New-York tribune., 1921-06-01
States Laws
On Insurance
Aid Fraud
Continued from page one,

with the stock company members, he
organization of new mutual companies
almost prohibitive.
He declared that the Gardner BILL
No. 604. required mutual companies to
have 100000 in premiums collected
before they could organize and do busi
ness in the state. In addition the
policy holders have to assume liabil-
ity of double the amount of premiums
paid in. This liability, he said, is just
double what it is in other states, and
the cash requirement Is ten times
what it is in other states. This law
was designed, he declared, ostensibly
to discourage the formation of mutual
companies.
"And then" he went on, "when a
mutual company becomes large and
successful and accumulates large
surplus, the laws Of this state and
some other states have permitted that
company to be converted into stock
company, and when that is done the
surplus of these policyholders and the
good will Of the company is taken over
by the few on the inside Of the COM
pany and it is made a stock company"
as that anything else than fraud
upon the policyholders ?" asked Mr..
Untermyer.
"Some courts have held it So" re-
piled Ekern. "There is a law permit
ting it in New York State"
Law Encourages Fraud
"There is law which encourages
this fraud?'
eyes"
$50 that all the surplus piled up by
the policyholders through their premi-
ums and the concealed reserve in the
reserve fund goes to somebody that
organized this company into stock
company ~....
eyes"
Section 125 Of the laws which au-
thorize this conversion says that wheli-
ever directors Of mutual company
vote to do SO they may submit to the
polcyholders the right to purchase
ton to the amount Of their premiums,
allowing the policyholders thirty days
to do so. If the subscriptions are not
then taken by the policyholders the
subscriptions are then to be opened to
the officers or directors, who may then
take all or part of the stock. 1t further
provides that policyholders are to have
no further rights in the new company
except that of policyholders.
Mr. Ekern added that the Federation
of Mutual Fire Insurance Companies
adopted resolution last year, oppos-
ing the conversion OF mutual COM
panies into stock companies, character
izing the action as violating the
policyholders' rights, appropriating
their property to others and tending
to undermine the general confidence
in mutual insurance companies"
A case where the operation of the
New York Exchange caused consider
able loss of money to the Board of
Education at Dobbs Ferry, was cited
by Judge Charles C. McClelland. of
the United States Court of Appraisers
Judge McClelland is trustee and
member of the Board of Education of
Dobbs Ferry. In 1914, he testified, poll
cies amounting to $4,000 on the
school buildings in Dobbs Ferry ex-
years.
Thirty days after renewal the rates
were increased, but the Judge declined
to pay the increase and took the in
surance out in mutual companies. Two
or three months ago one of the mutual
companies Joined the exchange, an6
the School Board had to pay higher
rate on about $4,000 worth of insur.
ance.
Unwilling Witness
Austin F. Hancock, an insurance
broker, of S Beekman Street, was the
most unwilling witness the committee
has had for a long time. Hancock
testified that he had been authorized b,
the Board of Education of Niagars
Fails ten days ago to place $2,500,00
worth of insurance at the "best pub
lished rates" He said that the ther
quoted rate of exchange members wa.
"a cents, and that was the rate h,
quoted to the Niagara Falls authori
ties.
Several mutual concern. .hen got to
gether, he declared, and through a MI
Sheppard competed for the business
The mutual companies would, of course
have returned large part of the pre-
MUM, estimated at 80 per cent afte
having taken the insurance under tn
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