Senator BLAINE. For the simple reason that they would deny liability under the policy?

Mr. BUDLONG. 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:

In 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

own.

to business or business forms, it is quite easy to see that he may be disposed to place almost entire credence in the statements made by the agent. He answers such questions as are put to him by the agent, and finally signs his name in the place where he is directed to sign upon the application; he does not read the same, nor is it read to him, and thus, without knowledge upon the subject, he has placed himself entirely within the power of the agent of the company, is committed to such answers as have been written down, and has bound himself by express contract to adopt the acts of such agent as his He continues to pay his premiums until death ensues, and then those for whom he hoped to make provision and for whom he has made payment, find that the contract is void; that no provision was made for them, because of the mistake or fraud of the agent soliciting the insurance. In the meantime, the company has received the benefits of the insurance, profited by the mistake or misconduct of the agent selected by it, and goes free of liability. And if such rule be enforced, it must always happen that in the volume of insurance business which is done, a percentage of it, which experience in the court shows is quite large, must result as above outlined. It is only necessary, therefore, that the finely printed contract be drawn strong enough, in order to exempt the company from liability for the consequences of the fraud of its own agent, although the suffering party was in no measure responsible therefor. It is small comfort to say that parties must be bound by their contracts, for the fact remains that thousands of persons neither read such contracts, nor would they understand their legal effect if they did. The company is the party that understands this condition perfectly, is presumed to understand the character of its agents, presumptively vouches for their integrity, gave them employment, and yet is permitted by the law to stipulate immunity for their acts. It would seem as if such a contract comes dangerously near to offending against the requirements of a sound public policy. Nor is it an answer to say that the contracts are voluntarily made by the insured, or that the companies seek to protect themselves from fraud being practiced upon them. The contracts are ignorantly made, and are only voluntarily entered into because not understood. The company possesses the power to protect itself by the selection of its agents, and should not be exempted from liability when selection is made of a person without character, who is thus foisted upon the public to commit wrongs and defraud a class of persons who are in a measure helpless. The argument which pleads for the company as respectable is not a whit stronger than the one which pleads for the people as honest. There is no reason to believe that people will commit perjury for the purpose of establishing an unjust claim, any more than there is that they will do it in an attempt to establish any other act. Take the present case: There was no attempt to deceive this company by withholding the cause of death of the brother and sister; the facts were presented. We are impressed by the fact that a contract ought not to be upheld which in its practical working exempts the company from liability for the fraud and mistake of its agent. An insurance company which employs an agent of so little moral sense that he will subsequently take the stand to swear that he committed a fraud in writing the application, ought not to be heard to plead an exemption. It employed him and should be held liable for the consequence of his acts.

I have a great deal more that I can not put in in the time allotted; but I should like to ask one question of the insurance gentlemen here. By the way, I have heard them say it is impossible to attach the application to the weekly payment policy because it is so expensive. Here are two policies issued by colored local companies which do that very thing. It can not be said that these poor colored companies can do that and the big companies can not.

I want to ask the insurance companies this question:

It is well known that in many cases an industrial policy comprises a poor man's whole estate. How many of you gentlemen would be willing to have the sole inheritance of your widows and children consist of a life-insurance policy issued without medical examination which was void for 24 months after its date if you had any latent disease whatever at time of issuance or had ever had any serious in

ternal disease, and even if the policy were paid you could not insure its payment to your widows or children, but the company could pay any relative or creditor it saw fit?

If any gentleman present will say he would like to take out that kind of a policy, I hope he will rise and give his name.

Mr. W. GWYNN GARDINER. There is no such thing in existence that I know of. I am with you in a large measure in what you say, but you are wrong about that.

Mr. BUDLONG. Mr. Gardiner is the leading insurance lawyer here; and if he says I am wrong, I am wrong.

Mr. J. M. MOSES (representing Sun Life Insurance Co., Baltimore, Md.). In making comparisons between the Mutual Life policy and the Metropolitan policy, the two main distinctions that you call attention to are these: First, that under the Metropolitan policy, by reasons of the incontestable clause, there is no insurance for two years?

Mr. BUDLONG. Except in the case of a person who is perfectly healthy.

Mr. MOSES. I want to say that there is a similar clause in this Mutual policy making it one year.

In the next place, you say the party has to be in sound health; if not in sound health, the policy can be voided. That very clause exists in the policy of the Mutual, which is a part of the contract. Mr. BUDLONG. Will you read it, please?

Mr. MOSES. Bear in mind, under the terms of the policy, the application and the policy are the contract.

Mr. BUDLONG. In that policy.

Mr. MOSES (reading):

The proposed policy shall not take effect unless and until delivered and received by the insured, the beneficiary or by the person who herein agrees to pay the premium * and unless and until the first premium shall have been

paid during the insured's continuance in good health.

This does not take effect unless that man is in good health at the time the premium is paid. It is exactly the same in effect as in the Metropolitan policy.

Mr. BUDLONG. Mr. Chairman, he has been examined. The physician has passed on that.

Mr. MOSES. It does not make any difference. You can not point to one case where the courts have said to the contrary. If a man is not in good health at that time, the policy does not go into effect.

Senator BLAINE. But if the company's physician has examined him and found him in good health, how can you overcome that evidence in a lawsuit?

Mr. MOSES. That is where the company loses.

Senator BLAINE. This application is part of the policy, and it is their agent who declares the insured to be in good health.

Mr. MOSES. Yes. What you say is against the company's interest, but here the point is sought to be made that it is against the insured's

interest.

Senator BLAINE. Not with respect to the Mutual of New York.
Mr. MOSES. The clauses are similar.

Mr. BUDLONG. Senator Blease calls my attention to this case from the supreme court of his State, where it said:

*

*

If they (the company) were satisfied and issued the policy, they can not now be heard to say that the doctor selected by them to represent them made a mistake, and that the insured was not healthy and had cancer, in the absence of a false or fraudulent representation made by the insured, and there is not the slightest evidence of this in the whole testimony. The company's physician had every opportunity to satisfy himself as to her state of health and physical condition, and if he did not see fit to do so then it was his fault. The company * * * thought her a good enough risk to receive her money; she was a good risk while alive.

**

That is a Metropolitan case (Baker v. Metropolitan Life Insurance Co., 106 South Carolina, 419).

Senator CAREY. Do these companies that have this 2-year provision in the policy grant a lower rate of insurance on that account?

Mr. BUDLONG. No, sir; the rate of insurance is higher. One of my main complaints is that it is higher. A recent writer has compared this weekly payment insurance to coal sold by the bucket. But at least such coal will burn. It is not fireproof coal. The industrial insurance, sold at a much higher price, is not good insurance, unless, as Mr. Gardiner says, I am wrong.

Senator CAREY. The Metropolitan policy you referred to does not pay anything until two years after it is written?

Mr. BUDLONG. It purports to insure the person from its date; but it specifically excludes him from its benefits, except for the return of premiums, if he has any disease at all at the time, or if he has ever had tuberculosis or other serious internal disease.

Senator CAREY. But if he has not had disease, and if he were insurable and were to die within 30 days, they would pay?

Mr. BUDLONG. Yes, sir. If he is so healthy that he does not need insurance, they will pay the policy.

(Mr. Budlong submitted for the record the following substitute proposed by him for the bill as printed, copies thereof having been furnished to the leading insurance companies a number of days prior to the hearing :)

Be it enacted by the Senate and House of Repreesntatives of the United States of America in Congress assembled, That all policies of industrial insurance issued or delivered in the District of Columbia after the taking effect of this act by resident or nonresident insurance companies authorized to do business in said District shall conform to the provisions and be subject to the conditions herein set forth, in addition to any others provided by law not inconsistent herewith: Provided, That sections 2 to 8, both inclusive, shall apply only to policies to which copies of applications are attached at time of issuance; section 9 shall apply only to policies to which copies of applications are not attached at time of issuance; and sections 10 to 19, both inclusive, shall apply to all policies.

PROVISIONS APPLICABLE TO POLICIES TO WHICH APPLICATIONS ARE ATTACHED

SEC. 2. The insurance contract shall consist of both the policy and the application in pursuance of which it is issued, provided an exact copy of said application is attached to the policy at the time of issuance, in default of which the policy shall be subject to the provisions of sections 9 to 19, both inclusive, of this act.

SEC. 3. No statement made by the applicant or the insured in the negotiation of the contract of insurance shall avoid the policy or be used in defense of any claim thereunder unless it is reduced to writing and an exact copy thereof is attached to the policy at the time of issuance.

SEC. 4. In the absence of fraud, all statements made in the application shall be deemed representations and not warranties.

SEC. 5. Any provision in the policy or the application which in substance conditions the taking effect or validity of the policy upon the sound or good

health of the insured at the date of delivery of the policy, or his prior freedom from disease, without regard to the representations made in the application, shall be construed as if expressly based upon and limited to said representations.

SEC. 6. No policy shall be held invalid because of an erroneous opinion or belief stated by the applicant or the insured.

SEC. 7. No policy shall be held invalid because of an erroneous statement of fact made by the applicant or the insured in good faith unless the company shall prove each of the following facts:

(a) That the company was thereby misled as to a matter material to the risk and causing or substantially contributing to the death, accident, or illness for which claim is made under the policy.

(b) That the matter was of such a nature that the applicant or the insured had, or can be reasonably presumed to have had, accurate knowledge with regard thereto.

(c) That the truth of the matter could not have been readily ascertained by the company through independent investigation or examination, without undue expense or delay.

SEC. 8. The burden shall be upon the company to prove each of the matters set forth in subdivisions (a), (b), and (c) of the preceding section; but the burden shall be upon the person making claim under the policy to establish the good faith of the applicant or the insured in making statements of fact proved by the company to have been erroneous.

PROVISIONS APPLICABLE TO POLICIES TO WHICH APPLICATIONS ARE NOT ATTACHED

SEC. 9. All policies to which exact copies of the applications are not attached at the time of issuance shall be subject to the following conditions, in addition to those prescribed in sections 10 to 19, both inclusive.

(a) No defense shall be allowed to any such policy on account of anything contained in, or omitted from, the application therefor.

(b) No statement made by the applicant or the insured in the negotiation of the contract of insurance shall avoid the policy or be used in defense of any claim thereunder unless it is reduced to writing and an exact copy thereof is attached to the policy at the time of issuance.

(c) If the policy provides in substance that it shall not take effect or shall be void or voidable if the insured was not in sound health (or substantially equivalent language) at the time of the issuance or delivery of the policy, or if the insured prior to that time had had one or more diseases named in the policy, said policy shall nevertheless be valid and binding so far as health is concerned unless the company shall prove that at the time of application the applicant or the insured knew or had reason to believe that the insured was in a seriously impaired condition of health or had had one or more of said diseases, and shall further prove that said seriously impaired condition of health or disease or diseases caused or substantially contributed to the death, accident, or illness for which claim is made under the policy.

PROVISIONS APPLICABLE TO ALL POLICIES

SEC. 10. Where an industrial policy by its terms is void or voidable in case of previous rejection for other insurance, or medical, surgical, or hospital treatment or attendance within a specified time, unless such reject on, treatment, or attendance is recited in an endorsement upon the policy, or in other contingencies specified in the policy and not in conflict with the provisions of this act or of ex sting law, nothing contained in this act shall be construed as invalidating such provisions.

SEC. 11. Nothing contained in the terms of any policy shall operate to prevent its valid assignment, in whole or in part, by the insured during his lifetime. or after the death of the insured by any person lawfully hav ng possession of the policy and being one of those entitled under its terms at the option of the company to receive payment thereof, provided such assignment by a person other than the insured is made to secure the payment of funeral expenses or debts of the insured.

SEC. 12. In any case where the medical examiner, or physician acting as such, of the insurance company shall examine or inspect the nsured and issue a certificate of health, or declare the insured a fit subject for insurance, or so