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REGULATION OF INDUSTRIAL INSURANCE

FRIDAY, DECEMBER 19, 1930

UNITED STATES SENATE,
SUBCOMMITTEE ON INSURANCE AND BANKS
OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA,

Washington, D. C. The subcommittee met, pursuant to call, at 10.30 o'clock a. m., in the Committee room, Capitol, Senator John J. Blaine, chairman, presiding.

Present: Senators Blaine (chairman), Vandenberg, Carey and Blease.

The subcommittee had under consideration S. 1903, which is here printed in full, as follows:

[S. 1903, Seventy-first Congress, first session)

A BILL For the protection of holders of industrial insurance policies in the District of

Columbia

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That policies of industrial insurance hereafter issued in the District of Columbia shall be subject to the following conditions, in addition to any others provided by law not inconsistent therewith:

SEC. 2. If the policy provides in substance that it shall be void or voidable (a) if the insured was not in sound health at the time of issuance of the policy, or (b) 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 unless the company proves (a) that at the time of application the applicant knew that the insured was in a seriously impaired condition of health, or (b) that at the time of application the applicant knew that the insured had had one or more of said diseases, and further proves that said seriously impaired condition of health or disease or diseases constituted the direct and proximate cause of the death or other claim made under the policy.

SEC. 3. Testimony shall not be received as to oral statements, or the lack thereof, on the part of the applicant or the insured in the negotiation of the contract of insurance. All statements in connection with said negotiation must be reduced to writing, signed by the applicant, and incorporated in or attached to the policy in order to be admissible as matters of defense; and in the absence of fraud as defined below all such statements shall be deemed representations and not warranties. Fraud must be affirmatively proved in order to avoid the policy, and shall not be presumed from the mere existence of disease unless the nature thereof was such that its existence and seriousness must have been known to the applicant at the time of application, and the misstatement of matters not materially affecting the risk shall not constitute fraud or avoid the policy.

SEC. 4. At the option of the company the policy may be canceled within six months of issuance upon return of all premiums paid, in which case its liability shall be limited to that accruing up to the time of cancellation, For eighteen months after the expiration of said six-month period the company shall be entitled to institute equity proceedings for cancellation of the policy upon the ground of (a) seriously impaired health at time of application, or (b) the existence prior to application of disease as mentioned in section 2, or (c) suhstantial misrepresentation in the application or other statements attached to or incorporated in the policy, or (d) fraud as defined in section 3, and jf said equity proceedings are successful the liability of the company shall

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he 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 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 1 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 administratior., 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.

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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 insur

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:

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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,

EXECUTIVE OFFICE,

Washington, November 21, 1930. Senator ARTHUR CAPPER, 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 Commissior.ers 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, Senator

Senator 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.

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