STATEMENT OF H. H. RAMM, REPRESENTING THE AMERICAN EXPRESS CO., NEW YORK CITY

Mr. RAMM. My name is H. H. Ramm, American Express Co., New York City. I attended several of these hearings and I think it is inferred that the only persons who are going to be regulated under this bill are the underwriters. I think if the committee will read the bill they will find that the bill does not restrict itself to underwriters. It specifies any individual, partnership, association, or corporation who uses the mails of the United States in soliciting, negotiating, or effecting insurance, and so forth, or for the purpose of transmitting policies, certificates, or other evidence of such insurance transactions, or for the purpose of collecting premiums, or reporting insurance transactions.

In the commercial world there are any number of organizations that do a lot of those things, who are not underwriters. For instance, a bank will collect an item which may include insurance premiums. Or, for instance, a customs broker will have a customs bond written for which a premium is to be charged, that the customs broker pays originally, and then must collect from his customer. The freight forwarder insures, and then must collect the premium. Now, there is all of that kind of business, and if this statute should be passed in the terms in which it now appears, all of these companies, which would include the railroads, freight forwarders, customs brokers, and bankers collecting insurance premiums would be compelled to comply with the insurance laws. I think that is not the purpose of this bill, and I merely want to call the committee's attention to that.

Mr. ASHBROOK. Is the same true of the contracts?

Mr. RAMM. Yes; the same is true of the contracts.

Mr. ASHBROOK. I want to call Mr. Lautmann, if you still desire to be heard further?

Mr. LAUTMAN. I just have a word ot say. When Mr. Marshall referred to the Hercules Life he forgot to state that the All-State companies were licensed in the District of Columbia and that application was made to license the Hercules Co. here. The filing of that application is being delayed for the preparation of their annual statement.

Mr. ASHBROOK. Mr. Gruhn.

STATEMENT OF A. V. GRUHN, GENERAL MANAGER, AMERICAN MUTUAL ALLIANCE, CHICAGO, ILL.

Mr. GRUHN. I made the request yesterday that if the committee is going to put out an amended bill imposing some penalties for the use of the mails by unauthorized companies, that it also include a provision denying the use of the mails to either companies or agents sending out in any form dishonest and misrepresentative propaganda concerning its own company or any other company or group of companies.

Since I appeared here yesterday I have received from my offce a pamphlet and a letter now being circulated by certain insurance interests and agencies, listing a large number of alleged mutual

insurance-company failures. It is, according to the letter, being sold in every State in the Union, and being distributed in every State in the Union. It says, "There goes another Mutual house!' without a post office or box address, from Hartford, Conn., presumably published by the Insurance Publication Co., Inc., but, as a matter of fact, compiled, at least presumably, by the W. L. Deckert Co. of Harrisonburg, Va., an organization of insurance agents. I notice in running over this list that it contains the names not only of mutual insurance companies, but of reciprocal exchanges, classified as mutual companies.

There are about 20 or 30 stock companies in the list, and there is in the list the name of the Mill Owners Mutual Fire Insurance Co. of Iowa, which is a going mutual fire insurance company, licensed in every State in which it does business, licensed in the District of Columbia, and licensed in the State of Virginia. It has not only that company listed once as having retired, but it is listed twice. It lists it under the town of Wilton, Iowa. As a matter of fact, in the early stages of the operations of that company, which is now well over 50 years old, it was located in Wilton, Iowa, and then it moved to Des Moines, Iowa. I have forgotten the number, but I think there are some 10 or 12 other going concerns in this list.

There is also maintained in the city of Chicago an anonymous pamphlet organization supported by a group of insurance companies, which distributes throughout the country unsigned pamphlets misrepresenting mutual fire and casualty insurance. Most of the pamphlets have no identification whatsoever, but the few that do have any identification have a serial number or the name, "The Committee on Education and Publicity."

Mr. BRUNNER. To whom are these sent?

Mr. GRUHN. They are sent to insurance agents who, in turn, send them to mutual policyholders, or prospective mutual policyholders. There is an anonymous pamphlet, "A Short Study of Mutual Fire Insurance", which is unsigned, in which certain hypothetical questions are set forth and self-serving answers printed, quoting certain cases, I mean citing certain cares to support the answer, and not one of the cases support the proposition sought to be advanced, but actually the reverse. I will file that with the committee. It has on the front of it the high-sounding phrase, "Truth is right, and right wrongs no one." The fellow who is so anxious to disseminate truth did not have the courage to sign it, and that is being distributed all over the country and I should like also to file that with the committee with the answers therein contained.

I should like also to file with the committee another pamphlet, unsigned, which says that the institutions of 44 States, including, Mr. Chairman, the State of Ohio, prohibit public corporations from insuring in mutual fire insurance companies when, as a matter of fact, not one of the States here listed do prohibit that business by public corporations, and when, as a matter of fact, the constitution of the State of Ohio specifically says that public corporations may insure their properties in mutual companies, and the Supreme Courts of New Jersey, Pennsylvania, Kentucky, and other States listed have upheld the right of public corporations to insure in mutual companies.o

If there is to be any legislation on this subject, I do not ask to be excluded from it, nor do I ask that my companies be excluded, but I ask that there be included in it a provision that any agent or any company supporting any organization or committees sending out in any way through the house organ or through literature of any kind, matter which misrepresents its own or any other company or class of companies, be subjected to the penalties imposed by this bill. I will stand by my ability, or the ability of my companies, to send out only that which is the truth, and all that I ask is that material such as this be placed in the category where responsibility can be fixed.

I took this up with the Post Office Department, and deplored as it did, that nothing could be done about it. I will go the whole length on this proposition to take racketeering and dishonesty out of the so-called "reputable insurance companies ", as well as the other type for which no one holds any brief, but I ask the consideration of the committee to that amendment and I would like the privilege of filing a brief, which I will prepare before I leave the city.

I shall be very glad to leave this with the committee, if it would like to read the best piece of fiction that has come across the insurance pike in ages this is it. Hemingway is just a novice compared with the fellow who wrote this stuff. No dope could have been more fantastic in his imagination.

(The documents referred to by Mr. Ruhn are as follows:)

A SHORT STUDY OF MUTUAL FIRE INSURANCE SOME REASONS WHY THE PLAN IS DANGEROUS AND HAS RUINED MANY FARMERS. NO REFERENCE IS MADE TO ANY PARTICULAR COMPANY AND NO WISH EXISTS TO INJURE THE BUSINESS OF ANY COMPANY OR AGENT; ONLY A WISH TO SHOW THE TRUTH

66 TRUTH IS RIGHT, AND RIGHT WRONGS NO ONE

Q. 1. When a person enters a mutual fire insurance company is he liable for more than his own proportion, or share, of its debts?-A. As fast as this question is reaching the courts of last resort of the United States, they are deciding that he is.

In the case of Krugh v. Lycoming Fire Insurance Co. (Vol. 77 Pa. St. Repts., p. 15), the court decided that members are liable as partners.

The court in the case of Shubrick v. Fischer (2 Dessauss Eq. (S. C.), p. 148), follows the same doctrine.

Many other cases in many States decide the same way.

It is needless to say that "Each partner is liable for the entire indebtedness of the firm ", for this rule is too well known.

"One is even a party to illegal acts of the mutual company by reason of his membership ", so the cases of Lycoming Fire Insurance Co. v. Newcomb (1 Leg. Chron. (Pa.) 9, and 12 N. J. Eq. 133), enunciate.

It is held in the cases of Sands v. Bontwell (26 N. Y. 233), Cooper v. Shaver (41 Barb. (N. Y.) 151); and Stockley v. Hartley (12 Pa. Sper. Ct., 628), and a member is liable to the extent of the liability of the company-the mutual -company's entire indebtedness.

Q. 2. Has any officer or agent of a mutual company power to guarantee to a member that his liability shall not exceed any certain amount?-A. Neither officer, agent, nor member can limit the liability of a member of a mutual company. His guaranty, if he made one, would be worthless. See the cases of Moore v. Lupfer, reported in 32 Pitts. Leg. J. (Pa.) 366, and cases cited. Other States are following this decision. At whose expense may the next decision of this kind be made? Do you think it would pay to risk it?

Q. 3. How long does the liability of every member of mutual company last? A. Until the courts wind the company up and until all debts, court costs, receiverships, and attorney's fees are paid.

A member is liable even after his property has burned, or his policy canceled, and even after the company has been dissolved, if he has property which can be reached and subjected to the mutual's debts for which the law makes him security. See following cases: Commonwealth v. Massachusetts Mutual Fire Insurance Co. (112 Mass., p. 116); Alliance Mutual Insurance Co. v. Swift (10 Cush. 433); North Carolina Mutual Insurance Co. v. Powell (71 N. C. 389); Sterling v. Mercantile Mutual Insurance Co. (32 P. St. 75); also, 96 Iowa 114; 64 Me. 86; and others.

Q. 4. Is there a lien put on a person's property when he enters a mutual fire insurance company? Can that lien be enforced and his property sold to pay the lien?-A. Nearly every State has passed a law to that effect.

Section 4889 of Statutes of Indiana declares every mutual policy a lien on the building insured and on the land. Section 4890 provides that such lien may be enforced! Section 4891 provides that the land and buildings may be sold to satisfy the lien. This lien is no better than a mortgage. The whole thing is like going another man's security and putting a mortgage lien on your property to secure his debt!

A mutual company may borrow money and give its notes (secured by your land) therefor, or it may sell, transfer and assign your notes for same. (32 N. Y. 591; 30 N. Y. 218; Orr v. Mercer County Mutual Fire Insurance Co., (114 Pa. St., p. 387); Lycoming Fire Insurance Co. v. Newcomb (1 Leg. Chr. (Pa.) 9); (4 Leg. Gaz. 409; and others, sustain this doctrine.) This is in the scope of its authority and you cannot question acts of its officers or agents within scope of authority! (179 Ill. 361; 122 Pa. St. 291; 154 Pa. St. 200.) Is there a surer way of getting other people's hands in your pockets?

SCHOOLS CANNOT INSURE IN MUTUALS-IMPORTANT RULING GIVEN BY THE ATTORNEY GENERAL OF MISSOURI

IS FORBIDDEN BY STATE CONSTITUTION-HIS OPINION HOLDS THAT STATUTES PURPORTING TO AUTHORIZE INSURANCE OF SCHOOLS IN MUTUALS VIOLATE THE SECTION AGAINST PLEDGING OF PUBLIC CREDIT

The attorney general of Missouri has ruled that school boards may not legally insurance in mutuals, this being prohibited by the section in the State constitution forbidding the pledging of the public credit.

In October 1933 the Normandy Consolidated School District of St. Louis asked the attorney general of Missouri whether it would be legal for a school district to carry mutual insurance; whether it was legal for a mutual company to limit its liability to one premium, and whether it was entitled to write the insurance for a 5-year term. Gilbert Lamb, assistant attorney general, with the approval of Attorney General McKittrick, gave a detailed ruling October 24, supported by many constitutional and legal citations. This held that a member of a mutual company is a stockholder in such corporation, within the meaning of the section of the Missouri constitution prohibiting the lending of the credit of the State or any political subdivision thereof to any individual, association or corporation whatsoever, or becoming a stockholder therein. He held that because of this prohibition school districts in Missouri do not have authority to take policies in or become members of mutual fire companies or associations. Statutes purporting to give them such authority are ineffective to clothe them with such power, in view of the constitutional prohibition.

PROHIBITED BY 34 STATES

This prohibition against the State or any political subdivision thereof lending its credit or becoming a stockholder is common to the constitutions of most of the States. It appears in varying forms, but with the same general intention, in the constitutions of 34 States. A school board becoming a member of a mutual, subject to assessment, necessarily pledges its credit when it agrees to pay its share of the losses sustained by other members, and the attorney general shows that it also becomes a stockholder in the mutual.

On the other points inquired about, the attorney general ruled that if the premiums and all liabilities under the insurance policy are fixed it is not mutual insurance, and that there were no objections to a 5-year policy. The opinion in full follows:

I. APPLICABLE PROVISIONS OF CONSTITUTION

Section 47, article IV, of the constitution of the State of Missouri in part is as follows:

"The general assembly shall have no power to authorize any county, city, town, or township, or other political corporation or subdivision of the State, * * * to lend its credit * * * to any individual, association, or corporation whatsoever, or to become a stockholder in such corporation, association, or company * *

Section 6 of article IX of the constitution provides:

66

No county, township, city, or other municipality shall hereafter become a subscriber to the capital stock of any railroad or other corporation or association, or make appropriation or donation, or loan its credit to or in aid of any such corporation or association, or to or in aid of any college or institution of learning or other institution, whether created for or to be controlled by the State or others.

* *

That a school district is a political subdivision of the State is no longer an open question in the State of Missouri. State ex inf. McKittrick v. Whittle (not yet officially reported).

II

Generally the asserted right of a school district to become a member of a mutual insurance company is now based on the amendments to article 14 of chapter 37 and article 15 of chapter 37, Revised Statutes of Missouri, 1929, as found in Laws, 1931, at pages 240 and 241. The amendments are identical and are as follows:

"All companies organized and existing under the provisions of this article, are authorized and empowered to accept as members thereof any school district of this State and to insure the real and personal property thereof as in the case of other members of such company, and any school district of this State may, by a two-thirds vote of the board of directors of such district, become a member of any such farmers' mutual insurance company, and insure the real and personal property of such school district in such company as in the case of other members thereof, and pay, out of the incidental funds of the district, for such insurance, and for all assessments lawfully made by such company, as in the case of other members of such company."

The attempted power given mutual fire insurance companies organized under the laws of this State to insure the property of school districts, and the attempted permission given to school districts to insure in mutual fire insurance companies organized under the laws of this State, would seem to be a legislative declaration or construction that such school districts do not have authority to insure school district property in a foreign mutual fire insurance company. However, in view of the conclusion we have reached on the matter submitted by you, as to whether or not the amendments quoted had the effect as above stated becomes immaterial.

III. COUNTY MUTUAL INSURANCE COMPANIES

Section 6030 of article XIV, Revised Statutes Missouri 1929, relating to county mutual insurance companies, provides that an association of 50 or more persons, citizens of any county, may be incorporated under the provisions of article XIV by the procedure therein and in section 6031 specified. Section 6034 provides: "All and every person, residing in said county, or owning property therein, who shall at any time become interested in said company, by insuring therein, and also their respective heirs, executors, administrators, and assigns, continuing to be insured therein, as hereafter provided, shall be deemed and taken as members thereof, for and during the term specified in their respective policies, and no longer, and shall at all times be concluded and bound by the provisions of this article."

Section: 6040, fixing the liabilities of a member of a county mutual insurance company, provides:

66

'Every member of said company shall be and hereby is bound to pay the proportion of all losses and expenses happening or accruing in and to said company; and all buildings insured by and with said company, together with the right, title, and interest of the assured to the lands on which they stand, shall be judged to said company, and the said company shall have a lien thereon against the assured during the continuance of his, her, or their policies."