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In Pennsylvania we find the following:
From experience of this office in the adjustment of claims, we have had numerous instances where a great many worthy assureds holding industrial insurance have legally been deprived of benefits where too literal an interpretation has been placed by the company on statements contained in the applinations. I have in mind particular reference to statements regarding certain diseases and illnesses which the assured had no knowledge of when the insurance was acquired, and, when a claim was presented, these facts which had been developed perhaps and had existed 2, 3, or 4 years prior to the acquirins of the insurance, were used as the basis of denying liability.
I am particularly interested and in favor of the present legislation (i. e.. S. 1903), for the reason that it applies and gives greater protection to that class of policyholders who need protection most and applies to that class the advantages and legal protection afforded ordinary policyholders which, under the laws of most jurisdictions, grant exemption when applied to indusirial policies.
When a company writes insurance without a medical examination, it is showing its willingness to accept and underwrite the risk. · If prior adverse medical history develops, knowledge of which was not had by the assured, the company should not have the right to deny liability merely by the fact of medical history unless fraud can be proven. This is the purpose of the actthat the company must prove fraud-and the burden of proof is placed on the company to prove same.
I have discussed the provisions of this bill in conjunction with Messrs. Parsons, Young, and Webster, of this office. We conclude that the bill
is a constructive piece of legislation and meritorious.
There is a great deal of trouble and dissatisfaction with irresponsible agents. As a rule, industrial agents are recruited from the wrong class of people and, except with companies like the Metropolitan, the Prudential, and a very few others, they may be regarded largely as “floaters ” who are in the business only temporarily, or certainly not for a very long period with any particular company, and therefore with no regard for the proper building up of a business which shall be permanent with them as well as with the company. Tyder such circumstances, they promise anything in order to get an application. This naturally leads to trouble later on.
I quote from a letter of April 1, 1930, signed by T. M. Baldwin, jr., superintendent of insurance, addressed to myself:
I have had any number of cases on industrial life insurance business in the District where the agents have written applications without ever seeing the applicants. In fact, quite a number of claims have been brought to my attention where the company refused to pay the benefits to the beneficiary owing to the fact that the agents had violated the specific instructions of the company.
I quote also from a letter of September 11, 1929, from Mr. Baldwin:
The trouble back of this rejection of claims is the fact that at the present time in the District of Columbia there are so many crooked agents and, perhaps, a policy will be paid on for several years before the company discovers that the person at the time of making the application to the insurance company was really not insurable.
It may be that several years pass before a company discovers that it has in its employ unreliable and scheming agents.
From a letter of October 29, 1929, from Mr. Baldwin: The only way, in my humble opinion, to handle any kind of insurance is by medical inspection or examination, and even then I have known cases where doctors have fallen down.
What we really should be able to do is to stop the licensing of the unworthy insurance representative. If the agents know that they can not put anything over on the public or their com
panies and get by with it, they will be more particular. I doubt if there is a city in the Union where we have such a condition of switching of agents from one company to another, and the things that are pulled off from time to time.
Senator VANDENBERG. Do you mean to say that if an agent has falsified an application, that act runs against the right of the insured to collect?
Mr. BUDLONG. No, sir; if the application is made part of the policy the applicant can show that fact. It is difficult, of course, to show it. The insured person is dead; but if it can be shown that the :gent has falsified the application in the standard policy to which the application is attached, that runs against the company and the estate can collect; but when they do not attach the application to the policy, whatever is in the application is of no moment. It is not part of the contract.
Senator VANDENBERG. So that an insured in the District who may have been the victim of falsification by an agent may be unable to collect as the result of that falsification?
Mr. BurloxG. He is legally unable to collect, unless this case Mr. Gardiner tells me about changes that. He has been unable to collect in the past. The Supreme Court of the United States has ruled that he can collect where the application is part of the contract. The Court of Appeals said distinctly, in Healy v. Metropolitan (37 App. D. C. 240) that a policy is voidable at any time within two years on showing that a disease existed.
In a Tennessee case, it was said (Met. Life Ins. Co. v. Chappell, 151 Tenn. 299):
It is the fact of sound health which determines the liability of the defendant, not apparent health, or his or any one's opinion
that he was in sound health.
And in the leading case in Massachusetts (Gallant v. Metropolitan Life Insurance Co., 167 Mass. 79) it has been held that under the sweeping language of these industrial policies, even if a medical examination is made, as it sometimes is in the larger policies, it is not binding on the company. The Metropolitan has won many cases, and particularly this leading case of Gallant against the company, where its own medical examiner examined the person and passed him. In other cases you will find that they put their own physician on the stand to show that he made a perfunctory, inaccurate, careless examination, and passed the person.
In some cases the juries have decided against the companies; but that has been their contention, and the courts have allowed them to make it.
Here is a case where the physician testified that if he had had any idea the person had tuberculosis, he would have examined him. (Met. Life Ins. Co. v. Shaw, 117 Southeastern Rep. 106).
Bear in mind, after the man is examined, he still has, under many court decisions, no protection.
There is a book of advice to industrial agents that tells them how to get these applications. I am just going through it very quickly. I read from Hints to Industrial Agents of Health and Accident Insurance Co., published by the Spectator Co., a book of instructions for industrial solicitors, at page 13:
At about this stage of the proceedings ( i. e., after arguing the desirability of insurance), you have reached the psychological moment; you should take out
your applications and fountain pen, and, without waiting to be told, commence to write the application. You ask her name, and, if she gives the name, that signifies consent. If she hesitates, do not insist, yet. Commence in a new place by giving her the names of some of the people you have written in your territory, or some of the people who are already insured with the company. Usually by this time she will consent; then hand her the application and fountain pen, and say: “Sign here, Mrs. Blank," and the deal is closed. The details of the application can be filled in at leisure.
After you have finished writing the application and given a receipt for the fee, thank your prospect for the patient hearing she has accorded you, also thank her for the application, and tell her that she will never regret taking out the insurance. Then arrange a date to meet her husband some night to talk ordinary. (That is, standard insurance). Then go. Do not spend a minute longer in any house after you close the application than it takes you to make your adieu.
Here is an adjudicated case showing what was actually done:
The plaintiff can neither read nor write. * * * The agent *** had the plaintiff make his mark to a blank application.
Evidently, the agent had read the advice in the Spectator book. He proposed to have the “ details of the application filled out later." But, it will be said, he was an irresponsible agent; the officials of the company would not sanction such conduct. I continue reading:
This application was taken to one of the local superintendents of the defendant, who was informed of the condition of the woman insured." (She was an idiot and cripple.) “The answers to the questions * * * were then filled up in the superintendent's office and a policy issued." ( Robinson v. Metropolitan Life Ins. Co., 1 App. Div., N. Y., 269 ).
Senator CAREY. Is this a book issued by the Metropolitan Co.? Mr. BUDLONG. No; this is a book issued by the Spectator Co.
I wish to put in the record a list showing that many of the small companies operating here have a lapse rate of almost 100 per cent per year.
( The list referred to is as follows:)
SOME OF THE INDUSTRIAL COMPANIES HAVE A LAPSE RATE OF APPROXIMATELY
100 PER CENT ANNUALLY
The tremendous number of lapses among the smaller companies operating in the District is shown by the following figures, all of which relate to the year 1928:
A Virginia company (Continental Life) began the year with 17,464 policies in force, issued 13,223 during the year, and terminated 12,300.
A Tennessee company (Life & Casualty) began the year with 11,193, issued 9,407, and terminated 9,273.
A Virginia company (Southern Aid) began the year with 4,034, issued 3,619, and terminated 3,390.
An Ohio company (Supreme Life & Casualty) began the year with 1,313, issued 1,650, and terminated 1,598.
A Virginia company (Virginia Life & Casualty) began the year with 1,388, issued 2,330, and terminated 2,134.
A North Carolina company (North Carolina Mutual) began the year with 2,780, issued 2,307, and terminated 2,163.
A Maryland company (Mutual Life of Baltimore) began the year with 7,228, issued 7,227, and terminated 6,423.
A Maryland company (Sun Life) began the year with 2,345, issued 4,552, and terminated 2.571.
An Illinois company (Washington Fidelity National) began the year with 1,080, issued 2,858, and terminated 2.490.
A District of Columbia company (Federal Life) began the year with 1,892, issued 1,680, and terminated 1,662.
A Virginia company (Home Beneficial) began the year with 35,942, issued 34,505, and terminated 32,861.
A Maryland company (Liberty Life) began the year with 4,126, issued 10,795, and terminated 8,916.
A Virginia company (Richmond Beneficial) began the year with 1,149, issued 860, and terminated 775.
A Maryland company (Home Friendly) began the year with 6,248, issued 6,994, and terminated 7,218.
A North Carolina company (Home Security) began the year with 2,146, issued 4,130, and terminated 3,056.
LAPSE RATES OF THE SAME COMPANIES FOR THE YEAR 1929
To show that the exceedingly high lap-e rate of the smaller companies heretofore quoted is typical of their operations, and not confined to one year, the 1929 figures of the same companies are given below:
A Virginia company (Continental Life) began the year with 18,387 policies in force, issued 18,510 during the year, and terminated 17,555.
A Tennessee company (Life & Casualty) began the year with 11,374, issued 10,218, and terminated 10,801,
A Virginia company (Southern Aid) began the year with 4,263, issued 4,049, and terminated 3,590.
(The Supreme Life & Casualty, mentioned in the list for 1928, consolidated with another company.)
A Virginia company (Virginia Life & Casualty) began the year with 1,584, issued 2,797, and terminated 1,618.
A North Carolina company (North Carolina Mutual) began the year with 2,924, issued 3,838, and terminated 3,270.
A Maryland company (Mutual Life of Baltimore) began the year with 8,032, issued 7,007, and terminated 6,384.
A Maryland company (Sun Life) began the year with 4,326, issued 3,762, and terminated 2,577.
An Illinois company (Washington Fidelity National) began the year with 1,448, issued 2,085, and terminated 2,039.
A District of Columbia company (Federal Life) began the year with 1,910, issued 1,107, and terminated 1,387.
A Virginia company (Home Beneficial) began the year with 37,586, issued 33,662, and terminated 35,077.
(The Liberty Life of Maryland, mentioned in the list for 1928, consolidated with another company.)
A Virginia company (Richmond Beneficial) began the year with 1,234, issued 482, and terminations are not stated in the report.
A Maryland company (Home Friendly) began the year with 6,024, issued 6,550, and terminated 6,269.
A North Carolina company (Home Security) began the year with 3,220, issued 5,565, and terminated 5,098.
Mr. BUDLONG. The Metropolitan Co. has roughly 260,000 policies outstanding, and only issues about 25,000 a year. These smaller companies terminate during the year practically as many as they issue. They begin the year with 5,000, they issue 5,000 during the year, and they cancel or lapse 5,000.
Senator Carey. Do you know whether they are terminated or lapsed because people do not pay the premiums?
Mr. BUDLONG. In many cases.
Mr. BUDLONG. I do not think so. Bear in mind that these people whose policies are lapsed during the year have no insurance of any kind. It takes two years to get a good policy. My point is that the agents are going around and raking up from the highways and byways all sorts of bad risks, and taking their money for a little while, and then they drop out.
Senator BLAINE. That is, the more hazardous the risk, the more money the company makes out of them?
Mr. BUDLONG. Well, I do not know that I can say that.
Senator BLAINE. For the simple reason that they would deny liability under the policy?
Mr. BULONG. Of course.
Senator BLAINE. They would go out and take the application of a person who was 90 per cent disabled ?
Mr. BUDLONG. Yes, sir; but the point I was making is the smaller companies are taking the money of these poor people, people who never do anything but throw their money away. They had better put it in the savings bank.
Senator Carey. In other words, they have a lot of high-powered salesmen who try to get the first premium and do not go any further.
Mr. BUDLONG. That is exactly it.
In these mimeographed copies, of which I will file more complete copies for the record, are contained caustic criticisms by the courts of the unfair methods of industrial companies, statements that the legal position taken by the companies would work a fraud upon the assured, denunciation of taking money during life and later attempting forfeiture because of what the company knew all along, advantage taken of the ignorance of Italians, Greeks, Poles, and illiterate negresses, fraud or negligence of medical examiners and other officials higher than agents in authority, declarations that if the company's position were sustained the policy would contain
deceptive inducements,” and various other things of that kind. I wish to submit for the appendix fuller extracts from these cases, to give the circumstances of each.
There is a very sweeping opinion here by the Appellate Division of New York, delivered by Mr. Justice Edward W. Hatch, who was a member of the Appellate Division of the Supreme Court of New York. Senator Wagner, a former member of the same court, tells me that Mr. Justice Hatch was a distinguished member of that tribunal. Speaking for the court in an industrial insurance case involving the Metropolitan.Co., Judge Hatch not only decided the particular case before him adversely to the company, but drew upon his own experience of many years and that of his colleagues to give a picture of the conduct of industrial insurance.
Remember, this is the court of the domicile speaking—not some antagonistic tribunal of another and distant jurisdiction. This opinion may well be called the classic of industrial-insurance jurisprudence.
I read from O'Farrell v. Metropolitan Life Ins. Co. (22 App). Div. 495.) This case was later affirmed in 44 Appellate Division, and still later by the Court of appeals of New York: cases of corporations
it is quite possible that the agent may perpetrate a fraud entirely beyond the power of the party dealing with him to discover, and the principal originally appointing the agent reap all the benefits of such agent's fraudulent acts and escape all liability therefor. This is particularly true of insurance companies. They appoint the agent in the first instance, have full and ample authority to make the selection,
can regulate his conduct by rules--in a word, they may have, practically absolute control over him. Such agent thus appointed is equipped by the company with blanks finely printed with innumerable conditions, and is sent out to solicit insurance; he applies to a person to insure; such person may be able to read and write, and yet his occupation be of such a character that his practical use of these acquirements may be quite limited. Little used