In the 1932 case of American Surety Company of New York v. Marotta, the United States Supreme Court ruled in favor of Marotta, upholding a lower court's decision that American Surety was liable for damages resulting from an automobile accident involving one of its insured drivers. The driver had been operating his vehicle while intoxicated and caused significant property damage to Marotta's home. Despite arguments by American Surety that their policy did not cover such incidents due to a clause excluding liability for accidents occurring while the driver was under the influence, the Court found this exclusionary clause void as it contradicted public policy which aimed at protecting innocent third parties from harm caused by negligent drivers. Therefore, they held that insurance companies could not absolve themselves from responsibility through such clauses.

In the dissenting opinion for American Surety Company of New York v. Marotta, Justice Stone argued that the majority's decision was inconsistent with prior rulings and violated principles of federalism. He contended that state laws should govern contracts made within their jurisdiction unless they directly conflict with federal law or impede its operation. In this case, he did not see any such conflict between Florida’s suretyship law and the Federal Bankruptcy Act; hence there was no reason to override it. Furthermore, he pointed out that Congress had explicitly recognized states' rights to regulate insurance in a recent amendment to the Bankruptcy Act itself - an indication that it intended for state laws like Florida's to apply in bankruptcy proceedings. Therefore, according to Justice Stone, by invalidating a provision of Florida’s suretyship law on grounds of supposed inconsistency with federal policy expressed in the Bankruptcy Act, when Congress has expressly declared otherwise is unwarranted judicial legislation.