Popular Science Monthly/Volume 31/July 1887/Lawsuit or Legacy

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WITHIN the past twenty years the business of life-insurance has grown with such wonderful rapidity, and changed so radically in its methods and contracts, that it is to-day as unlike its old self as the railway-car is unlike the stage-coach.

The old life-insurance contract undertook to define burglary, riot, and rebellion, and the companies held themselves free from obligations deliberately assumed, if the other party to the contract did not conform to the rules of conduct laid down under their definition and requirements. Nowhere else in the history of large business organizations has the debtor regulated his obligation by the morals of his creditor and liquidated his debt by acknowledging its existence, and then simply charging moral obliquity on the part of said creditor as the reason for not paying it.

If A owes B fifty dollars, and B is known to be a thief or a murderer, it does not liquidate A's debt to simply show that fact. But life-insurance companies have held, and some of them still claim, the right to so indemnify creditors, and, strange to say, they have been able to conduct business on that basis. They have even gone further, and said that a debt to B's heirs is forfeited in like manner—thus making the destruction of a man's reputation after his death of pecuniary advantage to the company. They have been enabled to do this because many men do not read the insurance contract which they sign, and hence have no idea of its complicated and, in many cases, unfair nature. If men insisted upon understanding the contract before they sign it, as they do in other business, the more unfair features would necessarily disappear from all insurance contracts.

If I deposit a thousand dollars in a bank, it is my money—I can withdraw it when I please, subject, of course, to business rules, which have nothing to do with my standing as a citizen. The bank has nothing to say in regard to my loyalty or my honesty in other affairs. My money can not revert to the bank on outside ethical or moral grounds. But in life-insurance—a business in which more money is invested than in banking—the opposite rule has been, and to some extent still is, in operation.

There were a few companies, it is true, which rarely took advantage of their reserved right to mulct a family of money actually received, upon the plea of outside ethical delinquencies of the dead—which had nothing to do with his length of life—and there are companies, at the present time, which have voluntarily eliminated the greater part of these oppressive regulations and reserved rights from their forms of contract. But in many of the companies they still remain in full force, and in almost all there are improvements of a most important nature needed even yet.

In other words, while one or two companies have made their contracts, in large part, what contracts purport to be, a guarantee of good faith—that, if so much money is paid to them during a stated interval, they will return to the party insured, or to his heirs, a stated sum at a given time—there are still many which have not so improved their contracts, and are doing business in the old way, depending for success on the ignorance of their applicants in regard to the unfair conditions of the contracts which they sign. A few have left out most of the thousand and one ifs and ands and provideds of the old regime, and have at last undertaken to conduct this important and rapidly-growing business on strictly business principles, and the results have abundantly attested the wisdom of the new departure and indicate the advisability of still more liberal measures. A man may now, if he is careful and wise in his choice of a company, insure his life, or, if insured, he may have the temerity to die, without a fairly-grounded expectation of leaving his family a lawsuit for a legacy. He may also be reasonably sure that he is not placing his own reputation (after he is unable to defend it) at the mercy of a powerful corporation intent upon saving its funds from the inroads of a just debt. And I question if it is too much to say that, given enough money, a strong motive, and a powerful corporation, on the one hand, and only a sorrowing family upon the other, and no man ever lived or died whose reputation could not be blackened beyond repair, after he was himself unable to explain or refute seeming irregularities of conduct or dishonesty of motive. No man's character is invulnerable, and no man's reputation can afford the strain or test of such a contest. Millions of dollars have been withheld from rightful heirs by threats of an exposure—the more vague the more frightful—of the unsuspected crimes or misdeeds of the beloved dead.

Thousands of cases never known to the public have been " compromised," and hundreds of heart-aches and unjust suspicions and fears about the dead, which can never be corrected, are aroused in sorrowing but loving breasts by this method of doing "business." It is, of course, of the utmost importance that every precaution be taken by life-insurance companies to protect the funds held by them, in trust for others, against fraud and trickery. But with the agent, the examining physician, the medical directors, and the inspectors all employed by, and answerable to, the company represented, if fraud is committed in getting into the company, one or all of these paid officers must almost, of necessity, be party to that fraud. With all these safeguards in the hands of the company, if a man is accepted as a "good risk," if he pays his premiums, surely his family has the right to expect a legacy and not a lawsuit, nor a "compromise" which must cast reproach on the dead.

If it were not for the enormous value and benefits of this method of making provision for his family, surely no man in his senses would ever have risked—would not risk to-day—signing a contract which gives the other interested party not only an absolute fixed sum of his money, year by year, but also reserves to itself the right to investigate and construe his actions and motives after he is unable to contest its verdict.

And not only this, but upon the finding of some slight, wholly immaterial flaw in his statements (which it failed to find when he was in the hands of its agents and officers), in some companies he not only forfeits the right of his heirs to their purchased inheritance, but the company retains his money which he has paid in besides! This is surely a dangerous contract for any man to sign. It is placing a temptation and a power in the hands of a corporation that it has never yet been in the nature of corporations not to abuse.

"If any statement in this application is in any respect untrue, it voids the policy, and all payments which shall have been made revert to the company," gives a wide field and doubtful motive of action when it is remembered that many of the questions are of such a nature that not one man in a thousand could be absolutely sure that he knew the correct reply.

"At what age did your grandparents die?" All four of them. How many men are sure that they can answer that question correctly? "Of what did each one die?" You do not know. You have a general idea. You express it. You pay your premiums ten years. You die (one doctor says of consumption—another says of blood-poison); the company finds some old person who says your grandmother on your father's side died of the same thing, and there is a rumor that a long-forgotten (or never-known) country cousin also had it.

The company sends a representative to the widow. He assures her (and by the very terms of the contract, signed by the dead husband, he is right and she is helpless) that they can refuse to pay a cent; that her husband got his policy by fraud—although no indication of his physical disorder appeared to any of the numerous officers employed by the company for its own protection, when he made his application, and by general reports he was (and believed himself to be) a sound man.

He assures her that they want to be generous rather than just, and if she will sign a release, or "compromise," she will be given a small part of the sum named in the policy. He makes her feel the necessity of keeping this bargain a secret, lest other policy-holders object to the company paying anything on the life of one who "attempted a fraud" upon them! He impresses upon her that in case of contest she could get absolutely nothing; that she is poor, and the company is rich and strong; and if he fails to arouse her gratitude for his generosity in offering to pay her anything whatever, he usually succeeds in intimidating her in her poverty and distress. A sparrow in the hand is worth more than an eagle on Mount Washington to a widow with a hungry family, especially if the eagle has successfully maimed his pursuer in the beginning of the flight.

The company knows this. The widow knows it. The conclusion is therefore certain before the premises are stated, and the "compromise" is made or the claim quietly dropped. It is easy to say that a man died of some bad habit unknown to his family, and his family would rather forego their claim than drag into light, or into disgrace, the memory of the loved dead. All this is well understood by those on the "inside," and by thousands of sad hearts that dare not speak. Is there no remedy for all this? Is there no way that a useful and powerful business can be rid of features which make it both dangerous and ghoulish?

The recent steps taken by the best companies are undoubtedly in the right direction, as those still using the old forms of contract will sooner or later learn. But there is room yet for improvement even in the best forms written to-day. The fairest insurance contract written still has room for improvement.

Is there no way to protect these great corporations against the frauds of individuals, and at the same time protect the individual against the frauds of the corporations?

Must life-insurance contracts be absolutely one-sided, and that be the side of the strong against the weak; the guarded against the unguarded; the living against the dead? It seems to me that this is wholly unnecessary. A life-insurance company which has the agents, the doctors, the medical directors, and inspectors all on its side can well afford to offer a fair field—a plain, fair contract—to its patrons, and then pay its debts like any other debtor when its obligation falls due. If it can not find out within a year (with all the machinery in its own hands), and while the man is alive, that he is a bad risk, it is too late to make the discovery after he is dead. If the indications are sufficiently in his favor for them to accept his money from year to year while he lives, they are sufficiently favorable to him for his family to receive the company's money when he has died.

Life-insurance is too valuable and too necessary a means of provision for the family for it to be overlaid with abuses that make many men hesitate to avail themselves of its benefits; and which put a power for evil into strong hands, and make temptation to do wrong inevitable and constant.

It is said by some, whose attention has been called to this important subject, that the form of contract does not so much matter, since almost any court or jury will decide a suit against the company, and in favor of the family, in any event. This is taking it for granted that the heirs are in position, and are willing, to bring suit, and risk the reputation of the dead as well as the financial drain. But, as a matter of fact, this is not true—nor is it desirable that it should be. The rights of these corporations should be as jealously guarded by our courts as the rights of the individual; and perverted justice is a dangerous tool to handle. The man who signs an oppressive contract depending upon a court to nullify it after he is dead, is clinging to a rope of sand. The letter of the bond is what the court is bound to enforce, and every man should be sure that he signs only such as shall deal fairly with his heirs on that basis.

The following extract is from the decision of the Court of Appeals in the famous Dwight case, which is so recently decided as to most forcibly illustrate this point:

"If an insurance policy in plain and unambiguous language makes the observance of an apparently immaterial requirement the condition of a valid contract, neither courts nor juries have the right to disregard it or to construct, by implication or otherwise, a new contract in the place of that deliberately made by the parties. ... Such contracts are open to construction, ... but are subject to it only when, upon the face of the instrument, it appears that its meaning is doubtful or its language ambiguous or uncertain. ...

"An elementary writer says: 'Indeed, the very idea and purpose of construction imply a previous uncertainty as to the meaning of a contract, for when this is clear and unambiguous there is no room for construction and nothing for construction to do.'"

For this reason the Court of Appeals cited as the ground, and the only ground, for its decision against the widow, the following clause from the policy of the contesting company:

"This policy is issued, and the same is accepted by the said assured, upon the following express conditions and agreements: That the same shall cease and be null and void and of no effect ... if the representations made in the application for this policy, upon the faith of which this contract is made, shall be found in any respect untrue."

Colonel Dwight was in the habit of making large business ventures. Several times, when he had done so, he had taken heavy amounts of life-insurance, so that in case of the failure of his undertakings, and his own death before he could regain his financial feet, his family would not suffer. On previous occasions he had dropped the greater part of his insurance as soon as his business ventures had terminated successfully. This is not an uncommon thing for rich or speculative men to do.

In 1878 Colonel Dwight died, with an insurance on his life of about $265,000, some of which he had carried for years; but a large part of it had been recently taken for the reasons above stated, and as he had done before under similar circumstances. Fifty thousand of this sum was in old and new policies against one company.

This company paid at once, thus giving the widow means to fight for her claims against the other companies. In a short time one of the other companies, against which she had a small claim of $5,000, also paid. The other nineteen companies contested. The widow employed Senator Conkling, and the fight has been the hardest, the bitterest, and the most ghoulish insurance contest ever had in this country; and finally the companies have won in the Court of Appeals on a purely technical point, after having dug Colonel Dwight's body up several times, in the effort to prove that he was poisoned, that he hung himself, and that he was not dead at all! They failed utterly to prove any material cause of contest; but they finally won on the ground that, in answering a question in the application for insurance, Colonel Dwight did not state that he had ever engaged in the liquor business, whereas it had been known that he had owned a hotel where liquor was sold.

Now, when it is remembered that at one time these companies tried to prove that Colonel Dwight had committed suicide, but that they never had any grounds upon which to claim that he had died of intemperance, the purely technical grounds for the decision of the Court of Appeals is apparent. Ninety-nine policies out of a hundred could be contested on such ground as that; and so long as insurance contracts retain these unreasonable and oppressive features, no man can be sure that he is not leaving a lawsuit and bitter sorrow to his family, and worst of all a blasted reputation for himself, when he applies for insurance under such a form.

An officer of one of the companies was heard to boast of the fact, but a few days ago, that his company had spent nearly ten times the amount of the claim against it in this Dwight contest! This is economy indeed! Whose money was thus spent? The policy-holders'. For what? To defeat one of the policy-holders in a contest for a claim no doubt as honest as any one of the others will present in his turn.

But suppose that this was not an honest claim; suppose that Colonel Dwight was not a "good risk," is it not a rather suggestive indication of the value of the medical examinations by the expert medical examiners and directors of twenty-one life-insurance companies? A risk good enough to "pass" some forty-five doctors employed by, and for the protection of, the companies is, on the face of it, a good enough risk to pay. If this is not so, then the companies, and not the public, should be made to bear the responsibility of the incompetency of their own officers.

But for the reputation of these medical men, it is a fortunate fact that the contest did not prove Colonel Dwight to be an unsafe risk. After his body was dug up several times, and a number of autopsies held, and most of him analyzed, they succeeded in proving that he owned a hotel where liquor was sold!

But under these forms of contract, the companies undoubtedly had a legal right to refuse payment upon even so absurdly technical a misstatement of "occupation." It was claimed that his hotel was a side issue; that he did not think of himself as in that business, and that his failure to say, because of it, that he was "in any way connected with the manufacture or sale of spirituous liquors," was a natural one under the circumstances. How many men give, in answering the question as to occupation in their applications for insurance, all of the numerous "plants" in which they have an interest of a financial nature, more or less important? One man says he is a book-keeper, but he may possibly, also, own stock in a mine. His claim could be contested on that ground. Suppose that he really thought nothing of his mining-stock when he made his application and signed his contract? Suppose that in a short time he was called to see the mine, went into it, and died of the results of that trip? His policy would not, if it contained the usual conditions, be worth, in a legal fight, the paper it was written on.

That companies often waive their reserved right to contest on such grounds, is used as an argument to prove the innocent nature of these forfeiture clauses and other oppressive conditions. But so long as they hold the legal power to do so, the temptation to contest will be too great for flesh and blood, not to say for corporations, to bear without yielding sometimes. The "Get thee behind me, Satan," of a fair, plain contract will be the best safeguard for the heirs in the matter of money, and for the companies in the matter of morals; while the "economy for the sake of surviving policy-holders" might be directed, as there is surely room for believing that it needs to be, into other and more legitimate channels. Economizing on debts to dead policy-holders is not a very good recommendation to living ones, for the companies which thus lock the wrong stable-door.

The new move toward furnishing fair contracts is in the right direction, and it now rests with insurers—the public—to see that it does not stop short of fulfilling the promise of still better things in the future.