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Senator DIRKSEN. I have no questions, Mr. Chairman, further than the question I addressed to Colonel Dunkley. It just appears to me that the Army has a rather nebulous idea about this, and is not prepared to make any specific recommendations, except to express the hope that probably something ought to be done in the field of enabling legislation to cover war damage. Isn't that about the size of it?

Colonel DUNKLEY. Yes. We could be a little stronger than that, I think, Senator, in that we could say that the Department of Defense is certainly in favor of legislation which would cover war-damage compensation as a result of enemy attack.

Senator DIRKSEN. But you do not have any details to supply? Colonel DUNKLEY. No, sir. We have not, of course, had an opportunity to work up a completed study on this entire problem. Certainly, we will do it as soon as we can get the proper direction. We have hit this thing rather cold this morning, and so we may not be able to answer all of the questions which you might have in mind. We certainly are in favor of coverage to take care of people who suffer injury or death or damage to personal or real property as a result of enemy attack.

Senator DIRKSEN. Would you be prepared to state, Colonel Dunkley, that it is the position of the Defense Establishment that the Federal Government should undertake no liability or responsibility that could be covered by private insurers?

Colonel DUNKLEY. No, sir. I could only express a personal opinion as to that, and that certainly may not be of value to you. Senator DIRKSEN. It would not be an official commitment? Colonel DUNKLEY. No, sir.

Senator DIRKSEN. That is all, Mr. Chairman.

Senator SCHOEPPEL. Could we go this far, Colonel, and leave hope that if your sister services get together as quickly as possible, and determine the outline of some recommended plan or some particular approach to this, that it can be consolidated and offered from the Defense Department to give this committee some guidance and some assistance in this respect?

Colonel DUNKLEY. Yes, sir; I am sure that we could do that.
Senator SCHOEPPEL. I think that would be helpful; I really do.

Colonel DUNKLEY. Yes, sir. I am certain that we can do that. This paper, which I very briefly presented, has the concurrence of the three services in the Department of Defense; and it does recommend that we should have coverage to take care of individuals and industry in the event of enemy attack.

Senator FREAR. Do you have any idea as to what the damage might be?

Colonel DUNKLEY. No, sir; I do not.

Senator FREAR. Are you doing any thinking along that line? Colonel DUNKLEY. I believe that as far as G-3 of Army is concerned, it is beyond the scope of its activities to make that determination.

Senator FREAR. Well, the effectiveness of our security might have a very great bearing on what the damage might be.

Colonel DUNKLEY. Very definitely.

Senator FREAR. I assume, then, that the three services have not come to the conclusion yet as to how secure we might be?

Colonel DUNKLEY. Not to my knowledge, sir.

Senator FREAR. Is that all?

Senator SCHOEPPEL. I do not believe I have any further questions. Colonel DUNKLEY. We really got into this picture by virtue of the Bureau of the Budget asking for us to come up with certain problems in which the Department of Defense would be interested as pertaining to damages resulting from enemy attack.

Senator FREAR. But in a very logical way, Colonel.

Colonel DUNKLEY. Yes, sir.

Senator FREAR. I think the members of the committee are most anxious to get all of the information that is possible for them to get. As you know, this is going to be a rather difficult decision to make. Colonel DUNKLEY. Yes, sir.

Senator FREAR. Do you colonels have anything to add to that? Colonel BEST. I have nothing further to add.

Senator FREAR. I notice that Colonel Best has not taken up the question that I asked you as to how adequate our defenses are. We may have to take that into an executive session.

Thank you all very, very much.

I understand, Colonel, you are from that great State of Kansas? Colonel DUNKLEY. That is right, sir.

Senator FREAR. Congratulations, sir.

Colonel DUNKLEY. Thank you, very much.

Senator FREAR. Mr. J. V. Herd, former Executive Vice President of the War Damage Corporation.

I understand Mr. Dougherty will speak in his stead.

STATEMENT OF JAMES L. DOUGHERTY, GENERAL COUNSEL, RECONSTRUCTION FINANCE CORPORATION, ACCOMPANIED BY J. V. HERD, FORMER EXECUTIVE VICE PRESIDENT, WAR DAMAGE CORPORATION

Mr. DOUGHERTY. Mr. Chairman, while Mr. Herd's name appears on your list, Mr. Herd presently is associated with the insurance industry, although he continues to be a tremendous amount of help to the War Damage Corporation, which he operated during World War II.

So, on behalf of RFC, we have a prepared statement that I would like to present; and Mr. Herd, who is quite familiar with the technical aspects of the insurance business, and especially of war-damage insurance would be glad to follow me.

Senator FREAR. Thank you. Proceed, Mr. Dougherty.

Mr. DOUGHERTY. As indicated in Mr. Harber's letter of April 12 to the chairman of this committee, we believe (1) that some form of financial protection for private property will be necessary in the event of all-out war; (2) that such protection may best be furnished in the form of insurance, in consideration of appropriate premiums to be paid by property owners; and (3) that it is important that such protection be authorized by the Congress substantially in advance of any enemy attack.

S. 439, if enacted, would renew with relatively slight changes the powers exercised by War Damage Corporation during World War II. We doubt the advisability of departing at this time from the principle

adopted in the 1942 enabling act and embodied in the pending bills, that premium rates shall be uniform throughout the United States and shall be based on estimates of "average risks of loss." S. 439 seems to us to make reasonable provision for the utilization of insurance as a practicable means of distributing a considerable part of the risks of financial loss incident to destructions of property by enemy attack. The functions to be performed under S. 439 being of a character within the experience of RFC and its subsidiary, War Damage Corporation, we believe that in the event of the passage of this or a similar bill the necessary arrangements could quickly be made to place war-damage insurance on the market.

S. 114, in addition to reactivating War Damage Corporation with substantially the powers specified in S. 439, would authorize the Corporation to reinsure against certain liabilities for injury or disease resulting from hostile or warlike action.

By the terms of S. 114, however, reinsurance would be authorized only with respect to whatever liability, if any, is "imposed" under "any workmen's compensation act, occupational disease act, employers' liability act, or similar law" for injuries resulting from hostile or warlike action.

If State laws impose no liability for injuries that in reality arise out of enemy attack, and not out of any condition of employment, no liability is authorized to be reinsured.

The hearings on H. R. 9802, Eighty-first Congress, make it clear that there is wide variance of legal opinion with respect to whatever war losses fall within the terms or the purposes of workmen's compensation acts.

As stated by Mr. Ray Murphy, general counsel for the Association of Casualty and Surety Companies before the Senate committee on H. R. 9802, "There is perhaps equally competent legal authority" on both sides of this question.

There thus appears to be some uncertainty as to whether in the event of enactment of the bill, financial relief for persons injured would be forthcoming, and, if so, as to whether such relief would be prompt.

But, in the event of catastrophic enemy attack, after the enactment of S. 114, the War Damage Corporation might be under almost irresistible pressure to provide funds for immediate payments to injured workers and their dependents, regardless of our opinion with respect to the legal liability of employers and the applicability of State laws. Limitation of governmental relief of civilians maimed by acts of war to such legal "liabilities," if any, as are imposed on employers by State laws would, in our opinion, be inappropriate.

Another question presented under S. 114 is whether an indemnity to injured persons which may be guaranteed by an agency of the Federal Government should not be closely limited by Federal law, both as to the aggregate amount of indemnity to be provided in favor of any one claimant or for the death of any one employee, and with respect to the terms of payment.

In our opinion no lump-sum payments should be authorized, only weekly allowances. The bill, however, is broad enough to cover employees' liability risks, as well as all liabilities under workmen's compensation acts. Many State workmen's compensation and employers' liability laws impose no specific limitations. Others impose.

widely divergent limitations. It was stated in the recent Senate hearing that, in the State of New York, liability under a death claim may be as high as $30,000 and that a single case of total disability has cost $175,000. (Senate hearing on H. R. 9802, 81st Cong., p. 19.) Under S. 114 no limit would be imposed, and it would apparently be possible for State legislatures to increase, at their pleasure, the amounts payable from Federal funds on account of war injuries suffered within their borders.

In view of the possibility of vast property damage in the event of war, perhaps a word should be said as to the practicability of insurance against such risks. We think that the possibility that losses may be suffered of so catastrophic a character as to compel a proportionate reduction of all indemnities under policies of insurance furnishes no ground for denying property owners the degree of protection that insurance undoubtedly will afford. Against such losses it is plain that a $1 billion or $5 billion governmental commitment does not guarantee 100 percent financial indemnity under all possible circumstances. is our opinion that policies of insurance should clearly set forth the financial limitations of War Damage Corporation and the possibility that the insured may be obliged to accept a ratable share of available funds.

Senator SCHOEPPEL. In other words, you mean there should be some provision for prorating those?

Mr. DOUGHERTY. Yes, sir.

The factor of civilian and business morale seems to us of vital importance. A do-nothing or waiting policy would leave business and industry without protection at the outbreak of war, if all-out war comes, and, incidentally, would leave the Government without current income from insurance premiums to help meet public demands for initial financial assistance. If that course is followed, we fear that the financial problems of property owners in damaged areas will be unnecessarily difficult during whatever period may elapse while the extent and form of relief to be granted are under congressional consideration. Then will follow the delay incident to the organization of administrative machinery geared to whatever relief the Congress, after the event, or after one or more of a possible series of perhaps widely divergent events, may provide.

S. 1309 closely follows S. 114 and S. 439 in provisions for insurance against damage to property. It also makes provision for direct insurance or reinsurance against liabilities imposed under workmen's compensation acts and similar laws for war injuries suffered by workmen in the course of their employment. S. 1309, however, unlike S. 114, provides a basis for premium rates on workmen's compensation risks. The testimony of Mr. Franklin J. Marryott, general counsel, Liberty Mutual Insurance Co., on April 18, suggests a doubt that reinsurance at rates based on estimated risks of loss "on all such liability" would meet the requirements of the situation. If the insurers, as a group, are financially unable to meet their probable liabilities in the event of all-out war, they may be financially unable to pay reinsurance rates based on a sound estimate of the risk of such liability. S. 1309, unlike S. 114 or S. 439, makes provision also for insurance or reinsurance against personal injuries or death suffered, in the performance of his official duties, by any civil-defense worker as a

result of hostile or warlike action. S. 1309 also provides that the premium on insurance for civil-defense workers shall be proportionate to the estimated risk. If the risk is very great, the premium will be proportionately high. The opportunity to purchase such insurance would be useless to a worker who could not afford to pay the premium. We fear that making such insurance available, then, would not attain what we assume would be the Congressional purpose, to assure every civil-defense worker that if he is injured in the line of duty, his country will care for him and his dependents. It seems to us that authorization of protection for civil-defense workers is somewhat analogous to the provision of free life insurance for members of the Armed Forces, and may most appropriately be considered as a part of a general plan for the protection and relief of workers in war plants and other civilian workers who may be disabled by enemy action.

We feel that the difficult and complex problems involved in the present proposals for reinsurance of workmen's compensation risks and in provisions for the financial protection of civil-defense workers may perhaps be more effectively considered separately. I therefore concur in the recommendation of Mr. Ralph A. Brooks of the Commerce and Industry Association of New York that if there is a likelihood that the enactment of property-damage legislation would be unduly delayed pending consideration of other proposals, the reactivation of the War Damage Corporation be approved with substantially its former powers as to property insurance only. In this regard, the provisions of all the bills are similar.

It seems desirable to assure sufficient flexibility in the propertyinsurance plan to enable us to provide a reasonable initial premium rate to reflect current conditions, and to provide for payment of an additional premium in the event that during the term of any policy the United States shall become at war with any major power with which it was not at war when the policy was applied for.

We recommend approval of S. 439 (or corresponding parts of other bills) with the following suggested amendment:

At the end of line 2, page 3, insert "geographically" after the word "establish."

In line 3, same page, insert "rate or" after the word "uniform." After the word "average" in line 6, same page, insert "present and prospective," and substitute the word "risks" for "risk."

At the end of line 2, page 4, substitute a comma for the period, and add:

and may provide for payment of an additional premium in the event that during the term of the policy the United States shall become at war with any major power with which it was not at war when the application for insurance was received and the initial premium paid.

Notwithstanding that we favor enactment of S. 439, we are prepared to administer whatever form of premium insurance program Congress should see fit to entrust to us.

I would like to say with respect to the amendment that we have suggested, that amendment is suggested in the fullness of caution, and to clarify what may be already written into the bills.

The several bills contain a provision for the fixing of rates which may be sufficient. This amendment would clarify it, if it were added to any of the bills as presently written.

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