WAR DAMAGE CORPORATION ACT OF 1951 WEDNESDAY, APRIL 25, 1951 UNITED STATES SENATE, INSURANCE, And Banking of the COMMITTEE On Banking AND CURRENCY, Washington, D. C. The subcommittee met at 10 a. m., pursuant to notice in room 318, Senate Office Building, Senator J. Allen Frear, Jr., (chairman of the subcommittee) presiding. Present: Senators Frear and Schoeppel. Senator FREAR. The subcommittee will come to order. The first person to appear will be Mr. Elmer B. Staats, Assistant Director of the Bureau of the Budget. We are glad to have you here, Mr. Staats, and we are looking orward to your testimony. STATEMENT OF ELMER B. STAATS, ASSISTANT DIRECTOR, BUREAU OF THE BUDGET Mr. STAATS. Mr. Chairman, I am afraid that we do not have all the answers to this very complicated problem. I am very happy to appear before you, and I have with me two other gentlemen, Mr. MacPhail and Mr. Labovitz, who can perhaps answer some of the questions. Senator FREAR. We are glad to have all of you. Mr. STAATS. I am appearing before you today to discuss the problem of war damage compensation in general and the adequacy of the three bills now before you-S. 114, S. 439, and S. 1309. Several months ago, the President requested the agencies of the Executive Office to undertake a study of the problem of war damage compensation in relation to the whole range of civilian needs resulting from the dangers of attack. This work is now well under way with the full participation of the many executive departments and agencies directly concerned. While the study has not yet progressed to a point where we can offer for your consideration specific legislative recommendations at this time, I am submitting for your record a copy of a joint memorandum dated March 1, 1951, prepared by the National Security Resources Board and the Bureau of the Budget. This memorandum has been used as the basis for our discussions with the executive departments and agencies and as the framework within which the departments are submitting their comments and recommendations. 171 85516-52--12 It might be most helpful to the committee if I spoke first about the general background of our discussions. I shall then comment on the pending bills in the light of our initial tentative conclusions. During World War II, the Federal Government provided "reasonable protection" to the owners of property against losses resulting from enemy attacks in the continental United States. Protection was given on the basis of voluntary insurance contracts, and the plan was based on a general assumption that damage within continental United States would be limited in extent. I think your committee will agree that, in the face of possible atomic attack, the assumptions used in World War II are no longer applicable. The Congress has already enacted a broad Civil Defense Act and other measures based on new assumptions that the danger of damage within the continental United States is far greater than it was during World War II. In considering how to meet nonmilitary needs which could arise from enemy attacks, the Government must base its preparations upon assumptions consistent with those for other programs. As long as the danger of substantial damage exists, it is essential that any measures that are adopted be adequate to meet the whole range of needs-including the possibility of devastation far beyond any previous experience and involving large-scale injuries and deaths, vast property damage, and physical, social, and economic disruption. The plans of the Civil Defense Administration are naturally concerned with immediate disaster needs, such as extinguishing fires, extricating the injured, first aid medical care, and emergency food and shelter. There are, however, longer term problems such as medical care, shelter, rehabilitation, welfare services, revival of essential local business, reemployment, and relocation. Likewise, there must be planning for rebuilding needed transportation and production facilities, or alternatively, for abandoning areas that may be unusable. We can expect also that there will be need to provide some form of income for the families of income earners who have been killed or severely injured, and temporarily for those whose sources of income have been destroyed. At the same time, determinations will have to be made as to the relationship of any such income maintenance payments to the various forms of public and private protection, including workmen's compensation, life insurance, and other financial claims which may be available to substantial parts of the population. I am sure that your committee will agree that the problems of reestablishing the lives of individuals and restoring production are no less important than the protection of property rights. In fact, in a war situation our continued national existence may depend more upon immediate action to meet these other needs than upon the steps taken to compensate the owners of real and personal property that may have been damaged or destroyed. It seems clear that the Federal Government has a major responsibility for seeing that we are prepared to deal with these problems on a national basis. If this country is attacked, the costs of the necessary measures will be great. The impact might be concentrated or it might be widespread but it would not be uniform. The burdens would be too great for the affected State and local governments alone. The individual victims and their families should not be expected to bear both the physical suffering and financial cost of reconstruction and rehabilitation. In view of the scope and magnitude of civilian needs for which the Federal Government might have to provide in the event of major enemy action against this country, it seems to us that certain general criteria need to be applied in evaluating proposals for action in this field. Among such criteria are the following: 1. Insofar as may be consistent with defense needs and orderly community life, the Government should avoid making very large and unlimited advance commitments. Instead, it should remain free, after the termination of hostilities, to adjust its obligations and programs to the needs and available resources existing at that time, without having to repudiate legal or moral obligations. Specifically, this means: (a) The avoidance of arrangements that take the form of specific individual contracts or rights to expect restitution of a magnitude determined by individual actions; (b) The provision, insofar as possible, of a definite limit on the aggregate amount which the Governmert will be committed in advance to provide as a measure of restitution to those who have suffered damage; and (c) Complete freedom for the Government to determine both the nature and the timing of any final settlements. 2. The costs should be distributed equitably over the population to avoid undue concentration of the economic burdens upon those people who are most exposed to the physical hazards. 3. The insurance principle is useful in spreading the costs of a measurable risk but does not appear to be appropriate in circumstances in which the over-all degree of risk cannot possibly be estimated. If we rely upon voluntary insurance, every individual and enterprise will be compelled to make commitments on the basis of their own individual subjective and necessarily speculative assessments of the risk of damage to their interests. If premium rates are held low enough to be attractive, they may not cover losses; if they are set high enough, they may be prohibitive. 4. Existing administrative organizations and systems should be used to the fullest possible extent so as to conserve manpower and other costs and to preserve flexibility. Arrangements for restitution should be adequate for coping with extensive damage and yet not too cumbersome and costly to maintain over an extended period of uncertainty. The bills which are presently under consideration by your committee are designed to meet one or more of the broad postdisaster needs. The most comprehensive bill, S. 1309, is intended to cover the problems of (1) compensation for real and personal property damaged or destroyed by enemy attack or action to defend the United States against such attack, (2) protection for families of workers injured or killed while at work, and (3) protection for the families of civil defense workers injured or killed in the performance of civil defense duties. S. 439 embodies the first of these provisions, and S. 114 contains the first two. Insofar as real and personal protection is concerned, the Bureau of the Budget takes the view, on the basis of our studies to date, that the bills would be inadequate for their intended purpose. In the event of major enemy attack, damage might be many times the funds which these bills would make available for the settlement of claims. On the other hand, if the financial limitations were increased, the legislation might involve the assumption by the Federal Government of contingent liabilities so large as to preclude the acceptance of responsibility for other postdisaster needs of higher national priority under emergency conditions. To provide in advance for prorating the fund would add a special element of uncertainty for each policyholder a kind of uncertainty that is foreign to insurance concepts as they are generally understood in this country. Thus the policyholders would either be misled as to the amount of protection they really have or the Government contribution would have to be increased to many times the $1.1 billion authorized under the bills. If the latter course were followed, so that the Government contribution became the major source of funds for the settlement of claims, it would become extremely difficult to justify not providing compensation to those people who, for whatever reason, had failed to take out insurance. It is for these reasons, as well as others which are discussed in more detail in the staff memorandum, that we believe Government war damage property insurance should not be undertaken on a voluntary, contractual basis. Instead, the Congress might well consider the enactment of a program for the indemnification of owners of damaged property which would involve the advance assumption by the Federal Government of only a limited liability. If the amount originally specified proved insufficient, the compensation would be on a partial basis unless Congress later decided to increase the authorization. This would leave for postwar determination the question of the extent to which the Federal liability should be increased. It could then be determined by the Congress in the light of the extent of total war damage, other governmental responsibilities, and available resources. This timing seems appropriate because the bulk of any such compensation payments should not be made until materials are available for restoration. There would be no individual contracts to imply either a legal or a moral commitment that the Government should provide such an increase. In addition to the insurance of real and personal property, two of the bills propose Federal Government reinsurance of any liability which may be imposed on employers and their sureties under State workmen's compensation acts and similar laws for injuries or disease suffered by workers as a result of hostilities. No one knows the extent to which such liability would legally be imposed on employers and their sureties; as a matter of fact, it is likely that the courts would decide differently under different State laws and with respect to different types of employment. For this reason, and because the risk of war injury or death is incalculable, no insurer could provide accurately in premium rates for this risk. Thus, in the absence of some overriding Federal provision, State workmen's compensation funds and insurance companies, and ultimately many employers are confronted with the possibility of bankruptcy if this country is attacked. Here too, the proposed Government commitment for reinsurance may be inadequate in the event of heavy attack. One alternative method of handling this problem appears to be through a Federal enactment, under the war powers of the Federal Government, relieving employers and their sureties of their liabilities for injury or death caused by war. It should be borne in mind, however, that to the extent to which employers and their sureties are relieved of these liabilities, the employees and their families are deprived of protection. This serves to reemphasize the need which I mentioned earlier for providing some income to the dependents of all persons injured or killed because of enemy action; moreover, this protection is needed by the dependents whether the breadwinner was or was not covered under the workmen's compensation laws of his State and whether the attack came at night when he was at home or in the daytime when he was at work. To move to the third aspect of these bills, it seems clear that any general system of protection which may be provided for the rest of the population should apply to civil-defense workers injured or killed through enemy action. As for those civil-defense workers injured or killed in training or while on duty in advance of enemy attack, it would seem that the basic philosophy underlying the Civil Defense Act presumes that each State should provide protection in the manner and to the extent that it sees fit. The method that seems most feasible is for the States, in the role of employers, to provide coverage for these volunteers under their workmen's compensation laws against the contingency of such predisaster injuries or deaths. Some States now provide such protection for volunteer firemen and other unpaid officials and a few have already extended it to civil-defense workers. Let me repeat, however, that we recommend Federal assumption of the entire responsibility for benefits to civil defense workers injured or killed as a result of enemy action, in the same manner and to the same extent as that responsibility would be assumed for the rest of the population. In conclusion, the Bureau of the Budget would again like to urge that the Congress, before enacting legislation on any one phase of this subject, give consideration to the other phases of the whole wardamage problem which need to be dealt with under common policies as part of a coordinated plan. Under present conditions, many aspects of this problem have become relatively much more important than they were during World War II. Based on our studies to date, we believe that a practical and coordinated solution can be devised to meet these needs. Mr. Chairman, again I would like to say that obviously the statement I have read does not point to definite and final conclusions on the part of the Bureau of the Budget or the executive branch on any one of these aspects of the problem that you had before your committee. We have been working for some time on this problem with the agencies concerned. I think that from the testimony which you have had before you here in the last few days, it is quite clear that there are still many aspects of this problem in which there are some differences of opinion. But we did feel that we wanted to give you the benefits of the tentative conclusions which we have reached to date in our deliberations and discussions on the subject. It is a very difficult problem and one which I think merits the very careful study and consideration of the Congress. Because of its difficulty we did not want to appear to be too definite on some of |