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Thursday, 9 August 1906

Mr FRAZER - It was a deliberate attempt to blackmail. No other language is applicable to the transaction. I am surprised at the moderation of the writer, considering the difficulties and aggravation to which he was subjected by tie company -

Well, I went and saw Mr. Brown, and paid him £11s. for writing a letter, and when he saw the cheques he told me that they had not added the exchange, which is 5s. for every hundred pounds. I also told him I had to pay Mr. Greenwood, builder, £2 for his services assisting me with the specifications and plans. He advised me to write for the exchange and builder's expenses'. I wrote, and I think that they were afraid I was going to publish details in the Gold-fields press, so they sent a cheque for the exchange' and builder's expenses. When I insured my place the company's Fremantle manager was in Kalgoorlie, and he came out and inspected the place, and was fully satisfied, and asked me to make the furniture ; £100, but as I just had the money in the house I let it go at £75. Now, it seems to me that this insurance company will insure your place for a certain sum, and when a fire occurs, they employ their adjuster to try and arrange terms so as they will not have to pay the full amount, and the only reply one can get if you write to the head-office is that the matter is in the hands of their adjuster. Now, you can use my name in connexion with these details, as I am prepared to swear on oath that every detail is correct, and the way I was humbugged was disgraceful, and it was only that I was so sick of the whole affair that stopped me from writing all details to the press. I have rebuilt on the same ground, and I have one room less than I had before, and the place has cost me £252 2s. 6d. This is not the only case, for since I was burnt out I have heard of dozens of others who have been served the same way, and I suppose if I had not had my father and brother to stand by me I would not have got on so well as I did, as we lost everything in the fire. The only thing was, I knew that the place could not possibly be built for £250. Well, I think that is about all, but when I see you again I will tell you a few more details of how I was humbugged.

Yours truly,

Charles McDonald.

The writer happens to be a relative of the Chairman of Committees in this Chamber, and is one of , the most reliable men that I ever met. I have received many other letters making a similar complaint, but they are couched in slightly exaggerated language. Moreover, they do not put the case in the same able, complete, and, at the same time, moderate manner that Mr. McDonald has done. In his case, there was no inquiry, and there was no suspicion of foul play, but the company tried to bring their power and influence to bear to force Mr. McDonald to accept their terms, rather than fight the case through the arbitration proceedings and the Law Courts. There are some cases in Australia that have remained unsettled for years. I propose, to give honorable members some statistics bearing on this question. We are told by the companies that they desire to settle points in dispute as soon as possible, and I take it for granted that this desire; if it existed at all, would be most strongly manifested just prior to the preparation of their annual balance-sheets. The companies which are sufficiently frank to show in their balance-sheets the amount of their unsettled claims - seven out of sixteen companies do not do so - would naturally be anxious to reduce the amount of unsettled claims as much as possible. I find by reference to the balance-sheet of the South British Insurance Company that the losses sustained in 1904 amounted to £159,550, and that claims amounting to £57,599 were unsettled. The Australian Mutual Company sustained losses amounting to £7,000, but they do not indicate the amount of the claims that they refused or - as they would doubtless put it - were unable to settle. The New Zealand Insurance Company sustained losses in 1904 amounting to £273,000, whilst the claims unsettled amounted to £67,969. The Victorian Insurance Company sustained losses amounting to £36,000, whilst the unsettled claims amounted to £7,800. In all, sixteen insurance companies sustained losses aggregating £755,000, and nine companies show unsettled claims amounting to £192,000.I am sure that I shall be within the mark in. saying that if the other seven companies had made a declaration as to their unsettled claims, the claims not paid would have aggregated at least , £300,000. Therefore, it appears that the companies have paid 60 per cent. of their losses, and have failed to settle claims representing 40 per cent. of their liabilities. I think that these figures furnish an effective reply to the argument that insurance companies endeavour to settle claims as soon as possible. Personally, after having listened to the statements made to me by their unfortunate victims, I do not believe anything of the kind. I believe that they endeavour, in most instances, to induce the insurer to accept less than the amount to which he is entitled, and that if he refuses to compromise with them, they are not anxious to pay over the money which he has a right to claim. I wish to quote some of the conditions included in the policies of the insurance companies. I admit that the companies are justified in inserting provisions against fraud or misrepresentation, or any act of the insurer that would result in their undertaking an unreasonablerisk. But many of the conditions which they impose are in the highest degree inequitable. One of the conditions is as follows: -

If, after the insurance shall have been effected, there shall be any erection or alteration or extension of the premises, or any erection or alteration or appliance or apparatus for producing heat . . . the policy shall be void.

Any erection or alteration, let honorable members remember.

Mr Mauger - What is the date of the policy the honorable member is reading?

Mr FRAZER - It bears no date. I am reading from a copy of the Commercial Union Company's policy, which was in operation until last month. I believe that new conditions have been imposed since. In connexion with the argument that has been used in some quarters that the insurance company must be protected against the removal of goods that were in a building at the time that the stock was insured, I would point out that they have power under the conditions to cancel the policy at any time. Therefore, they are in a. position to protect themselves against any undue risk on account of a reduction in the value of the goods originally insured.

Mr Groom - What notice have they to give ?

Mr FRAZER - The condition reads-

If, during the currency of this policy, the company be desirous of discontinuing the risk, the company shall have the option of cancelling the policy on giving notice in writing to the assured.

No term of notice is specified. This provision seems to me unjust in view of the fact that the insurer cannot have thepolicy immediately cancelled, if he so desires.

Mr Mauger - Yes, he can, under the new policy.

Mr FRAZER - I see, on reference to the new policy, that what the honorable member states is correct. It is provided -

The insurance may be terminated at any time at the request of the insured.

That is a more generous provision than the one inserted in the old policies.

Mr Groom - Is there any provision for a refund to the insured upon the cancellation of the policy ?

Mr FRAZER - Yes, there is provision for a refund of the premium for the unexpired period, less some small penalty. There is another provision in connexion with the Commercial Union Company's policies, which reads as follows: -

Persons insured by this company sustaining any loss or damage by fire are forthwith to give notice thereof at the office of the company, or to the agent of the company, through whom the policy was effected, and, within fourteen days, deliver in writing as particular account of their loss or damage as the nature of the case will admit of, such account of loss to have reference to the value of the properly destroyed or damaged immediately before such fire, and shall verify the same by the production of their books of account.

I have here an opinion furnished to me by a member of the legal profession in Western Australia, whose firm carries on one of the largest insurance businesses in that State. Unfortunately, I am not in a position to disclose the name of my correspondent, because, if it became known that he had communicated with me, the insurance companies would make things very unpleasant for him, if they did not actually ruin him. This gentleman writes to me as follows : -

Most policies require that the insured has to supply receipts and vouchers, and produce books as required by the company within the fifteen days. Very often all these are burnt. The company asks for them, and because they are not forthcoming, use this as a threat to enforce a reduction in the amount of the claim.

The writer is more competent than is any honorable member in this Chamber to speak on this; question. He does not speak under the influence of bias. He does not support my proposal, but he thinks that some of the present harsh conditions should be done away with.

Mr Kelly - Can the honorable member give us the name of his authority?

Mr FRAZER - I have already stated! that I cannot make public his name ; but I do not mind communicating it" to the honorable member in confidence.

Mr Mauger - Has the honorable member ever heard of the books being the first things burnt ?

Mr FRAZER - Yes. I have ; but I do. not think that because books happen to be the first things burnt the person insured should be deprived of the amount to which he is entitled under his policy ; but fraud finds no support under this Bill. It would be fair to insist that a man should supply such documents as could be reasonably furnished. To take advantage of the assured in the way that I have outlined is to obtain money by the most objectionable means imaginable. The rebuilding clause, which is embodied in the conditions under which the policies are issued is one under which the most reprehensible practices are resorted to. The way in which the game is worked is most ably demonstrated in the letter which has been written to me by Mr. McDonald. In the Commercial Union Company's policy it is stated that -

In every case of loss or damage by fire for which the said company shall be liable, the same, on being duly proved, shall either be paid within sixty days, or the said company shall have 'the option with all convenient speed, to rebuild, repair, or reinstate, or replace the property insured, and in the case of buildings, to put them into as good and substantial a condition as they were in at the time such fire happened.

It further provides -

If any difference shall arise in the adjustment of a loss, the amount, if any, to be paid by the company shall, whether the right to recover under the policy be disputed or not, and independently of all other questions, be submitted to the arbitration of some person to be chosen bv both parties, or of two indifferent persons, one to be chosen by the party, and the other by the company ; and in case either party shall refuse or neglect to appoint an arbitrator within 28 days after notice, the 'other party shall appoint both arbitrators; and in case of the arbitrators differing therein, the amount shall be submitted to the arbitration of an umpire, to be chosen by the arbitrators before they proceed to act; and the award of the arbitrators or umpire (as the case may be) shall be conclusive evidence of the amount of the loss, and the party insured shall not be entitled to commence or maintain any action at law or suit in equity upon this policy until the amount of the loss shall have been referred and determined as hereinbefore provided, and then only for the amount so awarded.

That condition is contained in the new policies under which the combined companies are working, and I maintain that it compels a man to resort unwillingly or otherwise to arbitration before he can secure justice from the Court. The fire insurance companies nearly always employ a man in whom they have implicit trust to act as arbitrator, and the insured having appointed his representative, a difference generally arises as to who shall be the umpire. In instances the companies - by refusing to agree to an umpire - succeed in indefinitely delaying the settlement of cases. Doubtless, that practice accounts in part for the £192,000 which represents the amount of the unpaid claims which stand on the books of the companies at the present time. My legal friend also expresses the opinion that nearly every policy issued provides that no legal proceedings shall be taken until after arbitra- tion has been resorted to, and indicates the result. a He says -

In one instance, one company would not give any reasons for not paying. They simply would not part. They went to arbitration, and after that expense they still would not part, and would not give any reason for doing 'so. They did not pay, and the assured could not afford to fight, and he never got a bean. A man should have the right to sue without arbitration, or the company might be given the right to claim arbitration, but if so they should be bound to pay the amount , awarded without being allowed to make other defences. A favorite practice by companies is not to pay, not to refuse to pay, and not to give any reasons for not doing so. When this occurs the assured is placed in this position : He reads the numerous and stringent conditions of his policy. He finds after consultation with his lawyer that it would be easier for him to walk a tight rope than to live up to all these conditions. He imagines all sorts of things, from want of authority on the part of the agent of the company to his own defective compliance with the conditions. He has before him the expenses of first arbitration, and secondly a supreme court action. He is probably compelled by his lessee to build, whether the company pays or not, and possibly there is a hungry mortgagee looming largely on the horizon with threats. He generally accepts what the company offers or gives.

I know that statement to be an absolute fact. The insured are generally forced, by reason of their own helplessness, to accept just what the companies choose to give them. In connexion with the provisions relating to arbitration, I note that the conditions attaching to new policies go further than did the old policies, in that provision has been made for the death of an arbitrator. In the new policies it is provided that in the event of an arbitrator dying before the arbitration proceedings have been completed, another can be appointed in his stead. That provision has no doubt been inserted as the result of the experience which the companies gained whilst they were working under the old conditions. In the majority of cases, however, the insured dies before the arbitrator. I have endeavoured to point out the way in which the conditions attaching to existing policies harass and endanger the rights of the assured. But I would direct attention to still another provision of which advantage has been taken. It has been decided in the Courts of Western Australia that the agent of a company is the agent of the insured. The legal friend to whom I have previously referred says -

One of the conditions on most policies is that the. agent of the company is for all purposes deemed to be the agent of the assured, and not of the company. The effect of this is that if the agent makes a mistake and the assured suffers, the mistake being made by his agent he must stand the loss. The company is in nowise liable. Such a condition ought- to be rendered inoperative.

Another provision which does not appear to be a legitimate one, although I do not see that any very great amount of damage can be done under it, is that which requires any person who effects an insurance for, say, £500, and who takes out a second policy, to have the second insurance indorsed upon the first policy. I have no objection whatever to a company being notified of the existence of Ohe second insurance, and whilst it is right that the first policy should be indorsed upon the second, it is not right that the second policy should of necessity be indorsed upon the first. But in Western Australia a company has successfully pleaded that, because the second policy had not been indorsed upon the first, it was not liable. I now wish to show the way in which this Bill will operate if it becomes law. In this connexion I mav say that a circular has been forwarded to some honorable members, headed, " Some remarks on a Bill relating to fire insurance brought in by Mr. Frazer." It is an anonymous circular.

Mr Groom - Where was it circulated?

Mr FRAZER - The copy which I hold in mv hand was presented to me to-day by a Minister.

Mr Groom - Does it show by whom it was printed?


Mr Fisher - Do not advertise it.

Mr FRAZER - But I wish to advertise it, because I desire to refute a statement which it contains,' and which was repeated in a. leading article which appeared in this morning's A,gus. I have never expected to obtain the truth from the Argus. It is a journal which is associated with all the big financial undertakings of this country. It is owned bv men who have no sympathy with the unfortunate individuals who may be the victims of a fire, and whose insurance money - perhaps amounting to - may be all that stands' between them and destitution. But thev have an extraordin ary sympathy with the great fire insurance companies of this country, which possess a capital and a reserve fund amounting to about £>. 000, 000. They exhibit their sympathy with these companies by lying - either deliberately or ignorantly - in refer ence to the provisions of this Bill. The first statement contained in the article which appears in the Argus is also repeated in the circular to which I have alluded -

A man insures for so much-

The writer at this point is dealing with the system of insurance in America - and if he had a fire - and fires are constantly occurring in America - it is held that he should receive the amount named on the face of the policy irrespective of the actual amount of his loss. Even reinstatement is objected to, for it is thought that anybody having a fire should be entitled to make a profit out of it.

Further on we have the statement -

But it is desired by a member of the House of Representatives that the crude notions of the back-wood American States should be adopted in Australia, and a Bill introduced by Mr. Frazer (W.A.) is designed to carry out this wish.

That is a charge which I repudiate, and hurl back at the writer.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It is made not against the honorable member, but against the Bill itself.

Mr FRAZER - The making of such a charge against the Bill indicates on the part of the writer an ignorance which would be tolerated only on the staff of the Argus. The writer goes on to say that an injustice would be done to firms insuring for large amounts if this Bill were passed -

But should the Bill now before the House of Representatives become law, a firm that has taken out a policy for say ^'100,000 to cover the maximum amount of its stock during the year, and experiences a 'total loss when between seasons its stock is worth only £60,000, will be able to claim ,£100,000, and make ^40,000 on the operation.

That will not be possible under this Bill. Clause 5 provides that -

In the event of total loss covered by a policy, the insured shall, notwithstanding any stipulations contained in the policy, be entitled to recover from the company the amount insured by the policy, and upon which the premiums have been paid ....

Sir Philip Fysh - Then the honorable member is asking for something more than an indemnity?

Mr FRAZER - That is not so. I think that insurance should not be more than indemnity, but the position should be such that the man who takes out a policy may rest assured that he will be indemnified. At present he cannot do so. The evidence that 1 have presented to the House shows that he runs a risk of being deprived of the amount properly due to him under the contract. The managers of fire insurance companies are not simpletons ; we may fairly assume that they are conversant with all the difficulties which surround their business. When a man is insuring his furniture or other goods, he has to make a statement as to the contents of the building in which they are housed.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - But those contents often vary.

Mr FRAZER - That is so ; but how does the company determine what the building actually contained when it was, destroyed ?

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The policy - holder has to prove what he had in it.

Mr FRAZER - Exactly; and under this Bill the person insured would not be paid anything in respect of goods that were insured but not in the building when it was destroyed.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The Bill as it stands does not provide that.

Mr FRAZER - I think it does. If my honorable friends of the Opposition can express more clearly my intention as to what shall be the position of a tradesman with a fluctuating stock, I shall be prepared to consider any amendment they may move in that direction. It cannot be said that my proposal is one that has bean hurriedly arrived at. I have given it careful consideration. A man who insures a fluctuating stock against fire has to prove his losses when he makes a claim under his policy ; he has to prove that the articles in the inventory have been destroyed.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - There is no inventory in some cases.

Mr FRAZER - I beg the honorable member's pardon ; I have seen these inventories.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - There is no inventory in the case of merchandise.

Mr Hutchison - In that case the matter is dealt with by an average adjuster.

Mr FRAZER - That is so in some cases. Under this Bill, unless a. man can prove that he has lost that in respect of which he makes a claim against the company with which he Kas insured, he will be held guilty of fraud, and will receive nothing. That disposes of the objection raised by the genius* who wrote the subleader in the Argus to which I have referred, and raised also by the genius who has distributed amongst honorable members an anonymous circular in denunciation of this Bill.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It does not dispose of the objection, because that objection remains in the Bill itself.

Mr FRAZER - I fully recognise that the honorable member for North Sydney has had great business experience, and if he can arrive at a better means of giving effect to my intention I shall be prepared to (jive every consideration to it. We have in this, sub-leader the further statement that -

As a general rule the principle involved in a " valued policy " is wrong.

If it be wrong for a mam. to be held responsible to pay that which he has contracted to pay - and that is all that a " valued " policy, when properly safeguarded, can be claimed! to do - it is the first time that I have heard the principle so described. If it be wrong it is wrong only when.1 applied to a lire insurance company.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It is only a promise to pav up to a certain amount!

Mr FRAZER - But the companies contract themselves out of paying the losses provided for on the face of the policies. I have proved that, I hope, to the satisfaction of the House.

Mr Kelly - Do they not contract to indemnify losses?

Mr FRAZER - They do, but I claim that they do not, carry out that contract. Under this Bill a valuation would have to be made. When a life insurance company receives a proposal for assurance the applicant has to submit to a careful examination. The policy-holders in the company willingly pay for this examination, in order that it may be determined whether or not the applicant is a fit person to assure. But when a man proposes to insure against fire, the fire insurance companies do not require that his business shall be valued. They simply say, in effect, " We will accept this risk. It will not matter much to us, because we shall not pay if disaster overtakes the man." There is another statement in this exceptionally inaccurate sub-leader to which I desire to refer. It is as. follows : -

There is an immoral feature of the Bill which is to be gravely reprehended. It is that it aims at making existing contracts, entered into in good faith, null and void, so far as one party is concerned. Whatever may have been agreed upon by the fire offices and the assurants that is contrary to the provisions of the Bill is to be abrogated in favour of the assurants. If the Commonwealth Parliament is going to invest itself with the right to nullify private contracts, where will the mercantile world ultimately find itself landed?

Those who make that statement - and it is indorsed in a circular sent to the representatives of Tasmania by managers of insurance companies operating in that State - are ignorant of the contents of the Bill. Clause 2 provides that the Bill shall not come into force until 1st January, 1907, while in clause 3 it is provided that it shall apply only to .policies " issued, made, or renewed after the commencement of this Act." No sane individual, who has not a desire to slander the man responsible for this Bill, would assert, in these circumstances, that it is designed to nullify contracts at present in existence. Another objection raised in circulars that have been distributed amongst honorable members is that the method which the Bill provides for ascertaining partial losses is a very crude one, The Bill expressly sets forth what method shall be adopted in the event of mutual agreement being impossible.

Mr Lonsdale - And what a method it is!

Mr FRAZER - Can the honorable member suggest a more reasonable one?

Mr Lonsdale - I could not suggest a more unreasonable one.

Mr FRAZER - Can the honorable member suggest a tetter method of carrying out the intention of the Bill that justice shall be meted out to the insured ? If he can, I shall be prepared to accept it. In sub-clause 2 of clause 5 it is provided that-

In the event of partial loss covered by a policy, the insured shall, notwithstanding any stipulations contained in the policy, be entitled to recover from the company compensation equal to the amount of the loss sustained, but not exceeding the amount insured by the policy. Such loss shall be ascertained by mutual agreement or by the sale of the salvage, and a deduction of the amount received therefrom from the amount of the policy.

This will render it impossible for a company to refuse to pay, and to invite the person assured to fight it. It gives the parties the option of arriving at any method of settlement that mav be thought desirable, but, at the same time, it places the assured in such a position that, in the event of a mutually satisfactory settlement being impossible, the matter can be dealt with in a definite and decisive fashion. My experience leads me to believe that this is the only way in which

Ave could deal' with these companies.

The provisions relating to the event of total loss are not to apply - where misrepresentation, fraud, or any act of the insured in failing to comply with any reasonable requirement of the policy is proved against the insured.

Mr Kelly - A lot of legal proceedings would arise under that provision.

Mr FRAZER - Not so many as arise now, when the companies take a particular delight in harassing those who have suffered loss by fire. It is impossible to frame provisions which will prevent the legal fraternity from profiting. The Bill, however, requires that matters shall be decided as soon as possible, sub-clause 4 of clause 5 enacting that -

It shall be competent for the insured to bring an action in any Court of competent jurisdiction under this section at the expiration of one month from the happening of the event or contingency insured against.

Mr Kelly - Why does the honorable member prefer legal proceedings to arbitration ?

Mr FRAZER - Because, at the present time, arbitration proceedings are sometimes so protracted that the companies, in preparing new agreements, Have made provision for the death of one of the arbitrators. If the honorable member proposes an amendment, making it competent for the insured to demand~~ arbitration at the expiration of thirty days, and compelling companies to pay whatever sums are awarded against them, I shall be prepared to, give consideration to it. Under the Constitution, however, we cannot prevent either an' insured person or an insurance company from appealing to the Courts, if either party thinks fit to do so, and my desire is that disputes shall be settled with the least possible delay. There are many other matters with which I could have dealt. I have received many letters from persons who have suffered loss by fire, and have made statements criticising the actions of the companies concerned; and more figures might be presented to the House to show that the companies are in the position which I have declared them to hold. Many more arguments than I have used might be adduced in justification of my proposals. I think, however, that I have shown the urgent need for safeguarding the interests of those who insure with the great financial institutions carrying on business in Australia by preventing the repudiation of liabilities. In my opinion, an effective and proper system of fire insurance will be secured only by the ultimate establishment of a national system. In a circular issued to-day, the insurance companies say> that if the Bill be passed they ' must take other methods to protect themselves, by which I suppose they mean that they intend to still further harass those who have dealings with them. The Bill, however, if carried into effect, will go a long way towards mitigating their harshness towards those who are insured. I do not think that its provisions will interfere with the operations of companies doing a legitimate business, but they will prevent insured persons from being robbed by adjusters who receive commissions on the reductions which thev effect.

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