Many of the worst features in Life assurance contracts or
policies, mentioned in this essay, have been amended or
corrected since its publication, but there remain enough
other conditions of doubtful fairness to the policy holder
to, I think, justify including this essay in this book.
Among these conditions, is the clause, in all Tontine
policies,--and nearly all policies now issued are Tontine in
one form or another,--which puts all accumulations on
policies derived from "dividends," premiums, etc., on lapsed
policies etc., into the hands of directors or officers of
the companies, to do with as they choose, the policy holder
being made, by the terms of his contract or policy, to agree
to accept whatever proportion of surplus there may be
"apportioned by the Society" or Company, to his policy, when
it shall have matured. That is, the policy holder is not
represented as against the Company, in the determining of
what, if any surplus, his policy is or should be entitled
to. "At the end of the Tontine Period, if the person proposed
for assurance be then living, and the policy in force, the
policy shall participate in the accumulated surplus, derived
from policies on the Free Tontine plan, both existing and
discontinued, as may then be apportioned by the Society."
(Italics mine.) This leaves the policy holder absolutely at
the mercy of the Company, or its actuary who is, or may be,
the instrument of the officers of the Company. And it will
not do to reply that "the policy holders are the Company"
for it is well known, at least among insurance experts, that
this is one of the fictions of the business in its practical
management.
In illustration of certain other abuses in the management of
this beneficent and important business, I have also
included, brief, humorous sketch, which touches some of
these, a propoi of the fictions versus the facts.
Within the past twenty years the business of life-insurance has grown
with such wonderful rapidity, and changed so radically in its methods
and contracts, that it is to-day as unlike its old self as the
railway-car is unlike the stage-coach.
The old life-insurance contract undertook to define burglary, riot, and
rebellion, and the companies held themselves free from obligations which
they had deliberately assumed, if the other party to the contract did
not conform to the rules of conduct laid down under their definition
and requirements. Nowhere else in the history of large business
organizations has the debtor regulated his obligation by the morals of
his creditor and liquidated his debt by acknowledging its existence, and
then simply charging moral obliquity on the part of said creditor as the
reason for not paying it.
If A owes B fifty dollars, and B is known to be a thief or a
murderer, it does not liquidate A's debt to simply show that fact. But
life-insurance companies have held, and some of them still claim, the
right to so indemnify creditors, and, strange to say, they have been
able to conduct business on that basis. They have even gone further, and
said that a debt to B's heirs is forfeited in like manner--thus making
the destruction of a man's reputation after his death of pecuniary
advantage to the company. They have been enabled to do this because many
men do not read the insurance contract which they sign, and hence have
no idea of its complicated and, in many cases, unfair nature. If men
insisted upon understanding the contract before they sign it, as they do
in other business, the more unfair features would necessarily disappear
from all insurance contracts.
If I deposit a thousand dollars in a bank, it is my money--I can
withdraw it when I please, subject, of course, to business rules, which
have nothing to do with my standing as a citizen. The bank has nothing
to say in regard to my loyalty or my honesty in other affairs. My money
can not revert to the bank on outside ethical or moral grounds. But
in life-insurance--a business in which more money is invested than in
banking--the opposite rule has been, and to some extent still is, in
operation.
There are a few companies, it is true, which have rarely taken advantage
of their reserved right to mulct a family of money actually received,
upon the plea of outside ethical delinquencies of the dead--which had
nothing to do with his length of life--and there are companies, at the
present time, which have voluntarily eliminated the greater part of
these oppressive regulations and reserved rights from their forms of
contract. But in many of the companies they still remain in full force,
and in almost all there are improvements of a most important nature
needed even yet.
In other words, while one or two companies have made their contracts,
in large part, what contracts purport to be, a guarantee of good
faith--that, if so much money is paid to them during a stated interval,
they will return to the party insured, or to his heirs, a stated sum
at a given time--there are still many which have not so improved their
contracts, and are doing business in the old way, depending for success
on the ignorance of their applicants in regard to the unfair conditions
of the contracts which they sign. A few have left out most of the
thousand and one ifs and ands and provideds of the old regime, and
have at last undertaken to conduct this important and rapidly-growing
business on strictly business principles, and the results have
abundantly attested the wisdom of the new departure and indicate the
advisability of still more liberal measures. A man may now, if he is
careful and wise with his choice of a company, insure his life, or,
if insured, he may have the temerity to die, without a fairly-grounded
expectation of leaving his family a lawsuit for a legacy. He may also be
reasonably sure that he is not placing his own reputation (after he is
unable to defend it) at the mercy of a powerful corporation intent upon
saving its funds from the inroads of a just debt. And I question if
it is too much to say that, given enough money, a strong motive, and a
powerful corporation, on the one hand, and only a sorrowing family upon
the other, and no man ever lived or died whose reputation could not
be blackened beyond repair, after he was himself unable to explain or
refute seeming irregularities of conduct or dishonesty of motive. No
man's character is invulnerable, and no man's reputation can afford the
strain or test of such a contest. Millions of dollars have been withheld
from rightful heirs by threats of an exposure--the more vague the more
frightful--of the unsuspected crimes or misdeeds of the beloved dead.
Thousands of cases never known to the public have been "compromised,"
and hundreds of heartaches and unjust suspicions and fears about the
dead, which can never be corrected, are aroused in sorrowing but loving
breasts by this method of doing "business." It is, of course, of the
utmost importance that every precaution be taken by life insurance
companies to protect against fraud and trickery, the funds held by them
in trust for others. But with the agent, the examining physician, the
medical directors, and the inspectors all employed by, and answerable
to, the company represented, if fraud is committed in getting into the
company, one or all of these paid officers must, almost of necessity,
be party to that fraud. With all these safeguards in the hands of the
company, if a man is accepted as a "good risk," if he pays his premiums,
surely his family has the right to expect a legacy and not a lawsuit,
nor a "compromise" which must cast reproach on the dead.
If it were not for the enormous value and benefits of this method of
making provision for his family, surely no man in his senses would ever
have risked--would not risk to-day--signing a contract which gives the
other interested party not only an absolute fixed sum of his money, year
by year, but also reserves to it the right to investigate and construe
his actions and motives after he is unable to contest its verdict.
And not only this, but upon the finding of some slight, wholly
immaterial flaw in his statements (which it failed to find when he was
in the hands of its agents and officers), in some companies he not only
forfeits the right of his heirs to their purchased inheritance, but the
company retains his money which he has paid in besides! This is surely a
dangerous contract for any man to sign. It is placing a temptation and
a power in the hands of a corporation that it has never yet been in the
nature of corporations not to abuse.
"If any statement in this application is in any respect untrue, it voids
the policy, and all payments which shall have been made revert to the
company," gives a wide field and doubtful motive of action when it is
remembered that many of the questions are of such a nature that not
one man in a thousand could be absolutely sure that he knew the correct
reply.
"At what age did your grandparents die?" All four of them. How many men
are sure that they can answer that question correctly? "Of what did each
one die?" You do not know. You have a general idea. You express it.
You pay your premiums ten years. You die (one doctor says of
consumption--another says of blood-poison); the company finds some old
person who says your grandmother on your father's side died of the
same thing, and there is a rumor that along-forgotten (or never known)
country cousin also had it.
The company sends a representative to the widow.. He assures her (and by
the very terms of the contract, signed by the dead husband, he is
right and she is helpless) that they can refuse to pay a cent; that her
husband got his policy by fraud--although no indication of his physical
disorder appeared to any of the numerous officers employed by the
company for its own protection, when he made his application, and by
general reports he was (and believed himself to be) a sound man.
He assures her that they want to be generous rather than just, and if
she will sign a release, or "compromise," she will be given a small
part of the sum named in the policy. He makes her feel the necessity of
keeping this bargain a secret, lest other policy holders object to the
company paying anything on the life of one who "attempted a fraud"
upon them! He impresses upon her that in case of contest she could
get absolutely nothing; that she is poor, and the company is rich and
strong; and if he fails to arouse her gratitude for his generosity
in offering to pay her anything whatever, he usually succeeds in
intimidating her in her poverty and distress. A sparrow in the hand is
worth more than an eagle on Mount Washington to a widow with a hungry
family, especially if the eagle has successfully maimed his pursuer in
the beginning of the flight.
The company knows this. The widow knows it. The conclusion is therefore
certain before the premises are stated, and the "compromise" is made or
the claim quietly dropped. It is easy to say that a man died of some bad
habit unknown to his family, and his family would rather forego their
claim than drag into light, or into disgrace, the memory of the loved
dead. All this is well understood by those on the "inside," and by
thousands of sad hearts that dare not speak. Is there no remedy for all
this? Is there no way that a useful and powerful business can be rid of
features which make it both dangerous and ghoulish?
The recent steps taken by the best companies are undoubtedly in the
right direction, as those still using the old forms of contract will
sooner or later learn. But there is room yet for improvement even in the
best forms written to-day. The fairest insurance contract written still
has room for improvement.
Is there no way to protect these great corporations against the frauds
of individuals, and at the same time protect the individual against the
frauds of the corporations?
Must life-insurance contracts be absolutely one-sided, and that be the
side of the strong against the weak; the guarded against the unguarded;
the living against the dead? It seems to me that this is wholly
unnecessary. A life-insurance company which has the agents, the doctors,
the medical directors, and inspectors all on its side can well afford to
offer a fair field--a plain, fair contract--to its patrons and then pay
its debts like any other debtor when its obligation falls due. If it can
not find out within a year (with all the machinery in its own hands),
and while the man is alive, that he is a bad risk, it is too late to
make the discovery after he is dead. If the indications are sufficiently
in his favor for them to accept his money from year to year while he
lives, they are sufficiently favorable to him for his family to receive
the company's money when he has died.
Life-insurance is too valuable and too necessary a means of provision
for the family for it to be overlaid with abuses that make many men
hesitate to avail themselves of its benefits; and which put a power for
evil into strong hands, and make temptation to do wrong inevitable and
constant.
It is said by some, whose attention has been called to this important
subject, that the form of contract does not so much matter, since almost
any court or jury will decide a suit against the company, and in favor
of the family, in any event. This is taking it for granted that the
heirs are in position, and are willing, to bring suit, and risk the
reputation of the dead as well as the financial drain. But, as a matter
of fact, this is not true--nor is it desirable that it should be. The
rights of these corporations should be as jealously guarded by our
courts as the rights of the individual; and perverted justice is a
dangerous tool to handle. The man who signs an oppressive contract
depending upon a court to nullify it after he is dead, is clinging to
a rope of sand. The letter of the bond is what the court is bound to
enforce, and every man should be sure that he signs only such as shall
deal fairly with his heirs on that basis.
The following extract is from the decision of the Court of Appeals in
the famous Dwight case, which is so recently decided as to most forcibly
illustrate this point:
"If an insurance policy in plain and unambiguous language makes the
observance of an apparently immaterial requirement the condition of a
valid contract, neither courts nor juries have the right to disregard
it or to construct, by implication or otherwise, a new contract in the
place of that deliberately made by the parties... Such contracts are
open in construction,... but are subject to it only when, upon the
face of the instrument, it appears that its meaning is doubtful or its
language ambiguous or uncertain.
"An elementary writer says; 'Indeed, the very idea and purpose of
construction imply a previous uncertainty as to the meaning of a
contract, for when this is clear and unambiguous there is no room for
construction and nothing for construction to do.'"
For this reason the Court of Appeals cited as the ground, and the only
ground, for its decision against the widow, the following clause from
the policy of the contesting company:
"This policy is issued, and the same is accepted by the said assured,
upon the following express conditions and agreements: That the
same shall cease and be null and void and of no effect... if the
representations made in the application for this policy, upon the faith
of which this contract is made, shall be found in any respect untrue."
Colonel Dwight was in the habit of making large business ventures.
Several times, when he had done so, he had taken heavy amounts of
life-insurance, so that in case of the failure of his undertakings,
and his own death before he could regain his financial feet, his family
would not suffer. On previous occasions he had dropped the greater
part of his insurance as soon as his business ventures had terminated
successfully. This is not an uncommon thing for rich or speculative men
to do.
In 1878 Colonel Dwight died, with an insurance on his life of about
$265,000, some of which he had carried for years; but a large part of it
had been recently taken for the reasons above stated, and as he had done
before under similar circumstances. Fifty thousand of this sum was in
old and new policies against one company.
This company paid at once, thus giving the widow means to fight for her
claims against the other companies. In a short time one of the other
companies, against which she had a small claim of $5,000, also paid. The
other nineteen companies contested. The widow employed Senator Conkling,
and the fight has been the hardest, the bitterest, and the most ghoulish
insurance contest ever had in this country; and finally the companies
have won in the Court of Appeals on a purely technical point, after
having dug Colonel Dwight's body up several times, in the effort to
prove that he was poisoned, that he hung himself, and that he was not
dead at all! They failed utterly to prove any material cause of contest;
but they finally won on the ground that, in answering a question in the
application for insurance, Colonel Dwight did not state that he had ever
engaged in the liquor business, whereas it had been known that he had
owned a hotel where liquor was sold.
Now, when it is remembered that at one time these companies tried to
prove that Colonel Dwight had committed suicide, but that they never had
any grounds upon which to claim that he had died of intemperance, the
purely technical grounds for the decision of the Court of Appeals is
apparent. Ninety-nine policies out of a hundred could be contested on
such ground as that; and so long as insurance contracts retain these
unreasonable and oppressive features, no man can be sure that he is not
leaving a lawsuit and bitter sorrow to his family, and, worst of all, a
blasted reputation for himself, when he applies for insurance under such
a form.
An officer of one of the companies was heard to boast of the fact, but a
few days ago, that his company had spent nearly ten times the amount
of the claim against it in this Dwight contest! This is economy indeed!
Whose money was this spent? The policy-holder's. For what? To defeat one
of the policy-holders in a contest for a claim no doubt as honest as any
one of the others will present in his turn.
But suppose that this was not an honest claim; suppose that Colonel
Dwight was not a "good risk," is it not a rather suggestive indication
of the value of the medical examinations by the expert medical examiners
and directors of twenty-one life-insurance companies? A risk good enough
to "pass" some forty-five doctors employed by, and for the protection
of, the companies is, on the face of it, a good enough risk to pay. If
this is not so, then the companies, and not the public, should be made
to bear the responsibility of the incompetency of their own officers.
But for the reputation of these medical men, it is a fortunate fact that
the contest did not prove Colonel Dwight to be an unsafe risk. After his
body was dug up several times, and a number of autopsies held, and most
of him analyzed, they succeeded in proving that he owned a hotel where
liquor was sold!
But under these forms of contract, the companies undoubtedly had a legal
right to refuse payment upon even so absurdly technical a misstatement
of "occupation." It was claimed by his family that his hotel was a side
issue; that he did not think of himself as in that business, and that
his failure to say, because of it, that he was "in any way connected
with the manufacture or sale of spirituous liquors," was a natural one
under the circumstances. How many men give, in answering the question as
to occupation in their applications for insurance, all of the numerous
"plants" in which they have an interest of a financial nature, more or
less important? One man says he is a bookkeeper, but he may possibly,
also, own stock in a mine. His claim could be contested on that ground.
Suppose that he really thought nothing of his mining-stock when he made
his application and signed his contract? Suppose that in a short time
he was called to see the mine, went into it, and died of the results of
that trip? His policy would not, if it contained the usual conditions,
be worth, in a legal fight, the paper it was written on.
That companies often waive their reserved right to contest on such
grounds, is used as an argument to prove the innocent nature of these
forfeiture clauses and other oppressive conditions. But so long as they
hold the legal power to do so, the temptation to contest will be too
great for flesh and blood, not to say for corporations, to bear without
yielding sometimes. The "Get thee behind me, Satan," of a fair, plain
contract will be the best safeguard for the heirs in the matter of
money, and for the companies in the matter of morals; while the "economy
for the sake of surviving policy-holders" might be directed, as there
is surely room for believing that it needs to be, into other and more
legitimate channels. Economizing on debts to dead policy-holders is not
a very good recommendation to living ones, for the companies which thus
lock the wrong stable-door.
The new move toward furnishing fair contracts is in the right direction,
and it now rests with insurers--the public--to see that it does not stop
short of fulfilling the promise of still better things in the future.