the New York Central is injured, but you would not dream of taking away his right of recovery because the proportion is so small.

Let me tell you what has happened. In the first place, I have here. a very eloquent statement about what has happened and is happening. This is a communication from the actuary of Massachusetts, written last year:

Under a high-pressure system of salesmanship, such as is employed in the writing of industrial life insurance, the agent has every incentive for omitting from the application answers which might result in refusal of the risk by the company. This department has had a large contact with the insuring public and is called upon to handle numerous complaints of various sorts made by policyholders. Experience with complaints regarding nonpayment of claims under industrial policies written on a nonmedical basis indicates that many agents, although knowing the true facts, actually complete the answers to questions contained in the application and withhold from the application anything which would result in its refusal by the company. The applicant assumes full legal responsibility by signing the application, but does so at the agent's direction without troubling to read the answers contained in the application. Policy provisions as to sound health and voidance under certain conditions mean nothing to the insured because, generally speaking, they are not stressed by the agent and are not read by the insured. Again, the insured has no legal redress for lack of knowledge of policy provisions. If death occurs early and during the contestable period, the company makes a careful investigation and often determines that the insured died from a disease that in the opinion of the last attending physician existed at the time of the policy's issue, perhaps without knowledge on the part of the deceased. Or it may find a history of medical attendance of the insured prior to the policy's issue which was not admitted to the company, although in many cases it was admitted to the agent. In either event the company may refuse payment of the insurance and offers a refund of premiums, which is a poor substitute for the face amount provided by the policy. Complaint is made to the department and no relief can be afforded

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In the majority of complaints heard by this department relative to rejected claims, it is our opinion that the insurance was taken in good faith with complete confidence placed in the agent, who, because of pecuniary advantage to himself, failed in both his duty to the company and the insured. In fact, the agent is the company to this class of policyholders, who are inclined to accept without reservation any statements which he may make. Therefore, it would appear that in cases where facts material to the insurability of a risk are to be obtained through its agents, the company should be required to accept a greater responsibility for the acts of such agents.

I now read from the report of the commissioner of insurance of Massachusetts for 1927:

Since the statutes were amended in 1924 to permit the issue of industrial insurance aggregating $500 or less on any one life without medical examination, complaints from the public relative to the refusal of companies to pay claims where death occurs during the 2-year contestable period have increased materially. The reason for denial of liability in these cases is usually either because the insured was not in sound health when the policy was issued or because of omission from the application of the past medical history of the insured. In many of these cases it is apparent that the agent in writing up the application is fully aware that the applicant is not a proper risk and withholds from the application any statement that would support this fact. He has the applicant sign the application without reading it and assures him that he is fully covered.

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Most industrial policies issued to-day contain the so-called facility-of-payment clause instead of a designated beneficiary. This clause gives the company the right to pay the proceeds of a death claim to whoever it believes has the best right to such proceeds. * * * In my opinion the facility-of-payment clause should be used only in cases where a designated beneficiary has predeceased the insured or the insured's estate has been designated as beneficiary.

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 applications. 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 acquiring 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 industrial 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.

In Georgia :

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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. Under 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 agent 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. BUDLONG. 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

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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.

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*

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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

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 lapse 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.

Bear in mind that these people

Senator CAREY. It is not due to the form of the policy? Mr. BUDLONG. I do not think so. 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.