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BILLS SEEKING TO AMEND THE INSURANCE LAWS ADMINISTERED BY THE VETERANS ADMINISTRATION

MONDAY, MAY 18, 1953

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON VETERANS' AFFAIRS,

Washington, D. C. The subcommittee met, pursuant to call, at 9:15 a. m., in room 356, Old House Office Building, Hon. Winston L. Prouty (chairman of the subcommittee) presiding.

Mr. PROUTY. The subcommittee will come to order.

We are meeting this morning to begin a hearing on all the bills now pending before the committee which relate to the subject of insurance. There are three basic laws which cover this subject, namely, the United States Government life insurance law, applicable to World War I veterans; the National Service Life Insurance Act, which granted insurance to World War II veterans; and the Servicemen's Indemnity Act, which provides the automatic coverage now afforded persons in the Armed Forces.

I have chosen this manner of considering all of the legislation at one time in order that the subcommittee may obtain an overall view of the entire subject of insurance.

After the hearings have been completed, the subcommittee will have an executive session or sessions to determine the legislation which it will recommend to the full committee.

The Veterans' Administration has been requested to testify fully on the legislation before us, and the four veterans' organizations have also been invited to appear.

In addition, each Member of the House who introduced a bill pending before the committee on the subject of insurance has been given the opportunity either to submit a statement or to come before us and express his view of that particular bill.

Members of the committee have recently had the advantage of reading House Committee Print No. 55, which contains much valuable information and many helpful suggestions concerning the administration of the insurance law, and with particular reference to the operation of the National Service Life Insurance Act.

Without objection, I will insert at this point all of the bills and the Veterans Administration reports thereon, together with certain letters relative to this hearing and certain pertinent material prepared by the staff. (The material referred to is as follows:)

1067

(No. 35)
COMMITTEE ON VETERANS' AFFAIRS, HOUSE OF REPRESENTATIVES

OFFICE OF THE SECRETARY OF DEFENSE,

Washington 25, D. C., April 7, 1953. Hon. JOSEPH W. MARTIN, Jr.,

Speaker of the House of Representatives. DEAR MR. SPEAKER: There is forwarded herewith a draft of legislation, to further amend section 622 of the National Service Life Insurance Act of 1940.

This proposal is a part of the Department of Defense legislative program for 1953 and the Bureau of the Budget has advised that there is no objection to the transmittal of the proposal for the consideration of the Congress. The Department of Defense recommends that it be enacted by the Congress.

PURPOSE OF THE LEGISLATION

Under section 622 of the National Service Life Insurance Act of 1940, as added by section 10 of the Insurance Act of 1951, approved April 25, 1951, provision is made for the waiver of premiums payable on 5-year level premium term and the pure insurance risk portion of permanent plan national service life insurance or United States Government life insurance policies held by any person while in active service for a continuous period in excess of 30 days. In the case of 5-year level premium term insurance, it would be desirable and to the advantage of any person on active duty who holds such insurance to accept this privilege, inasmuch as by so doing they would receive free insurance coverage without in any way canceling or restricting their insurance contracts. It is also considered desirable to grant persons who hold permanent plan insurance an opportunity to waive premiums on the pure insurance risk portion of their premiums, if they have been unable to do so by reasons beyond their control.

However, at this date, there are approximately 10,000 members of the armed services in a missing status, substantial numbers of whom through the exigencies of the current military situation and through no fault of their own, have not been able to avail themselves of this privilege, since written application must be made by the insured.

This proposed legislation would amend the statute to waive automatically the premiums for those persons holding 5-year level premium term plan insurance who have been officially designated as missing in action, prisoners of war, etc., under the terms of the Missing Persons Act, within 1 year after the passage of Public Law 23. Such persons holding a permanent plan of insurance would be given an opportunity to retroactively waive the pure insurance risk portion of their premiums within 120 days after return to military jurisdiction, but persons in this category who die on or prior to the last date on which they may avail themselves of this opportunity would have such premiums automatically waived. In order to allow for the possibility that information with respect to this benefit did not reach such personnel expeditiously after the passage of this act this benefit is extended through April 25, 1952.

Also, the proposed legislation would amend the statute for cadets and midshipmen of the United States Military, Naval, and Coast Guard Academies to authorize an automatic waiver of premiums on national service life insurance and United States Government life insurance. These cadets and midshipmen are included under section 2 of Public Law 23 and are eligible under the indemnity provision thereof. However, they are not presently considered to be in "active service” within the meaning of section 622, supra, and, consequently, are not eligible to file application for the waiver of premiums. After the enactment of the proposed legislation, cadets and midshipmen would be in an "active service” status within the meaning of section 622, supra.

DEPARTMENT OF DEFENSE ACTION AGENCY

The Department of the Air Force has been designated as the representative of the Department of Defense for this legislation. Sincerely yours,

Roger KENT, General Counsel.

A BILL To further amend section 622 of the National Service Life Insurance Act of 1940

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first proviso of section 622 of the National Service Life Insurance Act of 1940 (54 Stat. 1008), as added by section 10 of the Insurance Act of 1951 (65 Stat. 36) is amended to read as follows:

Provided, That no premium may be waived under this section for any period before the date of application therefor, except that (1) if the insured is determined, as provided in the Missing Persons Ac (56 Stat. 143), as amended, to have been in a status of missing, missing in action, interned, captured, beleagured, or beseiged, at any time after April 25, 1951, and before April 26, 1952, (A) all premiums due or paid after June 1, 1951, on five-year level premium term insurance shall, during the period of such status and during the remainder of his continuous active service and 120 days thereafter, be waived unless the insured requests in writing that this waiver be terminated; and (B) that portion of any permanent insurance premiums due or paid after June 1, 1951, which represents the cost of the pure insurance risk shall, during the period of such status and during the remainder of his continuous active service and 120 days thereafter, be waived if the insured applies therefor within 120 days after the date of enactment of this clause or the date of his return to military jurisdiction, whichever is later, or if the insured dies or is declared dead while in such missing status or if the insured dies on or prior to the last day upon which he may apply for such waiver under this clause; and (2) if the insured was a cadet at the United States Military Academy or the United States Coast Guard Academy, or a midshipman at the United States Naval Academy, at any time after April 25, 1951, and before the date of enactment of this clause, all premiums due or paid after June 1, 1951, on fiveyear level premium term insurance and that portion of any permanent insurance premiums due or paid after June 1, 1951, which represents the cost of the pure insurance risk shall, during the period of such status and during the remainder of his continuous service and 120 days thereafter, be waived unless

the insured requests in writing that this waiver be terminated:”. SEC. 2. The third proviso of section 622 of the National Service Life Insurance Act of 1940 (54 Stat. 1008), as added by section 10 of the Insurance Act of 1951 (65 Stat. 36) is amended to read as follows:

"Provided further, That premium waiver benefits under this section render the contract of insurance nonparticipating during the period a premium

waiver is in effect:'. Sec. 3. Section 622 of the National Service Life Insurance Act of 1940 (54 Stat. 1008), as added by section 10 of the Insurance Act of 1951 (65 Stat. 36) is amended by adding the following at the end thereof:

"In this section, the words 'active service include service as a cadet at the United States Military Academy or the United States Coast Guard Academy, or as a midshipman at the United States Naval Academy.”.

[No. 39]

COMMITTEE ON VETERANS' AFFAIRS, HOUSE OF REPRESENTATIVES

VETERANS' ADMINISTRATION,

Washington 25, D. C., April 15, 1953. Hon. Edith NOURSE ROGERS, Chairman, Committee on Veterans Affairs,

House of Representatives, Washington 25, D. C. DEAR MRS. ROGERS: This is in reply to your request for a report by the Veterans’Administration on H. R. 1261, 83d Congress (star print), a bill to provide that policies of United States Government life insurance and national service life insurance shall be incontestable for fraud after 2 years.

The purpose of the bill is to make national service life insurance and United States Government life insurance policies incontestable for fraud unless the fraud is asserted by the Veterans' Administration in a registered letter mailed to the insured at his last known address within 2 years after the date of issue, reinstatement, or conversion, or 2 years after the date of enactment of the bill, whichever is the later.

Under existing law (38 U. S. C. 518, 802 (w)), United States Government life insurance and national service life insurance policies, subject to certain statutory exceptions not here pertinent, are incontestable from the date of issue, reinstatement, or conversion, except for fraud, nonpayment of premiums, or on the ground that the applicant was not a member of the military or naval forces of the United States.

Under the bill such policies would be incontestable from date of issue, reinstatement, or conversion, except (1) for nonpayment of premiums; (2) on the ground that the applicant was not a member of the military or naval forces of the United States; or (3) for fraud, provided it is asserted by the Veterans' Administration in a registered letter mailed to the insured at his last known address within 2 years after the date of issue, reinstatement, or conversion, or 2 years after the date of enactment of the bill, whichever is the later date.

The reason for limiting the right of the Government to contest at any time the validity of a policy issued, reinstated, or converted, by fraudulent means is not apparent. Although a cursory study of commercial practice may seem to support the adoption of a limited contest period to insurance issued by the Government, commercial companies are not required to issue insurance to any individual and may delay acceptance of an application for insurance until the condition of the applicant has been satisfactorily determined. Moreover, most of the leading insurance companies have incontestable clauses which do not restrict them in their right to contest the insurance insofar as total disability or waiver of premium benefits are concerned. Those classes of persons for whom United States Government insurance and national service life insurance is authorized by law have a statutory right to such insurance (which includes liberal disability benefits) and their applications for issue, reinstatement, or conversion of insurance must be accepted unless it can be shown that such applications do not meet the specific requirements of law and regulations No time for ascertaining the correctness of an applicant's statement is provided by law and liability of the Government attaches upon the receipt of an application unless the invalidity of such an application can be demonstrated. There have been cases in which insurance has been issued, reinstated, or converted without any evidence at the time that such transactions were tainted by fraud. Several years later in establishing claims for disability or death benefits it is shown that the insured must have knowingly misrepresented the actual facts in his application for the issue, reinstatement, or conversion of insurance and in some instances evidence of such concealment has been furnished by the insured himself.

In connection with a proposal to limit the right of the Government to contest insurance for fraud, consideration should be given to the effects which would result from the estraordinarily liberal requirements for reinstatement of Government insurance. Existing regulations permit reinstatement within 3 months of the date of lapse upon a signed statement by the applicant that he is in as good health as at the date of lapse. If the bill were enacted it is not unreasonable to assume that certain persons would be induced to make untrue comparative health statements knowing the insurance could not be contested for fraud more than 2 years after reinstatement. Also, it is questionable whether the liberal regulations permitting reinstatement of insurance on a comparative health statement, insofar as they are a part of existing contracts of insurance, could be legally modifed to avoid such results. In such cases it would appear that the Veterans' Administration would have to examine each such insured to determine whether fraud had been committed.

The problem of effective control of fraud is very real and the need is ever present. Under a provision which would restrict contest of insurance to 2 years after issue, reinstatement, or conversion, persons seeking an advantage by deceitful means could obtain insurance by concealing a disability almost total in degree and secure the benefits of total disability merely by delaying action with respect to filing claim during the 2-year period. Hence, a 2-year time limitation on the right to contest would effectively bar the Government from raising a contest even in the most flagrant case of fraud. It would appear that the right of the Government to cancel the insurance at any time upon discovery of fraud has been an effective deterrent to deception and fraud. Further, under existing law an insured or his beneficiary has a right to judicial review on any policy contested for fraud and a finding of fraud if incorrectly made may be set aside by the court.

It is believed that a limitation on the Government's right to contest a policy for fraud would in certain cases result in the granting of insurance to persons not legally entitled thereto and at the expense of other policyholders. The national service life insurance fund and the United States Government life insurance fund are trust funds maintained for the benefit of policyholders of such insurance. Any losses payable from such funds by reason of fraud in procuring issue, reinstatement

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