of the individual. Life insurance proceeds upon a general law of average. No two policies are of the same value. The policy of a man who is suffering from consumption and is only going to live a few years, is worth ten times as much as that of a man in perfect health. The effect of these laws defining individual rights is one of the baneful things about the business. Take these deferred dividend policies. A certain class of people go into a venture for a limited period. It is like a class of people who go upon a fishing expedition and are to divide the profits when they get home. What would be thought of a law which should compel the members of that fishing party to calculate every month during the voyage the contingent amount that each member of the crew is going to get when they divide up at the end of the voyage? It would bring about disappointment. What do you get for one of these contingent apportionments? You have a man who knowingly entered into it. He has contracted that if he does not survive he is to get no part of this fund, it is to go to the others who do survive. Now, if he is ill with a fatal disease and it is certain that he cannot hope to live the period, is there any justice in compelling the company to state to him a contingent amount of this fund as belonging to him when it is certain that he never will live to get it? Ought not he and members of the class to be perfectly satisfied, if they know the fund is there, that if they outlive the period they will get their share of it? The task of reporting the individual contingent interests is something that would work a very great hardship to all the companies and to all the policyholders. There is no vested interest whatever in this deferred dividend fund on the part of the policy-holders who have contributed to it. They may all die before the expiration of the period. That thing has happened. They may all default. If so that entire fund that would have been distributed goes to the ordinary policy-holders.

I therefore urge you to consider that you do everything that justice requires if you make provision that the companies shall honestly account for what they have got and shall honestly calculate what the whole amount due to the class is, and that you

avoid the disappointment of contingently crediting members with shares in this contingent fund which they may never live to realize.

Gilbert Ray Hawes, of New York:

The learned and distinguished gentleman who modestly admitted that he was a director in the Equitable Life Assurance Society has pictured the misery and confusion and possible bankruptcy that would ensue if these companies were compelled to make an annual accounting to their policy-holders, and he has discoursed at length with regard to the impairment of contracts and violation of law.

The violation of law and of contract has been on the part of the insurance companies and not on the part of the policy-holders. I have in mind one of our largest insurance companies in the State of New York, whose charter granted by the state many years ago distinctly provides that there shall be annually an ascertainment and apportionment of its surplus moneys and that, not only shall the company be obliged to account to its policy-holders, but it shall distribute that surplus in one of three ways: either by a cash dividend, by reduced premium, or by reversionary insurance. Now, that charter is still in existence and that company has deliberately violated it every year since it was organized. When the policyholders of that company come into court, as they frequently do, in equity, and ask for an accounting, this favored defense is interposed, that it is an impairment of the contract because the policy which has been given to the policy-holder very shrewdly includes these clauses which have been referred to here, namely, that there shall be no accounting and no distribution until the end of the deferred period. The poor policy-holder does not know what he is getting when he takes out his policy. He merely makes an application, passes his physical examination and after paying the first premium, the policy is given to him, filled with clauses in very fine print. It is only when he comes into court afterwards to obtain his rights that he is met with the defense that it is an impairment of the contract which he never read.

Swagar Sherley, of Kentucky:

What have the courts held when such defenses have been interposed?

Gilbert Ray Hawes:

The courts have sustained them on the ground that although the law required the companies to make this annual ascertainment and apportionment, yet this right had been waived by the insurer in accepting the policy.

Hiram Glass, of Texas:

Are you right in saying that it would be so held by the courts? Gilbert Ray Hawes :

Yes, sir, and that is why we want this new legislation enacted. If this law were passed as recommended by the committee, then the insurance companies would be compelled to live up to itnot only to live up to that law, but also to live up to their charter obligations.

Charles E. Littlefield, of Maine:

In other words, you want to change a contract by operation of statute?

Gilbert Ray Hawes :

I want to compel the companies to live up to their contract. Charles E. Littlefield:

I understand you to say that in the case you refer to the company did live up to its contract?

Gilbert Ray Hawes:

No, sir; I said that the court held that the policy-holder had waived his right, because he had not insisted upon it at the time. Charles E. Littlefield:

In other words, he made a contract and the court held that he was bound to stand by it.

Swagar Sherley:

The fact of the matter is, it was a bunco game on the part of of the company against the policy-holder.

Gilbert Ray Hawes:

That is it exactly; it was a bunco game. There was a law of

the State of New York which compelled the companies to make an annual apportionment and distribution of these surplus moneys and they didn't do it.

Ernest T. Florance, of Louisiana :

Do I understand the gentleman from New York to state that an insurance company can make a contract in violation of its charter?

Gilbert Ray Hawes:

Yes, sir.

Mr. Justice Bischoff of the New York Supreme Court so decided in effect.

Theodore Sutro, of New York:

Does the gentleman contend that a policy-holder shall be protected on the ground that he has not read his policy that he has himself taken out?

Gilbert Ray Hawes:

No, I do not contend that; but I say that if the present laws are insufficient to afford protection to the policy-holder, then the recommendation of this committee should be adopted, and the company should be compelled to make an annual distribution as required under their charters. I understand Congressman Littlefield to have said that it would be impossible to do that, not only on legal grounds, but also on practical grounds; that it would be impossible to carry it into effect, that it would be practically transposing a surplus into a liability, that those moneys would be locked up and could not be used in case of stress and that the companies could not do business if such a law as this were enacted. In answer to that permit me to say, that I have given some considerable study to this subject, and I know that one of the largest insurance companies in the United States, organized in the State of Ohio, has lived up to its charter agreement, has complied with the law and has done this very thing and it is alive and prosperous today. That company makes an annual apportionment and ascertainment and distribution of its surplus to its policy-holders every year. Only a small sum is reserved for office expenses and salaries, which salaries are very moderate indeed as compared with some of the

old line companies, and the entire balance is distributed to the policy-holders. So that a man who takes out a policy today in that company and the premium is, we will say, $100, next year either gets a cash dividend or his premium is reduced to $90. I have seen statistics which show instances where a premium starting in at $150 has, after the lapse of a few years, been gradually reduced down to $25.

Edward K. Sumerwell, of New York:

Mr. President, I desire to offer an amendment to the resolution. I think the proposition may be divided, and that the information desired by the committee may be gathered by way of an ascertainment of the surplus accumulated during the year without an actual apportionment and distribution. I, therefore, move that the second paragraph on page 30 of the report of the Committee on Insurance Law be amended to read: "Every company having in force any deferred dividend policies shall, at the time of the mailing of the annual premium notice, furnish to each such policy-holder a statement showing the surplus accumulation to the credit of the policy at the beginning of the preceding year, the rate of interest earned on the accumulation, the amount of saving and profit to said policy during the preceding year, with a showing of the total amount of such surplus accumulation and a showing of the total amount of surplus accumulation to all said policies as a class, which statement shall be made in accordance with the following form:" and that the first paragraph, which relates to distribution, be omitted. The President:

Is the amendment proposed by the gentleman from New York seconded?

John Nicolson, of New York:

I second it.

Edward K. Sumerwell:

The policy-holders are entitled to know from year to year the rate of progress made. In every state the companies might properly be required to exhibit in their annual statements the progress which they have made during the preceding year. If