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CLIFTON PRODS. v. AMERICAN UNIVERSAL INS. CO.

January 20, 1959

CLIFTON PRODUCTS, INC. (an Ohio Corporation), Plaintiff,
v.
AMERICAN UNIVERSAL INSURANCE CO., of Providence, Rhode Island, Defendant



The opinion of the court was delivered by: BRYAN

This is an action on two public liability insurance policies issued by defendant to plaintiff. Plaintiff is an Ohio corporation, defendant a Rhode Island insurance company. Jurisdiction is based on diversity of citizenship. 28 U.S.C. § 1332.

Defendant moves to quash service of process and to dismiss for lack of jurisdiction on the grounds that the defendant is not subject to service within the Southern District of New York, and was not properly served.

 Service on the defendant insurance company was attempted on December 2, 1957 by delivering a copy of the summons to Interstate Motor Carriers Agency, an insurance brokerage firm at its office in New York City, and by mailing a copy of the summons to the defendant company at its office in Providence, Rhode Island. Plaintiff had its plant and principal place of business in Painesville, Ohio. It had no offices and concededly was not present or doing business in New York. Defendant had its principal place of business in Providence, Rhode Island. It claims that it was not present or doing business in New York.

 In 1950 the plaintiff, Clifton Products, Inc., experienced difficulty in obtaining public liability insurance covering its operations as a manufacturer of beryllium products. In the spring of that year Rogin of the Interstate Motor Carriers Agency of New York City, insurance brokers, called on the plaintiff at its plant in Painesville, Ohio, to solicit its insurance business. Rogin conferred with Windecker, plaintiff's president, and discussed the possibility of placing the risk through his agency.

 Thereafter Rogin corresponded with Windecker, discussions were had by telephone, and subsequent meetings were held in Boston, Massachusetts, while Windecker was attending sessions at the Massachusetts Institute of Technology, and at Interstate's offices in New York City.

 As a result Interstate secured the business and placed the risk with the defendant, which then had its offices in Boston. The policy was issued on August 23, 1950 from defendant's then Boston office, and a renewal policy was issued on August 23, 1951.

 The complaint is based on the defendant's refusal to defend three actions commenced against the plaintiff in Ohio and one claim arising out of an action against plaintiff's customer in Connecticut, which are alleged to be within the coverage of the policies, and defendant's failure to reimburse the plaintiff for losses arising directly from settlements or judgments paid by plaintiff on these claims.

 Plaintiff seeks to uphold service by reliance alternatively on (1) the special provisions of Section 59-a of the Insurance Law of New York, McKinney's Consol.Laws, c. 28, or, if these be held inapplicable, on (2) the general law relative to acquiring in personam jurisdiction over foreign corporations in the federal courts.

 (1)

 Section 59-a, subd. 2(c) of the Insurance Law of New York *fn1" provides that service of process upon a foreign insurance company may be effected by serving any person within this State

 '* * * who, in this state on behalf of such insurer is (1) soliciting insurance, or (2) making, issuing or delivering any contract or insurance, or (3) collecting or receiving any premium, membership fee, assessment or other consideration for insurance; provided notice of such service and a copy of such process are sent within ten days thereafter, by or on behalf of the plaintiff to the defendant at the last known principal place of business of the defendant, by registered mail with return receipt requested * * *.'

 In purported compliance with this provision personal service was made upon Interstate Motor Carriers Agency in New York and, within ten days, a copy of the summons was sent by registered mail to the defendant insurance company in Providence, Rhode Island.

 The defendant maintains service in this action cannot be made under Section 59-a since it protects New York residents only and plaintiff, an Ohio corporation, cannot avail itself of its provisions. It points to subdivision 1 of Section 59-a which provides:

 'The purpose of this section is to subject certain insurers to the jurisdiction of the courts of this state in suits by or on behalf of insureds or beneficiaries under certain insurance contracts. The legislature declares that it is a subject of concern that many residents of this state hold policies of insurance issued or delivered in this state by insurers while not authorized to do business in this state, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies. In furtherance of such state interest, the legislature herein provides a method of substituted service of process upon such insurers and declares that in so doing it exercises its power to protect its residents and to define, for the purpose of this section, what constitutes doing business in this state * * *.'

 This subsection makes it clear that the New York Legislature, exercising its regulatory power over insurance business conducted in the state for the benefit of New York residents, intended the benefits of the statute to be limited to insured New York residents only. It was concerned with the 'often insuperable obstacle' facing New York residents of 'resorting to distant forums for the purpose of asserting legal rights' under contracts insuring them in New York, solicited from them in New York by foreign insurance companies. No such considerations apply to insured nonresidents. The regulatory power of the state was plainly not exercised for their benefit and the statute does not apply to them. Indeed, except in the case of insured New York residents entitled to protection under the declared policy of their own state, service under the section would seem to be in violation of constitutional due process.

 There are no reported New York cases which deal with the application of the statute to non-resident plaintiffs. However, Parmalee v. Iowa State Traveling Men's Ass'n, 5 Cir., 206 F.2d 518, 44 A.L.R.2d 410, and Parmalee v. Commercial Travelers Mut. Acc. Ass'n, 5 Cir., 206 F.2d 523, are decisive of the question. In the first Parmalee case the plaintiff widow, a Florida resident, as beneficiary of a certificate issued to her deceased husband who also resided there, brought suit in Florida against the defendant, a resident of Iowa who had no Florida offices. Jurisdiction was based upon the Florida Unauthorized Insurers Process Act, F.S.A. § 625.28 et seq. which is similar to Section 59-a of the New York Insurance Law, and which contains a provision nearly identical to Section 59-a, subd. 1. The court held that since the insurance certificate had been delivered in Florida to a resident of that state the statute could constitutionally confer jurisdiction over the foreign insurance company through service upon the Florida Insurance Commissioner and mailing of a copy by registered letter to defendant at its principal place of business in Iowa. The court was careful to point out that it construed 'the legislation to apply only to policies of insurance delivered in Florida to Florida residents' and that the statute 'evidences a plan which the Legislature could, and did, find was necessary for the protection of its residents who became insured in the manner referred to in the statute'. 206 F.2d at page 522.

 In the second Parmalee case the same plaintiff brought suit in Florida against another foreign insurer on a different certificate, and relied upon the same statute as the basis for jurisdiction over the defendant. The court held, that since the certificate had been delivered by mail to the assured in Kentucky at a time when he was a resident of that state, the requirement of delivery in Florida to a Florida resident had not been met and the statute did not operate to confer jurisdiction over the foreign insurer.

 The reasoning of the Parmalee cases applies in the case at bar and it is clear that service upon the defendant here, in so far as it is based upon Section 59-a of the New York Insurance Law, cannot be sustained. The policy was delivered in Ohio to an Ohio resident. I follow the Parmalee cases and hold that Section 59-a protects only New York residents in suits based on policies delivered to them in this state.

 This conclusion is consistent with McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223, where service upon a foreign insurer under a similar California statute was upheld because the plaintiff was a California resident to whom the insurance policy in suit had been delivered ...


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