UNIVERSITY OF AT LOS ANGELE Robert Ernest Cowan PROCEEDINGS IN THE MATTER OF THE INTERPRETATION OF SECTION 450 OF THE CIVIL CODE OF CALIFORNIA. RELATING TO POLICIES OF LIFE INSURANCE, BEFORE HONORABLE ANDREW J. CLUNIE, Insurance Commissioner of the State of California. MONDAY AND TUESDAY. JANUARY 17 AND 18. 1898. WOODU.AHI) & Co., San Francisco, Cal. ' t I let Lit. etc M - <« If a 7 erj en INDEX. John Landers, Statement 7 H. C. Donnels, Statement 14 _ H. C. Donnels, Brief 21 g Section 450, Civil Code of California 21 A. M. Shields, Affidavit 30 James Munsell, Jr., Letter 32 C. A. McLane, Statement 36 A. B. Forbes, Statement 40 James Munsell, Jr., Statement 42 Henry K. Field, Statement 46 Alexander G. Hawes, Statement 50 .John Landers, Further Statement 52 Alexander G. Hawes, Further Statement 52 H. C. Donnels. Further Statement 54 C. A. McLane, Further Statement 55 Charles E. Dyer, Letter 57 H. M. Phillips, Letter 60 John Landers, Further Statement 62 Clarence M. Smith, Statement 102 Senate Bill No. 378 139 Clarence M. Smith. Further Statement , 164 WiHiam Thomas, Argument 66 Charles S. Wheeler, Argument 90 E. J. McCutchen, Argument 97 Elliott McAllister, Argument 101 George A. Rankin, Argument 143 A . L. Rhodes, Argument 165 Elliott McAllister, Further Argument 177 E. S. Pillsbury, Argument 179 :5r>iS2H Notice in writing having been sent by the Insurance Com- missioner of California to the Managers and Agents of all Life Insurance Companies transacting business in the State of Cali- fornia, that an investigation would be had before him into the terras and conditions of the various policies issued by said Companies in California, with reference to the application of the provisions of Section 450 of the Civil Code of the State of Cali- fornia thereto, \vhich investigation would be commenced oa Monday, the 17th day of January, 1898, at ten o'clock A. M., the following Insurance Companies, represented as set forth, appeared at said day and hour before Honorable Andrew J. Clunie, Insurance Commissioner: The Aetna Life Insurance Company, of Hartford, Connecticut, represented by H. B. Houghton, Esq., Manager; The Connecticut Mutual Life Insurance Company, of Hart- ford, Connecticut, represented by William Thomas, Esq., Counsel; The Equitable Life Assurance Company, of New York, repre- sented by E. S. Pillsbury, Esq., and F. D. Madison, Esq., Counsel; The Germania Life Insurance Company, represented by E. J. McCutchen, Esq., Counsel; The Home Life Insurance Company, of New York, repre- sented by H. C. Donnels, Esq., Cashier, and Elliott McAllister, Esq., Counsel; The Manhattan Life Insurance Company, of New York, repre- sented by John Landers, Esq., Manager; The Massachusetts Mutual Life Insurance Company, of Springfield, Massachusetts, represented by C. M. T. Parker, Esq., Manager; The Mutual Benefit Life Insurance Company, of Newark, New Jei-sey, represented by James Munsell, Jr., Esq., Principal Agent; The Mutual Life Insurance Company, of New York, repre- sented by A. B. Forbes, Esq., General Agent, and William Thomas, Esq., Counsel; The New England Mutual Life Insurance Company, of Boston, Massachusetts, represented by Henry K. Field, Esq., General Agent, and A. L. Phodes, P'sq., Counsel; 6 The New York Life Insurance Company, represented by Alexander G. Hawes, Esq., Manager, C. A. McLane, Esq., Agency Director, and E. J. McCutchen, Esq., Counsel; The Northwestern Mutual Life Insurance Company, of Mil- waukee, Wisconsin, represented by Clarence M. Smith, Esq., General Agent, and George A. Rankin, Esq., Counsel; The Pacific Mutual Life Insurance Company, represented by M. B. Kellogg, Esq., Counsel; The Provident Savings Life Insurance Society, of New York, represented by Charles S. Wheeler, Esq., Counsel; The Union Mutual life Insurance Company, of Cincinnati, Ohio, reiDresented by Eugene F. Bert, Esq., Counsel; The Washington Life Insurance Company, of New York, rep- resented by J. B. Day, Esq., Manager. Testimony was given by the various ]\Ianagers and Agents present, and arguments were presented by Counsel, the proceed- ings in full being as hereinafter sent forth. MONDAY, JANUARY 17, 1898; 10 A. M. THE COMMISSIONER. AVc will now proceed, gentlemen, to the investigation of the matter m hand. I will state to the Counsel present that I have invited the Managers and Agents of the various Life Insurance Companies to be present here to-day, as I wish to get from them an expression upon the matter, especially as to the commercial definitions of the terms used in Section 450 of the Civil Code of the State of California, and here involved. I presume the proper method of procedure will be to hear from the Managers and Agents first, getting such testimony bearing upon the question as is deemed necessary by Counsel and the Commissioner, and then listen to arguments by Counsel. MR. McCUTCHEN. I think your Honor's suggestion as to the method of procedure is a good one. I for one would like to have from the Managers and Agents present such statements as they desire to make to your Honor. I should like to hear from Mr. Landers first, as one of the oldest underwriters in Life In- surance business on the Coast, if there is no objection. MR. THOMAS. I quite agree with your Jlonor and Mr. McCutchen as to the order of procedure, and I think if your Honor ha? no other plan to suggest, we might begin with Mr. Landers. THE COMMISSIONER. Very well. We will hear from Mr. Landers. STATEMENT OE JOHN LANDERS, ESQ., General Agent of the Manhattan Life Insurance Company, of New York. MR. LANDERS. Centlemen: There are technical terms used in Section -150 of the Civil Code of this State, the statute under consideration, which are well known to Insurance men generally, but which are sometimes rather ambiguous to Attor- 8 neys. As the Honorable Commissioner seems somewhat in doubt as to the exact meaning of those terms, and wants to hear from the Insurance men with reference to their interpretation, T may say that I am probably in a position to give him that in- formation, and also some information that may be interesting to the Attorneys present. As a basis of my knowledge of the technical terms of Insur- ance, I beg to state, for the benefit of the gentlemen present, that the foundation of my knowledge of Insurance terms, that is, such technical terms as are incorporated in the application for insurance and also in the policy issued thereunder, dates back to my boyhood days in the State of New York — since June, 1855, or a period of nearly forty-three years. With that experience and the knowledge of the business obtained therefrom, what I have to say in that direction may probably have some weight with the Honorable Commissioner, and be entitled to some respect from the Attorneys present. Section 450 of the Civil Code of the State of California provides: " Every contract or policy of insurance hereafter made by any " person or corporation organized under the laws of this State, " or under those of any other State or country, with and lipon " the life of a resident of this State, and delivered within this " State, shall contain, unless specifically contracted between the "insurer and the insured for tontine insurance, or for other " term or paid-up insurance, a stipulation," etc. "Tontine insurance^' is, of course, a specific contract, made between the citizen of the State and the insurance corporation. Under that form of insurance, it is provided that, in the event of forfeiture, there is a waiver on the part of the insurer to any profits with reference to its surplus that may have been allotted to that class of policies, and therefore that provision in the contract in regard to the deferred dividends that are paid at maturity, shall be forfeited to the Company. That is a specific and absolute contract that is entered into at the time between the insured and the Company. MR. McCUTCHEN. Q. Let me ask you, Mr. Landers, if you do not mean a waiver on the part of the insured. You say " on the part of the insurer." MH. LANDERS. 1 .should say on the part of the insured, yes. It is a direct waiver on the part of the insured. That practically disposes of the t^rm "tontine insurance," and I be- lieve that the gentlemen, who are connected with the various Insurance Companies here will confirm that as the proper defini- tion. In regard to "paid-up insurance," that is a contract between the insured and the insurer for a given sum of money that has been paid by the insured to the insurer, and it becomes by its terms an absolute contract between the insurer and the Com- pany. Paid-up insurance is made up, either in the payment of past premiums, where the policy has been surrendered for its equit^able value, as far as the reserve would purchase, in accord- ance with the laws of this State, and also in accordance with the laws of the State of Now York, for the specified amount of the policy. It is absolute. It is fixed. It is deter- mined at the time, and there is nothing more to be said or done in reference to the matter until the maturity of the contract itself. That, I believe, practically disposes of the definition of the term "paid-up insurance" as Insurance men understand it, and as was the understanding among Insurance men at the time this law was passed. Coming now to the definition of the third term, "term insur- ance": That is usually a very low premium that is paid to the Company for a speeific term annually, without the dividend feature or any reserve attachable to it. In other words, it is simply the actual cost of carrying the risk at a very low rate, and at the expiration of the term the contract is simply ended. There is nothing further to be granted or done when the term of the policy expires. That, so far as my knowledge goes, is a definition of the three terms "tontine insurance," "paid-up insurance," and "term in- surance," as I have it from my experience and association with the Insurance business. Section 450 of the Civil Code of California was practically a copy of the New York law upon the subject. There are one or two slight variations, the statute here being a little more am- biguous than tliat of New York. I rcmeml>er that when the Insurance Department was created in this State, the laws regu- 10 lating Insurance Companies and the conduct of the Insurance business were taken aJmost bodily from the New York statutes and incorporated into our CaHfornia statutes, as a basis of this Department. Witii reference to the compliance of the Manhattan Life In- surance Company, of New York, with the laws of this State, I beg to submit a letter, of which I have already furnished you a copy, Mr. Commission.cr, but I will read it for the benefit of the gentlemen present. It is from the Attorneys of the Company in New York, and is given in tlie form of a brief. It reads: " New York, August 26, 1897. " John Landers, Esq., Manager — "Dear Sir: Your two letters of August 17th inst., with " enclosure in each, one being a letter addressed to you by Hon. " Andrew J. Clunie, Insurance Commissioner of California, "dated August 11th, requesting (1) that you furnish the Com- '-' miseioner with sample copies used by The Manhattan Life " Insurance Co. in California since July 1, 1880, and the " other letter enclosing a co])y of a written direction (2) from the " Co-mmissioner, dated August 14th, addressed to Hon. M. M. " Eohrer, Esq., Deputy Insurance Commissioner, have been re- " ferred to us for attention. " In regard to (1), the request for sample copies policies, in- " vestigation shows the fact to be that a form book has been care- " fully preserved by the Company, in which are samples of all " forms of policies used by the Company since it commenced " business, August 1, 1850, but of those books there are no dupli- " cates nor the facilities to make duplicates, except by copying, " w^hich would require a long time and considerable expense, as " they contain about 350 samples; moreover, to comply with the "request would necessitate an examination of the record of all "California policies written by tlie Company since 1880, many "of which were the forms of policy in use prior to 1880, anc^ " from time to time modifications of the policies as originally "written, as well before as after 1880, were made in numerous "' instances by the Company voluntarily and with the approval " of, and to the advantage of, policy-holders, as the business pro- " gressed and the changes in the form of policy were introduced. 11 *' in order to keep pace with the competition and usage of other " Companies and the modernized business of Life Insurance. " In regard to (2), the direction by the Commissioner to the " Deputy Commissioner, a full compliance therewith will entail "a much greater amount of labor, expense, and interference " with the ordinary and regular conduct of the Company's busi- " ness than a compliance with the request (1); and compliance " with both would of necessity be required at the home office, as *' your ollicc hos not the necessary data. But in regard to (2), " the annual reports or statements of the Company, required by " the laws of California to be filed, and with the requirements of " which the Company has always complied year by year before " and since 1880, and which are on file in the Department of the " Insu.rance of California, furnish data which in substance re- " spend to a very large part of the information inquired for. " While no objection appears to be taken to making full com- " pliance with both requests, except on the ground of the labor, " expense, and extraordinary interference with the regular and " orderly conduct of the Company's business which such com- " pliance would entail, we hope you will confer with the Superin- " tendent, learn his wishes and the ends he has in view, to the "end that the Company may meet all his desires to his entire " satisfaction without imposing the burden, expense, and inter- " ference with the regular course of business which a literal com- " pliance will necessitate. " We also suggest that you inquire if the Insurance Depaxt- "ment can supply us with the blank forms which Sections 595 "and 615 of the Political Code of California seem to provide " for in such cases; upon what sections of the Insurance laws of " California the requests are based; and if a recent compilation " of your Insurance laws is to be had in his Department, we " would like to receive a copy. " Awaiting the result of your proposed interview with the " Commissioner, and your reply hereto, " Yours truly, '•irOLMES, EAPALLO c^- KENNEDY, " Counsel.'" There is another letter, also, Mr. Commissioner, a copy of which you have on file, and which I will read also for the in- formation of the gentlemen present. It reads as follows: 12 " New York, Sept. 17, 1897. " John Landers, Esq., Manager — " Dear Sir: Your letter of tbe 3d, addressed to the Company, " in response to ours of August 26th, has been handed us, and " we note with satisfaction that the Insurance Commissioner has " no intention to embarrass the Company or put it to needless '' expense, but (1) requests information under Section 450 of the " Civil Code of California, with a view to determining if it has ^' been evaded or violated by the Compainy; (2) will receive and " consider a brief from us on that subject; and (3) desires that " sample copies of the Company's policies in most general use *'' in California be sent. " Section 450 of the Civil Code was approved April 26, 1880, *' took effect sixty days thereafter, and has been in force since " that date. It appears to have been in pursuance of the same " public policy which the State of New York adopted by the '' passage of a very similar act on May 21, 1879, which took ''effect January 1, 1880 (Chap. 347, Laws of 1879). These ^' statutory provisions, which now obtain in many States, appear " to have been first adopted in Massachusetts by Chapter 186 of " the Statutes of 1861 of that State. ' " The sta tutes of New York and of California are in substance " and effect equivalents of each other, and if the learned Insur- "'^ ance Commissioner of California will compare the provisions ^' of those two statutes, it will be seen that if the Manhattan Life *' Insurance Company has obeyed the New York statutes, it must " of necessity have obeyed the California law as well, for while " the latter act related to 'every contract or policy of insurance " '* * * with and upon the life of a resident of this State, '• 'and delivered within the State * * *' the New York "law provides: 'Whenever any policy of life insurance issued " 'after, etc., etc.,' and included of necessity every contract or ' policy of insurance with or upon the life of a resident of Cali- " fomia, or dehvcred within that State. " It follows of necessity that liy this Company's obedience to *' the positive requirements of the New York statutes, which it " asserts to be the fact and invokes its records with the Insur- " a nee Department of New York in proof thereof, it conforms to "and complies with th6 California statute. '. .-. " By this mail, there will be forwarded to you, under separat-^ 13 " cover, samples of editions of the former ]X)licies in most general " use by it among its California patrons, o-f which we enclose a " schedule. " Yours truly, "HOLMES, RAPALLO & KENNEDY, " Counsel." I think, Mr. Commissioner, that is all I have to say at present. MR. THOMAS. As there is no particular order of procedure prescribed, Mr. Commissioner, I would like to ask that Mr. Donnels now read to your Honor a paper which he has prepared upon the construction to be placed upon the three terms in section of the Civil Code of California now under consideration. I think we all rely upon the definitions which he has given in his brief, and it should be read to your Honor. MR. McCUTCHEN. I should be glad, upon the part of the Companies I represent, to have Mr. Donnels' brief or statement considered as a part of my argument. THE COMMISSIONER. Is it not the better plan for you gentlemen to interrogate Mr. Donnels? His brief can be con- sidered a part of the record as well. MR. RANKIN. I think we should have Mr. Donnels' version of those terms in answer to interrogatories as well as by brief. MVl. THOMAS. I would like then to put a few questions to Mr. Forbes, of the Mutual Life of New York, as to whether ton- tine insurance is ever term insurance, and whether paid-up in- surance is ever an original contract. THE COMMISSIONER. Very well. Mr. Forbes is present, and, if you desire, you may proceed to examine him now. MR. RHODES. Suppose we ask ^Ir. Landers what the con- ditions are of the policies issued by the Manhattan Life Insur- ance Company? MR. McCUTCHEN. With reference to Mr. Landers' policies, they are issued under the New York laws, and comply with them. I have no doubt the Commissioner is familiar with the statutes of New York upon the subject. THE COI\LMISSIONER. 1 will state to all the gentlemen present that I propose to go carefully through all of the policies 1* of each and every Company doing business in this State, before I come to any decision in this matter. MR. THOMxVS. I would like to interrogate Mr. Forbes last, if your Honor is agreeable to that method of procedure, and there is no objection on the part of any one, particularly for the reason that the Mutual Life Insurance Company ^f New York issues no tontine policies whatever. As Mr. Forbes does not know from his own experience in business what that form of insurance is, I would not care to interrogate him as to what it is. THE COM.MISSIONER. Very well. That may be as you desire. MR. RANKIN. I would suggest, then, Mr. Commissioner, that Mr. McCutchen now interrogate Mr. Donnels as to what tontine, term, and paid-up policies are. MR. :\rcCUTCHEN. Very well. I will do so. STATEMENT OF H. C. DONNELS, ESQ., Cashier of the Home Life Insurance Company of New York MR. :\[cCUTCHEN. Q. :\rr. Donnels, you are connected with the Home Life Insurance Company, of New York, are you? A. Yes, sir. Q. And liave been for many years? A. For ten years. Q. Do you know the meaning of the term "tontine" as ap- plied to life insurance? A. Yes, sir. Q. What does it mean? A. Tontine insurance is a contract of insurance under which the profits or dividends, as well as the reserve, are forfeited to the tontine fund in the eveut either of the death of the insured or the forfeiture of the policy before the end of the term. This tontine fund is distributed among the survivors at the expiration of a specified term. In other words, it is survivorship insurance, Q. There is fixed by every tontine policy what is called a "tontine period," is there? A. Yes, sir; a tontine period. Q. What is that "tontine period?" 15 A. It may be ten years, or it may be fifteen years, or it may be twenty years. Q. That is a term, is it? A. Yes, sir. Q. An arbitrary term, fixed ])y the policy itself, which the holder of the policy must siirvave in order to recover anything from that tontine fund, is it not? A. Yes, sir. Q. What do you understand by the term '"term insurance," as it is generally used? A. It is a contract written for a short term of years, and it ceases at the expiration of that term. The Company is liable only in the event of the insured dying within that time. THE COMMISSIONER. Q. ' How about the payment of premiums upon such a policy? A. The premium is payable annually for a specified term. It is a very low rate of premium. MR. McCUTCHEN. Q. Mr. Donnels, what is a "paid-up policy?" A. It is what is iisually called a single premium policy. The Company issuing the policy, upon a single payment, issues a contract of insurance which is payable at the death of the in- sured, and there are no further premiums to be paid upon it. Q. Taking those three definitions, -and considering them to- gether, I will ask you these questions: Is tontine insurance ever term insurance? A. No, sir. Q. Is tontine insurance ever paid-up insurance? A. No, sir. Q. Is paid-up insurance ever tontine insurance? A. No, sir. Q. Is term insurance ever tontine insurance? A. No, sir. MR. THO:\rAS. I would like to ask Mr. Donnels a few (|ues- tions, if you honor please? THE COMMISSIONER. Very well. Proceed. MR. THO^IAS. Q. 'Mv. Donnels, is paid-up insurance, so- called, ever an original" contract, or is it a subsequent contract or sequel to some other contract of insurance? 16 A. It may be either. Q. What do Insurance people ordinarily call insurance which is issued upon the payment of one premium? A. They call it '^'single-premium insurance." Q. It is sometimes called "single-payment insurance?" A. Yes, sir. Q. And sometimes called "one-premium" or "one-payment" insurance? A. Yes, sir. Q. Do they ever call it "paid-up insurance"? A. Yes, sir. Q. Is there any such thing recognized by Insurance Com- panies as "semi-tontine insurance"? A. Yes, sir. Q. What is that? A. That is a policy upon which the dividends only are for- feited to the tontine fund. Q. It is still recognized as tontine in principle, is it not? A. Well, it is only half-toniine in principle. Under a full tontine contract, the reserve is forfeited to the tontine fund as well as the profits or accumulations. Under a semi-tontine con- tract, only the accumulations are forfeited. In other words, the insured, in the event of a lapse under a semi-tontine policy, is entitled to his equity in the reserve, whereas he is not entitled to any under a full tontine contract, should he lapse. Q. It goes to the extent of forfeiture, then? A. Yes, sir. Q. (Continuing) — as to whether it is semi-tontine or full ton- tine insurance? A. Yc^, sir. That is, as to whether or not the reserve is for- feited. MR. McCUTCHEN. Q. You stated that single-premium insurance is paid-up insurance. You mean by that the efEect of single-premium insurance is to make it paid-up? A. Yes, sir; the efi'ect of it is to make it paid-up. Q. But, as understood by Insurance men, a single-premium policy is not spoken of as a paid-up policy, is it? • A. Well, you could properly speak of it as a paid-up policy.' A paid-up contract may be issued for a single premium, or it may be issued in lieu of an equity which the insured has in an old con- 17 tract. It is in cither case paid-up insurance, becoming so when there are no further premiums to pay. THE CUiMMISSIONEE. Q. In other words, as I under- stand you, Mr. Donnels, the terms "single-premium" and "paid- up" are convertible — they mean the same thing? A. They may mean the same thing. Q. They do actually mean the same thing? A. No, sir; because a paid-up policy may be issued in lieu of a single-premium, or in lieu of an equity that the insured has under a contract that had lapsed and which had a surrender value in paid-up insurance. Q. Assume that 1 go to your oflice and ask for a policy for $10,000, and I tender you the premium upon it all at once? A. In that case we would issue a policy for ten thousand dol- lars, with no further payments to make. This we would call "single-premium insurance." But if you came to us with a con- tract that had been in force three years, and you were entitled to a surrender value, if we were to give you a policy for a certain amount in lieu thereof, with no further payments to be made on your part, we would call that a "paid-up" policy. ME. McAllister. Q. in insurance parlance, w'ould not the insurance sought and paid for in the example assumed by the Commissioner be termed "single-premium insurance"? A. "We would refer to it as a single-premium policy. THE COMMISSIONEE. Q. And a paid-up policy? A, As a matter of fact, it is a paid-up policy. ME. THOMAS. Q. But do you call it such in Insurance circles? A. No, sir. Q. That is what we are trying to get at. You say you do not call it "paid-up insurance" in Insurance circles? A. No, sir. Q. in order to distinguish those which axe issued upon pay- ment of a single premium, and policies issued by virtue of a contract previously in existence, you call the former "single- premium insurance" and the latter "paid-up insurance"? A. Yes, sir. ME. McCUTCHEN. Q. In the case of a single-premium policy, there is absolutely nothing to do except to pay the first premium? 18 A. That is all. Q. That ends it? A. That ends it. Q. In the nature of the thing, there would not be any other form of insurance provided for by such a policy? A. No, sir. ME. McCUTCHEN. The man having paid the first pre- mium, the only premium to be paid, there could be no forfeiture, in the nature of things. THE COMMISSIONER. Q. In tontine insurance, there has never been considered to be and is not a forfeiture of the rights of the insured, is there? A. Yes, sir, there is. Q. I mean a total forfeituire. There is not a total forfeiture when payments have been made for three years? A. Yes; in the event of lapse. Q. How long did you say you have been in the Insurance business, Mr. Donnels? A. Ten years. Q. And you have been connected with the Home Life In- surance Company, of New York, all that time? ti. Yes, sir. Q. Your Company has issued these tontine policies, has it? A. No, sir; we do not issue tontine policies, and never have. Q. You have issued paid-up policies? A. Yes, sir. Q. And term policies? A. And term jjolicies. Q. And ordinary life policies? A. Ordinary life policies, yes, sir. Q. This statute was passed in 1880. I refer now to Section 450 of the Civil Code of the State of California. Do you know the meaning of the term "tontine insurance" as used in 1880? A. Yes, sir. Q. It was entirely different, was it not, from what is called "semi-tontine insurance" now? A. There is a difference, yes, sir. Under the full tontine contract, the insured, in the event of forfeiture, had no equity in the reserve. Under the semi-tontine contract or policy, the in- 19 sured has an equity in the reserve, whether the contract is com- pleted or not. Q. In 1880 was there any such thing known as "semi-tontine insurance"? A. I was not in the Insurance business in 1880. Q. From your experience since then, wi,s there any such tiling known in 1880 as "semi-tontine insurance," as it is known now? You know, as a matter of fact, do you not, Mr. Donnels? A. What is about the date of the New York law? MR. THOIMAS. It went into effect in January, 1880. A. (Continuing.) No New York Company has ever issued a full tontine contract since the passage of that New York law. I think the date of that law is about the middle of the year 1879. THE COMi\IISSIONEE. Q. Then among Insurance men, from about, say 1880, there has been a policy known as a ton- tine policy, and another policy known as a semi-tontine policy, wliich were radically different. That is, when you use the term "semi-tontine" you mean something entirely different from what is meant by the term "tontine"? They are two separate classes of insurance? A. Yes, sir. MR. RANKIN. Q. They differ only with regard to the ex- tent of the forfeiture, do they not, Mr. Donnels? A. They differ with regard to the extent of the forfeiture, yes. That is the only difference. Under the full tontine policy the insured had no equity in the reserve, while under the semi- tontine he retains his equity in the reserve. After the passage of the New York law, the New York Companies were obliged to give to every policy-holder his equity in the reserve. They could not issue a full tontine contract under the law. and the issuance of full tontine contracts was, therefore, discontinued after the passage of that law^ THE COj\BriSSIONER. Q. I am trying to get at the use of the term by Insurance men, Mr. Donnels? A. Many of the contracts made before 1880 did not mature, of course, until after 1880. Q. But among Insurance men generally, are there not two forms of insurance known respectively as "tontine insurance" and "semi-tontine insurance"? A. Yes, sir. 20 Q. And they are entirely distinct, as far as the use of the term is concerned? A. Yes, sir. Q. And tlie policieis that are heing issued now by most of the Companies are s-emi-tontine policies, and not tontine policies? A. Yes, sir. ME. EAiSTKIN. Q. After the passage of the New York law, which prohibited the issuance of tontine policies, the semi- tontine policy took the place of the tontine? A. Yes, sir. Q. And was thereafter known as "tontine insurance"? A. As tomtine insurance, yes, sir. THE COMMISSIONER. Q. As far as New York was con- cerned? A. Yes, sir. MR. RANKIN. Q. That was the generally accepted mean- ing of the term wherever insurance prevailed, was it not? A. When you bring the definition down very fine, we would always refer to a semi-tontine contract as a semi-tontine con- tract, and to a tontine contract as a tontine contract. MR. McCUTCHEN. Q. There was no tontine insurance, except what you now understand as semi -ton tine insurance, issued by any Company after the passage of the New York law, was there? A. Not by any of the New York Companies. I do not know whether any of the Companies of the other States issued it or not. But no Company in New York issued a full tontine con- tract after the law of 1879 went into effect. Q. As applied to insurance in New York, when the word "tontine" was used at any time after the passage of that statute, there was meant what is now knwn as a semi-tontine contract? A. Yes, sir; as a semi-tontine conti-act. THE COMMISSIONER. If there are no other questions, Mr. Donnels may now proceed to read his brief or statement. 21 mUKV Ol' II. C. DOXXKI.S. I-:SQ., On hohalf of the Home Life Insurance Company, of New York, As to liic lueanin-j; of Section 450 of the Civil Code of the State of California, in support of the position we take in the matter, I would beg to submit the following: Section 450 reads as follows: '' Every contract or policy of insurance hereafter made by any " person or corporation organized under the laws of this State, " or under those of any other State or country, with and upon " the life of a resident of this State, and delivered within this " State, shall contain, unless specifically contracted between the " insurer and the insured for tontine insurance, or for other term "or paid-up insurance, a stipulation that when, after three full '* annual premiums shall have been paid on such policy, it shall " cease or become void solely by the non-payment of any pre- *' mium when due, its entire net reserve by the American Ex- "• perience Mortality, and interest at fouT and one-half per cent " yearly, less any indebtedness to the Company on such policy, " shall he applied by such Company as a single premium, at such " Company's published rates in force at the date of original " policy, but at the age of the insured at the time of lapse, either " to the purchase of non-participating term insurance for the full "amount insured by such policy, or upon the written applica- " tion by the owner of such policy and the surrender thereof to " such Company within three months from such non-payment of " premium, to the purchase of a non-participating paid-up policy, " payable at the time the original policy would be payable if con- " tinned in force; both kinds of insurance to be subject to the "same conditions, except as to payment of premium, as those of " the original policy. It may be provided, however, in such " stipulation that no part of such term insirrance shall be due or " payable, unless satisfactory proofs of death be furnished to the " insuring Company Avithin one year after death, and that, if " death shall occur within three years after such non-payment of " premium, and during such term insurance, there shall l)e de- " ducted from the amount payable the sum of all the premiums "that would have become due on the original policy if it had continued in force. If the reserve on endowment policies be " more than enough to purchase temporary insurance, as afore- '>'> *' said, to the end of the eudowment term, the excess shall he " applied to the purchase of pure endowment insurance, payable " at the end of the term, if the insuired be then living. If any *' life insurance corporation or company shall deliver to any " person in this State a policy of insurance upon the life of any " person residing in this State, not in conformity with the pro- " visions of this section, the right of such corporation or com- " pany to transact business in this State shall thereupon and " thereby cease and determine, and the Insurance Commissioner " shall immediately revoke the certificate of such corporation or " company authorizing it to do business in this State, and publish " such revocation, daily, and for a period of two weeks, in two "daily newspapei's, one published in the City of San Francisco "and the other in the City of Sacramento. (Amendment ap- " proved A})ril 26th, 1880; took effect 60th day after passage; "repealed conflicting acts.)" The essence of this is, that every contract must contain a stipulation that after it has been in force three years, should it lapse, the reserve at four and one-half per cent shall be applied to either the purchase of non- participating term insurance or paid-up insurance, unless it is specifically contracted between the insurer and the insured for "tontine insurance, or for other term " or paid-ujj insurance." We believe that Mr. Clunie's interpretation of the law is that every policy issued by any company transacting business in this State, upon the life of a resident of this State, must provide for automatic term insurance or paid-u.p insurance on surrender of the policy in the form specified in Section 450, with the excep- tion of "tontine policies," "term policies," and "paid-up poli- cies." To maintain this interpretation, it is necessary that "term insurance" and "paid-up insurance" should be some form of "tontine insurance." Let us see if they are. The terms "tontine insurance," "term insurance," and "paid- up insurance" must be clearly understood, to get at the true meaning of this statute. Nathan Willey, Actuary, in his "Principles and Practice of Life Insurance," writes as follows regarding tontine insurance: "In the tontine form of investment, a number of members " created a fund by paying in certain stipulated sums, the amount "of which was invested. The interest was divided amonsr the 90, " survivors. When the last one died, the fund reveo-ted to the " State. It is easy to see that as the members passed away, the '• income of those that remained increased. This form of invest- " ment was introduced into F.urope in the Seventeenth Century " by a Neapolitan named Lorenzo Tonti. " Another and more nsual method is to improve the fund cre- " ated by tlie premiums of the members until they have been " reduced by death to a certain number, among whom the fund '' is to be divided. " The tontine element, in one form or another, was for many " years applied to the accumulations of life insurance companies, *' both in this and other countries. This could hardly be other- '•' wise at a time when a policy was forfeited upon the failure to *' pay the premiums when due, and when dividends were only ap- " po'rtioned once in five or once in seven years. The application " of tlie tontine element was specially made by prominent Amer- " ican Companies about the year 1870. Policies to which this '"' element was applied were placed in a class by themselves, and '" tlie premiums paid by these members were improved for their '' specific benefit. From this fund was paid all expenses of *' management and all claims arriving from the death of any of " the members. At the end of a stipulated number of years, the '■ fund was divided among the survivors who had maintained " their policies in force and observed all the other conditions in- " corporated in the contract. Various options were given. A " member could withdraw the whole interest belonging to his " policy; he could withdraw the surplus and continue the insur- " ance; he could use the value of either the surplus or the entire " interest to purchase an annuity or paid-up insurance. In case " the latter option was taken, the amount of the paid-up policy " could not exceed that of the original policy unless proof was " furnished to the Company that the member to be so insured " was in good health. This form of insurance was ahsohdely " forfeitable upon the nn?i-payment of a premium." This same Actuary, in another work on Life Insurance, briefly defines tontine insurance as follows: " A fund contributed with the understanding that it, \\ith all " interest accumulations, is to be divided among the sjirvivors " at a certain date, or when they are reduced to a certain num- " ber." 24 Mr. Charles E. Willis, in his Treatise on Life Insurance, gives the following explanation of "Tontine": " In lfi4S, Lorenzo Tonti organized a fund in Naples, the con- " ditions of which were as follows: " Each subscriber paid a certain sum of money into the fund. " The total fund was invested, and the interest on the amount " of each subscription was paid, during the lifetime of the sub- " scriber, to such person as he named. x\t the death of a sub- " scriber, his subscription was forfeited to the fund, and the in- " terest thereon was divided among the subscribers, who, for this " purpose were divided into classes according to age. At the " death of the last subscriber, the entire capital subscribed re- " verted to the crown. " It will be seen that this is the opposite of life insurance, " since those who live longest receive the greatest benefit. The "principle of forfeiture on the part of those tvlio die and of accu- " mulation for those ivho survive is known as the 'Tontine' princi- " pie. This was tirst applied to life insurance, as follows: " It is evident that a policy-holder who has paid premiums for " several years and then given up his insurance, paying no fur- " ther premiums, leaves, in the hands of the Company, the re- " serve credited to his policy, and also any share in the surplus " which might fairly be considered his, but which has not been " actually paid to him in the form of dividends. The entire " amount of this reserve and of this surplus was credited by the " Company to the other policies of the same form and class. If " a policy became a death claim, the face of the policy only was " paid, and any accrued but undivided surplus thereunder was " credited in. like manner. Finally, at the end of a. specified " number of years, known as the tontine period, the gains from "these sources were divided among the holders of such- policies " of this form and class, as then remained in force." Mr. Mervin Tabor, in his "Three Svstems of Life Insurance" gives j\Ir. Emery McClintock's definition of tontine insurance, which is as follows: " Tontine policies are issued on any usual form the same as " ordinary policies, such as ordinary life, limited payment life, " or endowment policies. They are issued at the usual rates of 25 " premium, and the only difference between such j>olicies and the " ordinary policies lies in certain peculiar stipulations. " The first stipulation is as follews: " ' No dividend shall be allowed or paid upon this policy until " ' the person wholse life is insured thereby shall survive the "'completion of its ton'tine dividend ]>eriod, and unless this " ' policy shall then be in force.' " The period referred to is either ten, fifteen, or twenty years, " according to the choice made by the policy-holder in his orig- " inal application. The effect of this stipulation is, that each " premium must be paid in full in cash, during the tontine " period, without being reduced by dividends. " The second stipulation is: " i Previous to the completion of its tontine dividend period, " ' this policy shall have no surrender value in a paid-up policy or " ' otherwise.' " The effect of the stipulation ahovt (pioted is to produce sav- " ings to the Company, first, in not paying out dividends, and, " secondly, in not issuing paid-up policies in case of lapse. The "value of such saving'^ witli their accumuilations is credited to ** the touitine policies which complete their i"esi>eotive periods." Thus the essential of tontine insurance is survivorship. Mr. Willey's definition of "term insurance'" is: " A policy in which the sum is paid if the insured dies during " a definitely stated period." Mr. Willard explains •"tei-iii insurance'" in tlie following lan- guage: " Tenn insurance is insurance covering a specified term. " This provides for payment on account of such deaths only as " occur during the tenn. * * * The lenn premium is con- " sequently lower." Mr. Tabor's deliniiion is: "Term-life. This policy is made payable only on the death "of the insured within the term designated in the contract. The " term may be one, three, or six months; one year, ten or twenty "years. The policy contract may provide for a renewal, at the " expiration of the original term, or re-examination of the iu- " sured, and at an advanced rate of premium, or not. This de- " pends upon the practice of the Comjniny issuing it. A 'term- 20 u 'life policy ir. ^. ,jvi.ji>^. uatUtrhtoodi to be inimrance for ten to «« tv''^- v/.rs^ with a uniform annual premium. * ♦ ♦ jJq *' ) '/je minute after the defsignuled term is ended." i HB «ame gentlemen define a paid-up policy rsingle-preraium insurance) a« follows: Mr. Willey: "Single-premium. A siwn of money paid for " ineuram*, and in crorusideration of which all future frremiums " are forV^me." Mr. Willard: "A policy payable only upon death of the ** insured is known as a life policy. The payment of a single- ** premium constitutes a single-payment life j)olicy.'* Mr. TaU>r: " Single-f>ayment Life. ThiH is a policy that " is payable at the death of the injured only. All the preminms " are paid in one single sum." It is clearly evident from the foregoing definitions that "ton- ** tine insurance" is neither ''term*' nor "paid-up^* insurance, and therefr>re obvious that the word ''other" in this statute d^^es not apply to it (tontine insurance) but to other "term or paid-uf) ** insurance." As the only other "t«rm or paid-up insurance" that is men- tioned in the statute is the term insurance or paid-up insurance that the four and one-half per cent reserve shall be used to pur- chase, the word "other" must refer to such other "term or paid-up " insurance.^' *t ♦ Section 450 says briefly: " Every contract or policy of insurance shall contain, unless specifically contracted between the insurer and the insured for tontine insurance, or for other term or paid-up insurance, a stipulation that * * * its net reserve * * * ghall be app!ie*l * * * ;,, ^ ^jngle premium to the purcha.s>e of * non-panici paling term insurance ♦ * * or " upon written application by the owner of «uch policy and sur- " render thereof to such company * * * to the purchase of "a non-participating paid-up policy', * * * hoth kind* of "insurance to be »ubj(f^>t to, * ♦ ♦^^ etc. We take the meaning of this to be that all policies shall con- tain a stipulation for automatic term insurance or for paid-up insurance on legal surrender of the policy as provided in Section 450, unless it is specifically contracted between the insurer and ti 27 the insured for other term or paid-up insurance than provided in Section 450, or "tontine insurance," and claim that when a defi- nite agreement is entered into between the Company and the insured for either term insurance or paid-up insurance other than provided in said Section 450, or for tontine insurance, this law is complied with. If, as contended by the Insurance Commissioner, it were in- tended that all policies should contain the stipulation as laid down in the statute for automatic term insurance, except purely tontine policies, or purely term policies, ot purely paid-up poli- cies, the law should read "unless specifically contracted between " the insurer and the insured for tontine, term, or paid-up in- surance." The word ''other," then, would be omitted. There is no doubt that this section exempts tontine insurance from its conditions, and we fully agree with the Commissioner on this point. It is only proper that this exemption should be made, and the reason for doing so is quite apparent. Under the tontine policy, the insured foregoes the right to an equity in the reserve, and has no surrender value should the policy lapse any time before the completion of the tontine period, and should the policy so lapse, bhe reserve is credited by the Com- pany to the tontine fund to be distributed as provided in the con- tract, among the survivors of the tontine period who have co'n- tinued their policies in force. Were not this exception made in Section 450, the law would conflict with the conditions of a ton- tine contract and practically prohibit its issuance. We believe the fact that Section 450 exempts tontine insurance is of itself evidence that its author and those who were interested in its passage, recognized the right of an Insurance Company aiid the insured to enter into a definite agreement concerning the dis- position of the reserve, and that there was no intention to impbse any conditions upon the Company in this respect except in the absence of a contract between the parties as to the manner in which it should be disposed of in the event of a lapse after three years. According to the interpretation by the Insurance Commission- er, Life Insurance contracts issued under the term insurance, or single-premium (paid-up insurance) plans are also exempt fro-m the force of the statute. Now, there could be no possible reason for exempting term in- 2J5 su ranee or term policies. This form of insurance, it is true, is written at a lower premium than ordinary or whole-life insur- ance, or any of the other forms, hut there is, nevertheless, a re- serve element under term policies, as well as all other forms is- sued hy the Life Insurance Companies, and the i-nsured has his lights thereto. This rieserve is small in the first stages of the jiolicy. aind reaches its maximum at the mean age of the contract, and is entirely ahsorhed on completion of the insurance term. Sliould the insu'red lapse his policy while there is any reserve to his credit, he is certainly entitled to an equity therein, and all < the C'ompajnies recognize this equity and proAdde for it in their policies. We do not helieye that it could have been the pnrpo'se of Section 450 to deprive the insured of a right which the Com- panies concede he is entitled to. It certainly does not seem con- ■ fii&tent wnth equity that it should. Nor can there be any reason why "paid-up policies" should be • exempted. A paid-up policy cannot "cease or become void solely by the non-payment of any premium when due," for the reason tliat there are no further premiums to pay after the contract has been placed in force by the payment of the one premium re- quired, therefore this law can have no bearing on paid-up poli- cies and it would be needless to exempt that class from its con- ditions. If it were intended that they should have been ex- empted, we helieve they would have been referred to or desig- nated "single-premium policies." When a policy is purchased hy one payment, and we understand this is the kind of policy the ■ Insurance Commissioner has in mind, while it is by its terms a paid-up policy, it is referred to as either a "single- payment" or " single-premium" policy. This is to distinguish it from a lim- ited-payment policy that has become paid u]) by completion of ■ the number of j.ayments required, or a paid-u]) policy that has 'been issued in lieu of a surrendered policy. If the law is as we read it, this Company has fully complied ■ with all of its conditions, as the Insurance Commissioner will find by referring to the copies of the policies and application forms usrd by this Company since its admission to the State of Califor- ' nia and placed on file in its office. AH of these forms contain a 'specific contract for term and paid-up insurance other than pro- vided in the statute. The Insurance Commissioner certainly cannot claim that ton- 29 tine insurance i« paid-up insurance, and therefore the only ground on which he can maintain his position is, that tontine in- surance is a form of term insurance. To do this, he must ignore the technical use of both terms — "tontine" and "term" — and rely on the common or general use of the word "term," holding that because there is a term of years in connection with tontine in.sur- ance, it is therefore a form of term insurauoc. Xow, if tontine is term insurance, then every contract of insurance issued by any of the regular Life Insurance Companies, is also term insurance, for the reason that every policy written is a contract of indemnity for some certain period, whether it be for a term of one or ten years, or for life. Then, on the other hand, as a matter of fact, nearly all of the policies issued by this Company are a modified form of tontine insurance, and, we believe, would be exempt un- der Section 450. So, even if a construction wore put on the statute contrar}' to our understanding of it, it is manifest that, as far as this company is concerned, the law has not been vio- lated. Respectfully, HOME LIFE IXSUHAXCE COMPAXY OF X. Y. By H. C. DOXXELS, Cashier San Francisco Office. Submit.tolicies, were taken practi- cally word for word from the non-forfeiture system of the Com- pany I represent, and at my instance, you will readily see why I feel that I have no interest in this matter except as my personal knowledge of certain facts concerning that section may be such as to throw some light upon its meaning. I have n-ever supposed until lately that there was or could be any question as to its meaning, and although the question wliich lias now arisen cannot atfcct myself or niy (Jonipany. still, my conni'ction with the adoption of that section as it now stands would seem to make it my duty to lay certain facts before you. 'J'hat section was passed in 1880 (in its present form), under Assembly Bill 99, according to my present recollection, which re- pealed Section 451 relating to the same subject. The old section 451 as it stood previous to 1880, had not been generally accepted by Eastern Companies, largely because it was believed to be in conflict in some cases with their charters, and in other cases with the hnvs of the States where they were organized, which gave (in some cases at least) policy-holders other and different privi- leges or benefits in lieu of the reserve of lapsed policies. As a result of this and the efforts to enforce those obnoxions provi- .sions of our own laws, many of the Companies practically with- drew, and some of them did no business here for some six years, and some of them and their agents suffered heavy loss. These facts, and the principles involved Avere thus, very naturally, burned into the memory and consciousness of those thus affected, including myself, as if by fire, metaphorical ly speaking. Jn 1880, with others, I made a vigorous effort, which proved successful, to have the law changed. That change is shown by Section 450 of the Civil Code as it now stands. I drafted the bill which worked that change, and, naturally, there is no ques- tion in my mind as to its meaning, nor as to how it was under- stood by the members of both the Senate and House with whom I very generally discussed it, and particularly as to the meaning and effect of the phrase, "unless specifically contracted between " the insurer and the insured for tontine insurance, or for other " term or paid-np insurance, a stipulation/' etc. If you will examine almost any ordinary life or endowment policy of the Mutual Benefit Life Insurance Company, of New- ark, New Jersey, issued between 1879 and 1895, you will find that the language of that section after that clause came from the policy of the Mutual Benefit Life Insurance Company, almost verbatim, and therefore, in order to determine the meaning of technical insurance terms, it is undoubtedly necessary and proper to place the same construction upon such technical insurance terms used in various parts of Section 450 that is placed u]->on such technical terms or expressions by said "Mutual Benefit Life Insurance Company, and other companies in actual practice, m 34 the settlement of claims under their policies. Following this rule, it will be found that such expressions as "term" or "other " term" or "paid-up" insurance used in said stipulation and elsewhere in the body of the section, mean respectively the same wherever used, and, instead of relating to any form of policies of original issue, that, on the contrary, according to the whole theory of the non-forfeiture part of the section, they relate en- tirely and only to the disposition to be made of said reserve at the date of lapse agreeable to the several standards, and different rules governing the different Companies regarding "surrender " charge," etc. Furthermore, it will be found that the same fund and the same reserve intended in the body of the section to be applied, first, automatically to the purchase of said extended "term" insurance is intended to he applied, alternatively, to the purchase of "paid-up" insurance for the then (at the date of lapse) commuted value of the said reserve on said original policy, and the converse of this proposition is also absolutely true. I trust you will pardon me for making one more suggestion. Any other construction leads to what seems to me an absurdity, viz., that paid-up insurance (something which could by no possi- bility lapse) was specified as an exception to cases involving lapse. In other words, it was utterly needless and useless to insert paid- up single-premium insurance originally so issued as an exception to the requirement of this section, for it could by no possibility ever lapse. Hence^ it must have been "term" or "paid-up" in- surance for the then (at the date of lapse) commuted value of the reserve as a secondary matter, contracted for upon any method agreed upon by the insurer and the insured, which was intended to be and was excepted from the requirements of that section, or which excepted the policy containing it from the need of having that said stipulation set forth in that section. And I would add that said stipulation was placed in Section 450 in order to meet the requirements of the several different standards of re- serve based upon different tables of mortality and surrender charge set forth in the laws governing Companies of other States as well as the different rul^ governing foreign Companies re- garding these matters in actual practice. Believing that my Company was in the veiy front rank in its efforts to give policy-holders an equitable provision for the ap- plication of the reserve to the purchase of either extended "term'* 35 or "paid-up" insurance after lapse for non-payment of premium, I very naturally took such provision as the model which must be followed in all policies except "tontine," unless the insurer and the insured by express contract adopted some other method for applying the reserve to the purchase of "term" or "paid-up" in- surance after such lapse. In other words, recognizing the neces- sity upon the other Companies to comply with their own charters and the laws of the States under which they were organized, and recognizing the solicitude Avith which the people by their insti- tutions (State and Federal) and courts by their interpretations thereof, protected the right and power and liberty of contract, it was intended to only compel the Companies in all cases other than "tontine" policies to apply a fair proportion of the reserve to the purchase of "paid-up" or extended "term" insurance after lapse for non-payment of premium ,and unless they made an ex- press contract in that behalf with the insured for some other method, to require them to adopt the method which was exem- plified by the policies then being issued by the Mutual Benefit Life Insurance Company as above quoted. Certainly I never dreamed of putting forward, and I feel sure the members of the Legislature would never have tolerated for one moment, the po- sition that all Companies must adopt the provisions of my own Company in that behalf, and especially as no other Company had, at that time, ever given, by law or otherwise, the entire resjrve for either "term" or "paid-up" insurance, without any surrender charge, and therefore it was intended only that they must either do that, or expressly contract with the insured for making some other application of the reserve after lapse, to the purchase of "' paid-up" or extended "term" insurance. I certainly think the language of the section and that part quoted above means this and this only. I know that is what we understood in pre- senting and urging, and what the members of the Legislature understood in passing, that bill. Yours truly, JAMES MUNSELL, JK., Principal Agent of The ^Mutual Benefit Life Ins. Co. 36 MK. :\IcCUTCHEN. I will now, with your Honor's permis- sion^ examine Mr. McLane. STATEMENT OF C. A. McLANE, ESQ., Agenc}^ Director of the New York Life Insurance Company. ME. .AIcCUTCIlEN. Q. You are the Agency Director of the New York Life Insurance Company on this Coast? A. 1 am. Q. Do you knoAv the meaning of the word "tontine" as ap- plied to insurance? A. Yes, sir. It is a feature applied to almost every kind of policy, so that if a man fails to pay a certain premium due, he forfeits everj'thing. That is the original tontine insurance. Q. What is now generally understood as tontine insurance? A. It is now known as semi-tontine insurance. It is now so arranged that if a man fails to pay any particular premium, he does not lose his interest in the reserve, but loses his right to par- ticipate in di^ddends. Q. Are policies of the class that you designate as semi-tontine ever known among insurance men as tontine? A. Well, yes. They are usually referred to as tontine. Q. They are the only tontine policies now issued, are they? A. Yes, sir. Q. And they are the only tontine policies which have been issued at any time since the passage of the Act of 1879 by the New^ York Legislature? A. Why, no. Full tontine policies were issued up to 1883 or 1884. Q. Where? A. All over. There is a law of New York that permits that. The privilege under the law can be waived. ME. THOMAS. Q. By a notation in red ink on the margin of the policy, a special contract? A. Yes, sir. ME. McCUTCHJ^:N. Q. But, as generally understood by Insurance men, a semi-tontine policy or oontract is a tontine policy or contract? A. Ye.i, sir, Q. That is, when you speak of tontine, you mean the semi- tontine plan? *1^ a A. Yes, sir. Q. Is term insurauce ever tontine insurance? A. No, sir. Q. Is paid-up insurance ever tonline insurance? , A. No, sir. Q. Is tontine insurance .ever term insurance? A. No, sir. ■ -: Q. Is tontine insurance ever paid-np insurance? A. No, sir. 'Q. What is generally und'erst-ood by the term "paid-up" in- surance? A. A policy that is fully paid up — no more premiums to be paid upon it. Q. Is that understood to he the same thing as a single-pre- mium policy, generally? A. No, sir. Q. By a "paid-up" policy do you understand one that is is- sued in lieu of any other policy? A. Yes, sir. A policy issued in lieu of another, or one in •which the insured has completed all of his payments. Q. That is not a paid-up policy when it is first issued? A. No, sir. It becomes paid-up by its terms. Q. When you speak of "paid-up insurance," you do not mean such a policy as I indicated in my last question? A. No, sir. MR. RHODES. Q. At the time of the passage of this law, was there any such thing as paid-up insurance, except when it resulted from the operation of the issuing of the first policy and the operation of the law upon that? A. No, sir, unless you construe a single-payment policy as a paid-up policy. MR. THOMAS. Q. Was it so called by Insurance people? A. They called it a single-payment or single-premium policy. Q. And they referred to a "paid-up" policy as something that was issued as a sequel to a policy theretofore issued? A. Yes, sir. Q. You regard tontine insurance as a system, a principle, do you? A. Yes, sir. Q. Which may be applied to any policy of insurance? :J5JiH28 38 A. Yes, sir. Q. And paid-up insurance, as that term is used, is a plan not including original insurance, but as I have stated? A. Yes, sir. Q. The difficulty in all this matter is, in confining the prin- ciple which may be applied to any pelicy to a simple plan that stands alone? A. ■ That is it. Q. There is a liability of confounding the two. In all your rate-books, there is no place where it calls for a paid-up policy, is there ? A. No, sir. Q. When the rate-card is issued, it always says, "Rates for a single-premium policy" and not for a paid-up policy? A. Yes, sir. Q. And all rates are given for such policies under the head of "single-premium policies"? A. Yes, sir. MR. FIELD. Q. There is no exception to that, is there? A. No, sir. MR. RANKIN. Q. When did the Company first begin is- suing what you have denominated a semi-tontine policy? A. I thing about 1884. Q. Was that form of insurance in vogue before that time? A. Not to my knowledge. Prior to that time, there had been the full tontine, that is to say, the tontine principle had been applied to the reserve and the dividends; the semi-tontine just removes, so to speak, the tontine principle from the reserve, and applies it to the di\ddends, or surpluis. Q. That was the only change made from the full tontine to the semi-tontine? A. That was the only change made. THE COMMISSIONER. Q. How long have you been in business, Mr. McLane? A. Since 1880. Q. In 1880, you say, there was no such thing as paid-up in- surance known among actuaries and Insurance people generally? A. No, sir. I do not say that. Q. Do you mean to say that the Insurance actuaries of the 31) country had nothing in 1880 that they considered a paid-up policy? A. Unless they considered single-premium policies as paid-up policies. Q. But they did so consider them, did they not? It was so oonsidei-ed among actuaries? Did they not all consider single- premium insurance as paid-up insurance? A. Of course any policy upon which the insured has made all payments and under which the Company must pay when he dies, is a paid-up policy. Q. As a matter of fact, tontine insurance as it existed in 1880, and this semi-tontine insurance that you speak of, are entirely different, so far as the terms are concerned, are they not? A. They are different in this way: Q. Not the features, but the name. When you refer to "ton- tine insurance" and to "semi-tontine insurance," you mean two entirely different systems, do you not? They are two different names, are they not? A. Certainly, they are two different names; one is whole ton- tine and the other is half tontine. Q. In 1880 had you ever heard of a semi-tontine policy? A. No, sir. Q. That term was not in existence until then, was it? A. No, sir. MR. :\IcALLTSTER. Q. They were both special contracts, were they not? A. Yes, sir. Q. As to what disposition should be made of the reserve? A. Yes, sir. THE COMIMISSIONER. If you have any further testimony, gentlemen, you may produce it. MR. TIIOIMAS. I will proceed with Mr. Forbes now, if it is agreeable. THE COMMISSIONER. Very well. 40 STATEMENT OF A. B. FOEBES, ESQ., General Agent of the Mutual Life Insurance Company, of New York. MR. THOMAS. Q. Mr. Forbes, how long have you been in the Insurance business? A. Since 18G9. Q. On this Coast? A. Yes, sir. Q. You are now the General Agent of the Mutual Life In- surance Company, of New York? A. Yes, sir. And have been for all of that period. Q. The Mutual Life Insurance Company of New York does not issue tontine poKcies, does it? A. No, sir. Q. You know what the meaning of the term "tontine" is, however, do vou not? A. Yes, sir. It has been well explained here by Mr. Landers and Mr. Donnels. Q. You agree with the definition of the term as given by those gentlemen, do you? A. Yes, sir. I agree with their definition. Q. Does your Company issue term policies? A. It does. Q. Is tontine insurance ever term insurance? A. It is never so consiidered, sir. Q. Do you know what paid-up insurance is? A. I do. Q. Do you call a policy that is issued upon payment of a sin- gle premium a paid-up policy? Is that paid-up insurance? A. No, sir. Q. What do you call it? A. Full-paid insurance. Q. Is it sometimes called single-premium or one-premium insurance? A. It is sometimes called single-premium or one-premium insurance, yes. Q. As you understand the term "paid-up," does it not refer to something which is issued as a substitute for some previous eon- tract existing between the parties? 41 A. Always. That is what paid-iij) insurance is. Q. Something that is issued by virtue of a covenant? A. By virtue of a covenant in existence, yes. MR. TIIO:\IAS. I think that is all, Mr. Forbes. MR. FORBES. I would like to say one word more, Mr. Com- missioner? THE COMMISSIONER. Certainly. You are at liberty to say anything you desire to say. I am anxious to hear from you and all the gentlemen here very fully. MR. FORBES. I would Kke to say that there is another term used by Insurance men that has its own particular significance. The term "limited-payment" insurance differs again from "sin- gle-payment." But they all bear the same characteristics, the full-paid, the single-payment THE COMMISSIONER. Q. (Interrupting) Whenever a policy is fully paid, of course there is no reason for a forfeiture. There could be no forfeiture because there are no premiums to be paid. A. That is correct, and our paid-up policies carry that feature. Q. Is there any other insurance, Mr. Forbes, upon which there is no forfeiture, generally recognized among Insurance men, for non-payment of premiums, except tontine, term, and paid-up? A. I should think single-payment. Q. That is the same as ])aid-up? A. That is full paid. Q. Is there any other kind of insrance known to you, or was there in 1880, upon which there could not be a forfeiture for non-payment of the premium, except the three I have men- tioned? A. No, sir, I do not recollect any, except that in former times our endowment policies specified that for every payment after so many payments, the insured would be entitled to receive such a proportion of the amount paid. Q. And that was a term insurance, was it not. where the pay- ments must be made during the term? A. Yes, sir. You have it all here before you, Mr. Commis- sioner. 42 Q. I observe that those are the three classes that the Legisla- ture excepts from the general rnle as made by Section 450 of the Civil Code, that all policies should contain the specified pro- vision? A. I freely say that I do not know what the minds of the legislators were in the premises. ^THE COMMISSIONER. I think it would be rather hard for any of us to tell what was in the minds of the legislators. Are there any further questions to be asked Mr. Forbes? If not, I will ask Mr. Munsell a few questions relative to this Act of the Legislature. STATEMENT OF JAMES MUNSELL, JE., ESQ., Principal Agent of the Mutual Benefit Life Insurance Company. THE COMMISSIONER. Q. You told me, Mr. Munsell, that you would get me a copy of the Act as originally presented to the Legislature. Have you that Act now? A. Have I a copy of the bill? Q. Yes. A copy of the bill as originally presented to the Legislature? A. I was mistaken about having that, Mr. Commissioner. I have found, however, that that was published in the "Coast Re- view." There were two bills originally proposied. Senate Bills Nos. 377 and 378, which passed the Senate, and they were after- wards consolidated and passed as amendments to Assembly Bill 99, to which I have made reference in my letter to you of yester- day. Q. You understand me as wanting the bill as originally proposed ? A. Not as it passed? Q. No. As you originally proposed it. A. As I have stated, there were two bills, Nos. 377 and 378, and they were published in extenso in the "Coast Review." Q. If you can get a copy of the bill proposed by you, I would like to have it. As finally passed, of course, I can get it from the Code. A. Very well. Regarding the meaning of the terms "paid- 43 np" insurance, and "term" insurance, used in Section 450, I would say that I think that the same construction must be placed upon these technical expressions "paid-up insurance" and "term insurance" used in Section 450 of the Civil Code, as is given to sucli technical expressions by the Mutual Benefit Life Insurance Company and other Companies in the treatment of lapsed poli- cies and m the settlement of claims in actual practice in the ordinary course of business. MTv. liANKIN. Q. Mr. Munsell, I would like to ask you what you meant by the woxd "other" when you used it in that clause of the section, "other term or paid-up insurance"? A. It was the intention to frame a law^ emibling foreign com- panies governed by different laws of other States with different "standards of reserve," "mortality," etc., to comply with it. For instance, the State of Maine had a somewhat similar non-forfeit- iire law under which it gave "other" extended "term" insurance, or, alternatively, "upon surrender of the original policy within a given time aftex lapse," "other paid-up insurance,"but of a very different standard, and, furthermore, unlike the provision of this section, the Maine law authorized a "surrender charge" to be m.^de by the Company, of 25 per cent, of the reserve, or, in other words, a deduction of one-fourth of the reserve. Then again, the State of Massachusetts also had a vS^imilar non-forfeitnre law passed in 1862, providing for still other extended "term" insur- ance, or, alternatively, "paid-up insurance," or rather by still an- other standard of mortality, and it provided also that the original policy must be fully surrendered to the Company within a cer- tain period (if a "paid-up" instead of extended "term" insurance ■was desired) which la"w also provided for a "surrender charge" by the Company of 20 per cent., that is, a deduction of one- iifth of the reserve. ]5ut the Massachusetts law was amended in 1880, I think, shortly after the passage of said section 450 amending said Section 451 — the law of Massachusetts being changed so that, instead of giving automatic "term" insurance for the value of "four-fifths" of the reserve, the reserve, less a certain "surrender charge," was required to be applied automati- cally to the purchase of "paid-up" insurance for a reduced amount, and thus, I believe, unquestionably, for the first time in the history of life insurance in this country, by law or otherwise. 44 providing for "automatic" paid-up insurance on ordinary life policies. MR. MeCUTCHEN. With reference to the uncertainty spoken of by Mr. Rankin, I understand the word "other'- to mean, other than as provided in the section itself; other than vhat was proposed by the body of the bill. THE COMMISSIONER. I desire to state to the gentlemen present that the reason I want this bill as originally drawn is, that T\hen it was so drawn, it was intended to cover every con- tJ-aot of insurance within the State. But there was opposition to it on llie part of s.ome of the Companies writing these classes of insurance, and they threatened to oppose the bill, and after a time got to Sacramento, and these exceptions were inserted. Therefore, I would like to get the original bill, to see just what was therein provided for. Mil. jI.IUNSELL. I will endeavor to get it. But I desire to state now most emphatically that there is absolutely no truth in the statement as reported to you, and also that no material ■change was made in he bill in that regard. The stipulation in thr3 orjgijial bills, Mr. Commissioner, was worded very nearly like this: "unless otherwise specifically contracted between the int:urer and the insured." MR, THOMAS. If you had left it that way, there would not have lieen any trouble at all. MR. MUNSELL. I will explain all the ground there was fcr this report. I came down to San Francisco with the rest of the people after the bills had been proposed, and I met Colonel Ilawes, then, as now, connected with the New York Life Insur- ance Company, one of the few Companies which had qualified, under a slight change made in 1878 in the obnoxious law? of 1874, two years previous. He jokingly said to me: "Munsell, they say there is a joker in the bill." I said: "How is that, ■Ouloufil'*" "They say," he stated, "that in that provision with regard to special contracts " and I interrupted him by say- ing "1 understand that report, and I am going to amend my own bill to-morrow morning." He said: "What are you going to ■say?" I replied: "I am going to say exactly what is meant in the pK) vision for 'special contracts,' viz., that unless Companies desire to coinply with tlie provisions in the body of the section 45 itself, they must give this," and I drew from my pocket an iunendment which constitutes that special stipulation with re- gard to "tontine" or other "term" or "paid-up" insurance, other tlian that nientioned in the bo<:ly of the section. The said stipu- lation as first proposed was worded as follows: "unless speci- fically contracted between the insurer and the insured." I sub- milted the amendment,' the next week it was adopted, and that is all there was to it. So it should be clearly understood that the Commissioner has been misinformed, that there was no material change made in the bill in this regard, and that the original bill was not intended to cover every contract in the State. THE COiMMISSIONER. Q. If the Legislature intended to adopt it in that way, and let the Insurance Companies make any sort of contract they saw lit, why was this limitation put there? You]' idea was to let the policy-holder and the insurance com- pany make any sort of contract they saw fit, as I understand you. Why was it limited in that way? A. As explained in my letter to you of yesterday, as no other Company had ever given the entire reserve, the bill was limited in that way in order to enable many Companies of other States, which were governed by different laws and different standards of reserve, and different mortality tables, and whose chartei's, in many cases, made it impossible for them to comply with the provisions of our then existing laws of 187-4. to return to California, from which State they were compelled to retire, owing to the oi)noxious laws passed in 1874. Furthermore, I would state Ihat in early days there was no provision whatever made in the contracts of many Companies for any paid-up insurance in case of la})se. The body of Section 450 was intended to prevent the making of such blank contracts thereafter. I know of two such blank contracts now in force, without any ])rovision what- ever for "paid-ups" in case of lapse, one of them with Mr. Francis of St. Helena. California, and the other with Mr. Greely of Oak- land, l)OTh of which policies ha])])en to be in the Xew York Life. HcweAcr, I have told both of these gentlemen that I believed that Company would treat them as it does other member? at this time. But the intention on the part of the Legislature and myself wus not only to give the "tontine" Companies reasonable letway, but also to say, as ])rovided in the body of the section, that no In.'^urance Company should thereafter issue such "blank" 46 contracts, absolutely forfeiting the reserve without the consent of the insuied, except under a special contract. Mr. Coinmis- sioner, yoii know that some time ago I filed with you a copy of my brief to members of the Legislatu're in 1880, in support of the said changes then effected under Section 450. I wish you would please have it read now by the Secretary, as that quite fully ex- plains all tliese matters. THE COMMISSIONEE. If it was filed in the office, I have it pu't <'iway. MR. MUNSELL. It is just about the same as this. It is my argument for the change which was submitted to every member of the Legislature. They all received and read it, and hence must have clearly understood it. THE COMMISSIONER. I do not think you filed that, Mr. Mumell. If it is on file, of course you can have it. MR. RHODES. Mr. Commissioner, I would like to ask Mr. Eield a few questions. THE COMMISSIONER. Very well. We will hear from Mr. Field. STATEMENT OF HENRY K. FIELD, ESQ., General Agent of the New England Mutual Life Insurance Company. MR. RHODES. Q. How long have you been engaged m the Life Insurance business, Mr. Field? A. Since the early '70's. I have been here in San Francisco since 1881. Q. Of what Company arc you in charge here? A. Th*e New England Mutual Life Insurance Company, of Boston, Massachusetts. Q. Are you familiar with tlie diffe'rent forms of insurance, lontine, full-paid, term, paid-up, etc.? 'A. I think I am, sir. Q. Are you familiar with their meaning as understood among Insurance men? A. T am, sir. Q. Will you give me the definitions of those terms? A. If I were to define them, I should simply be repeating what has already been said here several times. Q. You agree with the gentlemen who preceded you as to the meaning of the term "tontine insurance"? A. Yes, sir. Q. And also as to the meaning of the term "semi-tontine in- surance"? A. Yes, sir. Q. Did you know anything of semi-tontine insurance when you first went into the Insurance business? A. No, sir. My impression is that I first heard of that in 1883. Q. How about the other two forms of insurance mentioned, full-paid insurance and term insurance? A. They have been correctly defined in the way that I, as an Insurance man, have always understood them. I never had any other idea of them. MR. McCUTCHEX. Q. Mr. Field, do you understand that the semi-tontine was simply the application of the tontine fea- ture to a policy having different provisions than the original ton- tine policy contained? A. I think the semi-tontine is a feature of tontine. It is just what it is called, a semi-tontine, half tontine. Q. Is not a semi-tontine policy one which contains the ton- tine feature, but gives to the policy-holder certain privileges which the original tontine policy did not give him? A. Yes, sir. It is a modification of the original tontine. Q. It is more favorable to the insured than the original tontine? A. Yes, sir. Q. Did it take from the policy-holder anything that the orig- inal tontine gave him? A. No, sir. Q. It gave him additional privileges? A. Yes, sir. 48 An asrreement was here reached between the various Insurance Companies represented that the expense of taking stenograph.- ically and writing the proceedings now being had before the Honorable Commissioner, should be prorated among the various Insurance Companies represented. A recess was taken at this point until two o'clock P. M. 49 AFTERNOON SESSION. TUESDAY, JANCARY 17, 1898. 2 P. M. MR. I\ANKIN. I would like to inquire, Mr. Commissioner, whether there is any question as to whether you are exercising judicial powers in proceeding as you are now doing? THE COMMISSIONER. I do not know what kind of power it may be denominated. MR. THOjMAS. It is surely a very strong power. THE COMMISSIONER. I certainly have been slow in exer- cising the power whiich I, as an officer, possess. MR. THOMAS. The Insurance Commissioner is called an executive officer by the Code. THE COMMISSIONER. I could have acted without giving you. gentlemen notice, but I did not want to do it. I wanted to hear from you, and to get the version of each and every one of you of this matter before acting. I did not think it was quite right to investigate the qilestion alone, and then possibly act against you, but preferred to give you a full hearing, and then, if I should ultimately give a decision against you, it would be after such a full hearing. I desire very much to hear the argu- ment of each of the Counsel present. I want to hear from Mr. Thomas, among others, whose position, as I understand it, is that any Insurance Company can issue any kind of policy it pleases, 80 long as it has a contract in the policy stating the terms clearly. If that is the law, it simplifies the matter very much. If that is not the law — and I will say that my present view is the other way — I intend to take the policies of the Companies here and make an examination of them, to see whether they comply with the terms of the law. Then I desire you gentlemen, in your argunjents, to consider this other question of annual licenses. MR. THOMAS. So far as the Companies I represent are con- cerned, if it were possible to avoid it, they would have pre- ferred not to raise the question last named by your Honor. THE COMMISSIONER. I will simply say that it has looked 50 to rae as if, one view being taken of that question, you are out of the State, anyway. MR. THOMAS. Do you mean by that that there should be any greater penalty than that the Companies should pay the licenses which have accrued in the past? THE COMMISSIONEE. The question of penalties would not affect the law. So far as the Life Insurance Companies are concerned, there would be no penalties. But there are other Companies in the State. MR. McCUTCHEN. Before the Counsel present proceed with a discussion of the matters before your Honor, I desire to ask a few questions of one or two witnesses present. THE COMMISSIONER. Very well. Proceed. I want to get all the evidence I can. ME. McCUTCHEN. I will call upon Colonel Hawes, of the New York Life Insurance Company. STATEMENT OF ALEXANDER G. HAWES, ESQ., Manager of the New York Life Insurance Company. MR. McCUTCHEN. Q. Colonel Hawes, you have been connected with the New York Life Insurance Company for thirty odd years in this city, have you not? A. For nearly thirty years. Q. Are you familiar with the foi-m of insurance known as ^'tontine insurance"? A. Yes, sir. Q.. And also with that which is among Insurance men known as "semi-tontine insurance"? A. Yes, sir; semi-tontine, or limited tontine, which is practi- cally the same thing. Q. What is the difference between semi-tontine insurance and full tontine insurance? A. Full tontine policies constitute a form of insurance by which the insurants are placed in classes, according to the year of their entry and the kinds of policy they take out. The princi- ple of tontine is applied to the whole policy, to the dividends on the policy and to the reserve. So a man who takes out a policy 51 on the tontine plan receives not only the dividends upon the policies of those policy-holders who die and those who give up their policies, but also receives his share of the reserves. The limited tontine plan modifies that to the extent that the reserves are given in the form of paid-up insurance to the insured. Q. The reserves are given in the form of paid-up insurance to the policy-holder who allows his policy to lapse before the expiration of the tontine period? A. Yes, sir. Q. So far as the Company is concerned, there is no ad- vantage to it in semi-tontine insurance over the full tontine insurance, is there? The advantage is all with the insured, is it not? A. Yes, sir. Q. The semi-tontine policy contains all the features of the tontine policy, and in addition to that reserves to the insured the right to a paid-up policy for the amount which his reserve will purchase? A. That is correct. ME. THOMAS. Q. It is still a form of tontine insurance, is it not? A. Yes, sir. Q. A little more lavorpble to the insured than the original tontine? A. Yes, sir. Q. When you speak of tontine insurance, you mean the prin- ciple of tontine, entered into amy life insurance policy, do you not? A. Yes, sir. MR. McCUTCHEN. I would like to ask Mr. Landers a few questions now, in the same line of examination. THE COMMISSIONER. Very well. -)'_' FURTIIKK STATEMENT OF JOHN LANDERS, ESQ., Oenoral Agent of the Manhattan Life Insurance Company, of New York. MR. McCUTCHEN. Q. Mr. Landers, you have heard the questions which I have just put Colonel Hawes? A. Yes, sir. Q. And his answers thereto? A. Yes, sir. Q. In reference to the difference between tontine insurance and semi-tontine insurance? A. I have heard it all, yes, sir. Q. Is there any other difference between the two than as given by Colonel Hawes? A. None whatever. Q. The difference is all for the benefit of the insured? A. Yes, sir. Q. In other words, the semi-tontine policy gives to the in- sured additional privileges over those given to him by the ton- tine policy? A. Yes, sir. MR. HAWES. I would like to add something to what I have already said, Mr. Commissioner. THE COMMISSIONER. You may do so. FURTHER STATEMENT OF ALEXANDER 0. HAWES, ESQ., Manager of the New York Life Insurance Company. MR. HAWES. I would like to say, in addition to what I have already said, that the semi-tontine policy, the limited-tontine policy, and what is called the accumulation policy are all the same — they are all tontine. MR. McCUTCHEN. Q. Then a policy issued upon what you call the semi-tontine plan, and a policy issu.ed upon the limited-tontine plan, are policies which give tontine insurance, r.re they? A. Yes, sir. 53 Q. Vdii rt'^fard all those forms of policies as providing ton- tine insurance? A. Yes, sir. il. And that is the general understanding of it among Insur- ance men? A. Yes, sir. ^IK. RANKIN^. Q. Do you distinguish between paid-up insurance, or a policy which is a paid-up policy, and a non- participating paid-up policy? If so, what is the difference? A. There may be no difference. They are both paid-up policies. But a non-participating paid-up policy is one which does not participate in the profits of the Company, the dividends. Q. Whereas a paid-up policy may ? A. Yes, sir. ME. ERODES. Q. A paid-up policy ordinarily does not participate in the profits? A. It is a special contract provision. ME. :\rcCUTCHEX. Q. Has the form of policy used by the New York Life Insurance Company since 1880, to your knowledge, ever been questioned by the Insurance Commissioner of this State? A. No, sir. THE COMMISSIOXEE. That is to say, up to a recent date? ME. McCUTCHEN". Up to within six months, I meant my question to imply. Q. ITas it ever been represented to you, or, so far as you are advised, any representative in your Company, that the form of policy employed by your Company in this State was not in ac- cordance with the provisions of the laws of this State? A. No, sir. ME. THO^IAS. Q. What is your knowledge of all the policies issued by the New York Companies? Are they the same in that respcet? A. So far as I know. Q. That is to say, you have never heard the use of any of them in this State questioned? A. No, sir. ME. THO^FAS. What have you to say to that, Mr. Landers? ME. LANDEES. To my knowledge, that is the fact. 54 MR. THOIMAS. No Insurance Commissioner in this State has ever raised the question, until it was raised by Commissioner Clunie last summer? MR. LANDERS. No, sir; it has never been raised. FURTIIKR STATEMENT OF H. C. DONNELS, ESQ., Cashier of the Home Life Insurance Company, of New York. MR. McCIITCHEN. Q. Mr. Bounds, you have heard the questions propounded to Colonel Hawes, and his answers thereto, concerning the distinction betwe'en tontine insurance and semi- tontine insuramce? A. Yes. sir. Q. Are Colonel Hawes's answers correct, according to your understanding of the terms? A. Yes, sir. Q. Then you understand that a policy which is known among Insurance men as semi-tontine or limited-tontine is a policy pro- viding for tontine insurance? A. Yes, sir. Q. In one of its forms? A. In one of its various forms, yes, sir. Q. And what do you say about the policies employed by the Home Life Insurance Company in its business in this State; has any objection ever been made to them, so far as you are advised, by the Insurance Commissioners who have preceded Mr. Clunie, or any one else? A. No, sir. Q. And they have been issued in this State upon the belief on the part of the Home Life Insurance Company that they did comply with the laws of the State? A. Yes, sir. MR. RANKIN. Mr. Commissioner, Mr. Clarence M. Smith, of the Northwestern Mutual Life Insurance Company, which Company I represent, could not be here to-day, because he is serving on a jury in the United States District Court. I would like to reserve the right to ask of Mr. Smith the same questions that have been asked of Colonel Hawes and the other gentlemen 55 by Mr. McCutchen, unless you will concede that Mr. Smitii will testify as they iiave just testified. ■niK CO^lMISsioNER. I think what these gentlemen have just testified to is the fact. MR. KANKIN. So far as Mr. Smith and his Company are concerned, they are acting in perfectly good faith. THE COMMISSIONER. I suppose you can have Mr. Smith here at any time you desire. His answers will probably be the same as those given by the other gentlemen. MR. RHODES. I think the same will be true of Mr. Field. MR. WHEP]LKR. I would like to have ths same concession ipade with reference to Mr. North, of the Provident Savings Life Assurance Society, of New York, whom I represent. THE COMMISSIONER. Very well. MR. MADISON. And we would like to have it apply also to Mr. Shields, of the Equitable Life Assurance Society. THE COMMISSIONER. Very well. MR. McCUTCHEN. I will examine Mr. McLane upon the same subject, as he is here, if the Commissioner please. THE COMMISSIONER. You may do so. FURTHER STATEMENT OF C. A. McLANE, ESQ., Agency Director of the New York Life Insurance Company. MR. JklcCUTCHEN. Q. Mr. McLane, you have heard the answers given by Colonel Hawes, in which he has given his understanding of the distinction between the full tontine, the semi-tontine, and the limited-tontine policies. Is it your under- standing that those answers are correct? A. Certainly. Q. That a policy providing for what is known among Insur- ance men as a semi-tontine, or limited-tontine insurance, does provide for tontine insurance? A. As a tontine principle, yes, sir. Q. And is tontine insurance? A. Yes, sir; and that is tontine insurance. 5(; ME. McCUTCHEN. I presume that same understanding may be had with reference to the Germania Insurance Company, Mr. Commissioner. I also represent that Company upon this hearing. THE COMMISSIONEE. 1 understa.nd that no policies issued by any of the Companies in this State have been ques- tioned, so far as this provision of the Civil Code is concerned, until the matter arose after I became Commissioner. In other words, the question has never arisen before. ME. EANKIN. I think I should go further than that. I think we should either have it admitted, or have it shown, that these Companies have actually endeavored to comply with the law. You have on file, Mr. Commissioner, a letter from the General Attorney of the Northwestern Life Insurance Company, in which he expressly states that. THE COMMISSIONEE. I am willing that you should make that letter part of your statement on this hearing, if you so desire. ME. KELLOGG. I do not understand that the good faith of the Companies in regard to the issuance of policies is ques- tioned. THE COMMISSIONEE. I never questioned it. ME. KELLOGG. If the Commissioner does not raise that question, I do not see that we need to meet it. ME. McCUTCHEN. I understand that the Commissioner gives it as his understanding that the Companies have acted in good faith. THE COMMISSIONEE. I so imderstand it. The question upon the policies has never arisen, to my knowledge. Whether the section has been passed over, or not noticed, I do not know. I do not think the past Insurance Commissioners ever noticed the question here. Moreover, I understand that the Companies generally have followed the law of the State whence they eame, considering that the law which bound them. I do not think they have ever paid any particular attention to the California law. ME. EANKIN. At your suggestion, Mr. Commissioner, or permission, I will here incorporate into the record the letter of Charles E. Dyer, Chief Counsel of the Northwestern Company. 5< LETTER OF CHARLES E. DYER, ESQ., Counsel of the Northwestern Mutual Life Insurance Company. Milwaukee, Dec. 14, 1897. Hon. A. J. Clunie, Commissioner of Insurance. San Francisco, California — Dear Sir: We are advised hy Mr. Clarence M. Smith, this Company's General Agent in California, located in San Fran- cisco, that a question has arisen with you whether various Life Insurance Companies, including the Northwestern Mutual Life Insurance Company, are complying, in the forms of policies used in your State, with Section 450, Volume 2, of Deering's Anno- tated Codes and Statutes of California, and we underetand you desire further evidence than you now have of compliance hy the Company I represent, with the provisions of that section. As we may agree on all sides, the evident ohject and purpose of the law are to prevent the entire forfeiture of rights and interests in policy contracts, and to preserve to the insured such protection against unqualified forfeiture as the statute affords, notwith- standing the fact that the insured may cease, at a certain period in the history of his policy, to pay the required premium. It is certainly the intention of this Company to secure by its policy contracts to California policy-holders the rights which the statute confers, and we can have no doubt that an inspection of the Company's forms of contract will satisfy your mind on that point. Inferring that your construction of Section 450 is that it applies to all policy contracts, except those for tontine insurance, and for fixed term insurance, and for insurance fully paid-up, I call your attention to the fact that, either in the body of all forms of policies used by this Company to which the statute can apply, or in tlie conditions and provisions which ai)ix^ir on the second page of ilie same, and are made a part of the contract, suitable clauses appear, guaranteeing to the insured the rights conferred by the statute of your State. I take occasion to for- ward to you, through the Company's General Agont in San Francisco, a bundle of forms of all policies used by the Company, so that you may be able to inspect the same, and, as I shall be- lieve, to corroborate my statements on the subject. 58 For example, in the ordinary life form, our provision is that, " If, after three or more annual premiums shall have been paid in cash, default shall be made in the payment of any premium on the day it shall become due, this contract shall secure non- participating, paid-up insurance for such sum as the reserve upon this policy, by the uow existing standard of the State of AViscoTifjin, will then purchase as a single premium, at the Com- pany's published rates, on condition that this policy be freed from all indebtedness to the Company. Or, upon payment of all indebtedness to the Company, Avith written application of the insured and beneficiary and assigns, if any, and the due sur- render of this policy, and all claims thereunder, to the Company, at its Home Office in Milwaukee, Wisconsin, within three months after such default in the premium payment, the Company will apply the reserve, by the standard last above-mentioned, to ex- tend and continue in force the full amount of this policy, as non-participating term insurance, for the number of years and days indicated by the table on this page; but, if the insured shall die within three years after such default in the premium pay- ment, and within the term of the said extended insurance, the Company will deduct from the amount payable all premiums that would have become due on this policy, had default not occurred,, with interest thereon at the rate of six per cent per annum." Then follow tables of lo-an and cash value and paid-up and extended insurance. It should be observed that the existing standard of the State of Wisconsin, as named in the foregoing provisions, is the American Experience Mortality, and interest at four and one-half per cent yearly. The statute of California, as will be conceded, does not obli- gate a Company issuing policies in that State to grant both non- participating term insurance and paid-up insurance, but it does require that one or the other sliall be granted. I notice that the statute requires what m.ay be called automatic non-participating term insurance, or paid-up insurance, provided the latter be ap- plied for within three months from non-payment of premium. The only deviation in the Company's policy form to which I have just referred, from the statute, is that in the policy con- tract the paid-up insurance is absolutely secured without applica- tion therefor. It results automatically from the contract itself. 59 while the non-participating term insurance is to be granted, if applied for. But I take it this is an unsubstantial deviation, if it can be regarded as a deviation at all. All the substantial rights conferred by the statute are secured by the policy. The contract, by its own provisions, is preventive of a forfeiture. Paid-up insurance is secured absolutely after three or more annual premiums have been paid in cash; or, if the insured pre- fers and applies for the same, he is to have non-participating term insurance for the number of years and days indicated by the table, such application being made within three months after default in the premium payment. In the form for single-payment life, of course nothing can possibly be required, under the statute, in relation to either term or paid-up insurance, because the single payment, made at the time the policy is issued, secures the full amount as absolutely paid up. In the life form, non-participating, the provision is that if, after three or more annual premiums shall have been paid in cash, default shall be made in the payment of any premium on the day it shall become due, the contract shall secure paid-up non-participating insurance, calculated in accordance with the table then used by the Company for the purpose, on condition that the policy be freed from all indebtedness to the Com])any, and a paid-up policy will be issued, accordingly, on surrender of the policy. In the limited-payment life form, the provisions on the sub- ject of paid-up and term insurance are as in the ordinary life. Of course, in the paid-up life forms, whether participating or nourparticipating, nothing can be required in the form of such conditions as are named in your statute, because they are already fully paid-up. Such forms are denoted as "Life P" and "X. P. Life P." The endowment forms, except in full paid-up, contain the same provisions on the subject of paid-up and term insurance as I have called attention to in connection with the ordinary lifo form. The semi-tontine also secures paid-up insurance absolutely. I mean, of course, such as are not single-payment policies. The foregoing observations are also applicable to the Com- 60 penVs forms of installment policies, whether life, endowment, or semi-tontine. The forms which I send for your examination constitute all that are issued by the Comj^any, except that, in some instances, of course, the policies run to designated beneficiaries, and in some cases to Executors, Administrators, or assigns, but all are uniform with reference to provisions securing protection against forfeiture. T shall be very glad to be advised of your views with respect to conformity by the Company with the statutory requirements referred to, after examination of the fonns of policy contracts which I send for your inspection, and to have any further corre- spondence with you that you may deem necessary upon the sub- ject, as the Company, of course, is desirous of fairly meeting all requirements of statutes. Very respectfully, CHAS. E. DYEK, Counsel. MR. VARKVAi. Mr. Commissioner, on behalf of the Massa- chusetts Mutual Life Insurance Company, of Springfield, Massa- chusetts, I have a letter from the Secretary of the Company with reference to the subject under investigation which I would like to have incorporated as part of the record. TITE COMMISSIOXER. Very well. You may do so. LETTER OF IT. M. PHILLIPS., ESQ., Secretary of Tlie Massachusetts Mutual Life Insurauee Company. Springfield, Mass., January 12, 1898. •C. M. T. Parker, Esq., Manager — Dear Sir: I have your letter of the Gth inst., enclosing a communication received by you from the Commissioner of In- surance of California, notifying you of a hearing before him commencing Monday, January 10th, 1898, at 10 A. M., for the purpose of ascertaining whether the various Life Insurance Com- j>anies doing bui^iness in California have complied with Section 450 of the Civil Code, and I note your request that we should Avri'te him a letter on the subject. We have very littk" fuiither to say than has already been given you im my letters of July 3rd and 61 August S.'Jrd, 1S07. The Company claims, of course, that it has always complied with the jtrovisions of the section of the Civil Code referred to, and that in all its contracts it specifically pro- vides for paid-u]) insurance as required by that section. This section requires that all life policies, "when three full annual premiums shall have been paid/' etc., a provision for certain ''non-participating term insurance," or for a "non-participating paid-up policy," etc., "both kinds of insurance to be subject to the same conditions, except as to the payment of premiums, as those of the original policy, unless specifically contracted be- tween the insurer and the insured for tontine insurance," or for "other term or other paid-up insurance." "We claim that our contract specifically provides for "other paid-up insurance," ami by this we mean other than is particularly described in the sec- tion above quoted. If the Commissioner claims that our con- tract does not call for other paid-up insurance, we can only beg respectfully to differ with him. because we feel quite confident that our contracts do so provide. On its first page, our contract is made subject to the provisions and requirements stated on the back thereof, and on the back thereof is specifically given the paid-up insurance which we are required to pay — not only by the terms of the contract, but by the laws of ^lassaehusetts, under which our contracts are issued. After two full annual premiums are paid, instead of three, as is required by the laws of California, without any action on the part of the insured, the policy becomes binding upon the Company for a certain paid-up value, and this amount is written in each policy, subject, of course, to the de- duction of any indebtedness to the Company, as stated. Refer- ence is made to Section 70 of the Insurance Laws of this com- monwealth. T do not know that we can make our claims any clearer, but we feel quite sure, as I have heretofore said, that we are fully complying with the requirements of the California statutes. We have not written Commissioner Clunie on the subject, and re- ably the reason why many of the Com- panies are to-day acting under the original license issued from this office — the fact that we had contributed assessments to 04 maintain the office and to provide for it. The Manhattan Life Insurance Company, as 1 liave heretofore stated, paid $143, which wonld he an equivalent of paying an annual license fee for almost a succeeding ten years, and its non-collection was sim])ly a uvaiten of reciprocity between the Insurance Commis- sioners and the Companies. ME. THOMAS. So far as my Companies are concerned, Mr. Commissioner, I think that, while, as I said before, we do not desire to raise this question, we rely upon the fact that the statute does not specially provide for annual renewals of licenses to the Companies. ME. McALLISTEE. In relation to the question of licenses, 1 do not think there is any provision in tliis statute at present which requires a Life Insurance Company to pay an annual license. THE COMMISSIONEE. My understanding of the law, in- dependent of the retaliatory clause, is, that the Company comes into the State, and a certificate of authority is issued from this office to that Company to transact business in this State, and that certificate of authority is supposed to last until the Com- pany becomes insolvent, except in some cases where there is a change of Agents, and theoi a new certificate is issued. The question has arisen here as to whether or not the Agent requires a license, too, my contention being that the Agent also requires a license, and Mr. McAllister's contention being that he does not. His discussion of the matter, however, took place independent of the retaliatory clause of the law. I want you gentlemen to address yourselves to that proposition. ME. LANDEES. For the benefit of the gentlemen represent- ing Companies of other States other than New York, which appears to he pretty well represented here at this meeting, I will state that there was a Conveuition of the Insurance Com- mis.sioners of the various States held some twenty odd years ago in the East. This Departrnen't was invited to be present, and I am under the impression that Mr. Mowe, the Commissioner at that time, was in attendance. That Convention was called with a view of bringing about a uniroj-uiity of laws in the different States with reference to Insurance. J^rioi- to that time, each State had its own special laws with referenee to the "anaiual staite- ments," each State had its own S'tatement blanks, and theTe were i\: ])r(ivi>i()iis in each State t!iat were aliiiurft direetly (Ji)posit^ in Jonn to the others. So at the Home Olfiee of a Company havini' Agencies in cliU'erent States, a great deal of labor was required in preparing the different annual statements for outside State re- quirements, namely, one for Wisconsin, another one for Massa- chusetts, another one for California, and so on through the list of the several State Insurance Departments. That Convention resulted in the subsequent reforming of Insurance laws, and the same blanks were made applicable to most if not all of the States. The laws, at the request of the Insurance Commissioners of the \ariouK States, Mere subsequently adopted to meet the views ex- j)i-essed by the Commissioners present at these Conventions. So, when you oonie right down to it, and study the laws of the differ- ent Staites, you will hiid that they are intended to be in har- Uiony, iiiul are practieaJly imiform, all of which was brought about through these annual Convemtions of Insurance Commis- sioners. MR. RAXKIN. Several of the States, as 1 understand, have their special requirements with regard to the deposit of certain sums of money, according to the amount of insurance carried. MR. LANDERS. That is only in reference to deposits. For example, we have no Life Insurance Company from England doing business in this country. Why is that? It is because English Life Insurance Companies will not comply with our laws, and segregate their various policies, and set aside a reserve to be improved upon at a certain rate of interest for the protec- tion of their policy-holders. Nor do they value their policies in nnmerical order, but they value them in groups. And there is no system of bookkeeping with English Companies that would enable them to come into our country, where there are Insm-ance laws, and facilitate their making an annual statement such as is required from our American Companies. That is the reason why English and other foreign companies are not doing business in this country. That will also apply, in many cases, to foreign Fire Insurance Companies. The English Fire Insurance Com- panies find it easier to incorporate a branch office under the laws of the State of New York, deposit $200,000 in bonds or other securities in the hands of American Trustees for their American policy-holders, keeping all their American business and their American assets separate for the security of the American policy- 66 holders, and also separate from their English management and control. This course is almost universally adopted by the Eng- lish Fire Insurance Companies doing business in this country. They simply send over, say $200,000 of good, sound, reliable assets, acceptable to the Insurance Commissioner of New York, and then appoint a local Board of Trustees in New York, who act and keep everything separate and distinct from the Home Office and for the exclusive benefit of its American patrons. THE COMMISSIONEE. Is there anything further to be said by any of the Insurance gentlemen present before the testi- mony is closed? If not, as I understand it, we may now proceed with the argument. I understand that the Managers have already presented all the testimony they desire to present. I trust I shall hear from all of the Attorneys present. Or, if you prefer it, one or two can make the argument for all. ME. ilcCUTCHEN. As far as I am concerned, the argument has practically been made. MK. THOMAS. I do not mind going on at the present time, if it is desired. THE CO]\IMISSIONEE. I will state, further, that I would like to have the fullest possible view of the law from you all, if you have anything to say. This is a very inte'restimg matter, and one of a great deal of moment, as I realize. I should not like to make a mistake on the law of this matter. AEGUMENT OF WILLIAM THOMAS, ESQ., Attorney for the Mutual Life Insurance Company, of New York, and the Connecticut Mutual Life Insurance Company. ME. THOMAS. Mr. Commissioner: The Mutual Life Insur- ance Company, of New York, and the Connecticut Mutual Life In- surance Company practically rest their position upon the ground taken by Mr. Donnels in the brief read to your Honor this morn- ing: that if any Insurance Company has entered into a specific contract with the insured for either tontine insurance, or for an original policy of term insurance, or any policy of insurance is issued which provides for paid-up insurance, which, under the testimony here, is never an original contract. Section 450 of the 07 Civil Code of California has no application whaitever to that contract. The questions for you, as Insurance Commissioner, to deter- mine, are these: Is the policy a policy of tontine insurance? If so, it falls within the exception, and the statute of California, ]n providing a certain stipulation for insurance not within that exception, does not touch it. Is it a contract for original term insurance? If it is, then the statute, or the stipulation provided for therein, does not touch it. Is it a contract which provides for paid-up insurance as the sequel or substitute of the original contract that was issued? If so, the statute and the stipulation provided for therein do not touch it at all. So far as the Mutual Life and the Connecticut Mutual are concerned, tliey issue no policies of tontine insurance at all. And so far as this statute is concerned, they have but three form? of policy. They have, first, a term policy, a definition of which has been given to you. The term policy absolutely expires upon a certain day; if the insured is alive, his rights under the policy terminate upon that day. They have also a single-premium policy; that is to ?»ay, a policy issued upon payment of a single premium, where no further payments are necessary at all. Every other policy ever issued by the Mutual Life or the Connecticut Mutual in this State has in it an express provision and contract for paid-up insurance. There is no exception whatever to that. And as the contracts are either term or single-premium insur- ance, to which this statute can have no application whatever, or are policies in each one of which there is a clause providing for paid-up insurance, every policy issued by these two companies falls within the exception, the permission given to the insured and the insurer, by the very terms of this statute, and we are not obliged to insert in these contracts, or any of them, a stipulation which the statute says must be inserted unless there be such specific contract. But wc go further, Mr. Commissioner. I think that all the Xew York Companies comply with the letter of the statute, and that thev do not fall within the exception at all. I say that every one of the New York Companies that ever issued policies under the law of the State of New Y^ork which went into efTecr on the first day of January, 1880, have complied with the express terms of this statute. 08 THE CO^iLMISSIONEE. Will you read that law, Mr. Thomas? MI,'. THOMAS. I will. J want to call your Honor's atten- tio2"i to one thing: I do not think the stipulation provided for in Section 450 in the Civil Code of California means that the Com- pany ha? got to issue three kinds of insurance, but only two. Another thing: It is not right to say that we shall first give them some kind of a policy payable in ten, fifteen or twentv years, or having annual premiums payable every year until the assured dies, and that as a substitute for that, after three annual premiums shall have been paid, the insured shall have auto- matic tei-m insurance and ilien also have paid-up insurance. The language of this statute provides that the alternative, other than the original cuutract, shall be either term insurance or paid-up insurance. It does not provide for both. And if we can show to your Honor that we have an original form of policy, of any sort or kind, to which form of policy we have, as a supple- ment, either automatic term or paid-up insurance upon surrender and demand within three months, I say we have strictly coinplied with the leiu-r of this statute, and we do not fall within the exception. The Xew York law gives to policy-holders six months within which to surrender and make demand, while the California law makes the term three months. Therefore the State of California cannot complain in that regard. Let me take out of Section 450 of the Civil Code exactly what every New York Company doing business in this State has. Every policy issued by them, except tontine or an original term P'. -icy, has a stipulation in it which I will take right out of tills section and make it perfectly consistent. It contains a stipula- tion: "that when, after three full annual premiums shall have been paid on such policy, it shall cease or become void solely by the non-payment of any premium when due, its entire net re- serve, by the American P]xperienee Mortality, and interest at four and one-half per cent yearly, less any indebtedness to the Com- pany on snch policy, shall be applied by such Companv as a single premium, at such Company's published rates in force at the date of original policy, but at the age of the insured at time of lapse, to the purchase of a non-participating paid-up policy, npon the written application by the owner of such policy, ^nd the surrender thereof to such Company within three months." 69 Then,' ha^ not a >iiigle New Yurk policy bii-n i.<.een issued, and that this stipulation ought to be in it. Do 1 understand it to be your contention, if there was a forfeiture after three years, that without any action on the part of the insured whatever, your company on its books woidd credit the reserve in ]>ayment of the premiums on tli>i oripnal amount insured and carry it along? MK. THOMAS. No; there never has been any automatic in- Burance provided for by the policies of the New York Companies. THE COMMISSIONER. Are you in that position also, Mr. McCu tcheai ? MI{. McCUTCHEN. Prior to 1892 we were, but now we are n-^t. Our policies do provide for automatic insurance without anv action on the part of the insured. THE COMMISSIONER. Paid-up or extension? MK. McCUTCHEN. Ivxtension. MH. THOMAS. The reason I read the words which I did and omitted the others, was, that this statute does not provide for automatic paid-up insurance, and it does not provide that we shall give the insured both of the forms there mentioned after forfeiture. THE COM.AIJSSIONEK. I do not want to interrupt you, but as at present advised, my idea is that that statute contemp- lates that there shall be either one or the other given; if there is no action on the part of the insured, you must give him auto- matic extended insurance. If he wants to take advantage of the other provision, he can go and take advantage of it within three months. MR. MUNSELL. With reference to what is intended there, I could say a word, perhaps, which would enlighten the Commis- sioner. THE COMMISSIONER. We have now done with the tesH- mony. I invited the Managers of the various Insurance Com- panies to come here, and I have heard from them. It is not necessary for them to stay any longer, unless they are so inclined, as I now desire to hear the law of the case presented. 70 MR. THOMAS. 1 call your attention, Mr. Commissioner, to this fact: thai the law does not incorporate into every policy, without any language to that effect, a provision for automatic term extension. The law says that every policy shall contain a stipulation foT automatic term insurance; that if it does not, it shall contain a provision for paid-up insurance, but that must be ujon the demand of the insured. Under the provisions of t'hat stipulation as sent forth in this statute, the companies have the choice, and, provided they comply with either of the alterna- tives, they comply with the statute, because the statute does not say that the insured shall have both alternatives. • T]1P] COMMISSIOXER. But does not the statute say that they shall both be in the policy? MR. THO.ArAS. Not at all. Jt says that a policy must con- tain a stipulation that upon a certain state of facts happening, namely, the payment of three annual premiums, the policy must be carried to the credit of the insured as a single premium polic}', to Iniy either one of the two kinds of insurance, namely, automatic term without any demand on the part of the insured, oi- paid-up insurance, the other class, but that the latter must be preceded by the demand of the insured for it. THE COMMISSIONEE. Does it not require that the language of the statute shall be in the policy itself? MR. THOMAS. Where a statute provides that a certain alternative proposition must be carried through, there is no possi])le construction that will compel a man to put into a policy both of the alternatives, where it would give the insured, as in this case, three classes of insurance. Suppose we have a policy of that sort, the premium upon which is payable in ten annual pay- ments, the policy payable at death. According to your con- struction, Mr. Commissioner, that man has three classes of insur- ance given him. After the first three annual premiums have been paid, he at once, ipso facto, gets extended term insurance; that is, one of those that immediately expires at the end of the time specified. According to your construction, with that kind of a policy, this man, without any demand at all, is covered by this extension insurance. And for the next three months after the period of forfeiture, the Company does not understand upon what ground it is standing. Tin: C0.MM1.S,SJ0^'EI^ Do not misunderstand me. The langiiiigc lieie is "unless specifically contracted between the in- surer and the insured for tontine insurance, or for other term or paid-up insurance." I understand those words to apply to the original policy issued. If the original jiolicy issued belongs to either one of those classes, then I understand there is nothing necessary in the policy under this section of the Code at all. But assume, now, the case of an ordinary policy issued on my life for $10,000. 1 go to your ollice and 1 say to you that I want to lake out an ordinary life policy for $10,000. You say it is so much a year. Now that policy must contain this stipulation, and the stipulation, as I understand it, must be in the wording of this statute, or its equivalent. MR. THOMAS. But you are asking for two stipulations. THE COMIillSSIONER. I understand it to be in the dis- junctive; it seems to me that the insured has the option, from the language here. I cannot say that that is the case. That is the point upon which I want to hear from you. I think the law- intended, from my present view (though of course I may have occasion to modify it), that the insured should have something anyway, in the case of a forfeiture after three years, upon policies outside of the exception here noted, whether he acted at all, or not. And it would seem to me that in case he docs not act and does not demand a paid-up policy, the Company issuing the policy must, on its books, automatically carry that policy until the reserve is consumed in the payment of premiums. iMl{. THOMAS. Provided he take^ that kind of a contract and makes no demand at all. But where the statute gives us the alternative of either giving him paid-up insurance upon demand wiihin three months, or this extended-term insurance, and we give him one of those options by contract, we are not obliged to give him both. Why, if your interpretation is correct, if I had a policy upon which I had paid premiums for three years, and I lapsed in the payment of premium, I could take advantage of that alternative proposition by waiting until three months had nearly expired, and then force the Company to give me paid-up insurance. In the meantime I would have been covered by this automatic extension. THE COMMISSIONER. I had not thought about it in that way before. 72 Mil. THOMAS. 1 think if your Honor will take the strict disjunctive meaning of this sentence, you will agree with me in my interpretation. In looking at this Section 450 of the Civil Code again, Mr. Commissioner, I wish you would look at it with the idea, please, that a perfect form of policy can be gotten up containing one of these alternatives specified in the statute, namely, paid-up insur- ance, iind leave out altogether automatic insurance. THE COMMISSIONEK. In other words, if the policy issued by your Company, or by any one of these Companies, contains either the agreement to give automatic insurance or the agree- ment to give paid-up insurance, you hold that that is a sufficient compliance with the law? ME. THOMAS. Yes, sir. THE COMMISSIONER. I would like to hear from you on that, because at present my mind is not inclined in that direction. ME. THOMAS. I can only refer you to the ordinary con- struction which should be given to every alternative statute. If you would like some authorities upon that point, T will gladly furnish you with them. THE COMMISS.IONEE. The trouble is, I do not under- stand this to be an alternative statute. I do not understand that there is any alternative as to what shall go into the policy. It is ray under stiinding that the alternative comes in after the policy is written, and that it is an option with the policy-holder. I think that both of these provisions go to make up the stipulation which is to be inserted in the policy, and that the alternative does not come in until after the forfeiture has taken place. ME. THOMAS. If your Honor will take a good look at that, I think you will see how inconsistent it would be. According to your view, we must have in our policy a clause stating that after the forfeiture we will provide for the insured two classes of insur- ance. You say no policy is good unless it provides upon its face that after the payment of three annual premiums the insured is thereupon at once entitled to two more classes of insurance, upon forfeiture. You superpose upon term insurance, upon a policy which admittedly terminates upon forfeiture, the right in the insured to take further insurance, which is entirely inconsistent with insurance principles, especially in view of the other alterna- tive. 73 THE CO.MMISSIONEK. Term insurance is cxchukd liere. MR. THOMAS. Original term insurance, yes. But thie says, "to the purchase of non-participating term insurance for the full amount insured by such policy." You say we have to have lliat in the policy, and that in s|)ite of having that we must also give the policy-holder, upon his demand, a paid-up policy. THE COMMISSIOXEIJ. Thai is. the policy-holder has the option. MR. THO.MAS. Hut he has both. THE C'OMMJSSJOXER. Xo. He has the option to select one or the other. MR. THOMAS. Why has he not both during that three months? It seems plain to me that he has both classes of insur- ance during that period, if your construction be correct. THE COMMISSIONER. There mav be something in that. MR. THOMAS. That is the reason we endeavored to get the definition of term insurance so clearly before your Honor. Term insurance is something that has no hereafter at all. The statute of no State ever contemplated that where a man had original term insurance, there should bo any rights flowing from it, and that after a time, by virtue of the payments made under the con- tract for such term insurance he should be entitled to further rerm in.-iura.nc-e, because, when you ap])ly the net reserve to the purchase of non-participating term insurance, it is based upon the original contract of term insurance, and the premiums upon that class of insurance are very small, and the intention is that upon the expiration of that time, the insurance expires entirely. Yet, in spite of that, your construction of the statute must give the insured additional insurance. And he can go to the Com- pany again at the end of three months and say, "I will change this again. I have had extended term insurance, and now 1 will let that go and take jiaid-up insurance.'' What is going to hap- pen if the man happens to die during the throe months? He wild get the extended insurance. And yet that is a class of in- su'rance that, if he lived beyond that space, which would be only three months, or something like that, suppose the term insur- ance did not extend over the three months — 1 know there is no such exact case possible after the payment of three annual pre- miums, but suppose it allowed tlu' insured loss than three 74 montlis of extended insurance, the term would then expire and still he would have a right to go to the Company, after his term insurance, and get a paid-up policy. It seems to me, Mr. Commissioner, that your error in con- struing this section of the Code is due to the fact that you do not give the disjunctive construction to this clause, but you would compel the Company to put in both alternatives, and then give to the insured the option. That is not a proper construc- tion of the statute, it seems to me. This section treats of the obligation of the Company, and it is a disjunctive one in its ap- plication. The Company has to do either one of the two things, give automatic extended term insurance, or, upon demand of the insurec!, give paid-up insurance. THE CO]Vrj\ITSSIOXER. On the other hand, your idea is that, if the policy provided for extended term insurance, the insured would not he entitled to come in and demand a paid-up policy at all? MI?. THO^IAS. Precisely. All these policies give, on de- mand, paid-up insurance (and I think you will iind very few of them give the extended term), and every Insurance Agent will tell you that paid-up insurance is a great deal better for the in- sured than extended term insurance. Am I correct? MR. HA WES. There is no doubt about it. MR. KELI.,OGG. Xo policy giving extended term insurance is issued. MR. THO:\IAS. It is a great deal better for the insured. There is nothing wo would like better tliiiti a ruling from this office that we should not issue a policy for paid-up insurance upon forfeiture, hut that we all had to give extended term insur- ance. We would make a fortune out of it. The first alternative that the insured has upon non-payment after three annual pre- miums have been paid, is a class of insurance that has no here- after at all. There never was any legislalion that gave anything after the expiration of the terin, in the wliolc history of Insur- ance. It is for that reason that the intention of the Legislature, as expressed here, must have been that the covenant of the Insur- ance Company .should be alternative; that ilic insured should, he either given automatic extended term insurance, or, upon de- mand, paid-up insurance. (O Judifc Kliodes sufjgests to me, and I think his .sufrgestion h.is a great deal of force, that it is not possible that the Legislature of this State could have provided for a form of policy that no Company would ever issue. There is not a person anywhere in the world who can to-day go to any decent Insurance Company and get a jjolioy of insurance containing three forms of insur- ance, OT" providing for three forms of insurance: original insur- ance, extended term insurance, and, after the textended terni insurance and during this period of three months, or six months, paid-up insurance. Is that a correct statement of your sugges- tion, Judge Ehodes? MR. RHODES. It is correct, with a little dilTerence. It w:Ti rever contemplated by the Legislature in passing this Act, as I contend, that the insured should, after the lapse in the payment of premiums, three annual premiums having been paid, have a different kind of insurance than the Company itself could have originally is^-iued t(t him. I undertake to say that no Company ever did issue a policy of insurance containing both of the alteni- ativcs upon which you now seem to insist, Mr. Commissione'r. THE COMMISSIONER. The alternative of extended insur- ance would be just exactly what you had originally contracted for, MR. THOJIAS. If after paying the annual premium for three years, I fail to pay the premium, the Legislature simply says, "We will take the reserve on the policy, and, without any action, having that understanding, we will carry the policy ^e long as the reserve will ]ierniit it.'' In other words, as long hp the reserve will pay the premiums, the policy will be carried. Of course, whether it is better for the Company or the insured,. det- pends on when lie dies. If he dies before the end of the exte??- sion term, of course it is better for him to have it extended. If he dies afterwards, the paid-up insurance is better. MR. WH EELER. Where has the insured given any value iqv the extended term insurance when he takes out ptdd-un in-ni- ancer M]{. THOMAS. He has not paid anything for the extended teiTO insurance. MR. WPIEELER. When the forfeiture takes place, for the next six months the insured is getting term insurance without consideration. : 70 ]\IH. THOMAS. It is six months in New York, but only thiee in Calif oraia. The Legislature of the State of California is merely saying to the people of the State that if they do any- thing with Insurance Companies, after three annual premiums Are paid, if they then lapse, they have a credit of three months, and if yon die within that time, you will get the face of your policy. M\<. WHEELEE. It is saying, "You will have three months' insurance for nothing," estimated upon a basis which has never entered into the calculations of Life Insurance Companies. THE C0]\IMI8SI0NEE. That is not true, because the re- serve is always sufficient to pay the premium during that time. MR. WHEELEE. But the reserve pays for the paid-up in- surance. THE COMMISSIONEE. And it pays your premium in the meantime. ]\1H. WHEELEE. But the trouble is, it buys the paid-up policy for a certain fixed time. ME. THOMAS. According to your construction, Mr. Com- missioner, if you put both forms into the policy, you get your extended term insurance for nothing. ME. WHEELEE. The point is, of course, that that is an argument strongly in favor of Mr. Thomas's construction of the statute. ]\1E. THOMAS. It seems to me plain that the Legislature Jiever meant to give to the insured both alternatives, when there is only one amount to pay for both things, namely, the reserve, which is just enough to pay for one. If both provisions are in the policy, the insured gambles upon it, and says to himself that he will get his insurance anyway, and so he waits until the end of the three months, in the meantime having been insured by automatic extended term insurance, and at the end of that time he gets his paid-up policy. And he does not pay a cent for the extended term in.«urance, because the net reserve is a fixed amount, and at the end of the three months he demands a paid- up j.'iilicy for the amount which that reserve will purchase. I aflirni again that it couikl lud have been the intention of l:he Legir^lature that Insurance Companies should have insurance outstanding for three months after forfeiture and get nothing for it at all. 77 Ml>. lUIODlvS. And it has beoorne absoluto in that thrfc months. ]\1I{. HANKIN. Do the New York policies j)roviflo for hr* automatic issuance of paid-up policies? 'Mil. THOMAS. 'No, not automatic paid-up insurance, hut paid-up insurance on demand. ]\!H. IJANKIN. What is the automatic clause in your con- tract? MK. TH0]\1A.S. We have not any, because we do not issue automatic term insurance at all. But with every policy that we issne we have a provision for paid-up insurance in exactly the form provided for by this statute, or a little bettex form. MH. RANKIX. At the request of the insured ? MR. THOMAS. Yes, which is the same as is provided for here. That is, no automatic paid-up insurance is provided for in our statute. Let me read from Section 450 of the Civil Code: *'0r upon the written application by any owner of such policy, and the surrender thereof to snch Company within three months from such noii-jjayment of ])remium, to the purchase of a non- participatin.i]^ paid-up policy, payable at the time the original policy would be })ayable if continued in force." The statute clearly does not })rovide for automatic paid-up insurance. ^l\{. RANKIN. 1 so understand, but docs it provide for automatic extended insurance? THE COMJIISSIONEH. It does, provided the Company elects to take that view of it, is Mr. Thoanas' argument. MR. TIIOilAS. That is our contention. There was a pro- vision in the first policies that if throe anniuil premiums had been paid, upon failure to pay a preniium. the policy should be carried in force (ov such time as the surplus would pay the pre- miums — IIU. "\VTTKELK]^ I observe that the statute emphasizes what you .cay, .Mr. Thomas. Jt says: ''Unless specifically contracted l>etwcei\ the insurer and the insured for tomtine insurjuuv. or for otlur icini or jiai(l-u[) insurance." If it meant what the Commissioner holds it tmnnis. it would say, "or for other term and paid-U]i insurance." THE CO:\i:\IISSIOXKIJ. That is merely a limitation of the wordts oivcn b.'fore. whvn I hi' Legislature in it.-^elf conteni- pla.ted iha^t evi'rv policv should have that in. 78 A!l\. RAXKJX. If Counsel vriW permit me. let us see if we can 2:et the Commissioner's idea of the meaning of the term "paid-up insurance." ME. KELLOGG. I shall have to leave for the afternoon, Mr. Commissioner. I presume T may have leave to submit in writing whatever T may desire to say upon the subject, in case I have no opportunity to address the Commissioner orally upon the subject. THE cbMi\riSSIONER. Certainly. ME. EANKIX. If we can get your idea about the meaning of the term "paid-up insurance," Mr. Commissioner, it may simplify this argument to some extent, because then we will know at what point to direct our artillery. Do you claim that paid-up insurance here means a policy which is originally a fully paid-up policy? THE COMMISSIONEE. Yes. I understand that a paid-up policy is where the insured pays the premium all at once, as there expressed. In other words, the insured may take out a policy for $10,000, and pay the premium upon it all at once. ME. EANKIX. The testimony here this morning all shows the other way. does it not? THE COMMISSIONEE. I am not going to get into a dis- cussion upon that. I will find upon the point when I come to it. I am simply giving you my idea fairly now. ME. McCIITCHEN. A policy which provides for the issu- ance of a paid-up policy upon the happening of certain contin- gencies is not i)aid-up insurance within the meaning of your con- struction, then, Mr. Commissioner? THE CO:\IMISSIONEE. No, not as I view it now. Of course I .=hall consider the testimony in connection with the works of actuaries, which T shall myself refer to. I understand a paid-up policy to be a policy upon which the premiums are all paid. The very nature of the term "paid-up policy" indicates that there is nothing more to be paid upon it. >o far as premiums are concerned. My idea of this Act is simply this: I think the in- tention of the Legislature was to pass a law providing that every contract of insurance that was issued should have the stipulation within it which is sot forth in this Act. I am satisfied that at the time that Act was passed there were some interests opposed to that, and I think among them were some people issuing ton- tine policies, and some issuing term policies, and some issuing 70 paid-up policies. Those people were (Ininj; that husiiK^ss to a large extent. And I think, further, that they went to Sacra- mento and succeeded in having this exception put into the Act, so that under the ttrnis of this law as it was finally passed, persons engaged in issuing tontine insurance, term insur- ance, and paid-up insurance, were not within the statute as to such ])olicies, and the stipulation did not have to be inserted in them. I also think it was the intention of the Legislature to give something to every person who took out a life jiolicy. If this stipulation is put in the policies, except those in the statute excepted, the option is given to the insured to either carry his original policy as long as the reserve will pay the premium or else to take a paid-up policy at once. If Air. Thomas' reasoning is good, it seems to me that by putting in a provision siueh as he mentions, the option is entirely taken away from the insured. For instance: he puts in a stipula- tion that the insured shall, u])on demand, be entitled to a paid-up policy. We all know, as a matter of fact, that a great many people never read a ))olicy at all. If, under the stipulation as given by AFr. Thomas, the insured makes no demand, then three months after the lapse occurs the policy-holder's rights are en- tirely forfeited; he would not get anything whatever thereafter. In other words, he must make his demand and make a surrender of his policy within three months after the lapse, or he gets nothing. That is assuming the contract to be as Mr. Thomas states it to be now. MR. THO]\IAS. r>ut the insured can have the paid-up in- surance by making application for it. THE COMMISSIONER. lie is limited to that right simply. As at present advised, I do not think that was the intention of the Legislature as shown in ibis Act. Section 1."")^ of the Civil Code. MR. ;N[rNSELT>. You have put a construction upon this law — THE COM.MiSSIOXKK. Mr. Munsell, you have had your opportunity to be heard. The case it: now under argumemt, and I think I shall have to hold to the rule that the attorneys pro- ceed with the argument. It is impossible to have so many at- tempting to address the Commissioner at once. 80 ME. EHODES. Will the Commissioner allow me to make a suggestion? THE COMMISSIOXEE. Certeinly. MR. RHODES. You are looking at the matter from a cer- tain standpoint. If you will he kind enough to look at it from this standpoint, it seems to me that you might come to a different conclusion, to wit, that it was the purpose of the Legislature that there should he no forfeiture of the reserve. H, then, the law is to be construed in such a way that there shall be no forfeiture of the reserve, but that the reserve shall be applied for the benefit of the insured — THE CO.AIMISSIONER. Jiut, Judge, there is a forfeiture of the reserve on the ease that Mr. Thomas gives, because, unless the insured, within three months from the forfeiture, goes to the Company and makes a dem.and, he gets nothing. MR. RH()DP]S. There would be a forfeiture ultimately in that case, 1 presume. MR. RANKIN. Do not the^se New York policies provide that, in the event of forfeiture by the insured after the payment of three annual premiums, the Company shall then issue its paid-up policy for a certain amount? TPIE COMMISSIONER. Only on demand. I am taking the case just as Mr. Thomas puts it. I understand his argument to be that, if they provide in their policies for paid-up insurance, which paid-up insurance is forfeited absolutely if they do not make a demand for it within three months after the time of forfeiture, they are within the statute. I understand him that that is what the statute authorizes. MR. TPIOMAS. And that is exactly what the New York statute authorizes. MR. RIIODKS. r was speaking more in relation to the Massa- chusetts law, which j)rovides a different form to be written into the policy. It is self-acting under the Massachusetts law. THE COMMISSIONER. I think the examination I have made shows that there is a great distinction in the matter be- tween the New England jxilieics and I he New Yoj'k policies. I think there is considerable difference between the New York policies, too. So you do no't all come exactly upon the same plane, even where you come from the same State. i\IIi. THOMAS. We are all interested in this jiroposition. M that if an oriredecessor considered was not a compliance with this sec- tion, and said, "T am not satisfied with that form of policy." To which the Company replied, "Very well. What is your objec- tion?" The Commissioner communicated the objection, and the Agent said, "We will communicate with, the Home Office." The Home Office being communicated with, raised no objection, and the Agent said to the Commissioner, "We have no objection to issuing a form of policy which wnll be satisfactory to you as In- surance Commissioner of California." And thereupon the Com- pany changed the form of the policy to meet the \vishes of the Commissioner, and from that day forward issued a policy which complied with the construction of the Insurance Commissioner. 100 When you eanie into office, you found that the policy which the Company was issuing was in all respects as you considered it should be. i\.re you, on the ground that the Company did at one time issue a policy which you think did not comply with the' statute, going to take from it the license to do business in this State? It seems to me that the only matter with which you axe concerned is: Has this Company complied with my construction of the law of this State ever since I have been in office? I think it would be a violation of your duty to attempt to revoke a license for some omission or oversight that occurred long before you became Commissioner. MR. WHEELEE. For the purposes of the record, and that my position may be more clearly before your Honor, let me state this: The purpose of the Legislature in passing this Act was to pro- hibit Insurance Companies from confiscating the reserve which enters into the consideration of Insurance Men, no matter what the form of the policy issued. Accordingly, the Legislature said: If the Comapny devises another plan whereby it will give some- thing for this reserve, in the event of a lapse, we insist that it shall adopt this plan which we lay down in Section 450 of the Civil Code. While exacting that the Company shall make some return for this xeserve, and shall not confiscate it, we leave the Company itself free either to be more libral than this statute re- quires, where it has made no specific contract, or to be less lib- eral than this contract requires, under specific contract. All we exact is, that there shall be nothing so small given to the insured that it amounts practically to a subterfuge to avoid the statute, and amounts to a confiscation of this reserve. Such I under- stand to be the purpose, the intent, and the efFect of Section 450 of the Civil Code of the State of California. MR. McAllister. I have but a few words to say, Mr. Com- missioner, and I promise that I will not detain you more than three minutes, if I am allowed to conclude to-night. THE COMMISSIONER. Very well. You may proceed. lUl ARGUMENT Ol' KLLIOTT McALLIS'l'KH, K8Q., Attorney for the lloine Life Insurance Company, of New York. MR. McALLISTP'R. I simply desire to call your att<.*ntion, Mr. Commissioner, to that ])ortion of Mr. Donnels' brief which analyzes, as it were, that phrase, "other term or paid-up insur- ance"; and to call your attention fo the grammatical form of the clause of wliach that is a part, and tu its punctuation. It says, " for tontine insurance,"' and then follows a comma and the words "or for other term or paid-up insurance." That word " other" we of course insist has a purpose in that statute. And we insist, further, that it is not the part of any court interpreting a statute to omit a word from it, unless it is there for no purpose whatsoever; unless the court can give it no meaning. And we say ;hat, that word "other" being in the statute, we must find a meaning for it, if possible. It is my contention that it limit* the word "term," that it limits the word "paid-up." What term or paid-up insurance is referred to in that section, other than that stipulated for? That word "other," modifying "term" and "paid-up," cannot refer to tontine, unless tontine is a form of term or paid-up insurance. We have heard the testimony of all these gentlemen that tontine insurance is not a form of t^rm insurance or of paid-up insurance. That word "other" must re- fer, then, not to the words "tontine insurance" that have pre- ceded, but to the "term or paid-up insurance" that is described further on in the sentence, because that word "other" is there with an object. It is to place an alternative between that term insurance that may be specified by the contracting parties, or some other term insurance. Now, what is that other term in- surance? It is specified in this very Section 450 of the Civil Code, and is that term insurance described in the remaining por- tion of the section. And the same reasoning applies to the use of the word "paid-up." An adjournment of the proceedings before the Commissioner was taken at this point until the following day, Tuesday, January 18, 1898, at ten o'clock a. ra. lOi TUESDAY, JANUAEY 18, 1898, 10 A. M. THE CO]\IMISSIONER. We will now proceed with the in- vestigation. I hope to hear from the Counsel present who did not present arguments yesterday. MR. RANKIN. Before proceeding with the argument, Mr. Commissioner, I desii-e to call as a witness Mr. Clarence M. Smith, of the Northwestern Mutual Life Insurance Company. THE COMMISSIONER. Very well. MR. RANKIN. Mr. Smith was unable to be present yester- day, and hence his testimony comes a little out of order. THE COMMISSIONER. I will be glad to hear from Mr. Smith. STATEMENT OF CLARENCE M. SMITH, ESQ., General Agent of the Northwestern Mutual Life Insurance Com- pany. MR. RANKIN. Q. Mr. Smith, how long have you been con- nected with the insurance business? A. About sixteen years. Q. And where have you heen conneoted with that business during that time? A. For the last twelve years, in California; prior to that time, in Wisconsin. Q. With what company are you connected here, and in what eapa;city are you connected with it? A. I am connected with the. Northwestern Mutual Life In- surance Company, of Milwaukee, Wisconsin, and in the capacity of General Agent for California. Q. Has your connection with the insurance business famil- iarized you with the diffeTent kinds and classes of life insurance? A. Yes, sir. Q. Be kind enough to state to the Commissioner what, in your opinion, is the broadest and most general classification of life insurance, and life insurance contracts and policies. A. Originally, life insurance was written as a whole-life pro- position. But the companies found people who did not want lo;; llioir policies to lun always, and who did not want to pay always, and so they settled on making terms for those people. So we divide life insurance primarily into whole-life insurance and term or period insurance. Q. Every policy of insurance which is issued by any com- pany falls within one ot the other of those classes? A. Yes, sir. Q. It is either for the entire life of the individual insured, or for a term of years? A. Yes, sir. Q. In the latter event, being for a certain period during his life? A. Yes, sir. Q. Can. you tell us some of the names of whole-life insurance policies, those w^hich axe generally recognized as whole-life pol- icies? However, I will ^vithdraAv that question for the present, because I want to get the matter in better order. There is an- other division of life insurance, dependent upon the plan of in- surance, is there not? For instance, tontine insurance is a plan of insurance? A. Yes, sir. Q. The time when payments for premiums are made consti- tutes another plan of insurance? A. There are numerous plans of that kind. Q. Numerous plans, but all of those plans eventually resolve themselves into two grand classes, w^hole-life and term insurance? A. Yes, sir. Q. Is tontine insurance a term insurance or a whole-life in- surance? A. Most decidedly a term insurance. Q. Every policy which is written as a tontine policy is for a term of years? A. Yes, sir. Q. And not for a whole life? A. No, sir. MR. THOMAS. "Mr. Rankin, that is directly opposed to all of the testimony which has heretofore been given here before the Commissioner. Your defense will be upon different 104 gTouuds from the defense of the rest of the companies repre- sented here, if that is the position you take. THE COMMISSIONER. We have heard all the testimony that has been given, and I think I imderstand it perfectly. THE WITNESS. I was nnfortnnate in no-t being here yes- terday, and in not hearing the testimony of the other gentlemen. ME. EANKIN. Q. Will you explain to the Commissioner why a tontine policy is always a term policy? A. It hardly seems to need explanation. The tontine prin- ciple fixes a tenn, at the end of which certain settlements may be had. It may become a feature of any form of any participat- ing policy that we write. For instance, a policy may be issued for a ten-year term, or for a fifteen-year term, or for a twenty- year term, and prior to the expiration of that term no complete settlement can be had on the policy. Should death occur before the end of the tontine term, the face of the policy only is paid, no accounting being made of dividend aocumulations on the policy, because it has not reached its term or period of settle- ment. Q. Originally tontine insurance was written for a term of years, the benefit of an accumulation or reserve going to the sur- vivor, was it not? A. Originally the entire reserve went to the survivor. Q. It was a gamble on who should live the longest of the number of persons contributing to the tontine fund? A. Yes, sir. Q. Then it became a gamble among a number of persons, cov- ering a definite period? A. Yes, sir. Q. A definite number of years, as, for instanoe, those who should survive ten years would participate in the tontine distri- bution for that ten year period. Is that correct? A. Yes, sir. Q. Other policies were on a fifteen-year term, and others still on a twenty-year term, and in each case all who continued their payments and survived the particular period named, participated in the distribution. A. That is correct. THE COMMISSIONER. Q. When you say it is term insur- 105 ance, yon mean now not the original; the original tontine insur- ance was not term insurance at all? A. Oh, yes; it was tenn insurance. ^m. RANKIN. Q. It always was, was it? A. It always was term insurance, yes. The only difference between what was known as original tontine and free tontine or semi-tontine insurance, or other names that we use, is simply how much we distribute. At the end of the tenn, we make the distribution. Q. That is to say, it does not run for the whole life, or until the death, of any individual? A. That is correct. Q. \\'hole life insurance always runs until the death of the insured, while all other kinds of insurance run for definite peri- ods during the life of the insured? A. Yes, sir. THE COMMISSIONER. (). Then, Mr. Smith, when the Legislature uses the«e words in Section -150 of the Civil Code, " unless specifically contracted between the insurer and the in- sured for tontine insurance, or for other term or paid-up insur- ance," you understand tontine insurance to be one form of term insurance, while paid-up insurance is another form? A. Yes, sir. Tontine insurance is one form of term insur- ance, and paid-up insurance is another form of insurance, but it is not term insurance. ]\IR. RANKIN. Q. And that must have been the view wliich the persons who passed this laAv had? A. They could not have had any other view and used the ex- pression "or other term insurance" there. Q. Mr. Smith, I wish you would be kind enough to inform the Commissioner something about the various kinds of term insurance, exclusive of original and pure tontine insurance. A. Well, we have eiidowment insurance, which is a term insurance. Q. Be kind enough to explain what the provisions of a term endowment policy are. A. The ])rovi.^ions are that it shall be settled at a definite period specified in the contract. Payments may be made for ten years, or fifteen years, or twenty yeare. We start in with a ten- 106 year endowment term, or a fifteen-year endoAvment term, or a twenty-year endowment term, and even run up to a forty-yeai endowment term, but the payments may be made for ten years, or fifteen years, or twenty years, or run thTougb the term. Q. In' a term endowment policy, is it always the expectation of the inisnrer that the insured shall outlive the term? A. Quite the contrary. Q. "What is the expectation? A. Will yon please repeat that question? I think I misunder- stood it. Q. Is it n-ot a fact that it is the antfcipation or expectation of the insurance company, in all term insurance, that the in- sured shall outlive the term, according to the mortality tables? A. Yes, sir. In a great measure, everything is based an the idea tliat he will outlive the term. Q. That is, term insurance is based upon the expectation that the insured shall live out the term, while whole life insurance is naturally based upon the expectation that the insured shall die before the insurance accrues. A. Yes, sir. Q. I desire to hand you one of the policies issued by your company, in which it is designated that this policy is issued on the semi-tontine plan, and its tontine period is (blank) years. State whether or not that is a term policy, or a whole life policy? A. It is a term policy; it is never issued except for a definite term. Q. Tiiat is one of the forms of insuraniee which your company has used? A. Yes, sir. Q. State to the Commissioner, by an examination of the pol- icy, if you care to cxaminie it, what options are given by that policy to the insu'red. A. We specify In the first place tlial the term shall be ten, or fifteen, or twenty years, whichever is selected at the time the application is made. At the end of the term of the contract, then, we offer the insured several options: first, to withdraw in cash the acciimulated surplus proportioned by the company to its policies. I will make my explanation a little more brief than the wording here. The second is to convert that surplus into an annuity, whic-h shall be paid to the insured. If it were 107 an ordinary life policy, then, cooivei-'tcd into an ordinary life, and continued on that basis, the surplus would assist him in paying his future premiums. If it wore a policy on which the premi- ums had ceased with the term of the tontine policy, it would be- come an annuity to him for life. That is the second option. THE COMMISSIONEE. Q. That looks to the end of the term, does it? A. Yes, sir. Thirdly, the surplus could be used for the pur- pose of purchasing a paid-up addition to the policy. MK. RANKIN. Q. Will you please explain what you mean by ''addition to the policy"? A. If the policy were for one thousand dollars, and the sur- plus at the end of the period had accumulated to three hundred dollars, the company would let the insured, provided he was in good health, add as much to the policy as the three hundred dollars would puirchase in a single premium. We offer a fourth option, viz.: cash; that is, the insured may have the eaitire re- serve under the policy, together with the surplus which may have accumulated from dividends. Q. He may have that paid to him in cash, you mean? A. We would pay that amount in cash, yes. Fifthly, instead of drawing his cash down in one sum, he could talce such insur- ance as the entire cash would purchase at a single payment. Q. In addition to those options, which are given to the in- sured at the expiration of the tontine insurance period, is that otherwise a non-forfei table policy? Turn to the first page of the policy and examine that. A. Yes, sir. Q. What is the provision with reference to its non-forfeitable character? A. If the insured shall have made three or more annual pay- ments, he shall be entitled to such paid-up insurance as the re- serve on the policy will purchase as a single payment. Q. That is provided a^ his right absolutely in the policy, and in addition to that, if he pays during the whole tontine period, he is then! entitled to the exercise of any of the five options which you have specified ? A. Yes, sir. Q. Can you state, as an expert on the subject of iii.^uranoe, whether those options are more favorable to the insurrd than 108 those \vhicli arc provided by Section 450 of the Civil Code of California? A. I judge they are, yes, as I understand the Code. Q. That is, it gives him all those rights — THE COMMISSIONER. I do not think it is necessary to go into that, Mr. Rankin. Mr. Smith's opinion in the matter is not important. MR. RANKIN. 1 do not know about that, Mr. Commissioner. The witness is an expert insurance man. THE COMMISSIONER. But he is not an expert in passing on this law. I am sorry that I cannot recognize him to that ex- tent. You are asking liim now as to the law of the matter. I do not know whether that would make any difference, whether it was more favorable or not. I do not think it is fair to go through that with Mr. Smith. MR. RANKIN. I assume, of course, that what you want to do is, not to forfeit the right of insurance companies to transact business here, if the insurance companies complied with the law aind more, too. TITl'. COMMISSIONER. No, but I do not care to have Mr. Smith pass on this policy. If that is going to be done, we had ■better call all the gentlemen who have given testimony here back, J\IR. RAXKTN. If they choose to give such testimony, it might be well. 1 understand this is a record which we may have tfl use. , TllK COMMISSIONER. It makes no difference m that re- gard whether this is a record or not. So long as the examina- tions are before mo. I want only wliat is proper Ijrought out, and I do not think that is proper. ^J'hat would not cut any figure with me as Commissioner. T do not think there is any neoessity for cumbering the record. 1 have here in the ofifice the policies of every company doing business in the State. They can be made parts of the record without proceeding in that way. MJi. RANKIN. Mr. Commissioner, with all due deference to you, the question which occurred to me, and which brought this specific line of questioning on policies, was this: that this record ought to show the policies upon which you pass. THE COMMISSIONER. I will let every policy of Mr. .Smith's be considered as in the record, and will consider it in making Uj) my iiiind, as 1 intend to consirlpr nil tlie policies of the various compaTiies, as I have before stated. Q. 1 understand lliat the jwlicies you have handed me in response to my request, Mr. Smith, cover all the policies issued by your company in this State? A. Yes, sir. (). x4nd you have issu-ed all of these policies in California? A. I cannot say that we have, because there are many forms thai, while we do issue them occasionally, are very little used. THE COMMISSIONER. I suppose there had better be an ad- mission on the part of each of the companies represented here that they have used all of the various policies presented by them respectively to me, within this State. iMK. McCUlX'IIEN. 1 cannot admit that as far as one of the companies I represent is concerned, the New York Life. They have sent mo out something over a hundred forms that have been in use by them since the first of July, 1880. In other words, this bundle includes a copy of every form of policy which the company has issued anywhere. Whether they have all been issued in California, or not, I do not know. TIll^: COMMISSIONER. If that is the case, that puts me to the necessity of issuing subpoenas to the companies to bring their books here. MR. McCUTCHEN. I do not think you will find that neces- sary. The statement I make to you is, that this bundle of poli- cies includes every form employed by the comiwny in its business anywhere since July. 1880, and I claim that there is not a policy in tiiat l)undle which does not com]>ly with Section I.")'! of the Civil C'ode of California. THE COMMISSIONER. By reading Section 150 of the Civil Code, you Avill find that, in order to forfeit the license of a company, I must find that that company has issued policies con- trary to the statute. It says: "Every contract or jjolicy of in- sula n.ce hereafter made by any person or corporation organized under the laws of this State, or under those of any other Sta^e or country, with ami ujwn the life of a resident of this State, and delivered within the State." It is necessary. I suppose, to find out ju.>t what policies have been issued by your company in the State. Some time ago I sent to each of the companies doing business in this State for a list of the policies issued by tJiem in 110 this Staite. I understood that it would ineonvenierice them very much to bring their books here, and so I waived that. At the same time, mnless the counsel for the several companies will agree that the diflPerent companies have used the forms of policies which they have handed to me, within the State of California, I shall have to^ ask the companies to furnish me with the poli- cies which have been used in this State since the year 1880. MR. McCUTCHEN. I thi-nk I can make that admission on the part of the companies I represent. ME. THOMAS. I think I can make that admission for the compajiies I represent. MR. McCUTCHEN. My theory about it was this, that it would not entail amy additional labor upon you, as we thought you would find that all the policies in that bundle contained the same generail provision in i-elation to paid-up insurance. THE COMMISSIONEE. Of course I do n'ot know what I am going to find as the fact m this matter, but it would be absuxd for me to undertake an inquiry of this kind if I did not find out what kind of policies the various companies have issued and de- livered in' the State. As I have said before, I sent to all of the companies for a. complete list of all policies used in the State since 1880, and the result was that these different bundles were given to me. I assumed and now assume from that that the at- torneys will admit that they have delivered policies of these var- ious kinds to policy-holders in the State of California, without specifying the particular persons to whom the various policies have been issued. MR. McCUTCHEN. I think that, so far as the two companies I represent are concerned, I am Avilling to admit that the general features of these policies which you find in the bundle handed you, have been employed in policies in this State. THE COMMISSIONER. I do not want any of you gentlemen to think from that that there is any intimation of how I feel upon the subject. I simply want to make the record straight with reference to what I take to be the admission of the counsel pres- ent. MR. THOMAS. I Ivave no doubt tliat onr companies have is- sued every form that has been handed you, Mr. Commissioner — about ninety in number. Ill MR. EANKIN. I do not think that is correct with reference to the Xortluvestcrn Mutual. Q. Is it, Mr. Smith? That is to say, do you know what pol- icies were sent to the Commissioner hy the Company? A. Yes, sir; I could determine that. We will admit that we have issued all of the forms of policies that were sent to the Com- missioner. We should have done so, if call had heen made for them; if we have not, we will admit that we have done so. THE rO:MMISSIONEl?. If even one policy of any particu- lar kind were issued, that would be the same as if a hundred or a thousand had been issued. MR. RANKIX. I do not know exactly what the provisions of all these various policies of the Northwestern Mutual are. TIIE rOMillSSIONER. The various policies are all alx)ut the same. MR. LAXDERS. The policies sent out by tlie Manhattan Life Insurance Company were accompanied by a letter of which I hiave furni'shed yon a co])y, !Mr. Commissioner, and which I have read to the gentlemen present, stating that they were the forms of policy generally in use in California. THE COMMISSIONER. All T want is an admission that the various po'licies sent to me by the different Companies, in response to my request for such as has been used in California, have been used in California. Is that understood to be correct as far as you\r Company is concerned, Judge Rhodes? MR. RHODES. Yes. MR. RAXKIX. Mr. Smith, I ask you again: Does this Com- pany, the X'orthwestern Mutual, issue in this State, or has it siiu-e you have been connected with it, any whole life policy which does not contain a clause exempting it from forfeiture? A. Xo. sir. Q. None at all? A. Xo. sir. Q. What, in general terms, are those clauses? THE CO:\IMlSSIONER. Just a moment. Let me ask Mr. Smith a question. Q. I understand, Mr. Smith, that all the policies which your Company have issued in this State are contained in this bundle? A. Yes, sir. 112 Q. And what the clauses are can he determined from the clauses themselves? A. Yes, sir. MR. RANKIN. I was going to have Mr. Smith sipecify those policies which have been issued by him since he has been Agent here. THE COMMISSIONER. I thought that was settled. For Mr. Smith to say that he has complied with Section 450 of the Civil Code would not be anything that I should consider. MR. THOMAS. Brother Rankin, you would not want to have ]\lr. Smith's oral statement as to what actually appears in the evidence which you have produced in writing, would you? MR. RANKIN. Of course, if I knew just what these various policies contained, I could tell better as to these matters. THE COM]\[ISSIONER. The head Counsel of the North- western Mutual Life Insurance Company sent me a letter, which is a part of the records of the ofRce, accompanying which he sent a bundle of policies which he wishes to use as evidence before me. I have admitted those, and they will be considered. For Mr. Smith to tell what the policies contained, I do not think is right. MR. RANKIN. If Mr. Smith, as Agent of the Company, is willing to state now that all of the policies, copies of which have been given to you, Mr. Commissioner, have been issued in this State, that exempts me from any further responsibility as At- torney of the Company. THE COMMISSIONER. That is the fact, is it not, Mr. Smith? MR. THOMAS. He sai^d that he thought that would be so, and he would admit it for the sake of the argument. THE COMMISSIONER. If that is not so, the Attorney for the Company has not delivered to me the proper policies. THE WITNESS. If we have not issued them all, we could have done so. V\'v are not ])r{)hibited frdiu issuing any one of these policies. THE COMMISSIONER. The only way you could deter- mine, if there is any doubt about it, is to take your policy books and go over all the policies. THE WITNESS. I could run right through the hooks and determine that. MR. lillOl^l'iS. Q. 1 iinderstaiKl that your admiseion up to this point is, that you have issued them. Perhajis you said "for the sake of the argiunent." I'.ut I understood you to admit that you liad issued policies in every one of these forms wliich have been furnished to the Commissioner. A. 1 would not want to have that a part of my evidence, that I had said we had used them all. I meant to say, and think I did say, that for the sake of the argument it might be conceded that we had used them all. T"iIE COMMISSIONER. Q. That will not do. It must not be for the sake of argument, but for the purposes of this case. A. I would not admit that we have issued them all. THE COMMISSIONER. Then, Mr. Smith, I am afraid I will have to subpena you to bring your books here. Under the Code, I ask you to bring your books here which will show the tact in that regard. A. Would ii not simplify matters, Mr. Commissioner, if you find that certain ones axe among the number that do not comply with the statute, to make mc testify as to having issued them? THE COMMISSIONER. I understand, Mr. Smith, that you are testif3ang in this case. I want to know whether or not the policies which have been handed me are the ones which have been issued by your Conipamy in the State. "Whether they comply with Section 450 of the Civil Code, or not, is another question. I want to get the record in proper shape. It makes no difference with regard to any of these forms of uolicy whether you have issued a hundred policies or fifty policies, or only one policy of that form. MR. RANKIN. Let us pass that inqurrv' for the present. Mr. Commissioner, until I have a chance to consult with Mr. Smith. I will ask Mr. Smith some further questions. Q. Mr. Smith, I asked you a little while ago to specify, as near as you can now from memory, the various kinds of full life policies. A. Any policy that is not a term policy is a whole life policy. Q. I will (:^c\ at the inquiry by asking you more specifically. Is there a whole life policy extant called an "ordinary life polio/'? A. Yes. sir. lU Q. What is that? A. That is a policy on which the premiums are paid as long as the man lives, and at his death we pay his estate or his bene- ficiary named in the policy tlie amount specified in the policy, Q. Is there a level premium paid upon that policy through- out the life of the man? A. It has the same gross premium amnually, but it may be decreased by the application of the savings of the Company in dividends. Q. Is there a policy which is known as a "progressive pay- ment life policy"? Let me explain what I mean. I mean a policy in wliich the premium increases as the man grows older, at stated times? A. Ten year renewable term life would answer that descrip- tion. We have a ten-year term life and a ten-year renewable life. That is term insurance. Q. Is the ten-year renewable term life a term insurance also? A. Yes, sir. Q. That is not a whole life insurance? A. No, sir — not at the specific rate. It may become a whole life policy, if the man is willing to pay the advanced rate of pre- mium at the end of the term. Q. But it runs from the first year to the tenth and then ex- pires unless he wants to renew it? A. He can renew it upon the renewable term without a medical examination, but it expires if he does not renew it. Q. So it is really a term policy for ten years? A. Yes, sir; with a right to exercise the option of renewal. Q. Is there such a policy known as a "yearly renewable ])olicy"? A. Yes, sir; but we do not issue it. Q. That is a term policy, is it not? A. Yes, sir; that would be an annual term policy. Q. Then the term "whole life policy" generally applies to what is called "ordinary life insurance," does it? A. Yes, sir. Q. Ordinary life? A. Yes, sir; and the ordinary life, you know, may be paid in terms — it may have a ten-year term; it may be paid in ten pay- ments, or in fifteen payments, or in twenty payments, and still it 115 is a whole life policy, becomes the settlement comes only at death. THE COMMISSIONEK. Q. Mr. Smith, what policies, or what forms of insurance are there known to the law, that would not come within this exception, "tontine insurance, or other term or paid-up insurance"? What forms of insurance are there known to insurance men that would not come within those terins? A. Annual distribution policies would not come within that term. Q. A whole life policy? A. A whole life policy with annual distribution would not come within that term. Q. What is an annual distribntion policy? A. One upon which dividends are paid annually. Q. A whole life without the dividends paid annually would not be term insurance, paid-up insurance, or tontine insurance? A. No, sir. A non-participating policy would not be a term policy, or tontine policy, or paid-up policy. MR. RANKIN. Q. Are there any others? A. None that I think of. Q. An ordinary life would not be included within those classes? A. A non-participating policy, or any form of participating policy, including ordinary life, would not come under the head of "term policy," unless in case of the participating policy it were "tontined" or given a tontine term of settlement. Q. In other words, nothing but an ordinary life policy would be exempted from that? A. That is it. Q. But an ordinary life ix)licy might be a participating policy, or one in -which the parties were entitled to yearly divi- dends to be applied on their premiums? A. Yes, sir. Q. On the various forms of whole life policies; but it would have to be a whole life policy? A. Yes, sir. THE COMMISSIONER. Q. Then, Mr. Smith, the only forms of insurance known to Insurance men are whole life, term, IIG paid-up, and tontine, and tontine insurance is one form of term insurance? A. By the reading of that law, the only forms that are — Q. (Interrupting.) Do not misunderstand me. I want to get at all the forms of insurance known throughout the insur- ance world, and not with reference to the statute. I understand you to say that the only form of insu'rance that does not come within the exception in this statute is "whole life insurance"? A. Yes, sir. Q. Then ii uiusl necessarily be that the only forms of insur- ance known to the insurance world and to actuaries are whole life, •tontine, term, and paid-up. Is tliat so? A. You make a distinction between tontine and term. Q. If tontine insurance is term insurance, then of course it is just the same, and that would be eliminated? A. Yes, sir. Those are the two divisions of life insurance — it is settled at death, or it is settled at the end of a term. ME. EANKIN. And paid-up insurance may be either for a term or for life, may it not? A. Yes, sir. Q. So a paid-up policy is not necessarily a classification of policies at all, but simply depends upon the amount of the pre- mium and the length of the term for which it is paid? A. Yes, sir. MR. RHODES. Q. Mr. Smith, suppose I should go into youT office and say to you, "I want a term policy for ten thou- sand dollars for ten years." Would you send your young man out to get a tontine blank? A. No, sir. The difficulty in your asking for that insurance is your lack of knowledge of the business. You would be sur- prised at the requests we have for insurance, and how little they mean to us until we analyze them and talk with the men, and find out what their ideas are. With the request as you give it, you might mean a tontine policy, or you might mean a ten- year renewable policy, or you might mean a ten-payment life policy. Q. Very well. Suppose a gentleman comes into your office, and you were talking with him, and he should say to you, being an insurance agent, "I have issued ten term policies during the 117 last week." Would you inquire (jf hiin how many of those policies were too tine policies? A. Would I ask him? il Yes. A. No, sir. Q. You would not undcTstaod him to mean tontin« policies at all, would you? A. In Insurance circles we have our distinctions between policies, and our names for the different policies. If he were to say he had issued ten term policies, that would not signify anything. You put it in such a shape that it would signify nothing. If I am talking with Mr. Landers, and he tells me he has written so much insurance, I know what he is talking about. But when the legislators legislate, as they have done here, the language is perfectly clear as to what the thing meant, and what they were legislating for. In this section of the Code they except tontine or other term or paid-up insurance. Q. Certainly a great many men who draw statutes are not competent men. What 1 was trying to get at in my questions to you was the meaning of the term. It may be that he Commis- sioner will hold that in an Act of the Legislature, where terms of trade or art are used, they are used in the sense in which they are understood and defined in that art or trade. In this case it is proper, then, for me to ask you whether or not the gentleman who said that his Company had written ten term policies during the week would convey to you the meaning that he had issued tontine policies — that among those ten he included a single case of tontine insurance? A, I would not necessarily understand that, no, sir. Q. Then when you use the expression ''term insurance" among Insurance men, it has a meaning which does not include tontine insurance, and which does not inchide endowment insur- ance, or anything else of that kind? A. No, sir; that is not true. Q. What would the words "term insurance" include if you were talking wuth an insurance man in relation to the insurance business? A. It would depend altogether upon how technical we were in the matter. Q. What would be the ordinary signification of the term? 118 A. 1 1 might mean a great nuuiy tilings. Q. Not ''might" — that is not what I want. When you speak of a term policy and a full paid policy, they are different things in insurance, are they not? A. Yes, sir. Q. But the term policy is fully paid? A. Not in the beginniiig. It is fully settled at the end of tlie term, yes. Q. I am getting at the meaning of these terms as they are used among Insurance men. If yoii want to talk with an Insur- ance man about tontine insurance, you would say tontine insur- ance, and not begin talking with him about term insurance, would you? A. We would shorten our conversation very much by put- ting in tlu' full tvarae. But if 1 am talking to a man about a ton- tine policy, 1 am talking to liim about a term policy. Q. I am asking for words, not meaning. The words you would use would be "term policy'" and not "tontine policy," would they not? A. What is your question? Q. The term you would use, in speaking to insurance friend about insurance matters Avould be "term policy" if you wanted to talk about a term policy. You would not use the term "ton- ti'ne policy," and vice versa? ' A. 1 might designate it for the moment as a tontine policy, but before I had got through explaining about it, I would tell him that it was a term policy and had a definite term of ten years, or fifteen years, or twenty years. I might designate or shorten it, as we do in speaking of our Companies, for instance. A man combes to me and asks what Company I represent. If he is an Insurance man, I would say, "The Northwestern." If I were talking to you, I would say, "The Northwestern Mutual Life In- surance Company." If I met a man ordinarily down on the street, and in answer to his question told him that I represented the Northwestern, his question being with reference to my busi- ness, he would not know what I meant, whether it was the Northwestern Railroad, or the Northwestern Fire Insurance (.'ompany, or what. Q. I am trying to get from you the meaning of those terms as they are used among Insurance men. Il!t A. In so speaking, we shorten it down; we do not make it specific. For instance, we talk about a renewable term. ^Pliat is, to desiignate a particular policy that we write. We talk about a tontine with a ten-year term, or with a fifteen-year term, or with a twenty-year term. Or, we talk about a policy with a twettty-year distribution period. That is a tenn policy, of course. MJ{. McCUTCHEN. Q. Have you examined the works written by actuaries on life insurance? A. I have. Q. Do you know any actuary who defines tontine insurance as term insuTance, or who says that tontine insurance is term insurance? A. I don't know that I know of any actuary who has said so, but any actuary would say so. Q. Do you know any actuary who has defined term insurance as other than insurance for a specified terra, the contract being to y)ay the insurance in tlie event that insured dies within that specified time? A. That applies to tontine insurance as well as to any other — if we guarantee to pay the insurance if it falls due ^\^thin the term. i}. Do you understand that to be tontine insurance — that if a man dies within the tontine period, he is to be paid? A. His estate is to be piiid the face of the policy, yes. sir. Q. On a tontine policy? A. On a tontine policy, yes, six. Q. What was tontine insurance a.= first known to the insur- ance world? A. Tontine is not a plan of insurance at all. It is only a method of distributing the surplus or di\ndends. Q. What was tontine insurance as originally understood? A. Tontine insurance was originated for the purpose of mak- ing pohcics settled at a given period, and to give the survicors at the end of that period benefit of the dividend accumulations during the period from deaths and lapses. Q. How did the man who died before the expiration of that period benefit by that method, as you call it? A. His estate benefited by it. Q. To what extent? 120 A. To the extent of the face of the policy. Q. He did not have any interest in the reserve or accumula- tions? A. No, sir; his estate had no interest in it. ■Q, Do you know any form of policy which provides that, in the event that the insured shall not die within a certain specified time, he shall not receive anything from the Company? A. Yes, sir. Q. What do you call that? A. That is the simplest form of term insurance. Q. Is not that the only term policy known to insurance writers? A. I have said several times it is not. Q. Will you tell us any one author who gives any other defi- nition of "term insurance" than that? A. Any autho-r who explains the semi-tontine or tontine methods of insurance. Q. For instance? A. I cannot just now recall. I try to read all that comes out on insurance, but I cannot recall at this particular time any author that has specifically said that this is a term policy. But a knowledge of life insurance teaches that it is a term policy when it runs for a given number of years. It certainly is not a whole life policy. It is for a definite term. Q. Your information as to a terra policy, then, leads you to say that it is a policy upon which premiums are to be paid for a certain number of years? A. Yes, sir; for a certain number of years designated, and then a settlement is had at the end of the given term. Q. Take a policy which is issued upon the life of a man, to be paid in the event that he dies within a given period, and he does not die within that period. What settlement is made with him at the end of the period? A. There is no settlement made with him in that case. Q. There is no settlement made? A. No, sir. ME. RANKIN. Q. That is the end of the policy? A. That is the end of the policy. MR. McCUTCHEN. Mr. Smith, you were not present at the session yesterday? 121 A. No, sir. Q. Are you aware of the fact thai every Agent here present gave a definition of the terms different from the definition you have given? THE COMMISSIONER. Mr. McCutchen, 1 do not think that ie right. I do not want any such testimony. MR. McCUTCHEN. I simply want to present the fact to Mr. Smith's mind. THE COMMISSIONER. Mr. Smith is a perfectly compe- tent Insurance main, and I do not think it would make any differ- ence whatever in his testimony. MR. RANKIN. It does not make any difference, Mr. Com- missioner. I was here, and I know what the testimony was. THE COMIMISSIONER. It is not a fair question. I know what the other witnesses have testified to, and I know what Mr. Smith has testified to. MR. McCUTCHEN. I thought it might change his opinion if he knew that all the other gentlemen differed from him in opinion. THE (COMMISSIONER. I do not want his opinion shaken in that way. MR. McCUTCHEN. I bow to the judgment of the Commis- sioner, but I must say T do not see any impropriety or error of judgment in the question. THE COMMISSIONER. I think it is unfair to endeavor to shake a man's opinion in that way. MR. THOMAS. If I give an opinion upon a proposition in law, and then I hear that fifteen or twenty members of the bar have expressed a different opinion, it would certainly affect my opinion somewhat. MR. RANKIX. The witnesses who testified yesterday did not have their attention directed to the matter in the same way in which .Mr. Sniitli has had his. THE COMMISSIONER. I hope the question will be unth- drawn. THE WITNESS. I will say right now, gentlemen, tliat if all the Insurance men in this State were to come to me and express a different opinion it would not change my view of the matter in the least. I know that a policy which is wTitten for a term of years in term insurance, and I should call it term insur- 190 -1 4M Arf ance whether they called it so or not. Moreover, the statute makes it so. It says "tontioie or other term insurance." MR. McAllister. The statute says "tontine, or other term or paid-up insurance."* You quote it as saying "tontine or other term insuriance."" That is n-nt a correct interpretation of it. MR. RANKIN. There is a difference of opinion between lawyers as to what that means. You gentlemen will understand this: that you have liad your consultations together, and you have agreed upon your theory of the matter. I have not been at any of your cnn.'ultaitioQis. I liave a tlieory. aiKl my client has one also, and we are trying to see what this statute means, and to show it, and I believe we are right. THE COMMISSIONER. Q. I understand you, Mr. Smith, to say that tontine insurance is where a number of people, say ten or twenty, get together and pay their premiums, and there is no payment made to anybody until they all die except one, and that then the survivor takes it. That is the fact, is it? A. We have not any such form of insurance. Q. I understood that to be the definition of "tontine." A. If you m^ean that a tontine policy is one in which only the last survivor of a class gets everything, that is incorrect. No such policy was ever issued by any Company. Q. You limit it, absolutely, then — the original tontine? A. We limit it absolutely to a given term, say ten, or fifteen, or twenty' years. And at the end of the period all survivors share in dividend or accumulations. Q. You have never known of a tontine policy without a term of so many years? A. No, sir, MR. RANKIN. T understood that to be so yesterday. If you can produce any policy embodying the plan originated in the fertile brain of Tonti, giving the right to all that has been paid in to the survivor, then it may he conceded tliat that is ton- tine insurance. THE COMMISSIONER. I understood yesterday that ton- tine originally was where a definite number of people were taken into a class, each paying a given amount of premium, and the survivor took all the profits, without limitation as to years. MR. RANKIN. That may have been the meaning a hundred years ago, when tontine was first invented. 128 Ml?. RIIUiJES. I thiaik it was siig^^ested hy Tonti that there might be several periods, as, for instance, ten-year periods, fifteen-year periods, and twenty-year periods. Then all those who survived twernty years in the tAventy-year class would be entitled to divide the accumulations of tontine, and all those who survived for fifteen years in the fifteen-year class would be entitled to share in the accumulations in that class, and the balance went to the State. THE COM^riSSIONER. I understood that tontine insur- ance was originally as 1 have defined it. MR. THOMAS. I think the original plan suggested by Tonti gave to the last sun^ivor of the class tJie full income of the fund accumulated, and then the Statire to hear from you fully. Mr. smith. There seems to be a good deal of myth about this man Tonti. Some sav his scheme was a government scheme, 126 and some say it was a scheme to work in his vineyard. I have seen several statements purporting to be the truth regarding the proposition that it came from a man by the name of Tonti. One is that he had a vineyard. He had a good deal of trouble with his help, and he started this scheme: He said to himself, "In- stead of paying my men their full wages, I will pay them a dollar a day, and we will put up the balance, a quarter of a dollar, into a fund, and the men who .stay with me until the end of the season shall have the benefit of the division of that fund." That seems to me a very pretty solution of ton'tine. But there have been variouis statements made with reference to its origin, and there seems to be now some doubt as to what was the fact. MR. THOMAS. Tonti must have lived in Fresno, according to this story of Mr. Smith's. MR. SMITH. If I may be allowed to state the distinction between the old full tontine and what we are pleased to call the semi-tontine, or free tontine, I will do so. The New York Life, I will say right here, call it free tontine, I believe, or is it the Equitable that gives it that name? MR. McCUTCHEN. It is the Equitable. MR. SMITH. We call it the somi-tontine, and the Mutual Life calls it the "distribution period," but they are all identically the same contract, so far as the law is concerned. I have been asked why we call one policy by one name and another Company calls it something else. It is because, in designating policies, we fall into the habit of calling them certain names. The old, original tontine policy had the same terms that we have in our tontine policies to-day, ten-year terms, fifteen-year terms, and twenty-year terms. The understanding, however, was that if a man died, his estate got the face of the policy for which he was insured. If he had a twenty-year term policy, and he lapsed on the nineteenth year, he lost it all, and it went into the fund to be divided among the survivors at the end of that period; not to the man who lived the longest, but to the men who lived and continued their payments during the twenty-year period. Semi- tontine insurance, as we may choose to call it, has the same terms exactly in that regard — the man who dies before the expiration of the tontine period gets his insurance the same as he would under a tontine policy, but the man who lapses does not lose all, but gets paid-up value for the reserve apportioned to his policy. 27 whereas under tlie old tontine lie f^ot ni> vhIuo — his entire con- tribution went to the surplus fund. MR. RANKIN. (.}. Hut so far as the reserve ie concerned — A. So far a.s the reserve is concerned, the policies are the same. In either event it is a term jiolicy, has the same term, and has the same characteristics as the forfeiture, only differing in the amount of the forfeiture. THE COMMISSIONER. Q. Take the case given by Judge Rhodes, where a man comes in and asks for a ten-year tontine or semi-to'ntine policy, as you call it. At the end of ten years, what becomes of that policy? A. That policy may provide for a continuance in different ways. Q. But what ordinarily happe'ris at the end of ten years? A. The insured ordinarily comes in and settles, taking the cash value of the policy. Q. Their cash is how much? A. The sum of the reserve and surplus accumulations. Q. You do not issue a policy originally guaranteeing to pay the man so much at the end of that time? A. We guarantee the reserve to be so many dollars; the earn- ings we cannot tell until the end of the term. MR. RANKIN. Q. Is an endowment policy, Mr. Smith, any such policy as you have just spoken of? A. No, sir. It is a different proposition; it may be tontine, or have annual dividends. But at the end of the term, in the case of an endowment policy, we settle with the insured defi- nitely. Q. He has but one option in the case of an endowment policy at the end of the term? A. He ivs paid the cash at the end of the term. il And that is the end of it? A. Yes, sir; that is the end of it. MR. McCUTCHEN. Q. Mr. Smith, how are the premiums on ordinary life policies paid? A. Annually, semi-annually, and (|uarterly. Q. Is that a term policy? A. An ordinary life policy is not a term policy. Q. Why not? " 128 "A. Because it runs for an indefinite period — until the death of the insured. Q. Because be is required to pay premiums for an indefinite length of time? A. No, sir. That is not the distinction. He might be re- quired to pay but ten, fifteen, or twenty premiums, and yet it would be ordinary life insurance, because it terminates when he dies. Q. If he is only required to pay premiums on an ordinary life policy for a given number of years, why is not that term insur- ance within your definition? A. Because there is no specific term at the end of which we settle with him. Settlement is made at his death. Q. That is, you do not pay the policy until his death? A. We do not pay the policy until his death. Q. How, then, is a tontine policy term insurance to a man who dies before the expiration of the period? A. Because, if he had lived to the end of the period be could have had a settlement, sharing in tontine accumulations. Q. He did not get term insurance. Was he not bound to live beyond a certain term to get the reserve? A. Yes, sir; to get the full reserve specified in the policy. Q. In the one case, if a man dies within a specified term, his representatives get the insurance ? A. Yes, sir. Q. If he lives beyond that term, they get nothing? A. They may get nothing, or they may get something, ac- cording to the kind of term policy which he holds. Q. Is there not a form of term insurance under which a man gets nothing if he survives the term? A. Yes, sir. Q. In the other case he will not get anything unless he does survive that period? A. Oh, no. There is no policy issued but that the repre- sentatives of a man will get the face of the policy when he dies, if it be in force. Q. I mean, so far as the reserve is concerned. In tontine insurance, they get no part of the reserve unless the insured lives beyond that period? A. Certainly, his beneficiaries get all the reserve, and more. 12!J too — the reserve and the portion due from ihe mortality element. Q. What is tonti'ne. then, according to your idea? A. It is only a period at the end of which the insured may get a cash settlement or readjustment of liis policy. We make a term as a part of his policy, at the end of which term we give him a settlement. Q. Suppose he does not live UTiiil the end of the term. What does he get then? A. One of the terms of the policy is that the man's estate gets the insurance when he dies. Q. But does he get any part of the reserves and the profits? A. The reserve on that policy is the part that the company has held towards meeting its guarantees — ^if you want to go into this technically, I will tell what becomes of the reserve. MR. THOMAS. Q. If he dies before the expiration of that tontine period? A. Yes, sir. MR. McCUTCHEN. Q. If he dies before the expiration of that period, he gets that reserve, does he? A. Yes, sir; his estate does. As I answered Mr. Landers a few moments ago, a tontine period is but the fixing of a term at the end of which a certain settlement is made on any policy of that character which we issue. Q. But tontine insurance, under that, is not insurance for a term, is it; it is insurance for life, is it not? A. Not necessarily. THE COMMISSIONER. That is what I asked you, if the policy absolutely lapses at the end of the term. In other words, as I understand it,when the term is over, the policy is gone? A. That is on ten-year renewable policies, if not renewed. MR. THOMAS. We are talking about tontine policies now. THE COMMISSIONER. Take a tontine policy for twenty years. At the end of that time, what becomes of the policy? A. As I have already stated, we give the insiired five options of set.tlement at the end of that time. Q. That policy is dead at that time, is it not? A. No, sir. W^e give him the privilege of continuing that same policy, if he wants to. MR. THOMAS. Q. Then it does not absolutely expire at the end of the tontine period? 130 A. After that he may continiiti it as one of his options. MR. :\leOUTCHEN. Q. Is not the insured entitled abso- lutely to continue that insurance? A. That is one of the options that he has. Some Companies .'specify that he shall take a coin proposition. Others specify that he shall take an extended insuTance to the full amount due, as long as the reserve will carry it. Others specify that he shall take paid-up insurance to the full value, and others that he shall take the surplus, and continue his insurance. MR. RANKIN. Q. But at the end of the tontine period, he must exercise some option? A. He does not have to exercise an option in every case, be- cause one option is always automatic in all tontine policies. That is, he is held to have selected that option by not signifying a desire for others. Q. But he must exclude the othex options? A. Yes, sir. MR. McCUTCHEN. Q. He can exercise an option, of ecui-se. We understand that. But he is given one absolutely, with the choice of four others in that policy? A. Yes, sir. MR. RANKIN. Q. Then he is given only the choice of one of the five options? And he is given that at tbe expiration of the tontine period? A. At the expiration of the tontine period, exactly. MR. McCUTCHEN. Q. He was insured for life, and not for a given number of years? A. No, sir; he was insured for a given term under this con- tract. THE COMMISSIONER. Q. Suppose the terra expires and the insured does not do anything. What happens then? A. Under our policy we would — Q. (Interrupting.) I do not mean what you would do, but what is the ordinary principle? A. It depends on just what he selects. Q. ' No, that is not the question. Take an ordinary tontine policy, with a term of twenty years. At the end of twenty years, he has continued paying his premium and he does not do any- thing. At the end of the twenty-first year he dies. Now, 131 what is done under ordinary lontiuc insurance in that case — not by your Company particularly? A. I cannot tell you what the other Companies do give. That is a matter of contract. Q. What I want to get at is the general principles of tontine. Do you understand that the actuaries of the country have written on twenty-yeiiir and fifteen-year and ten-year tontine insurance? A. Yes, sir. Q. If a man holds a policy for twenty years, and then does not do anything at the end of twenty-years, and dies the twenty- first year, what- happens then? A. He gets paid, I presume; but his term contract has termi- nated, and you have gone beyond the twenty-year term. MR. McCUTCHEN. That suggests a question to me. i}. Mr. Smith, when a tontine policy is issued upon the life of an individual, is it a life policy or a term policy? Is the policy-holder insured for a term, or for life? A. He is insud-'ed for a term by that contract. Q. Is he not insured for life? A. Not unless he accepts an option to tluit elfect ait the end of the term insurance. iTfE COMMISSIONER. Q. If the term run^ out, then does he get it? A. He must have selected that option, or contract must have been automatic to give him that. Q. I am assuming the ordinary definition of tontine, to see whether it is term insurance or not, as the Legislature uses it. Tontine insurance, as I understand, usually runs for ten years, fifteen years, or twenty years? A. Yes, sir. Q. I take out a tontine policy for fifteen years. At the end of fifteen years, I do not do anything at all, but just let the policy go. At the end of sixteen years, or seventeen years, or twenty years, I die. Then what happens? A. The same as will happen under any policy. Q. If you cannot tell me, very well. A. It depends upon what you select, entirely. MR. LANDERS. Q. The Commissioner says suppose he does nothing? 132 A. Then it depends entirely upon the automatic conditions of his particular contract. As different Companies make differ- eet features automatic, the specific oocitract alone must be ex- amined to give an intelligent answer. THE COMMISSIONER. Q. I am now asking you as an expert, independent of the fact that you are connected with the Northwestern Mutual Life Insurance Company, or any other Company, to take the case of, say a twenty-year tontine policy that is known as such among writers of insurance. The twenty years expire, during which time I have paid my premiums. At the expiration of that time, I do nothing. I do not take a step of any kind. At the end of twenty-one yeaxs, or twenty-two years, or twenty-three years, I die. AVhat does my estate or beneficiaries get from the Company? A. You will have to show me your contract before I can tell you. Q. It is all a matter of contract, is it? A. All a matter of contract, yes. MR. McCUTCHEN. Q. Under what you understand to be tontine insurance, what would thd Commissioner be entitled to in the instances he has given you? A. I repeat that it would depend upon the contract. MR. THOMAS. Q. Would he get anything? A. I cannot tell you without seeing the contract, because the contract governs. THE COMMISSIONER. Q. Then, as I understand it, the word "tontine" has no meaning at all as applied to a policy, ex- cept that it fixes the term and gives a plan for the distribution of certain funds? A. It is a term policy by its contract, and we call it tontine or semi-tontine or free tontine, or dividend investment. MR. McCUTCHEN. Q. Under a tontine policy, as tontine insurance is understood, is not the holder of the policy entitled to take his profits at the end of the tontine period, and continue his policy during life? A. Yes, sir; he is, under certain of the options. Q. Is that not so under the insurance originally known as tontine? MR. RANKIN. He has already stated that that is a matter of specific contract. 133 MR. McCUTCHEN. I am now speaking outside of that. Q. There must be some meaning to tontine, is there not, Mr. Smith? A. Yes, sir. Q. When you speak of tontine insurance, do you not ordi- narily mean such a contract as that; that is, a contract under which a man may take his portion of the profits at the end of the tontine period, and, if he pleases, continue his policy during life by paying the premium? A. I do, if the contract offers that option and the insured chooses it. Q. Then you do not understand anything by tontine insur- ance except what may be provided for by the particular contract? A. At the end of that tenn. Q. Do you understand that tontine is a principle that may be inserted into any policy? A. Yes, sir; in any participating policy, thereby making it a term contract. Q. Into an ordinary life policy, or a term policy? A. Not into the ten-year renewable term, because there is no surplus to deal with there. Q. May it be introduced into an ordinary life policy? A. Into any policy that has a dividend or surplus, yes, sir. Q. If you introduce the tontine feature into an ordinary life policy, does it convert that ordinary life policy into a term policy? A. It does. Q. When is the insurance payable? A. Depending on the contract. Q. Suppose you have an ordinar}- life policy, with a twenty- year tontine period. What is the policy-holder entitled to under sueh a policy as that, in the event he survives the twenty year period ? A. To a settlement in accordance with the terms of the con- tract. Q. What would that be? A. I don't know what the policy-holder would select. A few moments ago I told you that nine out of ten men elected to take their coin and quit. 134 Q. To take the cash surrender value of the poHcy and quit? A. Yes, sir. I say nine out of ten; I will cut that down and say four out of five. ; Q. That being insurance for life, do you say that the fact that the tontine principle is used in it convei*ts it into a te'rm policy? A. Yes, sir; most decidedly. Q. But an oi-dinary life policy, written with a tontine period, or written with a tontine feature in it, does not cease at the end of the tontine period, does it? A. Usually the policy-holder is given an option of con- tinuing it. Q. How does an ordinaiy life policy into which the tontine feature has been introduced differ from the tontine policy? A. Why, it is tontine insurance, and there is no difference. Q. Then a tontine policy, as you understand it, is an ordi- nary life policy with a tontine feature added? A. No, sir; it is any policy with the tontine feature intro- duced into it- — n«t the ordinary life policy any more than any other form into which that feature can be introduced. MR. THOMAS. Q. It is a whole life policy with the tontine feature added? A. It is a whole life policy, with the tontine feature added, or it is an endowment policy, which is another form of term policy, with the tontine feature added, the addition of the ton- tine feature making it a term policy, except that the endowment policy is already a term policy, and the tontine may change or reduce that period as a forty-year endowment, twenty-year tontine. THE COMMISSIONER. Q. Originally in tontine insur- ance there were none of these features which you have stated. Take the tontine policy as it existed in 1880. You do not mean to say that in that policy there were certain privileges given to the tontine policy-holder? A. Yes, sir. Q. I understood that when that class of insurance started, the survivors got it all? A. No,, sir; not as I understand it. I began the study of insurance in 1882. Q. You have read up on it since, have you not? . A. ^\'s. srr. (^ ^'oll liave read niosl ul' the hooks? A. Yes, sir. J?iit at that time we had begun lo write semi-ton- tine insiiranci', and the policy-holder who lapsed did not forfeit everything. Jiut my understanding is, that even with the old ton- tine, written prior to that time, in which there was complete for- feiture, they always gave several options of settlement to the policy-holder al the end of the term. (^ When you speak of tontine insurance being term insur- ance, you refer to the life of the insured as being the term, in case he did not live out the full term? A. No, sir; I refer to the full term the policy has to run. MR. RANKIN. Q. That is to say, the terra does not neces- sarily extend to the whole life of the insured? A. No, sir. Q. But is for a term of years which may be short of life? A. Yes. sir. THE COMMISSIONER. Q. What works by actuaries are considered standard by Insurance men upon these subjects? Give me the names of some of them. A. Dawson writes a book on life insurance, and a man by the name of Smith, an actuary of New York, writes a book on insur- ance. Probably as good an authority as we have is the reports of Massachusetts from 1851 to 1858. Q. Do they define these terms and go into these matters? A. They give you the general information. They do not define. An Insurance student does not need these things defined. Q. What 1 desire to know is, do actuaries who have written works define these terms in general? A. I will venture to remark that we have not very much in the way of text-books in insurance. There are 'perhaps half a dozen books out, in toto, that we have to go to. But the general principles underlying the subject have appeared in journals and in pamphlets and essays, etc. MR. McCUTCHEN. Q. Do you know who McCIintock was? A. Quite well. Q, Who was he? , 13G A. He was for many years, from 1871 until aTbout six years ago, actuary for the Northwestern Mutual Life. Q. Do you know what his definitions of term insurance amd tontine insurance are? A, I do not. Q. Do you know of a writer named Wallace on the subject? A. I have heard of him, but I am not familiar with his opinions on this subject. Q. You have heard of him, but are not familiar with him? A. No, sir. Q. Do you know of a writer named Willey? A. I have seen his book. Q. Do you know how he defines these terms? A. I cannot say that I have iu mind any particular defini- tions of them as given by him now. ME. THOMAS. Q. You say Mr. McClintock was the actu- ary for your Corapany until about six years ago? A. Until about six years ago, yes, sir, when he went with the Mutual Life. THE COMMISSIONEE. I would like to suggest to you gentlemen that 1 would like very much to know the policies that were being issued by the different Companies before this law was passed. Section 450 of the Civil Code. I do not know whethet you have included copies of them among the policies sent me, or not. In other words, I would like to know what kind of policies the different Companies were issuing throughout the country at the time of the passage of this Act of 1880. MR. THOMAS. Those that were in actual use, say in the early part of 1880, I presume you mean. ME. DONNELS. Probably I can give you some information upon that, Mr. Commissioner. Before 1880, the Companies issued what were known as life policies, divided into four classes — ordinary life, ten -payment life, fifteen-payment life, and twenty-payment life — and the endowment contracts, limited to ten-year endowments, fifteen-year endowments, and twenty-year endowments. In about the year 1870, they adopted this tontine principle in connection with all of those policies. That could be written in connection with any of those contracts. ME. THOMAS. What Companies are you referring to now, Mr. Donnels? 137 MI^ DONNETiS. Tlie New York (.'ompanies n;enerally. MK. THOMAS. Would that include the .Alutual Life? MR. LANDEHS. No; only two Companies, the New York Life and the Equitable. MH. DONNELS. The New York Life and the Equitable, yes. THE COMMISSIONER. What I want to get at is the con- ditions that were in tlie policies prior to that time; in other words, the condition for non-forfeiture, if there was one. MR. MUNSELL. There was an absolute forfeiture then, if the payment ceased during: the period the policy was to run, on tontine policies. THE COMMISSION lai. There was no policy in which lan- guage such as we have in this Code was in use at that time? MR. THOMAS. Mr. Forbes tells me that the Mutual Life had it in its pohcies before that. MR. MUNSELL. As 1 understand, we are speaking of the tontine principle only. THE COMMISSIONER. No, 1 do not care about that. What 1 want to know is, whether there was any policy in use at this time in which they used both of the alternatives given by this seel iu II of the Code, or in which only one was used. MR. THOMAS. Mr. Forbes tells me that the Mutual Life, of New York, had such a provision in before the law compelled it. How was it with the New York Life, Colonel Ilawes? MR. IIAWI'.S. We changed our contracts to comply with the law. M]{. THOMAS. Did not the Mutual Life have such a pro- vision before that time, Mr. I'^orbes? MR. I'ORBES. I think it did. MR. DONNELS. Some of the old contracts written way back in 18G5 provided in the ciise of an rrdinary life contract, in the event of a forfeiture after two years, paid-up insurance for the amount of the premiums paid would l^e issued — that is, be- fore they put it on the basis of a reserve. THE COMMISSIONER. I do not care to go way back to 1865, but just before the time this Act was passed by the I^egis- lature. MR. MUNSELL. 1 will say, Mr. Commissioner, that while o 138 the laws of Massachusetts and ]\raine had for many years com- pelled Companies organized in those States to guaran'tee aiito- matic extended "term" insurance for such amounts as foiir-fifths and three-fourths of the reserve respectively would purchase, or, alternQtively, grant paid-up insurance for reduced amou'nts in- stead, upon surrender of the original policy within a few months after lapse, yet at the time this Act was passed hy the California Legislature, so far as I know, there was no Company in the country that gave automatic paid-up insu.rance on "ordinary life policies," by law or -otherwise, and no States, unless it was Massachusetts and Maine, which gave automatic extended insur- ance at that time; but Massachusetts repealed the old extension law and gave automatic paid-up insurance in 1880, about the same time or soon after this bill was passed. So that, at the "time this law was passed, T believe there was no Company that gave automatic paid-up insurance on ordinary life policies. ME. THOMAS. Did they give paid-up insurance on demand? MK. MUNSELL. They gave it conditionally, only as a secondary matter. Here is a circular of the ISTew York Life, and it states the conditions upon which paid-up policies were issued. I thought that it might be material now, in connection with the views expressed here yesterday, as to whether paid-up policies were then granted automatically. They were not so i&sued, but always conditionally. MK. THOMAS. This only requires demand and surrender. MR. MUNSELL. Yes. That circular is thirty years old, and I thought it might be of interest, as it shows the conditions upon which paid-up policies were granted. MR. LANDERS. T have represented the Manhattan Life In- surance Company since 1864, and \ ran furnish the Commis- sioner with policies running l)efore the date of this statute — all the policies that have been issued in this State since we entered the State in 1859, where they received paid-up policies for the amount of the reserve. At the time of the trouble, we remained here, but we did no business — simply remained and collected the J>remiuTns. We issued paid-up policies on the surrender of the original policies, if a nian was not able to pay his premium. Paid-up insurance was issued to him then in accordance with the reserves. I do not claim that as iany particular distinction for 130 the Manhattan Life Tnpiirance Company, for 1 know that the Mutual Life, and the New York Life, and the Gerinania, gave the same insurance. All of those C^ompanies did that, as an act of right and as an act of justice. MR. SiMITIL I desire to make a correction. Mr. Munsell says that none of the Companies ever gave automatic insurance. Every now and then we have policies come up in which the action was automatic. I settled only a short time ago an en- dowment policy on the life of the brother of Eli Dennison, whr> took out a twenty or thirty-year endowment policy, and paid three annual premiums. When the policy matured, the Com- pany notified me. and asked me to look the matter up, as havin.u' lapsed his policy three-tenths paid, he was entitled to a certain sum. I found that Eli Dennison was his brother, and wrote to him that the automatic action of the policy had kept it in force. That policy was issued certainly twenty or twenty-five years ago. showing that our policies at that time gave paid-up iusurance automatically. MR. MUNSELL. T had reference to only ordinary life policies. MR. SMITH. That was paid-up insurance by its terms. MR. MUNSELL. But I am speaking of ordinary life policies. MR. SiVIITH. I do not know as to life policies. That was a limited-payment policy, and that is a different proposition. THE CU:\IMlSSIONER. T have here now, gentlemen, a copy of the bill as originally presented to the Legislature, which, as afterwards amended, became Section 450 of the Civil Code. Mr. Munsell has kindly furnished me this, and it will be iTi?ertf*d in the record as a part thereof, at this point. SENATE BTLL NO. 378. An Act to Amend Section Four hundreil and lifty, and to Repeal Sections Four hundred and fifty-one aud Four hundred and fifty-two of the Civil Code of Cali- fornia, relating to Life Insurance. The People of the State of California, represented in Senate and ■ Assembly, do enact as follows: ■ Section 1. Section four hundred and fifty of said Code is hereby amended to read as follows: 140 Section 450. Every contract or policy of insurance here- after made by any person or corporation organized under the laws of this State, or under those of any other State, or country, with and upon the life of a re'sident of this State, and delivered within this State, shall contain, unless otherwise specifically contracted between the insurer and the insured, a stipulation that when, after three full annual -premiums shall have been paid on such policy, it shall cease or become void solely by the non- payment of any premium when due, its entire net reserve, by the American Experience Mortality, and interest at four and one- half per cent yearly, less any indebtedness to the Company on such policy, shall be applied by such Company as a single pre- mium, at such Company's published rates then in force, either, first, to the purchase of non-participating term insurance for the full amount insured by such policy; or, second, upon the written application by the owner of' such policy, and the surrender thereof, to such Company at its principal office within three months from such non-payment of premiums, to the purchase of ii non-participating paid-up pohcy, payable at the time the origi- nal policy would be payable if continued in force; both kinds of insurance to ])c subject to the same conditions, except as to payment of premiums, as those of the original policy. It may be provided, however, in such stipulation that no part of such term insurance shall be due or payable unless satisfactory proofs of death be furnished to the insuring Company within one year after death, auf] that, if death shall occur within three years after .«uch non-payment of premium, and during such term of insurance, there shall be deducted from the amount payable the sum of all the premiums that would have become due on the original policy if it had continued in force. If the reserve on endownient policies be more than enough to purchase temporary .insurance, as aforesaid, to the end of the endowment term, the excess shajll be applied to the inirchase of pure endowment iinsur- ance, payable at the end of the term, if the insured be then living. It is further enacted, that if any iife insurance corporation or compa.ny shall deliver to any person in this State a policy of in- surance upon the life of any person residing in this State, not in conformity with the provisions of this section, the right of such corporation or company to transact business in this State shall 141 therfujKJU and thereby cease and determine, and the Insurance Commissioner shflll immediately revoke the certificate of such corporation or company authorizing it to do business in this State, and ])ublish such revocation, daily, for the period of two weeks, in two daily newspapers, one published in the City of San i'rancisco, and the other in the City of Sacramento. Sec. 2. Sections four hundred and fifty-one and four hun- dred and fiftv-two of the said Civil Code are hereby repealed. MK. MUNSP'LL. It is precisely the same in form and sub- stance — in fact, the language is the same in tliis proposed Senate Bill Xo. 378 as in Section 450 of the Civil Code, with the excep- tion of one stipulation, which was inserted aftenvards. Colonel Hawes wanted to know about that particular clause, and I told him I was going to amend my own Act. MR. THOMAS. It says, "unless otherwise specifically con- tracted between the insurer and the insured." Otherwise it is the same. MR. MUX SELL. Colonel Hawes asked me what 1 was going to do. I said, "I am going to propose an amendment to my own bill." 1 pulled out a copy of the bill from my pocket, and 1 said, "1 am going to propose an amendment so that it will show exactly what we mean. We intend to give the Companies full scope to write tontine insurance, and to give term or paid-up in- surance; term insurance means extended insurance always, as used in this section, as well as in the policies of the Mutual lieni'lit Life Insurance Company, from whose policy the non- forlViture provision was copied, as well as in the policies of aU Comjianies granting extended term in'.^urance. .MK\ RAXKIX. Your idea about it is that the term "paid- up insurance/' as used in the first portion of that Act, meant that a policy should contain a provision that if it was forfeited for non-payment of an annual premium after thi"e"e |Kiyment6 had been made, then the Company would issue a paid-up jwlicy for a certain amount to the insured. il K. :MUXSELL. For either term or paid-up insurance for its then value, agreeable to laws o-r standards of reserve by which the insuring Company was governed. MR. RAXKIX^. That is your understanding? MR. MUX^SELL. That is mv understanding. 142 MR. RA'NKIN. Why did yoii diiplicntc the term "paid-up insurance" thereafter in the Act? MR. MUNSELL. I want to call special attention to that. This law was the best that could be gotten up. It was taken directly from the policy of the Mutual Benefit Life Insurance Company. MR. RANK IN. If that was your idea of the meaning of the term "paid-up insurance," why did you provide that if they ii^sued a paid-up policy — why did you provide the two? Why was it necessa-ry to have that in a paid-up policy? MR. MUNSELL. The pTovision for paid-up policies was an alternative one. The State of Massachusietts was then proposing to change its laws, and they had a little diffeTent standard, a different mortality table. I would like to invite the attention of the gentlemen present to that particular 2>oint very carefully. We wished to make it broad en'ough to enable every Company to come in, provided they had no provision in theix policies by which they could confiscate the resieTve on a man's policy without his knowledge. The Maine Law had still a difPerent standard. They gave antomatic extended, or paid-up insurance, but it was still a different standard. They only gave four-fifths of the re- serve, and I think they charged a different rate after lapse. The matter of the rate is also an important matter. In these "term" extended policies, after they lapse, the rate charged by the Mutual Benefit is just the merest fraction more than one-third of the rate at the then age at the date of lapse of the o'riginal policy, and there is no reserve carried on that tei'm policy, but the origi- nal policy under all plans is extended until the reserve is ex- hausted at the "teTm-rate." MR. THOMAS. Can we not (^loso the argument now, and then if there is any further evidence, continue with it? THE COMMISSIONER. I think that is the better plan. MR. RANKIN. Very well. T shall argue very briefly. 143 ARGUMENT OF (iEO. A. KANKIN, ESQ., Attorney for the Northwesterm Mutual Life Insurance Company, of Milwaukei', Wisconsin. MR. RAXKIN. Mr. Commissioner: The section of- the Civil Code of Califoraia the interpretation of which you are seeking, is very long, quite involved, full of grammatical blun- ders, of curious punctual ions, and of words of doubtful, if not double meaining. You have kindly asked the Insurance Com- panies, through tlieir Attorneys and General Agents, to give you the interpretation which they have placed and do place upon this statute, and to aid you in arriving at a right understanding of its purpose and meaning. This statute clothes you with the authority to take away from any Insurance Company the right to do business in this State, if any policy which it has issued does not conform to the require- ments of this law. I understand it is the purpose of your present investigation to asiceritaiin whether any Insurance Company has issued policies contrary to this statute, and if so, what you ought to do relative to the revocation of its certificate. I take it. Mr. Commissioner, that all the gentlemen here pres- ent, and yuu above all others, desire to have a fair, honest, a'nd juet interpretation of this law. I cannot conceive that this in- •juiry is an idle one, nior that you desire to work any hardship upon the Companies. Above all, it is impossible for me to think that your investigation is actuated by any other motives than a sincere desire to protect the rights of those who hold insurance in this State. It is alike imeonceivabh' to me that vou would take any action whicli, while resulting in a punishment of the Companies, would also operate to the detriment of the policy- holders. The statute under consideration is as follows: " Every contract or policy of insurance hereafter made by any " person or corporation organized under the laws of this State, *'■ or under those of any other State, or country, with and upon " the life of a resident of this State, and delivered within this *•' State, shall contain, unless specifically contracted between the "insurer ;inil the insured for tontine insurance, or for other " term or paid-up insurance, a stipulation that when, after three " full annual premiums shall have been paid on such policy, it 144 shall cease or become void solely by the non-payment of any premium wlien due, its entire net reserve, by the American Experience Mortality, and interest at four and one-half per cent yearly, less any indebtedness to the Company on sueh policy, shall be applied by such Compaaiy as a single premium, at such Company's published rates in force at the date of the original policy, but at the age of the insured at the time of lapse, either to the purchase of non^participating term insurance for the full amount insured by such policy, or upon the written appli- cation by the owner of such policy, and the suiTender thereof to such Company, within three months from such non-pay- ment of premium, to the purchase of a non-participating paid- up policy payable at the time the original policy would be pay- able if continued in force; both kinds of insurance to be sub- ject to the same conditions, except as to payment of premiums, as those of the original policy. It may be provided, however, in such stipulation, that no part of such term insurance shall be due or payable, unless satisfactory proofs of death be fur- nished to the insuring Company within one year after death, and that, if death shall oecur within three years after such non- payment of premium, and during such term of insuxance, there shall be deducted from the amount payable the sum of all the premiums that would have become due on the_original policy if it had continued in force. If the reserve on endowment policies be more than enough to purchase temporary insurance, as aforesaid, to the end of the endowment term, the excess shall be applied to the purchase of pure endowment insurance, pay- able at the end of the term, if the insured be then living. If any life insurance corporation or company shall deliver to any person in this State a policy of insurance upon the life of any person residing in this State, not in conformity with the pro- visions of this section, the right of such corporation or com- pany to transact business in this State shall thereupon and thereby cease and terminate, and the Insurance Commissioner shall immediately revoke the certificate of such co'rporation or company authorizing it to do })usiness in this State, and pub- lish such revocation daily, for the period of two weeks, in two daily newsj)apers, one published in the City of San Francisco, and the other in flic Citv of Sacramento." (C. C, Sec. 450.) 145 Frdin ihu intimations which yon have l>een pleased to give lus. I LinderstaJid that two principal questions have arisen in your mind, the firsit being, What class or eharaeter of insui-aace is excepted from the operation of this statute? And having satis- factorily answered this question, the n'cxt is, whether, as to the class of insurance which falls within the statute, the policies must contain a double stipulation, first, far automatic extended insur- ance in any event, and also an option to the insured to take in lieu thereof a paid-up policy. You will ohserve that the statute contains much matter which throws no light on the two problems which I have mentioned. These matters have been interlarded in the statute in such man- ner that the purpose and object of the statute are almost lost sight of. I think they may be eliminated, and thus we will be aided in obtaining a correct interpretation of the statute. By this means we will get at its very heart. Eliminating those parts which I consider unimportant and not aiding in the interpretation of the statute, we will have it reduced to a more concise form. I hand you a copy which 1 have thus prepared, and will ask you to kindly follow me in the reading of it. The first reduction will make the statute read as follows: " Ever}- contract * * * of insurance * * * shall con- " tain, unless specifically contracted between the insurer and the '' insured for tontine insuxauce, or for other terra or paid-up in- " surance, a stipulation that when, after tliree full anniuil pre- " miums shall have been paid on such policy, it shall cease or " become void solely by the non-payment of any premium when " due, its entire net reserve * * * p^all be applied by such " Company as a single premium. * * * either to the purchase " of non-participating term insurance for the full amount in- " sured by such policy, or upon the written application by the " owner of such policy, and the surrender thereof to such Com- " pany within three months from such non-payment of premium, " to the purchase of a non-participating paid-up policy payable "at the time the original policy would be payable if continued " in force." You will see, Mr. Commissioner, that I have eliminated from the statute nothing w^hich is important, so far as the two points 14G under consideration are concerned, and nothing whicli will aid us in the interpretation of the statute in those respects. A little further examination of the statute, as above reduced, will show that many other matters can be eliminated from it to our mutual advantage, in arriving at a correct interpretation, these being mere matters of detail, which, however, tend to make the statute obscure. Leaving out these matters, the statute will read as follows: " Every contract * * * of insurance * * * shall con- *•' tain, unless specifically contracted, * * * for tontine, or for " other term or paid-up insurance, a stipulation that when, '• * * * such policy * * * shall become void * * * by « * * * non-pa}Tnent of (a) premium, * * * its reserve " * * * * shall be applied by (the insurer) as a single pre- " mium * * * either to the purchase of * * * term insur- " ance, * * * or upon the written application by the owner of " such policy, * * * to the purchase of * * * a paid-up *' policy." Now, in my opinion, this statute will be made still plainer if we put the excepting portion of it in the form of a proviso at the end of the statute. It will then read: " Every contract * * * of insurance * * * shall con- " tain * * * a stipulation that when * * * such policy '•shall become void * * * ^y * * * non-payment (a) of " premium * * * its reserve * * * shall be applied by (the " insurer) as a single premium, * * * either to the purchase " of * * * term insurance, * * * qj. upon the written ap- '* plication by the owner of such policy, * * * to the purchase (' of * * * a paid-up policy — provided this section shall not " apply where it is specifically contracted * * * for tontine, " or for other term or paid-up insurance." We have now got the statute in such form that its object and intent appear reasonably plain. You follow me in this respect, Mr. Commissioner? THE COMMISSIONEE. Yes, sir. MR. EAISTKIN. I desire next to state what I understand your interpretation of this statute to be, that is, the conclusions which you have arrived at, so far as I may judge from the intimations which you have given us. I desire also to state what interpreta- 147 lion of the statute has been arrived at by those gentlemen who have preceded me iii their arguments. If 1 correctly understand your temporary co^n elusions, your interpretation of this statute would require that every contract of insurance should contain the two following stipulations: (1) That if the policy becomes void for non-payment of a pre- mium, the insurer will issue to the insured, without application, a new policy for the same amount as the original policy, for such a term as the reserve considered as a single payment would pur- chase; and (2) That the insurer holds itself in readiness at any time within three months from the time the original contract became void, to issue to the insured, in lien of the second policy, a third policy, which shall be fully paid-up, and for such an amount as the reserve considered as a single payment would purchase. Am I correct in my understanding of the temporary conclu- sions at which you have arrived? THE COMMISSIONER. Xot every contract. MR. RANKIX. For the purpose of construction, I have left the proviso out of consideration. THE COMMISSIONER. You c=ay I interpret it as appl}-ing to every contract. I say, provided it is not a tontine policy, or a term policy, or a paid-up policy, as specified in the statute. MU. RANKIN. I may leave out of consideration for the pres- ent the proviso in order that we may first arrive at the interpreta- tion of the statute concerning the stipulation which those policies shall contain which fall within the statute. I proceed next to state my understanding of the conclusion,8 arrived at by the able gentlemen who have preceded me in their attempt to construe this statute. My understanding of their con- clusions would make the statute read as follows: " Every contract of insurance shall, at the option of the in- " surer, contain either one or the other of these stipulations: " (1) A stipulation that if the contract becomes void for the " non-payment of a premium, the insurer will issue to the insured " a new paid-up policy for such an amount as the reserve, con- " sidered as a single premium, would buy; or " (2) A stipulation that if the contract becomes void for non- " payment of a premium, the insurer will issue to the insured a 148 " new policy for the same amount as the original policy, to run " for such a term as the reserve wouild buy, considered as a single " premium." ME. THOMAS. Why do you say, "At the option of the in- surer?" It is a part of the original contract, is it not, the option of both of them? MR. RANKIN. I did not so understand from your argument. I understood that this was an option which was left wdth the insurer. MR. THOMAS. That is what I do mean, that it is the option of the insurer. But I don't want to be understood also as saying that the insured has his choice as to which he shall take. MR. McCUTCHEN. Mr. Thomas' position was, that if the contract between the insurer and the insnred provided for either one of those forms of insurance, that tliat was within the statute. MR. RANKIN. Inasmuch as the Company can write the in- surance and the insmred cannot, the option must be with the Company. That is to say, the Company can decline to write the insurance except in a certain way, and therefore it exercises itfi option to give one form or the other of stipulations, always con- sulting the insured, of eoui'se. THE COMMISSIONER. You have left out the proposition of the surrender of the policy within three months. I under- stand Mr. Thomas' contention to be that the policy can contain a statement that the reserve sball be applied as a single payment of extended term insurance for the original amount, or that the Company will give a paid-up policy for the amount that the re- serve will purchase as a single payment — one or the other, but not both. And that if the policy contains the latter provision, the insured must make demand within three months after the date of lapse or failure to make a payment when due, or his rights under the policy are gone. I want to say to you, gentlemen, that that seems to me a vital thing, and it interferes to a great extent with my agreeing with you. Of course I am not in the insurance business, but at the same time, I am here to see that the policy- holder is considered. We all know that policy-holders do not read their policies and get an understanding of them as well as they should. And if a man ceases making his payments, he very naturally thinks it is all over with his policy. As I understand UJ» Mr. Thomas' theory, ii" a |>olicy wan acccptfd hy the insured witli a clause in it calling for paid-up insurance on demand in case of forfeiture, and there was no action on the part of tiie insured within three months, then at the end of that ])eriod there would be nothing whatever left for the insured, even if he had carried that policy for thirty years. I must say, to repeat, that that i« a stumbling point with me. MH. KANKIN. I hardly think Mr. Thuma.^ weiu lu liiat extent, Mr. Connnisdoner. THE COMMISSION KK. That is your position, is it not, Mr. TJiomas? MK. THOMAS. I think so. It may be admitting too much. If so, I would like the privilege of withdrawing the admission. Those who may not agree with me in this statement of the Companies' position, may not be bound by what I say, but that is my understanding of the position which the Companies assume, and is certainly the position that the Companies that I am repre- senting assume. THE COMMISSIONED. Take that question to yourself. Mr. Rankin. I understand that at the end of three months after forfeiture, no option having been exercised by the insured, his rights are absolutely foreclosed against the Company, notwith- standing he has paid p'remiums for twenty years. Is that your position? MR. RANKIN. Not at all, sir. THE COMMISSIONER. How will you overcome that? MR. RANKIN. In my opinion, this statute requires that every policy of insurance, save those of the classes which are ex- cepted from the operation of the statute, must contain one or the other of these stipulations — not both of thom — it must contain one of them in any event, and that one must bo, so to speak, self- acting, automatic, as I believe it has been termed. Every policy must contain a stipulation whereby the Company agrees, after three full payments have been made, to give the insured paid-up insurance of such an amount as the reserve will purciiase. or a stipulation giving to the insured a term policy for the same amount as the original policy, and for such term as the reserve will purchase, considered as a single premium. And in my opinion, whichever stipulation is inserted must give the right to 150 the insured without the necessity of any application on his part. Fortunately, so far as the Company which I have the honor to represent is concerned, all of its policies provide automatic in- surance of one kind or the other. I am right, am I not, Mr, Smith? MK. SMITH. Yes. MR. THOMAS. The policies of the Connecticut Mutual are automatic in that respect. MH. liANKIN. But I understand that the policies of none of the Companies contain a stipulation giving to the insiued what we call "extended insurance." Most of them provide for paid-up insurance without application on the part of the insured. Our policies all contain that provision. A few of the Companies, I should take it from what I have heard, do not provide for auto- matic insurance of any kind, but make the issuing of a new policy in lieu of the originaJ depend upon the application of the insured for the new policy within a specified length of time. I desire to be distinctly understood as asserting that so far as -our policies are concerned, they do not require any application from the in- sured for a new policy. They give him the new paid-up policy without his request; but, of course, he must surrender the old policy. I must say that I cannot think that Mr. Munsell, in introducing this bill in the Legislature, nor the Legislature in passing it, could have intended that the policy should contain both of these stipulations. THE COMMISSIONER. I do not want to interrupt you, Mr. Rankin, but I want to know your position in that regard. MR. RAXKIN. I am pleased to be interrupted, because we are trying to get at the right and proper construction of this statute, and you are entitled to any information we can give you. There are certain rules for the construction and interpretation of statutes, which should always be borne in mind. Thus every provision of the Codes of this State is to be liberally con- strued, with a view to efEect its objects and to promote justice. Where a section of the Code is capable of two interpretations, from one of which good and beneficial results may follow, and from the other less beneficial results, or results which entail hard- ship and injustice, that construction will be adopted which, while i:»i it allects tliu ubji'L-is oT iIr- law. \vui-leen collected from the insured to the latter's benefit, in the way of insurance. Now, if there must be in every policy an automatical stipula- tion for extended insurance, and also a stipulation for paid-up insurance on demand, what is the result? This: Whenever a policy lapses for non-payment of a pre- mium, the Insurance Company must write and deliver to the insured a new policy of insurance, for such a term as the reserve will purchase. You will observe that the statute does not re- quire the sun-ender of the old policy. It not only allows the insured to retain the old policy, but, indeed, he must retain it, because the statute, according to this interpretation, gives the insured the right within three months, to demand a paid-up policy, and to get it, he must surrender the original policy. You will further observe that the statute does not require the insured to surrender the extended policy when he demands and receives the paid-up policy. THE C0MM1SSI0N1^:R. What would be the effect of that? MU. RANKIN. At all times two policies would be out against the Company, both apparently valid, both subject to assignment, and innumerable inconveniences and hardships to the Company might follow. I have stated the matter in this way in order that you might see that the Legislature could not have intended such an interpretation of the statute as you have intimatcKl. The language of the statute, while ambiguous, is not capable of such construction. It such had been the intention of the lawmakers, they would undoubtedly have provided for a surrender of the old policy when the automatically extended term policy was issued. Not having done so, the interpretation which you place upon tlie statute 152 would make it possible, not only for the insured to have his ori- ginal policy and retain it after the extended policy was issued and delivered to him, but it would enable him to keep the ex- tended policy after he had changed his mind, or for the period of three months, and then, by an application to the company, require it to issue to him a paid-up policy in lieu of the original policy. The latter he would be requi'red to surrender, but the statute does not require him to surrender the extended policy. THE COMMISSIONER. Ju.«t state that again, Mr. Eankiu. I do not quite understand you there. MR. RANKIN. If the insured concluded within the three months to have a paid-up policy in lieu of the original policy, he could surrender the original policy, as the statute requires, keep the extended term policy, which the statute does not require him to surrender, and get a new paid-up policy in addition to the ex- tended term policy. THE COMMISSIONER. That is not my position nor my un- derstanding of the matter. MR. RANKIN. But that is what would follow if the interpre- tation wliich you place upon the statute is correct. THE COMMISSIONER. Do not misunderstand me. I say that, if he once takes an extended term policy, he is estopped from taking a paid-up policy. MR. RANKIN. But if the extended term policy is issued au- tomatically, that is, without any application on the part of the insuTcd, the statute gives him three months' time in which to demand the paid-up policy. THE COMMISSIONEJR. Yes, but you see the policy is issued in lieu of the other and accepted by the insured under the con- tract. M"R. RANKIN. What, then, is the duty of the eomp.iny under your co'n&tructioai of the statute? The duty of the Company, as soon as the old policy lapses for non-payment of a fourth an- nual premium, is to write the insured an extended term policy for the amount of the old policy and send the extended term poli- cy to the insured, because it is not of any use unless it is deliv- ered. The compiany has got to send that policy to the insured and to see that it reaches him, in order to comply with your un- derstanding of the law. Now, understand that the statute does 153 not say tliat tlic insured shall surrender to the company the aid policy when the extended terai policy is issued to the insured. The statute is ahsohitely silent upon that point. ^IR. THOMAS. Jle must keep it, because it is by virtue of that first contract that he is entitled to paid-up insurance if he elects to take it. .Mil. K.WK l.\. 1 am statiing these tinngs for the puq)ose of showing you, ^Ir. Commissioner, that the interpretation which you give to the statute could not have been that which the legis- lators intenrled. Because, if the law-makers had so intended, they would then have sairl, '"upon the receipt" of this policy for extended insurance, the insured shall "surrender the original policy." The statute does not. however, say anything of that kind. It imposes no obligation upon the policy-holder whatso- ever to surrender the original policy, but it does impose, accord- ing to your construction, an obligation upon the company to im- mediately issue to the insured a new extended policy, and deliver it to him. and then [)ermil him to keep botlv policies, without ex- ercising any option on his part, for three months, at which time he may do — what? At the end of that time, or before, if he so elects, he may, according to your interpretation of the statute, surrender ihe original policy and demand a paid-up policy. The statute does not say he shall deliver the second policy back to the company, but merely that he shall delivor the original policy. Do I nutkc my ])Osition clear? TUK C'OMMJSSIOXER. I understand you, but where I do not agree with you is, it is my view that if a man accepts a policy of extended insurance, he would be estopped from exercising the other one of the alternatives, and taking the paid-up insurance. MR. KANKIX. But if the extended term policy is to l>e is- sued antonnitically and at once, upon the old policy lapsing, then, according lo the language of the statute, the insured has three months in which to demand a paid-up policy. Of course, it is not l)robable that the comi)anies will issue a second policy without the surrender of the origimil. but if your interpretation of the statute is correct, the companies have no discretion in the matter. What I say is, that the interpretation which you place upon the statute cannot, in my judgment, be the correct interpretation, be- cause the legislators never intended such results to follow as would follow from that interpretation. 154 \n the next place, let me call ynuv attention to this fact: that in this Act. the (/injunctives are always used, not the conjunctives. You will find here the words "either" and "or," which are hoth words disjunctive in character, and which indicate an alternative. Moreover, remember that the expression in the statute is "a stipu- lation.'" not "stipulations." If there were two. the only appro- priate language would be "stipulations," and not "a stipulation." Tt is well known among insurance men and among lawyers what a stipulation in a policy of insurance is. A stipulation covers a specific thing, and not several things. "'A stipulation" would have to cover two alternatives to carry out the interpretatioQ which you give to the statute. It is unnecessary for me to call your attention to these things, because I dare say you have read this statute a great many times, and you will remember the use of the word "'either," and the use of the word "or," in this connec- tion. I am perfectly free to admit that they are both used in a rather ungrammatical manner. The whole statute is not drawn as it would have been drawn, in view of the knowledge which we all have now, if we were drawing a statute on the subject. It is full of useless verbiage and incorrect punctuation, and the ar- rangement of its clauses is such that often we must transpose them in order to ascertain to what they relate or with what they are connected. I say this with all due respect to the gentleman who drew the Ijill. MK. MCNSELL. If you will allow me an explanation, Mr. Commissioner, I would like to say that there are several matters there with which I had nothing to do, the non-forfeiture part of the section being added as an amendment to another bill. THE COMMISSIONER. I think we had better now proceed with the argument. M]^ RANKJN. 1 was about to say, Mr. Commissioner, for the purpose of covering that point, I have no (lonl)t the Legislature tinkered with this Act until it ap])arcntly meant not that which was originally intended, hut sonu'tliing very ditferent; that they muddled it all up — and I am sometimes inclined to think that laws are })urposely muddled u\). Some legislation is of such a character, and our hiws and codes are in such a condition, that we may, without imi)i'o])rifty. say that they have been inten- tionally muddled up. i: >.) I do not know, Mr. Commissioner, fhat I could make my posi- tion upon these matters any clearer to you thnn I have already made it, if I should go on at great length. I am willing, for my- self, to concede that a man might dxaw from this Act either the conclusion which you have drawn, or the conclusion which J have drawn, if my conclusion should not be the .^amc as that of the other gentlemen who are here representing the other compa- nies. 1 am not disjiosed to be dogmatic in this matter by any means. JUit I invoke this principle: that where a statute which is highly penal in its character, as is this, and one which works such dreadful consequences to the parties interested, in case your action should be adverse to those companies: where such a statut4? admits of different constructions, one of which is consistent with the companies' method of doing business now, and not to the detriment of those who are insured, and another of which work- untold hardships upon the companies, the Commissioner should, in the exercise of his reason, adopt that construction which i.s consistent with the rights of the parties, and not one which de- stroys their rights. As T understand it. a statute which works a forfeiture must always be construed liberally for the purpose of obviating the forfeiture. It is a well-settled principle of the construction of all contracts and of all statutes, that, if possible, that construction will be adopted which avoids the working of ;i forfeiture. The result of this investigation, if the view which we take is not the correct one, will be to work a forfeiture of thi' rights of these companies, to destroy the work of years and year^ which these companies have put into their business; to, in a large manner, impair their capital, and to some extent, at any rate, shake the confidence of those who are already insured in thesi- companies. The mere advertisement of these matters, if you please, Mr. Commissioner, would have a most detrimental elfect. not only upon the companies and the insured, but upon the com- munity; and certainly no strained construction will be employed by you which will work such dreadful results. On the contrary. I think you will l)end every effort to adopt that construct ion which will preserve the rights of these companies, which will not shake the confidence of the insured in their companies, and which shall not bring any bad con^quences on this community. 1 invoke another rule of construction: where a statute has al- i5«; ways received a particular constniction, and where riglits have grown u]) under such construction of the statute, that construc- tion will not be interfered wilh. unless there be a very grievous case calling for an interference. As I understand it, for nearly twenty years the eompanieti have proceeded to write policies in accordance with the construction of the statute for which I now comtend, a coaistruetion which has been at least tacitly agreed to by all the Oonnnissioners who have preceded you. That ought to be of very considerable influeoice, it seems to me, upon your mind in the determination of the interpretation which you will give this statute. Those who have preceded you in the office of Insurance Commissioner are, in a manner, as much courtis as you -fire, and if the Supreme (Jourt of this State would be bound by a construction placed on a statute by the Courts which had pre- ceded it, then so much more should you be bound by the con- struction which your predecessors have placed upon this statute. TIIl^: COMMISSIONEE. Are you not a little faulty in your argument, from the fact that there has been no construction whatevei- of this statute l)y previous Commissioners? J\l!f. ]?AXK1N. or coui^e. 1 am not advised as to what af- firmative acticjii has been taken, hut T rely upon the presumption that every officer does his duty. It i? a presumjition in which lli(^ hiw of this State permits me to indulge. The presumption, therefore, is that your predecessors have done their duty, and, therefore, that they have construed the laws of this State upon the (jucstion of insurance, including the statute under considera- tion, that they have considered the character of insurance which has Iki'U i.«nsued under the various Acts upon the subject in the State, and that they have ac-ti'd correctly under the law. That i.s a presumption to which T think I am entitled. 1^111^ COMMTSSIONP:b\ It may Iw that my predecessors have waited for complaints to come in as to the forms of policies issued, l^he fact is that no complaint has ever come here to this office, and it has not come before the Commissioners in any way, and it they have waited for some complaint to come in. that might account for no action being taken on ilicii- ])art. MR. liANKIN. That fact alone, that no complaint has come lo your f)redecessf)rs of the forms of policies issued, nor to you, would be an exceedingly strong argument, if I were in your posi- 157 tioii. in favur of nol disturljinj< the present order of thin;:- If for seventeen years no policy-holder has complained of the char- acter of policies that have Ixien issued, then certainly no one ou^ht Jiow lo lake action which would tend not only to disturb all these ])eo]>Ie, hut to disturb the confidence which they have in their insurance, and the confidence which they have in these companies, and drive these companies out (as 1 am informed soiiie of iluMu will be driven out) of the State, and the State, therefore, deprived of the good, if any, which these companies bring to it. 1 take it in this connection, Mr. ("ommiissioner, that insurance is regajded as a good thing; that the State permits these companies to come here and transact business, because it regards insurance as a good thing for the people. And I cannot but regard it as a dreadful thing that the thousands upon thou- sands of policy-holders in this State should see an advertisement in the papers to the elt'ect that their policies were not in accord- ance with the law, and therefore the certificates of the companies in which they were insured w^ere revoked. Just think what the result would be. Tliese people would not understand the reason wlTicli you, .Mr. Commissioner, would give for your action. They would only understand that, in some way or other, their policies were invalidated: that in some way or other their policies had become void. l>ecause the companies had not complied with the law. 1 do not want to be understood as saying that that fact would invalidate their policies. 1 am not claiming that it would. But it would shake their confidence in their dun |K)licies. and people who have been paying their premiums for years and years and years, for the purpose of getting a competency for their fam- ilie.-^, would say, "Are we now without any insurance? Is not that the result of tlie Commissioner's ruling?"" I do not say this, Mr. (Jommissioner. f(ir I he purpose of causing you to digress in the slightest degree from \\ hat you believe to lie your duty. lUii all of these things should be important elenu-nls in your mind in living to detenniiie the correct construction of this statute. And the construction should be consistent with the acts of all parties heretofore. I have but one further consideration to pre- .sent to you. Mr. Commissioner, and that applies to what may l>e considered a slight dillerence between myself and the gentle- men representing other comi)anics, upon the classes of insurance 158 excepted from the opeTation of the statnte. In that respect, I will be equally frank with yon, as I have been heretofore. I think tlie words nsed in the statute in that connection are used in their ordinary sense, in the sense in which people in general would use them. I believe that "paid-up insurance" means just what everybody outside of those who are technically acquainted with the subject Avould say is paid-up insurance. Many of the counsel present diifer from me in that respect. But I am unable to come to the conclusion that a policy which provides for paid- up insurance in case of default in paying premiums is itself "paid-up insurance" within the meaning of the statute. I do not think that is a correct construction of tbe statute. I cannot come to the conclusion that "paid-up insurance," as used in this statute, means a policy that contains a stipulation that upon de- fault being made a paid-up policy should be issued. Moreover, in accordance with that legal disposition which a lawyer acquires, I desire to give a meaning to every word in this statute which I think will aid in its interpretation, and I know, as well as I know anything, that the word "other" was not thrown into this statute without some meaning. I know that it did have a meaning, and I do not believe that it coiild have ap- plied to "other paid-up insurance." I think it relates back to the word which precedes it, and applies to tontine insurance; that when it says "tontine or other term insurance," it means just exactly what it says. In the minds of ninety-nine people out of a hundred, tontine insurance is term insurance. We may quib- ble upon the definition of "term insurance" as we want to, but after all. all life insurance is of two kinds, that which runs dur- ing the whole life of the insured and is payable only at his death, and that which, from some cause or other, has a period short of death — either a fixed term, or a term at the end of which something else is to be done, some option exercised, converting the policy into a jjolicy of another kind, or even, if you please, continuing it as a policy of the same kind. l)y the application of certain reserves or of a certain surplus, to the carrying on of tlie policy. Every ])olicy falls within otic or the other of these classes. MK. McCUTCIlEN. Before you close. Mr. Eankin, I would like to ask you a question, if I may. 159 MR. KANKIN. Certainly. MK. McC'UTCIlKiSr. Suppose you issue an ordinary life pol- icy, wilh ;i i)rovision tliat after threo annual premiums have been paid, the policy-holder, in the event of lapse after that time, shall be entitled to n paid-up policy? MK. THOMAS. That is, automatic. MR. HANK I y. Provided he does not choose something else? Ml?. ]\I(('l7rC'U]']X. Under the contract, as I have given it, have you a specific contract for paid-up insurance? MK. IJANKIX. Provided the policy-holder does not choose something else, yes. MR. jMcCUTCIIKN". That is nor a paid-up policy, is it, at the time it is issued? MK. PtANKIN. No, sir. MK. McCUTCHEN. Tt is not paid-up insurance at that time, is it? MK. KAN 1\ I N. \(). I should say not. MK. Mc(JU'JXTIKN. Unless you have a specific provision in that eonitract for paid-up insurance? MK. KAXKIX. That is true, the policy was not a p&id-up policy when originally issued. It was an ordinary policy, wliich contained a stipulation giving to the insured a paid-up policy in certain events. MK. Mc( UTCIIEN. How, then, can you possibly give to the term, "paid-up insurance," the construction which yon do? MK. KAXKIX. Because, in my judgment, the term, "paid-up insurance,'" is used by the statute in two places in entirely dif- ferent senses. I'hat is to say, paid-up insurance as contained in the proviso or exception to this statute, means that kind of in- surance, which, in its inception, is paid up in full. In the other place, '"paid-up insurance" means what you gentlemen contend that it meaTis, thait is, that at the occurrence of a default, there shall 1)1' I lien issued a policy which is paid-up to the extent of what its reserve accumulated at the time of the default, consid- ered as a single premium, would i)urcha.^e. MK. McCUTClIKX. The. expression there is not "paid-up insurance," but "paid-up policy." MK. KANKIX. That is the same thing. Policy and contract are the same. 160 ME. ^I(( r'lH'll I-;\. 1 would like to ask you another ques- tion. M]\. KAN KIN. Have I answerod your first question? MR. THOMAS. Not satisfactorily." ME. EANKIN. Have I made myself clear? MR. McCUTCHKX. I luiiderstaiid your position, yes. As- suming now that this statute rec[uiTes that every contract of in- surance which does not call for a tontine policy, a term policy, or a paid-up policy, shall contain a stipulation that upon the payment of three annual premiums, if the policy-holder shall fail to pay any more premiums, that he shall be entitled to a terra policy, or to a paid-up policy. How do you claim that the poli- cies which your company issues comply with this section of the coder ME. EAXKIX. I say it only reiiuires one of those things; one or the other, but not both. And all of the companies, Mr. Commissioner, have purstied the only course they should pursue in that regard. ME. TH O:\rAS. Xot that they should; the only one they could. MJ{. EANKIN. I mean that in their policies they have exer- cised this right of giving automatically issued paid-up insurance. I doubt if they could give automatic extended insurance, with a stipulation also for paid-up insurance, unless the policies were successively surrendered. I do not see how they could run the risk of there being two policies ottt at the same time. Bttt thiey have provided that they will issue paid-up insurance automati- ■fraily, on surrender of the original policy, and thereafter if the insured desires to have extended term insurance, they give him that privilege upon application. I reverse what you claim to be the pro])ci- construction of the statute. I agree thoroughly with .Ml-. Tlioin;i> ill this, tluil this law does not require that both of thes-e stipulations Ik- put into the ]iolicy. hut that either one of them is sufficient. The use of the words "either" and "or," and the word "stipulation" instead of "stipulations," makes it conclu- sive to my mind that it was not the intention of the framers of the Act that both of those stipulations should go into the policy. THE COMMISSIOXEE. I understand, Mr. Eankin, that you agree with me in saying that all contracts except those that are. excepted by tin- statute, tontine insurance, or other tenii or paid-up insurance, should have in them either one stipulation or the other. You agree with nie to that extent? MR. KANKIN. Yes. THE COMMISSIONKK'. 1 understand also that you guaran- tee to go further tlian the .statute, that you give paid-up insur- ance automatically y :\li:. 1LV\KL\. Yes, ?\v. THK COMMISSJONEK. Under that, of course, the policy- holder is not entirely shut out at the end of the three months after default. WhetJier he makes application or not, he gets that, under your policy? MH. RANKIN. He gets that, yes. THE COMAnSSIONER. That" is the distinction between Mr. Thomas's companies and your company? M\l. TIlO^fAS. One of my companies. THE COMMISSIONER. Well, whichever company it is— the New Yoik ( oiiipany. Under the policies of your New York Company, at the end of six months after the date of forfeiture, the policy-holder is shut out unless he makes demand upon you for a paid-up policy. That is the difficulty here. I realize the dangers to the interests of the State. I understand that the companies here have all said that they do not care to make any changes in fomi in future policies. I want to say as to what Mr. Rankin has sairl. that it se«ms to me the insurance companies are at fault in not going to the Legislature and having the law con- form to just what is meant; make it plain, and have it corrected so that it shall be so. I am just as loath as any Commissioner who has ever occupied the office to injure the companies here, or to injure the State. But it does seem to me that the policy- holders have some rights that these companies must respect, and, if I find it necessary to take aAvay their lioene^os liy reason of a failure to resp€ct those rights, T shall do it, though I would much rather have it go the other way. I can see, Mr. Rankin, how your company is in a much Itctter position than the New York Com- pany of ^\r. Thomas. A policy-holder in your company gets something without the exercise of any act on his part, while in the New York Company represented by Mr. Thomas, ho does not. In my view of it. the Legislature, in passing this statute, intended to give to the policy-holder something without any 162 act on his part. lu other words, the Legislature intended that he sliould get the value out of his reserve. It seems to me that the intent was, that if he did not ask for anything, the company was, in any event, obliged to give him something. I can see, as has been presented in the argument here, that there is a sort of loop- hole in this option during the period of three months. A man can allow his policy to go during that three months, during which time he is covered imdeT the original amount of his policy by ex- tension, and then go around and get a paid-up policy. That is an argument that appeals to me very strongly. Under the po- sition which Mr. Thomas takes, 1 may be under the necessity of giving a construction to this Act which will injure the compa- nies, unless I give a decision which absolutely takes away from the policy-holders of this State, outside of the classes excepted in the statute, their policies and all their benefits under them, and all they have paid, provided they do not exercise an option within three months after the date of forfeiture. Mli. EANKIN. Do you not think, Mr. Commissioner, that the purpose of this Act is satisfied, if automatic insurance of one character or the other is given? THE COMMISSIONEE. It is satisfied much better, to my mind. I might be willing to carry a state of facts like that along until we got a chance to correct it in the Legislature. Of course, if the Legislature did not see fit to make any modificatioin, and I retained my present views, it might be another matter, because 1 undei*stand that the Legislature has the absolute power to re- quire both of these alternatives to be put into the policy, and to require that the insured shall have automatic extended insurance, unless he chooses to take the other. MR. McCUTCHEN. The New York Life Insurance Com- pany is giving automatic extended term insurance. I called your Honor's attention to that yesterday. THE COMMISSIONEi^. I am answering the arguments made here, to some extent. I do not agree with the proposition that has been advocated here, that the Legislature intended to permit any kind of a contract to be made by the insurer with the insured. We all know that, while, as Mr. Thomas says, the in- surer and insured makes the contract, yet the contract is really made by the insurer. I do not suppose one man out of a hun- dred reads his policy. In fact, a man generally does not see the 1(13 policy until it is handed to him fully executod, and at that time the contract is closed. I want to say to you gentlemen that if there is any way in which I can avoid the revocation of the licen- ses of the compainies, in justice to myself and to the rights of the policy-holders of the State, I want to do it. I think Mr. Rankin has made a ver}' excellent argument upon the proposition. And, as 1 said before, I think he is a better position than some of tiie other companies represented here. MR. RANKIN. Without intending to in the slightest degree cast any reflection upon any other company, I want to say that, so far as I am advised, every policy that the Northwestern Mu- tual Life Insurance Company issues does contain a non-forfeiting clause; that is, it contains a clause which prevents the reserve paid absolutely lapsing to the company, and many of the policies provide insurance ten times more favorable to the insured than the statute requires. For instance, its ordinary life policy is one which not only gives absolutely paid-up insurance upon lapse af- ter three annual preiniums have been paid, but it gives the pol- icy-holder the privilege of cashing his policy, at a fixed price, or of obtaining a loan upon it of a fixed amount, and gives him the right, also, to take extended insurance. If I were going to say anything on the policy of this law, I would say that the very class of policies which need protection most are those which are pro- tected the least, to wit, the tontine policies. Tontine insuranxje has always been recognized as cut-throat insurance, where in many cases the insured get nothing. If the Legislature really wanted to protect the policy-holders, it would protect those hold- ing policies of that kind. So I say the insurance companies have really gone further in the protection of the policy-holders than the law requires. The truth of the matter is, that all of these matters are better left to competition than in any other way. Competition has made all of these great advances in the liberal- ity of insurance companies towards their policy-holders, and will, as time goes on, make manv more. 1 think, Mr. Commissioner, that that is all that I have to say. THE COMMISSIONER. I think we had better take a recess until two o'clock. A recess was taken at this point until two o'clock p. m. (M AFTEENOON SESSION. TUESDAY, JANUAEY 18, 1898, 2 P. M. IfR. RANKIN. I would like to ask Mr. Smith a question which I omitted to ask him this morning. THE COMMISSIONER. Very well. FURTHER STATEMENT OF CLARENCE M. SMITH, ESQ. MR. RANKIN. Q. In Section 450 of the Civil Code of this State, it is provided that the reserve shall he computed by the "American Experience Mortality." That is what? A. The American Experience Mortality tahle. Q. Your policies, I see, provide for the estimation of the re- serve according to the standard of the State of Wisconsin. Be kind enough to state whether the standard of the State of Wis- consin and the American Experience Mortality are the same? A. They are the same. Mr. Clunie understands that as they accept OUT valuation here of policies, the valuations required in Wisconsin and California are identical. MR. BERT. Before Judge Rhodes proceeds with his argu- ment, I wish to state that I have some views that I would like to present on behalf of the Union National Company. Will yonr Honor indicate to me when you would like me to present them? THE COMMISSIONER. I understood from you that you would be engaged three or four days in Court. The gentlemen have all presented the matter very thoroughly. I suggest that you might present your views in the form of a breif. MR. BERT. Very well. Say within five days. THE COMMISSIONER. Yes. I think the questions have been thoroughly argued by all the gentlemen. 165 ARGUMENT OF A. L. KJIODES, ESQ.. Attorney for the New England Mutual Life Insurance Company. MK. KHODP]S. All the jJ^uposition^i involved in this matter have been so fully argued that it is impossible for me to add anv- thing of much importance. I dislike very much to repeat what another man has said in better words and style than I can do myself, but I might state some of the propositions here involved in my own language. My learned friend Rankin urges that, as Section 450 of tho Civil Code provides that the Commissioner may revoke the certi- ficate authorizing a company to do business in this State, it must be strictly construed so as to avoid a forfeiture. The position, as I would state it, is that the section must, if possible, be so con- strued as to avoid a forfeiture; that for that })urpose the construc- tion may be strict, even technical, or k may be liberal. It is the constant effort of courts to both construe and administer the laws so as to avoid forfeitures. The revocation of the certificate is virtually a forfeiture. Your Honor very well remembers that in your practice in early days there were some (perhaps not as many as there were ten or fifteen years before you came to the bar) attempted forfeitures in this city of leases of importance. The law was then gone over thoroughly, and it was found in all the earlier cases that the courts held vei-y strictly to the doctrine that, in order to work a forfeiture, where the provisions of law to be complied with were technical, the landlord must technically follow every one of those provisions — he must make his demand of the rent upon the very day that it accrued; it was not enough to make it the day before or the day after, but he must make his demand upon the premi- ses, and on the day upon which the rent became due. at the ut- termost point of time of the day, so that there would be light enough to count the monev. You and I could not understand, speaking from a common-sense standpoint only, without regard to this rule of forfeiture, why courts had enforced the law so strictly to avoid forfeiture; why a party could not demand his money of his tenant upon the street ten rods from the house, or why he could not demand it in the morning, or the day before. r>ut that works no forfeiture. I say, then, that the law is re- quired to be so construed as to avoid a forfeiture. 1()6 To give an application (if tliis rule to a matter to which I will come back hereafter: The law provides that the policy shall contain a stipulation that the net reserve, with interest at four and one-half per cent., etc., shall be applied either to the pur- chase of a non-participating term policy for the full amount, or (leaving out "written application") to the purchase of a non-par- ticipating paid-up policy, payable, etc. It may be said, reading it in one sense, that this stipulatioin is one and entire. If your Honor can divide that stipulation, and say that it may mean, in effect, two stipulations, and that the policy must contain one of those stipulaitions, you have construed the law, then, as the books all say proceedings must be construed, and the law must be construed, and a contract must be construed, for the purpose of avoiding a forfeiture. The language is peculiar here. It is a stipulation that its en- tire net reserve by the American Experience Mortality, with in- terest, etc., shall be applied either to the purchase of non-par- ticipating term insurance for the full amount, etc., or to the purchase of a non-participating paid-up policy. Does that ne- cessarily mean that there shall be contained a stipulation to the effect that the insured shall have the benefit of both of those provisions? I think not. And there are various reasons why I think not. A liberal construction would tend to uphold the con- tinuous acts of the insurance companies from the time of the pas- sage of the law up to the present time. It is true, as your Honor says, this question may not have been called to the atten- tion of the Commissioners in that form; that there may have been no question about it; and that, therefore, there has been no decision upon it. But the repeated performance of acts, pur- porting to be in pursuance of a law, by those who were called upon to act under it and who were governed by it, during a series of years, is recognized by the courts as of very great sig- nificance, and as amounting to a practical construction of the law itself; and the courts will not give a different construction unless the practical construction is radically wrong. As an illustration of that. T would refer to what took place in early days, in relattiom to -Tudgc Dwimelle's Court — the Fifteenth District Court. That court was organized, as the Legislature thought, under the Constitution. I happened k; )< to be a member of the Legiilatiiie wlun those amendments of 1862 were passed. I professed to know wliat they meant, and what they mtended to say, for I was a member of a committee that had often had them under consideration while they were pending in the Legislature. I thought I knew that it was intended by the Legislature that this State should be divided up into fourteen districts; and that if one district be- came very populous, and another became less populous, the boundaries of the districts could be re-arranged and the counties re-distributed among the fourteen districts. It was said by Sen- ator McShafter: '"These fourteen districts will last just as long as this Constitution will last." The Fifteenth District was cre- ated by the Legislature in 1864. Sam Dwinelle was appointed judge, and proceeded to hold court in this city and in Martinez, rendered scores of judgments, passed on all sorts of questions relating to land titles, contracts, the rights of parties, etc., tried criminal cases, sent men to the penitentiary and executed others. Then came a party before the Supreme Court who said (I think it was in an ejectment case): "We object to this judgment be- cause the court has no jurisdiction, because there is no such court." What did the court do? J'^rom my own standpoint, of course, the answer was that under the Constitution there was no such court. From the standpoint of common-sense and the ad- ministration of justice and the transaction of business, and in consideration of the results and consequences, which we have here, the court upheld the Act. Why not? That was a practical construction of a provision of the Constitution. Here are scores of these companies that have, each of them, been insuring the lives of hundretls and possibly thousands of men in this State. If the policies of the New England Mutual Life Insurance Company, which I represent, or of the New York or other companies, are void, that is to say, if they are of such a character that your Honor will be called upon as a Commis- sioner to revoke the certificates of the companies, would you not therol)y declare that the revocation was made because they had issued policies that were illegal? If illegal, are they not invalid? Are not some grave consequences to come from that? T do not undertake to say that the assured would or could not recover the money they had paid, or recover upon their policies. In 1G8 view of tlie consequences llial may flew from the constructio'n thai the section provides tor one stiiJiilatioTi, consisting of two members, is not your Honor not only Justified, but required, to hold, jf possible, that the section provides for two stipulations, either one of which may, at the election of the parties, be in- serted in the policy? If the policy does not comply with the law, is it valid? And shall we thereby not only 'revoke the licenses of tiiese companies and send them out of business, but also say to them, indirectly if not directly, these policies that have been issued by you have no validity? Section 76 of the law of Massachusetts, adopted in 1894, is as follows: "No policy of life or endowment insurance hereafter issued "by any such company shall become forfeit or void for non-pay- "ment of premium after two full an>niial premiums, in cash or "note, or both, have been paid thereon; but in ca&e of default "in the payment of any subsequent premium, then, without any " further sti]iulatio'n or act, olicy shall l>e binding upon "the comjjany for the amount of paid-up insurance, which the " then net value of the policy and all dividend additions thereon, " computed by the rule of section eleven, less any indebtedness "' to the company on account of said policy, and less the surren- "' der charge provided therein, will ]nirchase as a net single pre- " mium for life or endowment insurance, maturing or terminat- " ing at the time and in the manner provided in the original pol- " icy contract." This is a provision that all policies shall have that effect, with- out requiring the provision to be written in them. Suppose that a ])o]icy should be issued by the New England Mutual, which would attempt on its face to exclude it from the operation of Section 76, what would be the result? What would be the con- sequence ujion that policy? What validity would that policy have? Could it be upheld anywhere? Would it not be illegal in the proper sense of the term? TITK COMMISSIONER. You recognize the distinction be- tween a law of the same kind as the Massachusetts law, and the provision of the California Code? Yon do not claim that those laws stand on the same footing? Mil. RHODES. Not neeessarily. To place it on the same footing, J should have to inject something into the law to the !«;<) effect that that provision of tho law would not be self-operative. Then it would ])e precisely the sajue as one of our policies which omits one of those stipulations which, according to your Honor's construc-tio]!, the law says must be contained in Ihe policy. MK. ltANJ\IN. The practical effect would be about the same. THE COMMISSIONER. In other words, the Legislature of Massachusetts has made its law one of the constituents of the contract, no matter what the contract l)etween the company and the assured may be. The law of California does not so provide. It simply makes the penalty for violating Sectio'n 450 forfeiture of the right of the company to do business. It does not affect the validity of the contract. MK. RHODES. Not expressly so. A question woukl arise there which I could not pass on off-hand; and T am sure that your Honor would not attempt, ofF-hand, to determine wliat could be said of a contract that was so vicious in its character, that the company must go out of business because it had exe- cuted it. THE C0MMISSI0NP:R. Assiinu' that I did not act at all. and the company issiies a policy in violation of this section, and it ran along. Say the policy was for $100,000, an amount large enough to make it important for the compiny to make a defense. Do you think that whether I acted or not would make any dif- ference, in so far as the compainy making any defense? MR. RHODES. I guess not; but your Honors decision against the companies would have an effect on the companies and the policy-holders, ))y preventing them from taking the pol- icies in these companies as they have been doing, and cast doubt upon the existing policies. MR. THOMAS. Suppose that the penalty for issuing these policies contrary to the form of law was not so great as to make the policy absolutely void in law. Suppose the assured could still recover on the policy. Supposing the Insurance Com- missioner should vacate the certificate of these companies to do business. Would it not follow naturally that a great many of our policy-holders would never come near the .company to renew their pi-emiums. which course would inure to tlie ben<'fit of the company? 170 THE COMMISSIONEE. As far as maintaining an office for the collection of back premiums, they could do that. MR. THOMAS. Would it not be the natural effect that a great many people not going into the matter carefully would say, "If that company has had its certificate revoked, there is no use in my paying any more premiums?" I think the company is going to win by it. MR. RHODES. It would have the same sort of effect that it would have on one of these savings banks if a person should go upon the street and declare that certain bank was not solvent, and say, "I have $10,000 in that bank; I will withdraw it, and I will not deposit another dollar." The depositors would want their money and would sell their bank books, and it would injure every one all around. It would cause nothing but injury. MR. THOMAS. In an action of this sort, although the com- pany might be kept out of business until wilh'ng to comply with the law, the immediate effect would be an immense profit to the company by the forfeiture of a lot of policies. If we were kept out of business for the year, we would save a great deal of money. The policy-holders would give up. I ^am not enough of an in- surance man. to know what would be the effect. Would not that be the effect? MR. SMITH. It would have that tendency. MR. THOMAS. Has it not been a fact that a great many peo- ple have not tried to keep up the premiums during an inter- regnum, and the companies gained by it? MR. MUNSELL. That is true. The business ran down badly. The year before the bad laws were passed in 1874, Mr. Wallace Emerson, Agent of the New England Mutual, took about 415 policies, but in a few years the business of the com- pany ran down to 27 policies in one year. MR. LANDERS. I know my business tumbled down more than one-half. MR. RHODES. This sentence of Section 450 is, in many respects, difficult of construction. My learned friend did the best he could in drawing the section. I have known a great many proposed statutes to be terribly emasculated by amendments, and rendered so different from the original that it recalls the story the man who started for St. Petersburgh with his horse and wa- 171 gon, but said tliat he drove into S*t. Petersbiirgh in a very dif- ferent style from what he exj)efted, the bear having seized his lioise in the rear and eaten its way into the harness. It is very diificult to construe. There are many words in the section that are unaccountable. Not only (he word "other," but various other things are out of order. The w-ords are so employed and ar- ranged that you cannot resort to those rules of construction that the English Judges applied to the old statute of fraud, the words of which we're so plain and exact that there was but little need of construction. The terms were so plain that the only question was, what was included in a given clause? There are very many words here whose presence is unaccountable. Take, for instance, the clause, "Every contract or policy of insurance hereafter made " by any person or corporation organized under the laws of this " State, or under those of any other State or country." Omit- ting the word "person," you need nothing more than the words, " Every policy of insurance issued by a corporation," and the clause is complete. Then it goes on, "with and upon the life "of a resident of this State, and delivered wn'thin this State." Why throw in the word "person"? All the balance of the sec- tion says "company" and "corporation," and never mentions per- son at all. Is a person organized under the laws of tlie State? Possibly he is. But the section contains words that seem to serve no possible purpose. I would say to my learned friend who ])articipated in the draw- ing of the section that a pretty good illustration of his fate is af- forded by that of Charles H. Parker, whom all the old members of the bar well knew. He knew all the street law that anyone was expected to know. He drew the amended street law of 1862. Along about 186-i and 1865, the statute came before the Supreme Court, and in nearly every case of importance Mr. Parker was retained on the side in favor of the law and the contractor. He argued case No. 1. He said: "This provision of the law means "so and so, for I drew it myself." Then in the next case, an- other section came up for construction, and he said, "I know " what was intended by that, for I drew it myself." A couple of years passed, and there were half a dozen cases every term, and Mr. Paxker came to the conclusion, at last, which was a very wise and sage conclusion, that among all the members of (( 172 the bar of this city, he was the cnly one who was not sure of the meaning of a single clause in the Act. This section says: "Unless specifically contracted between the " insurer and the insured for tontine insurance, or for other term " or paid-up insurance." I do not know what is the outcome of the position of my learned friend, Mr. Rainkin, upon that clause. He scarcely ever does anything without a purpose. He must have had some purpose in that regard. But I would say that if the definition which his witness gives, opposed as it is to the definition of all of the others who have been examined here as actuaries and experts, be the correct one, why should there have been used in this section of the statute the language " tontine insurance, or other"? If tontine means "term" insur- ance, the section should simply have said, "unless specifically " contracted for term or paid-up insurance." "Tontine" should have been omitted. They cannot both be properly there. If tontine insurance" does mean "term insurance," then it is sur- plusage, as useless, as annoying, and as unsatisfactoTy as the word " other" when we give "tontine" the meaning which we assign to it by the aid of our experts. MR. RANKIN. You say there was no occasion for the use of the word, "term"? MR. RHODES. No, the words "tontine," or "other." MR. THOMAS. Strike out "tontine," or "other." MR. RHODES. If that definition be the correct one, the clause should have been, "unless specifically contracted for term " or paid-up insurance, shall contain a stipulation," and so on. I do not think it worth while to comment on the phrase "term " insurance." We all agree upon that except that Mr. Smith, as an expert, makes it comprehend more in idea, not in desig- nation, than the others do. MR. RANKIN. You do not understand Mr. Smith's defini- tion to make "tontine" and "term" co-extensive terms? MR. RHODES. No. In idea,, "tenn" would include "tontine." That is to say, analyzing it, you might say, mathematically or philosophically, "term" would include "tontine," because there is a term in tontine. I am speaking of that as showing how badly this section was drawn, and how uncertain are its terms. The whole net reserve, "by the American Experience Mortal- 173 " ity," is the laiigiiap:e. I do not know that I am justified in commentinf,' upon that phrase. What does tliat mean? Stand- ing by itself, it does not mean anything. Turn to the Massachu- setts law, and you will find, in Section 11, when you are a.scer- taining the present value of the policy of insurance, that it is calculated upon the basis of the "combined experience or actu- aries' table." There is no tabh here. What is "American Ex- perience Mortality"? You Honor has to interpret this law. If you find a term in the section which is of no significance at all, you are bound either to reject it, or, if so inter^voven with the meshes of all tbe rest of the section as to vitiate it all, then to reject the whole section. If there is to be no reserve which is to be used for the purpose of paying up a term insurance, or a fuJl paid-up policy, etc., except the reserve according to "Ameri- can Experience Mortality," you have no reserve. You have nothing to be applied to the payment for the new policy, and it is as useless to make a provision about a stipulation in relation to the application of such a reserve as it would be to make a pro- vision about the storing up of moonshine, which of itself has nei'ther light nor heat. I do not know what you can do with that clause, because this whole thing was designed for the pur- pose of securing to the policy-holders the benefit of a reserve. The section has taken on itself to say what reserve is, and has taken on itself to say what shall be the rate of interest on that i-eserve. How do you ascertain that reserve? It does not appear here that any Company has a reserve. It may be presumed that money has been paid in on policies more than necessary to meet the ordinary requirements for expenses and losses in the way the Companies are managed under the improved system of insurance. But this section provides that the reserve is to be computed according to the "x4.meriean Experience Mortality." You might as well say it was to be computed by the rule laid down in any non-existing thing, or in Shelley's case. THE COMMISSIONER. Would you not answer that by saying that was a matter of which the Commissioner ought to take judicial notice — that there is a reserve in ever>- policy under the law of the State? You are familiar with the other provisions of the law, which require a Company, in order to conduct its business, to keep on hand a i-eserve according to thesie tubles of mortality. The only tiling you can point out is the fact that the 174 Legislaiture left out the word "table." Among Ineurance men it is acknowledged, and l)y the Insurance Commissioners of the United States it is genexally known, that each policy has what is called a reserve, and that reserve is estimated according to these tables of mortality. I suppose that is a matter of which I ought to take notice. ME. RHODES. Very likely, if the siection contained the requisite words. You have power to forfeit the right of these Companies to do business here if they fail to insert in their poli- cies a certain stipulation, that depends upon a provision of the Code, wliich requires the computation of a reserve on a basis which is no basis at all. Your Honor will agree with us in say- ing that the Legislature will not compel a party to do an idle thing; it will not compel a company to put into a policy a stipu- lation wliich does not mean anything after it is inserted. I do not know that the argument is valuable, but I ani applying the rules of law which prevail in the case of an attempted forfeiture of a right. I need not comment on the term "paid-up," which is men- tioned in the exception stated in the section; my friends have given their ideas upon that subject, and I fully agree with them. The question would be asked: Why would you attempt to except from the operations of the reserve feature, a policy which has no reserve? But I need not comment any more on that question. Do the words of the section require that the stipulation to be inserted in the policy shall contain both of the terms mentioned? Your Honor has suggested that if the insured have only the leeway of three months in which to apply for the purchase of a non-participating paid-up policy, even after he had been paying the premiums for twenty years, he would be very apt to lose what rights had accrued to him; that if the Companies had the right to put either one of these two alternative stipulations in their poli- cies, they would put in them the provision for paid-up insurance on demand, because the chances would be greatly in their favor, as the insured would generally neglect to apply in time. There are several answers to that suggestion. The first one is, that among all the policies produced here, there are none (except one) that contain any stipulation for a non-participating paid-up policy. But they all contain the first stipulation — ^for term in- 175 surance — and this action of the Companies shows that they con- strue the section as ])roviding for two alternative stipulatione. Secondly, if the Legislature takes it on itself to say that the only way that the insured could get the application of the reserve to a non-participating paid-up policy is by applying within three months and surrendering the old policy of insurance, all you can say about it is, that the Legislature has power to prescribe the l)eriod, and might have made it three years, or three months, or any other period. And the insured must abide by it, unless the Company gives him more liberal terms than does the Legislature. Section 76 of the Massachusetts law, which I referred to be- fore, provides, "Every such policy, after the payment of two full annual premiums thereon" — instead of three years, as provided in our statute — "or when by its terms it has become paid-up, shall have a surrender value, which shall be its net value, less the sun*ender charge, and less any indebtedness to the Company on account of the said policy, and its holders may, upon any subse- quent anniversary of its issue, surrender the same and claim and recover from the Company such surrended value in cash." The statute of Massachusetts appears to have been drawn with great care — with greater care than is exhibited in our statute. The manifest purpose of the pro\Tsions of Section 76 is to conserve the rights of the policy-holdei-s. And yet, the policy-holder, if he wishes to get the surrender value of the policy, must apply upon the anniversary of its issue; and, clearly, that is more strict against him than the three months given to him by our Section 450 in which to procure the non-participating paid-up policy. A party is supposed to know the law. Your Honor says those who insure do not know the law as well as the insurers. This is a very simple and plain proposition, as he can go, upon any sul>se- quent anniversary of its issue, and surrender the policy and re- ceive its cash value. THE CO]\IMISSIONER. He could do that under our law. MR. RHODES. No. THE COMMISSIONER. He would have to take it in three months, or never get any anniversary. In Massachu>etts he gets one ever}"^ year. MR. Tlio^rAS. All of the policies in the New York Com- panies give six months. In that way they follow the New York law, and are supposed to follow the California law. 176 ME. RHODES. I liave repeated a good deal that my friends have said, and I need not say anything fuTthei- upon the subject. I will simply call you Honor's attention again to the great and paramount consideratioii in this matter. There has been a prac- tical construction of tlie meaning of this section, as given by those who have been brought in contact with it for years. And, although this question may never have been directly and ex- pressly presented to the Insurance Commissioner before this time, it was always as distinct, from the passage of the statute of 1880, as it is to-day. We regard this acquiescence in the action of the Companies in their practical construction of the section, as of very great weight. THE COMMISSIOlSrER. You do not understand that that rule applies where there is no decision? If this Department had decided fifteen years ago a case in which this law had been ex- pressly considered, such decision might now be binding upon this Department. MR. RHODES. It would be worth a great deal more if that question had been sc[uariely presented, and considered and de- cided. But where there has been an aequiesicence on the part of a Commissioner, who is supposed all the time to watch the acts and operations of these Companies for the benefit of the policy- holders, and where the business has been carried on by the Com- panies in suieh a way, and their policies are issued im such a f o^rm, that they make such an application of the reserve, if there be one, as will satisfy the policy-holders, and where these questions were as open during all that time as they now are, I say the acquiescence on the part of the Commissioner, although not as persnasive as a decision of the Supreme Court upon this subject, and although not of as much force as a decision of the Commis- sioner, is still very persuasive; and a different construction ought not to be now made, unless it be imperatively required. I thank your Honor for the patience with which you have listened to me. MR. McAllister. I would like to add to the argument which I have already made to your Honor, if I may. THE COMMISSIONER. Very well. 177 Fnirriii:i: AiaiUMEM' ok vaaao'vv MrAu^sTFR. ESQ., Attorney i'ur tlif lluiiiL' Life Insirraiux' ('<>iii|tan\, ul ^cu York. Ml;. .M( ALLlSTKi:. .Mr. Conimissianer, on behalf of tho Home Life Insiirano'e Conipaiiv, of New York, T deeire first to call the attention of the Insurance ComniissioneT to the fact that no 'advantage is taken of the insured should he at amy time after the payment of thix"e annual premiums, dctermi-ne to discontinue the policy. The insured is given a thirty or forty days' written notice of the falling due of the premium. Amongst other speci- fications, that notice contains the following: " If not paid to tliis corporation or its agents, named below, on " or before the day it (the premium) falls due, the policy and all " payments thereon will become forfeited and void, except as to " the right to a surrender value or paid-uyj insurance, as provided " for in said policy." This calls the attention of the insured di- rectly to the right to a surrender value or to paid-up ineuTance, and therefore the contention that the in.^ured. is in ignorance of any further right in the policy is not well founded. Again, we desire to call the Commissioners attention to the fact that any benefit that may be derived from a failure of the insured to claim his equity in the reserve, goes directly to the policy-holders of the Company, and is distributed amongst them and does not go to the stockholders of the Company. And we desire also to submit what seems to be a fair and reasonable construction of the language of Section 4.50, without necessity of expert testimony of the meaning of the words: a construction that is obtained by a simple consideration of the grammatical constrnetion of the sentence. And we submit that if this construction is really apparent, that it must be the basis of action by the Commissioner. The stiUute in its simplest foi-ni ju-ovides that every i>olicy must contain a stipulation, that when, after three full annual premiums shall have been paid, the policy shall l>ecome void solely by reason of the non-payment of any subsequent premium, then the entire net resen^e shall be applied either to the pur- chase of ''non-participating tenn insurance" or of "a non-partici- pating paid-up policy," "unless specifically contracted between 178 the insurer and the insured for tontine insuiaiice, or for other term or paid-up insurance." This last quoted clause containing a limitation is a part of the principal sentence and limits and modifies what the statute re- quires to be done by the words of the principal sententce. The question before us is. What is this limitation? This proviso clause recognized a freedom of contract; allows the insurer and the insured to specifically eontnact. If they do not specifically contract, then the stipulation expressed in the principal sentence is enforced. They may specifically contract "for tontine insurance, or for other term or paid-up insurance." In this last phrase, "for tontine insurance, or for othe'r term or paid-up insurance," we note the presence of the noun "insur- ance"' appearing twice and limited first by the adjective "tontine" and second by the words "other term or paid-up." We note also the presence of a comma after the first word "insurance"; this must denote an intention to clearly separate the words "tontine insurance" from the remainder of the phrase. That such was the intention, we also submit the repetition of the preposition "for"; it is used before the word "tontine" and again is used be- fore the second phrase of the clause. The words "term or paid-up" must next be considered. We find them used in this proviso clause; we find them separated entirely from the other adjective of the phrase, "toritine," and separately modifying the second word "insurance." The word "other" precedes the words "term or paid-up," and signifies that the words "term or paid-up" are to be contrasted with some other words denoting the same. In the principal sentence of which this proviso clause is a part, we find the word "term" and the word "paid-up" also used; and it is only in the principal sen- tence and in this proviso clause that we find the word "term" and the word "paid-up." It, therefore, would seem to be unneces- sary to go further for the words with which "term or paid- up" axe to be contrasted, inasmuch as we find them in the princi- pal sentence. The attempt is made to contrast that phrase with the word "tontine." Such a construction would be forced, to say the least, and would require ;in exhaustive examination such as was had before the Commissioner as to the technical meaning of the words used. The preponderance of the evidence was to the effect thait tontine insurance was neither term nor paid-up in- 179 siu'ance. There was soiul i'.i(k;iue ihai uiiLiiie as now used was a tiijecies of tonn insuiaiue. But it is iTnnec-essiiry to j;o into the I'vuk'nte. The very i'acl tliat these words can be variously de- tined, strengtliens the position taken by ourselves. The inter- pretation that we urge is, to contrast the words "term or paid- up" with till' identical words that occur in the princijial clause of the same sentence; so that, if the insurer and the insured have specifically contracted for term or paid-up insurance other than that term or paid-up insurance specified in Section 450, then the mandate of the statute does not apply. ARGUMENT OF E. S. PILLSBURY, ESQ., Attorney for The Equitable life Assurance Society of the United States. Mr. I'lLLSBURY. Mr. Commissioner: 1 represent The luiuitable Life Assurance Society of the United States. The ])Ositi€n of this company is, I think, practically the same as that of all the other life insurance companies doing business in this State, except The Mutual Benefit of New Jersey. We have always construed Section -ioO to require the stipulation therein specified to be inserted in insurance policies unless the insurer and the insured should specifically contract in the policy in some other manner or upon some other ba.-is or for some other kind of term or paid-up insurance which the insurer might obtain after the pa}Tnent of three annual premiums. In all of our ])olicies there has always been a specific contract for paid-up in- surance upon demand of the insured within six months after non-payment of the premium, and this stipulation we have con- sidered was all that the statute of California required of us, and that our policies have been in strict conformity with the terms of that section. Tf Section 450 is not open to our construction, but must be iiiiuri)retcd in accordance with the intimations which you have given, then I take it that every company, domestic and foreign, save only the Mutual Benefit of ISTew Jersey, has misunderstood and misinterpreted the law and has issued policit>s in this State not in conformity with the jtrovisions of that section. There seems to me to be no middle ground. We are either all inno- 180 cent or we are all guilty. The excepting clause in this section over which the difterence of opinion has arisen either bears the consti'uction we have given it, in whioh case all of the companies have, so far as I am informed, complied with its requirements, or it should have been construed in accordaaice with your opin- ion, in which event no company, save the one I have already mentioned, has obeyed its mandates, and all are guilty of its vio- lation. The situation is therefoTc critical. I feel convinced, however, that we have not misunderstood nor misconstrued this law, and shall endeavor, at the risk, to a considerable extent, of repeating arguments which have already been made, to pre- sent the reasons for my belief. Before taking up the construction of the language of that section it will, I think, be well to recall the history of the times when it was passed. G-reat assistance is often derived from such consideration, and I believe the present instance shows the wis- dom of that jjractice. It is nearly eighteen, years since Section 450 was enacted, 3^et we can all remember the deplorable con- dition into which the life insurance business in this State had fallen at the beginning of the year 1880. Several years before that time the Legislature had passed a law compelling all of the companies to insert in their policies a certain stipulation for paid-up insurance; this stipulation provided that the reserve should be estimated according to the American Experience Rate of Mortality, with interest at four and one-half per cent., the companies being allowed to deduct therefrom a certain specified surrender charge. The insertion of this agreement- in the poli- cies was made a sine qua nnn to the companies doing business in this State. No other stipulation was permitted and no poli- cies could be issued or delivered within the State which did not contain this stipulation. The passage of this arbitrary law was generally regarded as an unwiise act at the time, and subse- quent events proved this to be true. The only domestic life insurance company doing business here was the Pacific Mutual, and that company was then in its infancy. Practically all of the life insurance was written by foreign companies and many of the latter were organized under the laws of States which compelled the companies to stipulate in the policies which they issued for the application of the reserve to term or paid-up insur- ance upon basas different from, and which conflicted with, that 181 which wgs specified in the Act of our Legislature. Thue the laws of sonic of the States compelled the companies to adopt the "Combined Kxperience " or "Actuaries" or some other tabic of mortality in etstimating the value of the res^i-rve; others were compelled to estimate by chargin*,' intei-cst at four per cent, or some other rate; other States prescribed that only a percentage of the reserve should Ix' subject to the control of the insured, while in others it was prescribed that a certain percentage should be deducted as a surrender charge. As a natural conse- quence it was impossible for some of the companies to continue in business in the State of California, and they, with many others which found it extremely impraetictible to go on, with- drew their business entirely from the State, or ceased to write policies here, and the life insurance business, comparatively speaking, came to a standstill. The result, naturally, was great injury to our State. This condition of affairs continued up to the time that the present law was adopted. The Bill was intro- duced with the intention of relieving the situation by removing the objectionable features in the then existing law and of |)er- mitting the foreign companies to come back and renew their business in the State. The history of the passage of that Act has been presented to you at this hearing by Mr. Munsell, who drafted the I3ill. ^fr. Munsell is now, and, I understand, was ihen, the agent of The J\Iutual Benefit Life Insurance Company of Newark, New Jersey. Mr. Muusell's company is the only one, tlie policies of which do not otherwise contract for term or paid- up insurance, but have a conjunctive stipulation precisely similar to that mentioned in Section 450. A determination of this question in accordance with our contention would, therefore, be of no benefit whatsoever to Mr. Munsell or his company, while a determination to the contrary would result to his incal- culable ])ecivnlary advantage. 1 mention this fact to show how thoroughly disinterested in this matter is ^Mr. Munsell, and for that reason how much weight should be given to his testimony. He coiifirms entirely what I have already said regarding the his- tory of the times and the object of passing this law. He tells us that the Bill was drafted by him and introduced in the Senate with the inte'ution of r«ei>ealinig tihe requirement for tiie ine the question a new one, a different construction would be adopted. The following cases declare that rule: — "Long and uninterrupted practice under a statute, especially by the officen? who&e duty it was to execute it, is good evidence of its construction, and such practical construction will 1m} ad- hered to, even though, were it res integra, it might be difficult to maintain it." Harringion v. Smith, 28 Wis. 43, 68. "In the construction of a doubtful and ambiguous law, the contemporaneous construction of those who were called upon to act uiulcT the law, and were appointed to carry its provisions into effect, is entitled to very great respect." Edwards v. Darby, 12 ^Vheat. 210. " The construction given to a s-tatute by those charged \nth the duty of executing it, is always entitled to the most respect- ful consideration, and ought not to be overruled without cogent reasons. 7J United States v. Moore, 95 U. S. 760. Long silence on the part of the officers charged with the duty of executing a law, and the fact that no objection has even l>een made by them when it was their duty to speak, is equivalent to an express declaration on the subject. Wilson V. McNamee, 102 IT. S. 572-575; Atkins V. Disintegrating Co., 18 Wall. 273, 504. And see also: — Stewart v. liaird, 1 Cranch. 299; j\lcl\een v. Delancy. 5 Cranch. 22; Union Insurance Co. v. Hoge, 21 How. 35; Hahn v. U. S., 107 U. S. 406; Brown v. United States, 113 U. S. 568; United States v. Philbrick. 120 U. S. 52. 186 For these reasons, Mr. Coinmissio'ii'er, I believe that the inter- pi"«tation which we claim for Section 450 should be adopted by you, even if the lan'guage of the Act might now warrant a differ- ent constructi'on, were the law a late enactment and the question of its construction a new one. But it seems to me that the lan- guage of the Act taken by itself, stripped of all surrounding cir- cumstances, compels the interpretation we give it, and negatives any other construction. Let me read those portions of Section 450, which I believe to be material to the present inquiry: — " Every * policy of iutsurance * shall contain, unless specifically contracted between the insurer and the insured for tontine insurance, or for other term or ] 'aid-up insurance, a sHpu- lation that after three full annual premiums shall have been paid on such policy * * its entire net reseiwe * * shall be applied * either to the purchase of * term insurance * or upon the written application by the owner * to the pur- chase of a * paid-up policy." Inasmuch as the clause heginning with the words " unless specifically contracted " is in the nature of a proviso or excep- tion to the rest of the section, it will perhaps aid us in arriving at the true construction of the Act to place this claiwe at the end. With this modification, the section reads: — " Every * policy of insuraTice * shall contaiTi * a stipulation that after three full annual premiums shall have been paid on such policy * * its entire net reserve * * shall be applied * either to the purchase of * term insurance, * OT upon the written application by the owner * to the purchase of a * paid-up policy * unless specifically con- tracted between the insurer and the insured for tontitne insur- ance, or for other term or paid-up insurance." The difference of opinion occurs in determining, first, the form of stipulation required by the Act, and second, the extent and meaning of the exception. I believe, Mr. Commissioner, that you are inclined to the opin- ion that the stipulation must provide that the Company will first apply the net reserve to the purchase of term insurance, and also give to the insured the additional right to come for- ward within three months after the non-payment of premiums and after the net reserve has been applied to^ the purchase of term insurance, and after that insurance has been in force, and 187 have the net reserve re-applierl to the purchase of paid-np in- surance. The insurance com|>aniefi l)eliove that the law only re- rjnires the companies to make one stipulation, which shall either proviflo that th^ net reserve shall he npplied to the purchase of oxlenflofl term insurance, a.s requiree a rebuke to the vigilant and deserving, and a premium to the care- less and profligate. There can be no suspicion about the good faith of the companies here represented, in the transaction of (heir business. There is no taint attending their methods: they have been open and straightforward. There is no suggestion of any unlawful trust or combination on their part; they have pro- ceeded in reliance upon the protection of the State in the pur- suit of a legitimate business honestly conducted. Wliile T cheer- fully and fully recognize that in the discharge of your duties as Insurance Commissioner, vou are only seeking to keep the obli- 192 gatioois imposed by your oath of ollice, and are guided solely by a sincere desire to rightly eiiforce the laAvs as they are written upon the statute books, I confidently believe that you will dis- cover no exigency in this situation which demands any such radical change in the interpretation of those laws as has been suggested; that you will at least conclude that such grave doubts beset the questions M'hich have here arisen as to preclude any affirmative action on your part until the Legislature has had an opportunity to indicate wherein lies the true solution of the diffi- culty. And with entire confidence in the correctness of the views which I have had the honor lo here present, and in the utmost faith that you, as an officer of the State, will bring to the consideration of these grave and momentous questions, judi- cial impartiality and a conservative disposition, I submit the matter into your hands. ME. THOMAS. May I suggest one more rule of construction that was suggested by Mr. Rhodes' argument? He very forcibly put to you the proposition as to what the rule of construction is on a penal statute; that a construction must be given which pre- vents the forfeiture. There is another rule which can also be ap- plied in the same line: \Vhere a statute infringes upon, or is re- strictive on that common right than the other, it is the duty of common right), the same rule of construction applies. If there be a possibility to give two constructions, one of which is less re- strictive on that comon right than the other, it is the duty of the court to adopt that constraction which is the least restrictive. Take the case which provides for contracts in restraint of trade, and your Honor will find that rule applies to all. THE COMMISSIONEE. I do not understand that that rule applies in the case of a foreign corporation coming into the State to do business. I do not understand there is any common right of corporations to do busimess in the State. The right to do business is simply a matter of grace from the State. When a corporation seeks to do business it must comply with the law of the State, particuilarly if it is a foreign corporation. That is my understanding of the law. I want to say that I realize the diffi- culty of decidimg this matter as well as any of the gentlemen here. I do not think it is a clear question either way. I think 193 it is a question of doubtful const ruotion, and the criticisms pro- nounced on the Act are well founded. 1 do not believe that any one here claims that it is susceptible of any clear reasoaiing. Some time ago, when this matter first arose, several of the gentle- men here presented it to me. They came without a formal hear- ing and I discussed it with them. I told them what my views were. I told them at the same time I realized it was too serious a question for me to decide hastily. That is all the more firmly fixed in my mind when I have the opinions of Judge Rhodes, Mr. Hankin, and Mr. Thomas, and other lawyers, in which they disagree with me. I give them credit for good faith in what they say, although I realize they are here as advocates and attor- neys for certain Companies. The unfortunate part of it is, I am the Commissioner, and I have to render a decision of some kind. I must say that some of my former opinions have been shaken by the hearing I have had in the past tw^o days. But there is one thing I never will consent to — I want to say it frankly, and I am as prepared to say it now as I will be in a month or two — and that is, that I will never decide that at the end of three months, under this law, a policy-holder loses his rights if he does not surrender his policy and apply for paid-up insurance. My idea is, the Legislature intended that after a man had made three annual payments of premiums, the reserve should be given to him by way of extended or paid-up insurance, and not to the Com- pany, and that every policy issued must contain the stipulation provided by Section 450 of the Code, unless it was a tontime, term or paid-up policy. My idea is that it is one stipulation. They are both to be in the policy as a right to be given to the policy-holder The only trouble about that, that I have in mind, is the fact of the three months of interim between the time of the forfeiture of the original policy and the application for paid- up insurance. Mr. Rankin and Mr. Thomas have pointed out to me that the policy-holder seems to have something here for nothing, and to get the benefit of both conditions whore the law intended to give but one. In other words, he gets his insurance extended and also gets the right to this paid-up {X)licy at the end of three months. As far as most of the New York Compajiies are concerned, they do not give him anything. They take away everything unless he exercises an option within three months. Mr. Smith's Company does give to the policy-holder a paid-up 194 policy. While I have not the right to declare the policy of the State, it seems to me that in view of the condition that this statute is in, if all the Oom])anies were in a position where they gave to the policy-holder the paid-np policy, where he did not apply for anything, I shonld hesitate to take any license away. The only Company that really does that is Mr. Smith's Company, and the New York Life, nnder the recent policy they have issued. MR. THOMAS. And the Connecticut Mutual. MR. ^lUNSELL. You do not understand the Mutual Benefit does not do it? THE COMMISSIONEE. I understand that Company very nearly complies with the law as I construe it. ME. MUNSELL. Absolutely. THE COMMISSIONEE. Another matter that would in- fluence me very much, aud which I have been considering during the time this discussion lias been going on, is, to get at what the experience of the Companies has been. We have had this in operation since 1880. I should like to know whether the failure to comply with this section has worked any injury to policy- holders. It was the idea I had in my mind some time ago, when I sent out for the list of policies of the Companies, as to just what the effect has been. Have the policy-holders of the State lost any rights by reason of the fact that these Companies have not complied with the law? Taking the history of the policies as shown by the Companies' books, have there been any cases in which forfeitures have accrned after payment for three years, in which paid-up insurance has not been given? I say to you gentlemen frankly now, so that you can understand and protect yourselves, I should be very loth to give any decision that would take away from the policy-holders of the State the right that I think the Legislature intended to give them. There is such a wide diiference between us ujion the constniction of this law, that I suggst to Mr. Thomas that if the courts have revisory power, as he seems to think they have and it may be they have, that he take the question into court with his Companies. Per- haps by the time that the next Legislature assembles some law could be framed that would satisfy every one. If all the policies of these Companies were in the same condition as Mr. Smith's Company, and every policy-holder in the State had been getting 195 some equivalent for the money he paid in, 1 should heaibate a long time before revoking any license, and even now I should hesitate about it. That is the position 1 am in. My views have been shaken a great deal by the arguments that you gentlemen have presented to me. The inatt-er has been very thoroughly pretsented, and 1 feel under a great many obligations to you gentlemen for doing it. I only want to do what is right. I am not here to haxass or annoy any of the Companies. lam here to see that tlie policy-holders are treated fairly by the Company. MR. liUODKS. I do not believe there is any complaint that any policy-holder has suffered in consequence of there not being this second clause in the stipulation. I have heard of none, and 1 have talked with a great many Insurance men. I do not be- lieve your Honor will be of opinion that the Ijegislatiu'e irn- tended to cut off all right on the i>art of the coqwration to make such i-easonable rules and regulations and contracts in the dis- position of the reserve as they may agree to. If that be the case, I do not see why there should be any objection to allowing the matter to stand until the next Legislature should do that which it seems to me is apparent ought to have been done, to provide that every policy of insurance issued to a resident of this State and delivered to him, should be deemed and construed to have this provision, in addition to any others like the Mutual. THE COMMISSIONER. You certainly do not believe. Judge Rhodes, that the Legislature intended that after the in- sured had paid his premiums for ten or twenty years, or even seven years, and met his renewals, that his failure to apply in three months should drop him out? MR. RHODES. No. But he did have the benefit of that other clause, which would be, possibly, better. THE COMMISSIONER. Extended insurance is not given at all by the Companies. MR. THOMAS. He could have got a contract for such in- surance. THE COMMISSIONER. At the start? MR. THOj\rAS. Yes. THE COMMISSIONER. I do not attribute much import- ance to that. When you come to make a contract for insurance, we all know the assured has not had anything much to do with it. The stipulations and terms of a contract, as 1 say, are never ij)6 known to the policy-holder. He does not get his policy until after the contract is absolutely closed. ME. ERODES. But this automatic provision operates at once. THE COMMISSIONEE. I understand not. If the auto- matic insurance was in, I would have to say that the Companies were fully complying with the law. Take Mr. Thomas' New York Companies. They nowhere provide for automatic insur- ance at all. ME. THOMAS We provide for something better. THE COMMISSIONEE. I am answering Judge Ehodes' position. If they provided in their policies that a man should have paid-up insurance provided he applied for it in three months, and in the event of his not applying for it that they would carry the reserve along and pay the premiums on the original policy, your position is correct. I would, consent to that. But they do not do that. ME. EHODES. On our part, and on the part of some others who are in the same condition, we say that that reserve shall be applied. It takes effect so that it produces an insurance which according to their tables, is all he could buy if he went in there with money. THE COMMISSIONEE. As I understand, the Company that you represent, the New England Mutual Life Insurance Company, gives the assured a paid-up policy if he applies for it in three months. ME. EHODES. He does not have to apply at all. THE COMMISSIONEE. You carry it automatically, the same as Mr. Smith's Company? ME. EHODES. Yes. THE COMMISSIONEE. In a large number of Compa,nies particularly those that come from New York (and Mr. Thomas represents one of the principal Companies), I understand unless a man applies in three months — ME. THOMAS. (Interrupting.) Six months. THE COMMISSIONEE (Continuing.)— he absolutely forfeits the entire reserve. I cannot get my mind in a condition where I ca.n say, and say co-nscientiously, that the Legislature ever in- tended any such thing as that. I think if Mr. Thomas' Company provided that in the event of the assured not taking the paid-up 10' policy at the end of three or six months, that they then would take the reserve and carry it on, the position of Mr. Rliodes would be correct. I understand that is what some of the Com- panies do. T should hesitate to revoke the license of a Company doing that, inasmuch as this section is susceptible of several con- structions. I am going through every policy before I act upon this matter definitely. Before I decide upon the revocation of the license of any Company. T shall examine all the policies. But I will say to you, gentlemen. T feel I am just as able to pass upon this matter now as at any time. MR. LANDERS. All policies issued after the enactment of this law by the Manhattan Life Insurance Company provided for paid-up insurance by the surrender of it within six months after the date of the renewal anniversary. There are other policies issued on the term plan, that is, the limited payment plan, that give the paid-up insurance without notice to the insured and without the surrender of the original policy. THE COMI\riSSIONER. I have them all here. MR. LANDERS. Since the 15th of August. 1897, all our policies are automatic; that is, they give practically the same benefits to the policy-holder. They give him the privilege of paid-up insurance or extended insurance. THE COMMISSIONER. I have all those policies and I will examine them before I pass upon the matter. ^fR. LANDERS. So that if we were not in full accord ^nth the law then, we are now. MR. RHODES. When you examine those provisions further and look into these policies and the law, your Honor will an- nounee whether these Companies are acting in violation of the law. Yonr Honor will not take it upon yourself at once to re- voke their license? THE CO^nnSSIONER. I am not prepared to say. I have tried to make my position fairly unders.tood, so you genflemen might understand how I feel. T have refrained from giving any formal decision on this matter up to now. I think T am sitting in the position of a court. I do not understand that when a court is about to give a decision, it sends for the litigants and tells them how it is going to decide. T have tried to give you an intimation of how I stand. 11)8 MR. RHODES. If you revoke their license, it would be in the nature of an execution. THE COMMISSIONER. T have tried to give yon warnirng by wliich yon may be gnided. MR. THOMAS. I undei-stand my warning very well, and I want to say two or three words when everybody is all through. THE CO.AIMJSSIONER. I understand that Mr. Munsell's Company claims it complies with the law. MR. THOMAS. It seems to me I am suffering under the dis- advantage of having been most active in trying to find out exactly what your wishes are, and making every kind of an argument that 1 could to satisfy you that we are right. Why the Mutual Life should suffer because it happens to have a policy which does not comply with the statute, any more than any other Company, 1 eanuDt s^ee. We carry $27,000,000 insurance in this State. So far our policy-holders have been satisfied We are the only Company that has had the pluck to come into the State of Cali- fornia and invest a large sum of money in a building. We have $400,000 invested in that building. That shows we had faith that the State would treat us right. The effect of a forfeiture of our license would be, on account of the size of our business, more disastrous than to any other Company. We have a policy in which it is provided absolutely that unless a demand is made in six mcnths, the assured forfeits everything. That is true. That is a great deal better for the assured than a policy that pro- vides for automatic term insurance. If the law should be changed to compel all Companies to give an automatic term and not paid-up insurance, we would all be very glad, but that is not half as valuable to the assured as the class of policies we carry. It is true, under our policy, unless the demand is made in less tbam six months, the assured does not get anything. If the as- sured forfeits his reserve, the Company does not get it, because we are a mutual company, hence the other policy-holders gelt the benefit of that forfeituTe. It adds to the solvency of the con- cern, to which all policy-holders look when they come to realize on their policies. I do not think the law intended that a Com- pany that is carrying $27,000,000 of insurance in the State should have its certificate revoked simply because the only thing it asks of the assured is to say whether or not he wants to go on. I think that is a pretty severe forfeiture. 199 THI<: COM MISSION KR. I)., you not think the fact that you are carrying such a larpfe amoiiiii ol' insurance shows that your |)oliey-hold€rs should he protected? I only pick out your Com- pany because I have not gone over the other policies, and because you take the position that any kind of a contract cam be issued by you; that you have the option of inserting in the contract a provision that you will give a paid-up insurance in six months. I disagree with you, and with any other Company which stands in that position. MR. THOMAS. All T ask is that we will be treated the same as those Companies that will be found to be in the same position. TIIK COMMISSIOXKR. I should dislike to think that any other treatment would be given vou bv this office. MR. TPIO]\IAS. If you select my Company as the particular party guilty in this proceeding, 1 will have to take proceedings to test this question in the courts at out own expense, which would be very hard upon us. I nm only thinking what my home office will say. They will j;ay. "How did you get along with Clunie so that he jumped on you and no one else?" If you in- sist upon taking that position, I shall be very sorry. We have been friends a great many years. THE COMMISSIONER. The only reason I make this state- ment is because you have appeared before me and have argued the position thoroughly, and it is due to you to say how I feel in the matter. MR. RANKIN. Are there any other policies of that char- acter? MR. THOMAS. Yes. the E(|uitable and the Home Life. THE COM. MISSION EH. They arc in the same position you are in. I do not pick oirt the Mutual Life. I say to all Companies who have such provisions, I do not believe it was the intention of the Legislature that they can forfeit the right of the policy-holder to his reserve. MR. THO^IAS. I claim, as far as the strict compliance with the statute is concerned, the new policies of the New York Life and the Pacific Mutual are the only ones that comply strictly with the statute, in your construction of it. THE COMMISSIONER. I agree with you Mr. Thomas. u^k>u that. When it coma< to a'questiou urged upon me as to the effect of any such action on the part of the Insurance Commissioner 200 of tlie State, I thin'k as far as T have disieretion, I ought to exer- cise it against revoking a license. Where I can see that the rights of the policy-holder are not absolutely forfeited, I should wait until the next Legislature acts. If it does not act and does not take any steps under this Act, it will not be permitted to stand in its present condition, and I shall act upon my constiruction of the Act, such as I believe to be the lawful one. I take this staaid because I do not wish it understood that the incumbent of the ollice of Insurance Commissioner wants to wantonly injure or destroy the Insurance Companies of the country, because I do not. At the same time, I say frankly to you that any Company that absolutely forfeits the right of a policy-holder in the reserve that has been accumulated for years, because he does not apply in three months, does not appeal to me as a Company that is en- titled to any discretion or favor of this Department of the State Government, and it shall not have it. ME. THOMAS. Let me make this offer: Would you be will- ing to leave the Mutual Life, the Home Life, and the Equitable in the same condition until the next Legislature meets, provided we change our policies? THE COMMISSIONER. I a.'^ked yon to do that, and I understood they all said they would not eliange their policies. MR. THOMAS. No. You wanted to know if it would be possible to amend the policies so as to give both automatic term, and paid-up. I am now offering to recommend to the home Company that they issue automatic paid-up policies without demand. THE COMMISSIONER. Provided during the term this law has been in effect, that no citizen of the State has suffered, and if there are any who have suffered, that the Company make it good to them? MR. DONNELS. All the other companies come in under the same category. They have done it only recently. THE COMMISSIONER. In response to that suggestion I say to you that any company to whom I make this concession of waiting, would be put under the same rule. If any policy-holder of the State has suffered by reason of this, before I would hold off from refusing to revoke the license, I should insist that they put the policy-holder in the same position. If you know of any 201 company which has done that, I think, in fairness to the Com- missioner, you ought to have that understood. Mil'. I)0kiVP]LS. Tlie Mutual Benefit and the Union Mutual of Maine are the only companies. TllK COMMISSrONl<:R. I want to say, in regard to that, 1 am still of the opinion that my reading of the law is the cor- rect one. I am willing to go further. I am willing to recognize the fact that this law has been on the hooks since 1880, an