Senator CAREY. Do you mean to say that the policy-holder, in the case of the Metropolitan policy you refer to there, can not designate the beneficiary?

Mr. BUDLONG. I do not say they wilfully refuse to pay a beneficiary when one is named, but I can show you any number of cases where they have not paid the right person.

The Metropolitan policy is unassignable, and by its terms any assignment of it is void. There being no definite person entitled to collect this policy in the Metropolitan save the executor or administrator, when a person dies this policy may be collected by any one of a number of different people; and there is no way of safeguarding the undertaker or the physician or the grocer, or any other person to whom the insured person owed money, by assigning the policy to him. To be sure, it may be delivered to him; and the company may pay him if it sees fit. Presumably, it will pay him in most cases; but it is not compelled to pay him.

Senator BLAINE. Is delivery an assignment of the Metropolitan policy?

Mr. BUDLONG. It says here specifically, "Any assignment of this policy shall be void." Whether delivery in law would constitute an assignment, I do not know.

Senator BLAINE. I do not think a mere delivery is an assignment at all.

Mr. BUDLONG. It might confuse the issue as to who the real beneficiary is, with all manner of claims set up. I can appreciate that there may be a number of relatives quarreling over these policieswhich, by the way, average only $200. They are very small, primarily for funeral expenses, but relatives quarrel even over $200; and if there should arise any such quarrel there is no way in which any particular person can be safeguarded for any debt owed him until that quarrel is settled, unless he happens to be the first person who grabs the policy and runs to the company's office-a rather undignified performance.

I wish to submit for the record the essential parts of the old forms of the Metropolitan, Prudential, and John Hancock policies. These three companies do the bulk of the weekly-premium business in America, something like 90 or 95 per cent.

Senator BLAINE. What is the difference between the premium paid on the Mutual and the Metropolitan?

Mr. BUDLONG. At the time of the Hughes investigation, 25 years ago, they said the premiums were, roughly, twice as large on the weekly-payment policies. I have reason to think that since then there has been some difference in the ratio.

Senator BLAINE. That is, the Mutual charges considerably more premium?

Mr. BUDLONG. The Metropolitan in those days charged twice as much for the weekly-payment policy.

Senator BLAINE. I mean, as to the two companies. What is the difference in the premium between these two companies, the New York Mutual and the Metropolitan, for the same kind of insurance? Mr. BUDLONG. The Mutual does not write industrial insurance. Senator BLAINE. You were just using that as an illustration? Mr. BUDLONG. This Mutual policy is a standard life-insurance policy. That is a real policy. The other one is just an imitation,

although issued by a company which also issues the very best kind of standard policies. No one impugns the integrity or responsibility of the great Metropolitan Company; but I say that is a rotten industrial policy.

Senator CAREY. What is the object of that policy? You say it is not a life-insurance policy.

Mr. BUDLONG. It is meant to be a life-insurance policy. It is supposed to be; and, Senator, I think, from all I can learn, that the Metropolitan protects its people very much better than any other; but in this district there are some 30 companies writing weekly-payment insurance. They range from the great Metropolitan, having 260,000 policies outstanding right here, to the little colored company which has very small assets, one or two of which Mr. Baldwin has been trying to put out of business because of impairment of their reserves, and so on.

Senator CAREY. Do you intend to show that this results in substantial injustice?

Mr. BUDLONG. It has so resulted, and it makes it impossible to sue successfully on this policy. Mr. W. Gwynn Gardiner-who is a former commissioner of the District, and, in my opinion, the leading insurance lawyer here-has called my attention to a case recently decided, in which he tells me many of the things I am contending for here have been agreed to by the Court of Appeals. He will probably address you later. If that should be so, all I am after is the results-not any particular measure, but the results. I have never heard of this case before, and up to the date of the law books I consulted that had not been done.

When the Hughes investigation of 25 years ago was made, here is what Justice Brandeis-then a practicing lawyer of Bostonsaid about industrial insurance:

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For the greatest of life-insurance wrongs-the so-called industrial insurance— the Armstrong committee failed to offer any remedy. * * * The regular premium charge is about double that charged by the Equitable, the New York Life, or the Mutual Life of New York, for ordinary life insurance. So heavy are the burdens cast upon those least able to * The results ** * establish conclusively that, in

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bear them.

the conduct of the business, the interests of the insured are ignored.

He concludes that what is needed is "not eloquent persistent persuasion," but " a good article at a low price."

The Hughes committee report itself said: "Industrial insurance is furnished at twice the normal cost to those least able to pay for it."

It has been claimed by the companies that because of the great volume of these industrial policies they can not afford to attach the application. They say that the expense of duplicating the application-one copy for their files, one copy for each policy-is too much.

Here is a nonmedical policy issued broadcast over the United States, including the District, by a responsible Chicago company, the Federal Life Insurance Co., that has all the good points of the standard policy issued by the Mutual Life, and none of the drawbacks mentioned regarding the Metropolitan industrial policy. If this concern, much smaller than the Metropolitan or Prudential, can issue a reasonable, fair policy on standard principles on a non

medical basis, it is foolish for the great eastern companies to claim that they can not do the same thing. They simply do not want to. They have devised a cunningly worded instrument which leaves all the rights of the unsophisticated policyholder in their hands, and they can deal with him as they choose.

This does not imply any scheming to defraud him, and I disclaim any such intimation. It does imply, however, that having bound the policyholder hand and foot, deprived him of the customary rights under insurance policies, and having an unreviewable discretion in the matter of payment, the officials of the great industrial companies are quite as subject to error and mistake in judgment as any other human beings; and their appraisal of good faith is based largely, if not entirely, upon the suppressed application prepared by a low-paid agent having a direct pecuniary interest in effecting and maintaining the insurance.

This Federal Life policy has the application attached to it, and the party making statements in the application has the benefit of them; because if he says flatly "I haven't had tuberculosis," or, "I haven't had cancer," and he has either or both of them, the Supreme Court says it can only be inferred that he meant to answer to the best of his knowledge at the time.

Here is what the Supreme Court says as to the Metropolitan. policy

Senator BLAINE. You are using the Metropolitan policy as an example? You are not specially picking out the Metropolitan policy? There are a number of companies writing this kind of insurance. You say there are about 30 in the District.

Mr. BUDLONG. The Metropolitan has so high a reputation, and such unquestionable financial standing, that my theory is that if you take the very best company in the business, having the largest distribution of its policies, any criticism of its policies would apply in a greater degree to those copying it.

This policy provides that it shall be voidable if the insured is not in sound health on its date, or if before that date he had any pulmonary disease, or chronic bronchitis or cancer, or disease of the heart, liver, or kidneys. I shall insert in the record forms of policies in use by several companies.

(The matter referred to is as follows:)

FORM OF POLICY NOW IN USE BY THE METROPOLITAN LIFE INSURANCE CO.

(NOTE The Metropolitan Co. being so preeminently the leader in the industrial field, its policy is selected for the purposes of this hearing. Small companies have copied its policy extensively.)

This policy constitutes the entire agreement between the company and the insured.

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If the insured is not alive or is not in sound health on the date hereof, or, before said date, has had any pulmonary disease, or chronic bronchitis or cancer, or disease of the heart, liver or kidneys, the company may declare this policy void, and the liability of the company in the case of any such declaration shall be limited to the return of premiums

paid on the policy.

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(NOTE. There is no reference whatever to the application in the present policy.)

FORMS OF POLICY IN USE 25 YEARS AGO BY METROPOLITAN, JOHN HANCOCK, AND PRUDENTIAL COMPANIES

The following forms, in part, are taken from a book called Industrial Life Insurance, published by the Spectator Co., 135 William Street, New York, in 1905.

Beginning on page 70 is a set of three sample policies, headed Industrial Policy Forms. The first paragraph under the heading reads:

"The following are samples of the industrial policies issued. While but three forms are given, they cover the contracts in general use."

METROPOLITAN FORM, PAGE 72

The Metropolitan policy was issued "in consideration of the statements in the printed and written application for this policy, a copy of which is hereto annexed, all of which are hereby made warranties and part of this contract." It also provided that "this policy is void if any of the statements of warranties in the application for this policy be not true."

The Metropolitan application, page 74, contains the following:

"And I further declare, warrant, and agree that the representations and answers made above are strictly correct and true, that they shall form the basis and become part of the contract of insurance, if one be issued," etc.

ANOTHER METROPOLITAN FORM

Besides the form set out in the Spectator book, copies of Metropolitan applications are frequently found in adjudicated cases dealing with them. In the Barker case in Massachusetts (188 Mass. 542, decided in 1905) the Metropolitan policy read:

"In consideration of the answers and statements contained in the application for this policy, a copy of which is hereto annexed as a part of this contract, * all of which answers and statements are hereby made warranties," etc. The application, questions and answers are set out on the third page of the policy, and the rest is in print. In addition, however, the policy contained the usual "sound health " clause.

JOHN HANCOCK FORM

The John Hancock policy, page 70, was issued "in consideration of the statements and agreements in the application herefor, which are hereby referred to, and as warranties made a part of this contract." The application provided that the representations and answers contained in it "shall form the basis and become part of the contract of insurance." The policy itself, like that of the Metropolitan, provided that "If any statement or answer in the application for this policy, which application is hereby referred to and made a part hereof, is in any respect untrue, * then this policy shall be void."

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And the application, page 71, says:

"I declare and warrant that the representations and answers made herein are complete, strictly correct and true; that the several questions were duly asked, and that the answers given by me are truly recorded as above; that they shall form the basis and become part of the contract of insurance," etc.

PRUDENTIAL POLICY

The Prudential policy in use in 1903 made the application part of it. Witness the following quotations from Russell v. Prudential Ins. Co. of America, 176 N. Y. 178, decided in 1903:

The application read in part:

"I hereby declare and warrant that all the statements and answers to the above questions, as well as those made or to be made to the company's medical examiner, are or shall be complete and true, and that they, together with this declaration, shall form the basis and become a part of the contract of insurance hereby applied."

The policy begins with this provision, as quoted by the court on pages 186 and 187:

"In consideration of the application for this policy, which is hereby made part of this contract, and of the quarterly annual premium "-And so forth.

Mr. BUDLONG. Here is what the Supreme Court of the United States said, not in an industrial case, but the decision has been applied repeatedly to industrial cases since. This is the unanimous opinion of the court, delivered by the great Mr. Justice Harlan :

In respect of consumption, and diseases of the lungs, heart, and other internal organs, common experience informs us that an individual may have them, in active form, without at the time being conscious of the fact, and beyond the power of anyone, however learned or skillful, to discover.

Did the company expect, when requiring categorical answers as to the existence of diseases of that character, that the appl cant should answer with absolute certainty about matters of which certainty could not possibly be predicated? Did it intend to put upon him the responsibility of knowing that which, perhaps, no one, however thoroughly trained in the study of human diseases, could possibly ascertain?

(Moulor v. Ins. Co., 111 U. S. 335; unanimous opinion of the United States Supreme Court.)

Senator VANDENBERG. May I interrupt to inquire whether the conditions you describe in the District exist generally throughout the United States?

Mr. BUDLONG. Oh, yes. This is widespread; and one reason why I have taken an interest in this matter, having had this injustice in our own family, was because if there is anything wrong with industrial insurance here, it exists all over the country; and both the companies and the Spectator, a leading insurance paper, say that whatever is done here is likely to be copied in the States. Therefore, you should be careful what you do, and what you do will have wide influence.

Senator VANDENBERG. There is no such corrective legislation in other States at the present time?

Mr. BUDLONG. So far as I know, nothing has been done along this line.

Senator CAREY. Do you have an insurance commission in the District?

Mr. BUDLONG. We have an insurance superintendent; but, of course, he could not remedy the terms of a policy. Or, at least, if he could he has not done so; and I do not blame him, because these policies have been written for 25 years.

Senator VANDENBERG. Has he ever canvassed the matter and made a report on it?

Mr. BUDLONG. I do not know; but I must say that Mr. Baldwin has given me every facility of his office, and I am convinced that he is doing everything he can in the interests of the poor people who are thus insured.

Senator CAREY. The present law does not give him the power?

Mr. BUDLONG. It may; but I do not expect Mr. Baldwin, and I do not think you gentlemen do, coming in six or eight years ago, to compel the companies to do away with a policy that has been written for 25 years.

Senator CAREY. Some States have that power.

Mr. BUDLONG. If I had the job, I should be afraid to do it. Senator BLAINE. I do not think the District laws permit the Commissioner to have such authority.

Mr. BUDLONG. The Georgia appellate court says:

To permit the insurer, upon the death of the insured, to go back of and behind the bona fide contract and set up its invalidity on account of some unknown and unmanifested disease, which from its nature and customary