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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

a 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, conThe 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 tre 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 evasite statements, or any misrepresentation or concealment of facts, then any polier 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) :

" 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 abure 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 roid.

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

Senator VANDENBERG. I hope you will not exhaust your time w' out showing us some specific examples of the impositions you l.. got in mind. I think that would be the quickest way to get ati

Mr. BUDLONG. This condition extends all over the country. I here 10 or 12 pages of cases where the courts, in the most in language, have denounced what has happened under these in policies. I propose to file as an exhibit to the hearing extr. these cases. The brief ones I have here do not give any cumstances. Those that I propose to file do.

A Maryland court says:

The policyholders of this kind of an insurance companr insurance policyholders) are generally poor and illiterate feed protection against harsh, technical forfeitures, because ciate their significance and because easily induced by company to act upon the belief that their policies are Ins. Co. v. Howard, 95 Md. 244.)

The Maryland Appellate Court has taken fact that agents sometimes falsify application

It is unfortunately true that agents, in order 11 write in their applications, or in some way rejus ments which either are not justified by what disclose the whole truth, as related by such ap: tial Ins. Co., 117 Md. 254.)

The Virginia Appellate Court can would ever accept a policy guaranteei from latent diseases. In its opinion, it

When one says he is in good health, he stands him to mean, that he may not har wholly unconscious. It is douh? in its policies, to take the eros. ing and make it exclude (assuming that any perse must do so in distinct

the New York Central is injured, but you would not dream of taking away his right of recovery because the proportion is so small.

Let me tell you what has happened. In the first place, I have here a very eloquent statement about what has happened and is happening. This is a communication from the actuary of Massachusetts, written last year:

Under a high-pressure system of salesmanship, such as is employed in the writing of industrial life insurance, the agent has every incentive for omitting from the application answers which might result in refusal of the risk by the company. This department has had a large contact with the insuring public and is called upon to handle numerous complaints of various sorts made by policyholders. Experience with complaints regarding nonpayment of claims under industrial policies written on a nonmedical basis indicates that many agents, although knowing the true facts, actually complete the answers to questions contained in the application and withhold from the application anything which would result in its refusal by the company. The applicant assumes full legal responsibility by signing the application, but does so at the agent's direction without troubling to read the answers contained in the application. Policy provisions as to sound health and voidance under certain conditions mean nothing to the insured because, generally speaking, they are not stressed by the agent and are not read by the insured. Again, the insured has no legal redress for lack of knowledge of policy provisions. If death occurs early and during the contestable period, the company makes a careful investigation and often determines that the insured died from a disease that in the opinion of the last attending physician existed at the time of the policy's issue, perhaps without knowledge on the part of the deceased. Or it may find a history of medical attendance of the insured prior to the policy's issue which was not admitted to the company, although in many cases it was admitted to the agent. In either event the company may refuse payment of the insurance and offers a refund of premiums, which is a poor substitute for the face amount provided by the policy. Complaint is made to the department and no relief can be afforded

In the majority of complaints heard by this department relative to rejected claims, it is our opinion that the insurance was taken in good faith with complete confidence placed in the agent, who, because of pecuniary advantage to himself, failed in both his duty to the company and the insured. In fact, the agent is the company to this class of policyholders, who are inclined to accept without reservation any statements which he may make. Therefore, it would appear that in cases where facts material to the insurability of a risk are to be obtained through its agents, the company should be required to accept a greater responsibility for the acts of such agents.

I now read from the report of the commissioner of insurance of Massachusetts for 1927:

Since the statutes were amended in 1924 to permit the issue of industrial insurance aggregating $500 or less on any one life without medical examination, complaints from the public relative to the refusal of companies to pay claims where death occurs during the 2-year contestable period have increased materially. The reason for denial of liability in these cases is usually either because the insured was not in sound health when the policy was issued or because of omission from the application of the past medical history of the insured. In many of these cases it is apparent that the agent in writing up the application is fully aware that the applicant is not a proper risk and withholds from the application any statement that would support this fact. He has the applicant sign the application without reading it and assures him that he is fully covered.

Most industrial policies issued to-day contain the so-called facility-of-payment clause instead of a designated beneficiary. This clause gives the company the right to pay the proceeds of a death claim to whoever it believes has the best right to such proceeds.

In my opinion the facility-of-payınent clause should be used only in cases where a designated beneficiary has predeceased the insured or the insured's estate has been designated as beneficiary.

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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 mutnal 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 niutual 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?

Jr. Bunlong. There are many cases of that kind cited in the cases I shall file as exhibits. Apparently, Senator, there has been les aluse 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 indu-trial policies va“ 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 hundreil and fifty?

Mr. BULLONG. 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 Vietropolitan has ontstanding in the country +1,000,000 policies: the PruMential has outstanding 31,000,000. 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

the New York Central is injured, but you would not dream of taking away his right of recovery because the proportion is so small.

Let me tell you what has happened. In the first place, I have here a very eloquent statement about what has happened and is happening. This is a communication from the actuary of Massachusetts, written last year:

Under a high-pressure system of salesmanship, such as is employed in the writing of industrial life insurance, the agent has every incentive for omitting from the application answers which might result in refusal of the risk by the company. This department has had a large contact with the insuring public and is called upon to handle numerous complaints of various sorts made by policyholders. Experience with complaints regarding nonpayment of claims under industrial policies written on a nonmedical basis indicates that many agents, although knowing the true facts, actually complete the answers to questions contained in the application and withhold from the application any. thing which would result in its refusal by the company. The applicant assumes full legal responsibility by signing the application, but does so at the agent's direction without troubling to read the answers contained in the application. Policy provisions as to sound health and voidance under certain conditions mean nothing to the insured because, generally speaking, they are not stressed by the agent and are not read by the insured. Again, the insured has no legal redress for lack of knowledge of policy provisions. If death occurs early and during the contestable period, the company makes a careful investigation and often determines that the insured died from a disease that in the opinion of the last attending physician existed at the time of the policy's issue, perhaps without knowledge on the part of the deceased. Or it may find a history of medical attendance of the insured prior to the policy's issue which was not admitted to the company, although in many cases it was admitted to the agent. In either event the company may refuse payment of the insurance and offers a refund of premiums. which is a poor substitute for the face amount provided by the policy. Complaint is made to the department and no relief can be afforded

In the majority of complaints heard by this department relative to rejected claims, it is our opinion that the insurance was taken in good faith with complete confidence placed in the agent, who, because of pecuniary advantage to himself, failed in both his duty to the company and the insured. In fact, the agent is the company to this class of policyholders, who are inclined to accept without reservation any statements which he may make. Therefore, it would appear that in cases where facts material to the insurability of a risk are to be obtained through its agents, the company should be required to accept a greater responsibility for the acts of such agents.

I now read from the report of the commissioner of insurance of Massachusetts for 1927:

Since the statutes were amended in 1924 to permit the issue of industrial insurance aggregating $500 or less on any one life without medical examination, complaints from the public relative to the refusal of companies to pay claims where death occurs during the 2-year contestable period have increased materially. The reason for denial of liability in these cases is usually either because the insured was not in sound health when the policy was issued or because of omission from the application of the past medical history of the insured. In many of these cases it is apparent that the agent in writing up the application is fully aware that the applicant is not a proper risk und withholds from the application any statement that would support this fact. He has the applicant sign the application without reading it and assures him that he is fully covered.

Most industrial policies issued to-day contain the so-called facility-of-payment clause instead of a designated beneficiary. This clause gives the company the right to pay the proceeds of a death claim to whoever it believes has the best right to such proceeds.

In my opinion the facility-of-payment Clause should be used only in cases where a designated beneficiary has predeceased the insured or the insured's estate has been designated as beneficiary.

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