was

* * *

course must have been existent in some incipient form, although its existence was in no way manifest, *** and despite the fact that the assured in the actual enjoyment of good health, would be to render doubtful and uncertain the protection afforded by every policy of life insurance, unless, perchance, it might contain other and independent provisions limiting the time of contestability. In the instant case the medical

from 5

testimony indicates that the disease must have originated to 15 years prior to the contract of insurance. The cause or causes of death are ofttimes as subtle and obscure as any fact which relates to the life of All life carries within itself the germ of its own dissolution; to live is to begin to die. (National Life and Accident Ins. Co. v. Martin, 35 Ga. App. 1.)

man.

*

**

I shall have to skip over a lot of these things. I wish to put in the record extracts from the Moular case, which is the great Supreme Court case, and other cases, showing how this decision was used definitely against the Metropolitan and other companies, in New Jersey and elsewhere.

(The matter referred to is as follows:)

IMPORTANT DECISIONS OF SUPREME COURT OF THE UNITED STATES AND COURT OF APPEALS OF THE DISTRICT OF COLUMBIA

THE MOULOR CASE

The case of Moulor v. Insurance Co. (111 U. S. 335), was not an industrialpolicy case, but it settled a very important principle governing such cases, viz: That although categorical answers may have been made to questions about diseases in the application, it can not be supposed that the applicant intended to warrant or absolutely to represent facts concerning which he could not, in the very nature of things, have accurate knowledge.

From the opinion of the court:

"The applicant was required to answer yes or no as to whether he had been afflicted with certain diseases. In respect of some of those diseases, particularly consumption, and diseases of the lungs, heart, and other internal organs, common experience informs us that an individual may have them, in active form, without at the time being conscious of the fact, and beyond the power of any one, however learned or skillful, to discover.

"Suppose, at the time of his application, he (the applicant) had a disease of the lungs or heart, but was entirely unaware that he was so affected. In such a case, he would have met all the requirements of that particular question, and acted in the utmost good faith, by answering no, thereby implying that he was aware of no circumstance in his then physical condition which rendered an insurance upon his life more than usually hazardous.”

The Moulor case has been cited with approval by various State courts, and (while not binding upon them) it is, of course, binding in this District, never having been disavowed by the Supreme Court in subsequent cases.

THE LEAR CASE

In Prudential Ins. Co. of America v. Lear (31 App. D. C. 184), the application, which was attached to the policy, warranted the statements in it to be complete and true. The Court of Appeals, in an opinion by Mr. Justice Robb, held that the policy contained statements inconsistent with the application; and, weighing the two documents together, the court said (p. 190):

"We think this case ruled by Moulor v. American Life Ins. Co. (111 U. S. 335.)"

And the court set out various facts which, it said"lead us to the conclusion that the company did not require more than the utmost good faith on the part of the insured when she made her application."

THE ELZIE CASE

The case of National Benefit Assn. v. Elzie (35 App. D. C. 295) shows the aversion of the local appellate court to technical pleas in cases of illiterate industrial policyholders, and is cited by the Court of Appeals in a subsequent

case on this point. An industrial policy for $50 was involved. The court says (p. 298):

* the

"Having permitted these and the earlier payments to be made, * insured and the beneficiary, apparently ignorant persons, were led to believe that he had never been actually suspended, and that the policy was in force. The association ought, theretofore, to be and is estopped, after the death of the insured, to say that the policy had been forfeited before these payments were accepted and received by it."

And the court quotes the doctrine of the United States Supreme Court that conduct of an insurance company which leads a party honestly to believe that by following a certain course his policy will be valid, followed by conformity on his part, will estop the company from claiming a forfeiture.

THE HEALY CASE

In Healy v. Metro. Life Ins. Co. (37 App. D. C. 240), it was expressly provided that the policy contained the entire agreement between the company and the insured; and, so far as shown by the report of the case, the application was not attached. The Court of Appeals, in an opinion by Mr. Justice Robb, says that a provision of the policy on this subject is "well calculated to mislead the people who purchase this form of insurance," but adds:

"We are constrained to hold that the above provisions in the policy relating to the health of the insured at the date of the policy and her prior freedom from certain diseases, standing alone, amounted to conditions precedent, and hence that the company could at any time escape liability by showing that the insured was not in good health at the date of the policy, or that she had previously suffered from the proscribed diseases. After two years from the date of the policy, it is incontestable, except for fraud. * * The policy was therefore in force from its date and voidable for two years upon any of the grounds reserved therein, but not thereafter, except for fraud.” In the Healy case the Court of Appeals also cites the Moulor case.

THE HAWKINS CASE

*

In Eureka Life Ins. Co. v. Hawkins (39 App. D. C. 329), the Court of Appeals again refers with obvious impatience to technical pleas in industrial-insurance cases, and urges legislative relief from the terms of such policies. In a unanimous opinion by Mr. Justice Robb the court says (p. 332):

Courts of justice do not look with favor upon forfeitures which are the

result of technical provisions in contracts of insurance."

*

** ** *

Then the court cites the Elzie case, heretofore quoted from. "Especially is this true where there is involved a so-called industrial insurance policy, like the one here in issue; since policyholders of this kind are frequently illiterate and generally little versed in business matters. Indeed, it is to be regretted that more adequate protection against the harshness of such contracts is not provided by statute. *The company, after premiums were more than four weeks in arrears and with full knowledge of that fact, sent its agent to make further collections of premiums. It not only sent him once but nine times. For a period of about seven months after the company now says the policy had lapsed, it continued to solicit and receive payment of premiums thereunder from the insured."

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THE HENN AND OWEN CASES IN NEW JERSEY

In Henn v. Metro. Life Ins. Co. (67 N. J. Law 310), decided in 1902, the statements in the application were by the policy made warranties. The court (speaking by Fort, J.) says (p. 312):

"If the question asked relates to a matter upon which the insurer should know that the insured could not have the knowledge to fully answer, the warranty will not be held to be more than a warranty in the fair sense of the question, namely, to the belief of the insured."

And the court, after quoting a paragraph on this subject from Moulor v. Ins. Co. (111 U. S. 335), says:

"It would be difficult to distinguish between the terms of this warranty and that in Moulor v. Am. Life Ins. Co., or to fail to discern the force of that decision upon the question before us."

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The New Jersey court quotes from the Moulor case the warranties of the policy, which were as follows:

"It is hereby declared and warranted that the above are fair and true answers to the foregoing questions; and it is acknowledged and agreed by the undersigned that this application shall form part of the contract of insurance, and that if there be, in any of the answers herein made, any untrue or evasive statements, or any misrepresentation or concealment of facts, then any policy granted upon this application shall be null and void."

In Owen v. Metro. Life Ins. Co. (74 N. J. Law 770), decided in 1907, the statements in the application were by the policy made warranties, and a copy of the application was annexed as a part of the contract. The court, speaking by Mr. Justice Mahlon Pitney, afterward an Associate Justice of the Supreme Court of the United States, says (p. 772) :

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The declaration in paragraph 2 of the application, to the effect that the applicant had never had disease of the heart, an obscure disease, concerning which the insured should know that the applicant could not have certain knowledge, saving as he might be told by a physician or other expert, is properly to be construed as a warranty only of the bona fide belief and opinion of the applicant."

The first syllabus in this case is almost word for word the same as the above quotation from the opinion. The second and third syllabi are as follows:

"2. In such an application for life insurance, representations concerning matters of fact that are presumably within the knowledge of the applicant are to be treated as warranties, a breach of which will render the policy void.

"3. Such warranties, like all conditions that are to work a forfeiture of a contract otherwise valid, are to be strictly construed in order to prevent a forfeiture."

Senator VANDENBERG. I hope you will not exhaust your time without showing us some specific examples of the impositions you have got in mind. I think that would be the quickest way to get at this. Mr. BUDLONG. This condition extends all over the country. I have here 10 or 12 pages of cases where the courts, in the most critical language, have denounced what has happened under these industrial policies. I propose to file as an exhibit to the hearing extracts from these cases. The brief ones I have here do not give any of the circumstances. Those that I propose to file do.

A Maryland court says:

The policyholders of this kind of an insurance company (industrial life insurance policyholders) are generally poor and illiterate people who most need protection against harsh, technical forfeitures, because least able to appreciate their significance and because easily induced by the conduct of the company to act upon the belief that their policies are in force. (Balto. Life Ins. Co. v. Howard, 95 Md. 244.)

The Maryland Appellate Court has taken judicial notice of the fact that agents sometimes falsify applications by saying:

It is unfortunately true that agents, in order to effect insurance, sometimes write in their applications, or in some way report to their principals, statements which either are not justified by what the applicants say, or do not disclose the whole truth, as related by such applicants. (Forwood v. Prudential Ins. Co., 117 Md. 254.)

The Virginia Appellate Court can not believe that any person would ever accept a policy guaranteeing that he was entirely free from latent diseases. In its opinion, it says:

When one says he is in good health, he does not mean, and nobody understands him to mean, that he may not have a latent disease of which he is wholly unconscious. It is doubtless competent for a life insurance company, in its policies, to take the expression "good health" out of its common meaning and make it exclude every disease, whether latent or unknown or not (assuming that any person would ever accept a policy of that kind), but it must do so in distinct and unmistakable language. The mere statement by

a party that he fully warrants himself to be in good health is not sufficient. (Greenwood v. Royal Neighbors, 118 Va., 329.)

Mr. Chairman, your subcommittee of the Judiciary Committee has been hearing a good deal recently about the "yellow dog" labor contracts. I wish to say something this morning about the "yellow dog" insurance contract; for that is what the industrial contract is. The term "yellow dog" is a synonym for cowardice. This is a cowardly insurance policy. In fact, it is not really an insurance policy at all. For the first two years it is merely a conditional savings agreement for a great proportion of the policyholders. After two years it becomes an insurance policy.

This plausible looking document bears the name of the great and honorable Metropolitan Life Insurance Co., the largest insurance company in the world, which draws millions of dollars from every corner of the United States, is of unquestioned solvency and high reputation, and yet is too timid in dealing with its own mutual policyholders to give them an enforceable contract. Like other industrial insurance companies, it sends its agents, hat in hand, to busy housewives, laundresses, domestic workers, day laborers, truck drivers, and people in every humble walk of life; and yet this mammoth company is so afraid of these very people that its counsel have devised an ingenious but highly deceptive so-called policy which is totally lacking in mutuality, and carefully refrains from assuming the normal insurance obligation.

But if the great Metropolitan Co. were the only one concerned, probably I should not be here today. Unfortunately, its policies have been copied almost word for word by other concerns, far less honorable, and of infinitely less financial responsibility. Over 40 industrial companies are operating in the United States to-day, about 30 of them doing business in the District. The general insurance law here permits a life, health, and accident industrial insurance company to be started by any group of men with $25,000 capital. Such a concern can either copy bodily the Metropolitan policy or write one still more unfair.

The only thing that makes these industrial policies worth the paper they are written on (unless this case Mr. Gardiner is going to tell you about has changed that) in a large proportion of cases, because all of us may have some diseased condition, is the incontestable clause; and in the Metropolitan's policy that takes effect after two

years.

Senators, the Metropolitan Co. is a mutual company now. It was made a mutual company in 1915. Therefore, it may be said that the same inducement to defraud its policyholders does not exist as in the case of a stock company. If there is any inducement to defraud the policyholders because you are a stock company, there are lots of stock companies operating here. But, leaving that aside, in 1920, after the Metropolitan Co. had been mutualized, it went into the courts of New York, its own domicile, and both in the trial court and the appellate court, tried to get its incontestable clause set aside and rendered meaningless by contending that unless the person was in sound health when the policy was written it never took effect and therefore could be contested at any time; and the court in rather scathing language, which I will put in the record, con

demned that, and said it would be a fraud upon its policyholders. (Chinery v. Metropolitan Life Insurance Co., 182 N. Y., Supplement 555.)

The Prudential Co., before it was mutualized, did the same thing in a case which I will put in the record. It went into court and tried to have the incontestable clause rendered meaningless by saying that unless the person was in sound health at the time the policy was issued it was contestable at any time. (Mohr v. Prudential Insurance Co., 32 Rhode Island 177.)

I want to say one word about the Metropolitan. It has been said that you can not put an entire population in jail, although some of the antiprohibitionists say that is being done now; and, of course. it may be said that there is no point in a mutual company trying to gain any advantage in having the incontestable clause set aside, because, after all, it is mutual. But no one can tell where the lightning will strike. There are many border-line cases in every situation of this kind; and I claim that when the Metropolitan went into court and tried to gets its incontestable clause rendered meaningless, so that after 20, 30, or 40 years the question could be raised whether the person was in sound health when he took out the policy, it did a very reprehensible thing.

The Mutual Life is a mutual company. How many of you would be willing to take out a policy in the great Mutual Life of New York, as good a company as it is, and have no real security for two years after its date if there was anything the matter with your health? The mere fact that it is a mutual company would not do you any good.

Senator CAREY. Has the Metropolitan been refusing to pay the policies where the insured died within two years?

Mr. BUDLONG. There are many cases of that kind cited in the cases I shall file as exhibits. Apparently, Senator, there has been less abuse of that here than in most jurisdictions. Here are 22 solid pages of instances throughout the country-not in the District of Columbia; there are only a few here-where payment of these small industrial policies was refused, chiefly on the ground of impaired health when the person was insured. That is last year's report of the Metropolitan Co. Here, in the case of the Prudential, for the whole United States there are 10 solid pages of the same thing, most of the refusals being because of unsound health when the policy was issued.

Senator BLAINE. How many cases on a page? About a hundred and fifty?

Mr. BUDLONG. Roughly, there are about 3.000 altogether in the Metropolitan and about 1.300 in the Prudential.

That is a small percentage of the total policies. The Metropolitan has outstanding in the country 41,000,000 policies: the Prudential has outstanding 34,000,000. There are 75.000.000 policies right there, and the number repudiated is a very small proportion. But to each one of these men that was either the entire estate he left, the major part of it, or at least a substantial part of it. If injustice is done to one person in a hundred thousand, it is no less. an injustice. Take the great trunk-line railways: I do not suppose one person in a hundred thousand carried by the Pennsylvania or