stand,
keeping the public policy barrier to the enforcement of these
foreign laws, a serious question of Full Faith and Credit would
have been raised. Hughes v. Fetter, 341 U.S. 609, 71 S.Ct. 980,
95 L.Ed. 1212 (1951), First National Bank of Chicago v. United
Air Lines, 342 U.S. 396, 72 S.Ct. 421, 96 L.Ed. 444 (1952).
We thus hold that neither the venue restriction nor the public
policy of Illinois constitute a bar to this suit. Plaintiff's
motion to vacate the order of dismissal will be granted, and the
cause will be reinstated. An appropriate order will enter.