be limited to that accruing up to the time of instituting said proceedings, except in the case of substantial misrepresentation or fraud, when there shall be no liability. After two years from the date of the policy it shall be incontestable upon any ground relating to health, it being hereby declared to be the duty of the company within said two-year period to make all necessary investigations and examinations to satisfy itself as to the health of the insured. SEC. 5. When the insured is permitted by the company to designate in writing a person to whom he desires payment made, a death claim shall be payable primarily to said person, if living and legally competent, and he shall be entitled to sue in his own name to enforce payment thereof, but if said person shall have died or become legally incompetent, or can not be found within a reasonable time, payment of the claim shall be made as otherwise provided in the policy.

SEC. 6. Industrial insurance is hereby defined to be that form of life, health, or accident insurance, either

(a) Under which the premiums are payable weekly; or

(b) Under which the premiums are payable monthly or oftener, if the face amount of insurance provided in the policy is less than $1,000, and the words "industrial policy are printed upon the policy as a part of the descriptive matter.

SEC. 7. This act shall be known as the "Industrial Insurance Act, 1930"; and all industrial insurance policies issued in the District of Columbia after its approval shall contain, in legible type, the words "This policy is subject to the provisions of the Industrial Insurance Act, 1930."

Senator BLAINE. The committee will come to order.

I would like to make this hearing as brief as possible and also have the matter presented fully, of course, within the time, but in some regular order. I assume that there are parties here who favor the legislation and parties who oppose it. I suggest to the parties who favor it that they divide such time as they may have, and that those opposing it consult each other and arrange for their time. Obviously, we can not give the time of this committee to everybody, since there would be too much repetition of the same material. We want just a presentation of the facts with as little repetition as possible. There is to be one hour and a half, and I presume three-quarters of an hour will satisfy the proponents, from whom we would like to hear now.

STATEMENT OF PERCY E. BUDLONG, OF WASHINGTON, D. C.

Mr. BUDLONG. Mr. Chairman, the first statement I ought to make is that I appear here only as a citizen. I have not a penny of interest in this matter in any way, and, of course, have entirely too much sense of the proprieties to be the lobbyist for any legislation. But an unfair situation having arisen, I have done what I could, as a citizen, to try to make it better.

I did not take this matter up just as a busybody. Two cases involving this industrial weekly payment insurance arose in our office across the hall, in connection with domestics employed by our force. In one of them I had to bring suit on behalf of a faithful cook. The company promptly became technical and threw her suit out of court because she was the beneficiary of the policy, and not the administratrix. Of course, we could not stop with that. We took out letters of administration, filed bond, incurred other expenses, and eventually got a compromise from the company; but the terms of the policy were such that we had to compromise.

Senator BLAINE. Well, Mr. Budlong, let us get at the evil that exists in this particular case. Did the policy name a beneficiary? Mr. BUDLONG. It did.

Senator BLAINE. But the beneficiary had no right to bring action? Mr. BUDLONG. Under the terms of the policy.

Senator BLAINE. What is proposed by this bill is to permit the beneficiary to bring action?

Mr. BUDLONG. In her own name.

Senator BLAINE. To bring action in her own name?

Mr. BUDLONG. Without taking out letters of administration. I think no one could claim that that is anything but a right that should exist.

In the second place, the great trouble with these weekly payment policies is that they are so worded that they deprive the insured person of the safeguards that have been thrown around ordinary life insurance, by making the application and the statements therein not a part of the policy.

The Supreme Court of the United States has decided in the leading case on the subject (Moulor v. Ins Co., 111 U. S. 335), that when a person is asked the categorical question, in an application for life insurance, if such and such a disease is present, if he answers to the best of his knowledge (not saying "to the best of his knowledge," but if he answers honestly) "No," that can only be held to mean that so far as he knows he has not such disease, because the Supreme Court says there are many serious internal diseases that no layman, and perhaps not even a physician, could tell exists.

Up to about 25 years ago the industrial or weekly payment policies were written on substantially the same basis as ordinary life insurance. The application was attached to the policy and was made part of the contract. But while this great case in the Supreme Court of the United States was decided 40 years ago, about 25 or 30 years ago it began to be applied to industrial or weekly payment policies; and the courts decided in an important series of cases, beginning in New Jersey, I think, that it applied also to them. They held that even where a company had stipulated that the person must be in sound health and so forth, yet when the application contained these categorical statements of freedom from disease, they would be interpreted in the light of the same rule that the Supreme Court laid down; that a man can not be assumed to know he had internal cancer, or incipient tuberculosis, or any of those things.

I do not know the exact date when the companies changed their form of policy; but roughly about 25 years ago the changed form of policy began to appear. The companies then left out completely the application for the policy, and they got around that decision of the Supreme Court by making no statement in the application any part of the contract. Instead of that, they delivered to this usually poor and unsophisticated person a contract which said, "This policy is the entire contract between the company and the insured, and shall not take effect unless the insured is in sound health on its date "; and in the case of the Metropolitan policy, which I particularly wish to criticise not the company, but the policy-it also said that the person should not be entitled to collect the policy if he had ever had, at any time in the past, tubercular, liver, kidney, or heart trouble.

As to that, I want to read you something. By the way, before I go further, the commissioners-both the present board of commis sioners and the board that a short time ago went out of existencehave said this about the bill:

The commissioners desire to state they are generally sympathetic to additional legislation upon this subject.

And then they quoted the court of appeals decision in Eureka Life Insurance Company vs. Hawkins. I should like to have that letter incorporated in the record.

(The letter referred to is as follows:)

COMMISSIONERS OF THE DISTRICT OF COLUMBIA,

Senator ARTHUR CAPPER,

EXECUTIVE OFFICE,

Washington, November 21, 1930.

Chairman Committee on the District of Columbia,

United States Senate, Washington, D. C.

DEAR SENATOR CAPPER: Referring to S. 1903, Seventy-first Congress, a bill for the protection of industrial insurance policies in the District of Columbia, introduced by Senator Blaine, the commissioners desire to state that they are generally sympathetic to additional legislation upon this subject.

*

*

The Court of Appeals of the District of Columbia, in Eureka Life Insurance Co. v. Hawkins, 39 Appeals, D. C. 329, stated: "Industrial * policyholders are frequently illiterate and generally little versed in business matters. * * * It is to be regretted that more adequate protection against the harshness of such contracts is not provided by statute."

We understand that there is considerable difference of opinion as to what legislation is desirable and as to how far it should go, and that your committee is likely to hold a hearing upon the subject. We believe that such a hearing would be desirable.

Very truly yours,

L. H. REICHELDERFER,

President, Board of Commissioners of the District of Columbia. Mr. BUDLONG. So far as I know, that decision has gone unnoticed for 18 years.

Senators, the magnitude of this thing is very surprising. The Metropolitan Co. alone collects in this District nearly two million of dollars in premiums each year. That is twice what the Equitable Life of New York collects.

Senator BLAINE. Before you go on with that, sections 2 and 3 of the bill are proposed to cure the thing you complain of?

Mr. BUDLONG. It is proposed to cure it in this way, SenatorSenator BLAINE. Section 2 stating the proposition as you have stated it, and then providing that a policy shall not be valid unless certain things are done?

Mr. BUDLONG. Shall not be avoided.

Senator BLAINE. Then, section 3 goes to the question of testimony-evidence.

Mr. BUDLONG. It does.

Senator BLAINE. That is to carry out the provisions of section 2. Mr. BUDLONG. I have a substitute for the bill, which is simply this bill with a few additions, and I will produce that later; but the general principle is the same as here.

These companies collect these enormous sums. In fact, there are $5,000,000 collected in this District by seven industrial companies alone. They call each week for these little 10, 15, and 25 cent premiums; and they make a greater aggregate for the Metropolitan alone than any other life-insurance company-the one in your State, Senator, the Northwestern Mutual, or in any other State. There is no company that collects so much as the Metropolitan does here in weekly payment premiums.

I should like to insert in the record a statement covering that point.

(The statement is as follows:)

Premium Receipts of the Largest Industrial Companies in the District of Columbia in 1928

Metropolitan (industrial only).

Prudential (industrial only).

$1,859, 000

1,234, 000

Premium Receipts of the Largest Standard Life Companies in the District in

The Metropolitan's premium receipts from industrial business are larger than its own from ordinary insurance, or those of any other one company doing a regular ordinary life business in this country, and twice the premium receipts from ordinary business of the great Equitable Co. of New York.

The Prudential Co.'s receipts from industrial business are larger than the receipts from ordinary insurance of either the Travelers' Insurance Co. of Hartford, the Mutual Life of New York, or the Equitable Life Assurance Society of New York.

Mr. BUDLONG. The companies say, and I do not have any reason to doubt it, that notwithstanding under the terms of the policy a person having a latent and undiscovered internal disease has no right to enforce a policy, they pay the policy in every case where they have reason to believe the person acted in good faith..

The larger companies are very reputable companies. The names of the Metropolitan and Prudential are household words, you might say, all over the country. Every one knows them. But, of course, before a man judges the good faith of another, he has to have a basis for judging that good faith; and the basis for judging it can only be, to a large extent, the application.

In the old days, when an application was filed with the policy— as it is required to be filed, under the District Code, if it is to be part of the contract-the insured person was able to see what answers he was alleged to have made, and if any mistake was put down by the agent he could correct it. Now, he gets no copy. To be sure, he signs the application, but I will show you that in many, many cases it has been signed without ever being read to him or by him. He just simply signs on the dotted line; and when the company-perhaps within the contestable period, or even later, in the case of fraud-comes to claim that he was a scheming person, wishing to defraud them, they must judge his good faith largely by the fact that he denied that certain conditions existed, when in fact they did exist. Of course, there are other ways of judging good faith, but that is one of the main ones.

I have here two policies, both issued by mutual companies, one by the Mutual Life of New York, and the other by the Metropolitan Life. They are both companies of the highest standard. One is an ordinary life policy; the other is an industrial or weekly-payment policy.

(Mr. Budlong then read the following comparison of the policies :)

MUTUAL LIFE POLICY

This is a real insurance policy.

METROPOLITAN POLICY

This is an imitation insurance policy.

Both are issued by mammoth companies of unquestioned solvency and high reputation. Both are based upon written applications signed by the prospective policyholder.

Both are in mutual companies. More will be said about mutualization later on.

The application is attached to this policy, so that the applicant may have a check on every statement in it.

This policy protects the insured person from its date.

This policy is issued after a careful medical examination. If anything should be overlooked by the examiner, however, the company is still liable on the policy, in the absence of fraud.

The applicant for this policy does not guarantee his health in any way. He has to answer truthfully as to matters within his knowledge, but that is all.

This policy is issued to an intelligent person who is able to, and usually does, understand what he signs.

This policy is definitely and surely payable to the beneficiary named in it.

The provisions of this policy are carefully safeguarded in most jurisdictions by the insurance laws.

This policy is assignable, and the policyholder can raise money on it during his life if he wishes.

The application for this policy is suppressed, and filed away in the company's archives. The applicant never sees it after signing it.

This policy does not protect the insured person for two whole years, unless he is so splendidly healthy that it is a waste of money for him to pay for insurance.

This policy is issued as a rule without any medical examination whatever; but if one should be made, it does not bind the company in this or many other jurisdictions; and the company has frequently dishonored its industrial policies because of alleged mistake of its physicians.

The applicant for this policy unwittingly gives an iron-clad guarantee that his health is unimpaired in any respect whatever, and that he has never had any lung, heart, kidney or liver trouble, or cancer.

The applicant for this policy is frequently illiterate, and almost always inexperienced in business matters.

He has no idea that by accepting a plausible-looking policy which he did not sign, he has bound himself hand and foot as to the condition of his health.

This one is payable only to the executor or administrator of the insured; and though a beneficiary is frequently named, he has no rights in the matter. The company does not even have to pay the executor or administrator, but can pay any relative or creditor it sees fit.

The provisions of this policy are almost entirely unregulated; and the industrial companies have had enough influence to secure the specific exemption of their policies from recent State enactments. They are also exempted from the American Bar Association code now pending here as Senate Bill 1470.

This policy is unassignable. It is not possible for either the insured or his heirs to assign it in payment of funeral expenses, though it is primarily for burial purposes.