REACTIVATION OF WAR DAMAGE INSURANCE

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(9) To settle and adjust claims held by it against other persons or parties and by other persons or parties against the Corporation.

(10) To borrow, hypothecate, an to invest and reinvest its funds.

(11) To appoint such officers, agents, attorneys, and employees as may be necessary for the conduct of the business of the Corporation; and to delegate to them such powers and to prescribe for them such duties as may be deemed appropriate by the Corporation.

(12) To take such actions as may be necessary or appropriate to carry out the powers and duties herein or hereafter specifically granted to or imposed upon it. SEC. 5. The Corporation, including its franchise, its capital, reserves, surplus, and income, shall be exempt from all taxation (which shall, for all purposes, be deemed to include sales, use, storage, and purchase taxes) now or hereafter imposed by the United States, or any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority, except that any real property (or buildings which are considered by the laws of any State to be personal property for taxation purposes) of the Corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.

[H. R. 9805, 81st Cong., 2d sess.]

A BILL To reactivate the War Damage Corporation

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Reconstruction Finance Corporation shall continue the War Damage Corporation, hereinafter referred to as the "Corporation", in existence so that the Corporation may provide, through insurance, reinsurance, or otherwise, reasonable protection against loss of or damage to property, real and personal, which may result from enemy attack (including any action taken by the military, naval, or air forces of the United States in resisting enemy attack), with such general exceptions as the Corporation may deem advisable. Such protection shall be made available through the Corporation on and after a date to be determined and published by the Reconstruction Finance Corporation which shall not be later than thirty days after enactment hereof, upon the payment of such premium or other charge, and subject to such terms and conditions, as the Corporation may establish, but, in view of the national interest involved, the Corporation shall from time to time establish uniform rates for each type of property with respect to which such protection is made available, and, in order to establish a basis for such rates, the Corporation shall estimate the average risk of loss on all property of such type in the United States. Such protection shall be applicable only (1) to such property situated in the United States (including the several States and the District of Columbia), the Canal Zone, the Territories and possessions of the United States, and in such other places as may be determined by the President to be under the dominion and control of the United States; (2) to such property in transit between any points located in any of the foregoing; and (3) to all bridges between the United States and Canada and between the United States and Mexico. Such protection shall not be applicable to property in transit upon which the Secretary of Commerce is authorized to provide insurance under title XII of the Merchant Marine Act, 1936, as amended. The Corporation may suspend, restrict, or otherwise limit such protection in any area to the extent that it may determine to be necessary or advisable in consideration of the loss of control over such area by the United States making it impossible or impracticable to provide such protection in such

area.

SEC. 2. (a) Upon the request of the President, the Reconstruction Finance Corporation shall supply funds to the Corporation. The aggregate amount of the funds so supplied after this Act is enacted shall not exceed $1,000,000,000. (b) Section 4 (c) of the Reconstruction Finance Corporation Act, as amended (15 U. S. C., sec. 604 (c)), is amended by inserting "for any purpose other than that of supplying funds to the War Damage Corporation" after "pursuant to

section 4".

SEC. 3. The Corporation shall not be continued in existence beyond June 30, 1955, except for purposes of liquidation.

SEC. 4. The Reconstruction Finance Corporation shall make such amendments to the charter of the Corporation as may be necessary to insure that the Corporation has the same powers, privileges, and tax exemptions and other

immunities with respect to its functions under this Act as it had under paragraphs Third, Fourth, and Fifth of its charter on January 21, 1947, with respect to its functions under section 5g of the Reconstruction Finance Corporation Act, as amended. The Reconstruction Finance Corporation may at any time make such other amendments to the charter of the Corporation as it considers necessary to carry out this Act. Amendments made under this section shall be valid only when certified copies thereof are filed with the Secretary of the Senate and the Clerk of the House of Representatives and published in the Federal Register.

The CHAIRMAN. We have met this morning largely because of the general demand for war damage insurance from certain sections of the country, more particularly from the west coast.

There have been eight bills introduced for this purpose. I think Mr. McKinnon has introduced a bill which has been approved by the Reconstruction Finance Corporation but we will consider them all. We will call Mr. Dougherty, general counsel of the Reconstruction Finance Corporation.

STATEMENT OF JAMES L. DOUGHERTY, GENERAL COUNSEL, RECONSTRUCTION FINANCE CORPORATION

Mr. DOUGHERTY. Mr. Chairman, we hope we can be of some aid to the committee and to that end we are appearing to comment upon the bills that have been introduced. If it is in order, I should like to read into the record a statement that we have prepared.

The CHAIRMAN. You may read your statement and I trust you will not be interrogated until you conclude and then you will be subject to questioning.

Mr. DOUGHERTY. War Damage Corporation was created under the authority of section 5d (3) of the former RFC Act, as amended, and commenced its insurance operations in 1942.

By the terms of the act of March 27, 1942, Reconstruction Finance Corporation was authorized to supply up to $1,000,000,000 to War Damage Corporation to enable War Damage Corporation to provide, through insurance, reinsurance, or otherwise, reasonable protection against loss or damage to property which might result from enemy attack, including any action taken by the Armed Forces of the United States in resisting enemy attack. Such protection was directed to be made available not later than July 1, 1942. War Damage Corporation was also authorized to pay for loss or damage sustained after December 6, 1941, and before policies of insurance became available, as if policies covering such property had been in force at the time of loss or damage.

In the Corporation's premium insurance programs, insurance companies acted as underwriting agents for War Damage Corporation and at its request participated to the extent of 10 percent of profit or loss, as the case might be, subject to specified dollar limits.

Policies of insurance under the Corporation's general program, covering most types of tangible real and personal property other than money and securities, were made available from July 1, 1942, until March 16, 1946, when the issuance of policies was terminated because of lack of public demand for such coverage.

Under the Corporation's general program, policies of insurance were issued by 546 fire insurance companies through some 1,500 policy writing offices throughout the United States. Policies under the "money and securities program" were issued through the offices

of some 88 casualty and surety companies acting as underwriting agents. Coverage under the money and securities program terminated at approximately the same time as coverage under the general program. Contingent liability under all policies ceased by the spring of 1947.

The aggregate contingent liabilities assumed by War Damage Corporation under policies of insurance at the peak of the programs amounted to about $140,000,000,000, including $3,000,000,000 coverage on money and securities.

War losses in the United States having been insignificant, and no policies having been issued in the Philippine Islands or other Pacific possessions, claims under the policy programs totaled only $206,000, on which $73,000 was allowed and paid.

Claims filed under the free program aggregated nearly $180,000,000, most of which related to losses in the Philippine Islands. Jurisdiction of these claims was subsequently transferred to the Philippine War Damage Commission. Clains under the free program were paid by War Damage Corporation in the amount of $1,200,000. Two claims, aggregating approximately $2,000,000,000, which the Corporation deemed unjustified, were litigated in the Federal courts and determined adversely to the claimants.

Although War Damage Corporation still exists as a corporate entity for purposes of completing the liquidation of its affairs, the authority to conduct its insurance programs expired in 1947. Its present legal succession is limited to the period of such liquidation. Most of the bills now pending before the committee are similar in character, but it appears to us that H. R. 9802 is best adapted to current developments.

H. R. 9802 would grant succession to War Damage Corporation until July 1, 1955 (in this respect it is similar to most of the other pending bills). Moreover, it would direct Reconstruction Finance Corporation to supply funds to War Damage Corporation upon the request of the President, in an amount not to exceed $1,000,000,000, in this respect it is identical with the other pending bills. H. R. 9802, unlike the other bills now pending, defines the authority of War Damage Corporation by use of the same language as that which forms the basis of the war exclusion clause currently in use by the insurance industry in several forms of property insurance coverages and also now contemplated for further use in remaining forms of property coverage. The other bills employ the same definition as that contained in the 1942 act which was based upon the war exclusion clause then currently in use by the insurance industry. It is our belief that any renewed authority of War Damage Corporation should occupy the area of coverage excluded by the insurance industry in its forms of property insurance and for this reason we would favor the adoption of H. R. 9802.

The remaining provisions of H. R. 9802 are substantially identical with those of the other bills now pending. One of the pending bills would authorize the Corporation to provide for losses occurring prior to the initiation of its general insurance program but no similar provision is contained in H. R. 9802. It is our view that in the light of current conditions there is no immediate necessity for such retroactive authorization. Should any catastrophic occurrences take place necessitating such retroactive coverage prior to the initiation of the

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general insurance program, it may be provided by emergency legislation. The reason for retroactive authority in the 1942 act was that the Pearl Harbor disaster antedated that statute and the Congress wished to make provision for the payment of losses which were known to exist. No corresponding situation confronts the Congress as to the present time.

H. R. 9802, following the language of the new war exclusion clause currently in use by the insurance industry, as mentioned above, contains an express reference to "the discharge, explosion or use of any weapon of war employing atomic fission or radioactive force," and the authority of the Corporation is defined to cover this field. Subsequent to the date of introduction of H. R. 9802, it was brought to our attention that the insurance industry has, by appropriate committee action, decided to remove this express reference to atomic weapons and to rely upon the general exclusion, which refers to "hostile or warlike action," this language is likewise contained in the authorizing section of H. R. 9802. Additionally, we have learned that the insurance industry has elected to remove from their general exclusion clause the words "in time of peace or war" on the theory that this language is unnecessary and undesirable. In the light of these developments, it would be our recommendation that the authorizing section of H. R. 9802 be similarly changed so as to read as follows:

The Corporation is authorized to use its funds to provide, through insurance, reinsurance, or otherwise, reasonable protection against loss of or damage to property, real and personal, which may result from hostile or warlike action, including action in hindering, combating, or defending against an actual, impending or expected attack (1) by any government or sovereign power (de jure or de facto), or by any authority using military, naval, or air forces; or (2) by military, naval, or air forces; or (3) by an agent of any such government, power, authority, or forces.

The provision in each bill that premium rates shall be uniform for each type of property, and that each such rate shall be based on an estimate of "average risk of loss on all property of such type in the United States" involves, of course, a broad question of public policy. Uniformity of rates throughout the country will have the very great advantage of simplicity of operation and avoidance of local and regional controversies. Although uniform rates may not completely accomplish the purpose of uniformly distributing risks of war among property owners, wherever located, since rates based on average risks of loss for the country as a whole may prove too high to be generally availed of by property owners in small cities and towns not adjacent to target areas, we doubt the advisability of departure from this principle in advance of experience in war under present-day conditions.

In view of the urgency of this matter, there has been no opportunity to submit this statement to the Bureau of the Budget in advance of its presentation to the committee. We are, therefore, unable to advise you at this time regarding the relationship of this legislation to the program of the President.

I might make one comment and that is that in the early part of this statement we state that in 1942 the act provided authority to the Reconstruction Finance Corporation to supply up to $1,000,000,000 to War Damage Corporation.

I think each of the bills that has been introduced in the House, and which are now pending before this committee, also mentions a billion

dollars as the amount that RFC would make available to War Damage Corporation. We took that figure, accepted that figure, because it is in all the bills, whether it is the figure that is proper and correct, or anywhere near the one that should be inserted, we do not know, but the reason that we made no suggestion is because that figure seems to have been generally accepted by the framers of the bills that have been introduced.

The CHAIRMAN. Have the agencies considered extension of the coverage to include personal injury and death?

Mr. DOUGHERTY. We have discussed that, Mr. Chairman, and have come to the conclusion, so far as we are concerned, that personal compensation for disability due to personal injury in bombing is something that is distinguishable, completely distinguishable from property damage and we have thought that it would merely confuse the thinking of everybody on the bill if we tried to weave the two together. The CHAIRMAN. You have only covered property damage?

Mr. DOUGHERTY. That is right. That is true not only of H. R. 9802, but it is true of every bill that has been introduced and is before your committee, sir.

The CHAIRMAN. Any questions?

Mr. NICHOLSON. Mr. Chairman, I read this morning about the mortgages in the country. There are about 14 billion in mortgages. Who is going to take care of the other $13,000,000,000?

Mr. DOUGHERTY. I think that is a question that the Congress would have to determine. I might say in that connection that if the administration of this 9802 or any other bill is left to the RFC or the War Damage Corporation, as operated under RFC management, we would think that each policy should have stated on its face that the amount of indemnity that would be paid to any claimant would not exceed the-I mean the aggregate of the claims-would not exceed the amount that had been designated by Congress as the limit of the financial aid that RFC might give to War Damage Corporation.

Mr. NICHOLSON. In other words, this would let you write $14,000,000,000 of insurance with only a liability of one billion?

Mr. DOUGHERTY. I am not an expert in the insurance field and I think Mr. Herd, who is here, could answer the question better so far as the ratio between outstanding policies, outstanding aggregate liability and resources are concerned. I understand that no insurance company write policies with the expectation that he will have to pay off 100 cents on each one of them at the same time.

To be more direct in answering your question, though, Mr. Nicholson, I believe that if the limit were $1,000,000,000-and as I said, we have no idea whether that is the right figure or not-there would be a good many policyholders who would not collect very much in the event of a large catastrophe.

Mr. NICHOLSON. When the last law was in effect, there was no damage and yet the Government took about a quarter of a billion dollars away from people who were insured and used the money for almost anything instead of handing it back to people who had been insured, as a dividend. This would probably be the same thing. We go 6 years on this and then if we do not have any war damage, the United States Government takes all of these premiums and uses them for anything the Government wants to use them.