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Washington, D.C. The committee met, pursuant to notice, in room 301, Senate Office Building, at 10:10 a. m., Senator Herbert H. Lehman presiding.

Present: Senators Lehman, Douglas, and Bush. Senator LEHMAN. The session will come to order. I want to, in the first place, express my sincere appreciation to all of you for coming here today. I know this question of providing disaster insurance is one that has engaged the interest of people all over the country. I think it is a highly important one.

You know there has been, of course, long discussion and consideration of the need of Federal insurance to cover flood losses and also Federal insurance to cover man-made disasters, such as those resulting from enemy action or from sabotage or from other causes.

I think what brought this question particularly, notably, to the attention of the people of the United States and to the attention I believe of a great many Members of Congress was the disastrous floods which we had in the Northeastern States here on successive occasions during the past 3 months. As you know, the losses of life and property were tremendous.

We will develop in the course of this session what these losses actually amounted to in dollars and cents.

As a result of the disastrous floods, several members of the Senate have given very considerable thought to this question, and some bills, some tentative drafts, were prepared. I want to emphasize these are not bills. These are drafts, in the form of committee prints. There is one prepared by the committee staff at the suggestion of Senator Bush, one submitted by Senator Kennedy and Senator Saltonstall, a third prepared under the direction of Senator Carlson, and finally there is one that was prepared under my direction by my staff with the help of the staff of the committee. Copies I think are in your possession.

I want to say these are only for the record. They are only to be given consideration. We realize perfectly well this whole subject of disaster insurance is a very complex one. We are plowing untrodden ground in this matter, and we want to develop the facts. That is really the purpose of this hearing.

I said in a statement which I gave out 2 days ago the following: We are out to get the facts, to find out how the Federal Government has coordinated with the State and local authorities in meeting the impact of the recent floods in the Northeast, and to consider legislation which will in the future protect private individuals and businessmen against the tragic losses resulting from natural and manmade disasters. That is the purpose of these hearings.


We realize perfectly well-at least I do—that in all these proposals there are a great number of debatable issues. I want to make it clear so far as I am concerned, and I believe this is true of other members of the committee, that none of us is committed to any specific provision in any of these proposals. We want to get the facts.

We know it is difficult. We think, however, it is highly important.

We want the cooperation, the fullest cooperation, of the authorities in the various States which have been or might be affected by disasters. We want to get the fullest cooperation and the best possible advice from the administrative agencies of our Government. We want to consult with the private insurance companies to find out to what extent they have covered in their policies the loss and damage that have come from various disasters.

We do not intend—at least it is not my intention—to propose that we compete with the insurance companies. We recognize that if they can write adequate insurance policies covering these various disasters at reasonable rates we applaud that and do not wish in any way to compete with them. But we wish to have the field covered very thoroughly.

Now, I am going to ask my colleague, Senator Bush from Connecticut, to say a few words.

Senator Bush. Thank you, Mr. Chairman.

I am sure that we are all aware of the very great importance of these hearings, and I may say for the record that I am very glad that they are to be presided over by the distinguished Senator from New York, whose long record of interest in humanitarian affairs is widely known throughout the United States. I pledge him my complete cooperation in connection with this matter.

This is not a partisan matter. Floods are not Democrat floods or Republican floods, but, unhappily, are disasters common to everybody.

Since August 19 I have been every week, almost every single day, in the flood-stricken areas of my own State. I think I can say I have devoted my attention exclusively to the problems that have grown out of this greatest disaster in the history of the State of Connecticut. I will go further and say that I think the records will develop that this is the greatest disaster that has ever struck the United States. My authority for that is, incidentally, the Chief of the Corps of Engineers, General Sturgis, who may wish to speak of it himself, and also the disaster director of the American Red Cross, Mr. Wilson.

The destruction of family life, of homes, and of jobs has been almost a fantastic thing in our area. But the people have behaved and acted magnificently. That has been one of the inspiring things about our flood in Connecticut, and I am sure it must be true elsewhere.

We naturally will approach, therefore, this subject with deep sympathy and also with a determination to do something constructive about it.

Shortly after the flood, I asked Chairman Fulbright of this committee to have the staff make a study of the question of disaster indemnity. That study has just been completed, but is only in proof form and, therefore, not yet available to us. It will probably not be available for these hearings. It is, however, as you can see, a very comprehensive document and I think will shed considerable light upon the problem which we are about to deal with.

The Senator has mentioned a draft of a bill which I have asked the committee counsel to make. I may or may not introduce it. That will depend, I think, a lot on what these hearings develop. I do hope that these hearings will develop information that will be useful to all of us. I am sure any bill we eventually adopt will be one that has behind it not the thinking of just one Senator. All of us will have to cooperate, and I hope it will be a very representative bill.

Mr. Chairman, I thank you for the opportunity of making these remarks which I now conclude.

Senator LEHMAN. I am very glad indeed you were able to come, Senator. I hope you will attend as many of these hearings as possible.

Senator Bush. That is my intention, Senator Lehman.

Mr. WALLACE. With respect to the staff report, as you know, we were under some pressure of time, and we do have the galleys prepared. I believe in 2 or 3 weeks the staff report would be completed, but the staff will be pretty much tied up in the hearings during the process of the hearings. It was prepared primarily by Mr. McKenna of the staff, and also Mr. Rogers.

Senator LEHMAN. I am sure the study will be completed as we proceed.

Senator Bush. Mr. Chairman, I do not mean to offer any suggestion that there was delay or anything like that. I hope nobody got that implication. I think they have done very well to get it out in its present form with the limited time at their disposal.

Senaor LEHMAN. Reference has been made both by Senator Bush and myself to the preparation of these draft bills. I direct that they be placed in the record, together with a sectional analysis of each. (The draft bills and sectional analysis referred to follows:) [Committee print, October 25, 1955, intended to be proposed by Mr. Lehman)

84th Cong., 2d sess.)

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A BILL To provide insurance against natural and man-made disasters, and for other

purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the Disaster Insurance Act of 1956.


SEC. 2. From time immemorial man has been afflicted with disaster by the forces of nature. Throughout recorded history man has also been the victim of man-made disasters. As a result of a single natural or man-made disaster, all a man's possessions, savings, and business assets may vanish, leaving him with naught in his misery but his unpaid debts.

With the development of civilization, man has sought to lessen the impact of disaster on an individual. Toward this end he has adopted protective measures to minimize physical damage caused by disasters. He has also banded together with his fellow men to spread the unavoided risks of many disasters through use of insurance. By this means comparatively small advance contributions from many subject to peril create a reserve available to pay the large losses of a relatively few who suffer damage from that peril at a given time.

In this Nation, the protective device of insurance has not yet extended to certain forms of natural or manmade disaster. These visitations do not respect the boundaries of State or local political subdivisions. Being national in character, it

behooves the Federal Government to provide a means of alleviating their ill effects.

It is the purpose of this Act to authorize a program of Federal insurance against the risks of loss resulting from the natural and manmade disasters hereinafter defined, to the extent such insurance is not available on reasonable terms and conditions from other public or private sources. It is a further purpose of this Act to place the administration of such an insurance program in the custody of a single Federal agency endowed with ample power to execute the responsibilities vested in it by the provisions of this Act. It is the intent of the Congress that the programs authorized by this Act be administered effectively and in a humanitarian spirit in order to contribute to domestic tranquillity, the common defense, and the general welfare of the people of the United States, and to enable the better conduct of commerce among the several States and with foreign nations.

TITLE I–NATURAL DISASTER INSURANCE AND REINSURANCE Sec. 101. To aid in carrying out the purposes of this Act, the Federal Disaster Administrator (hereinafter called the “Administrator") is authorized to provide insurance or reinsurance, or both, against loss resulting from damage to or destruction of real or personal property (including property owned by State or local governments) due to natural disaster, as hereinafter defined, occurring within the United States, its Territories, or its possessions.

Sec. 102. The Administrator shall from time to time prescribe (1) premium rates for each type of insurance and reinsurance he shall make available under authority of this title, and (2) terms and conditions upon which and areas (including subdivisions thereof) within which each rate shall apply. Such rates shall be based upon consideration of the risks involved, and, in the judgment of the Administrator, shall be as nearly adequate as practicable to provide sufficient funds to meet administrative and operating expenses under this Act and reserves for anticipated losses, consistent with the aim of offering insurance and reinsurance at rates reasonable enough to encourage prospective insurees or ceding companies to purchase such insurance or reinsurance respectively.

Sec. 103. The Administrator is authorized to provide for the determination of types and location of property with respect to which insurance or reinsurance shall be made available, the nature and limits of loss or damage in any area (including subilivisions thereof) which may be covered by such insurance or reinsurance, and such other matters as may be necessary to carry out the purposes of this Act.

SEC. 104. The Administrator may exclude from the operation of the insurance or reinsurance programs authorized by this title such risks as he deems impracticable to cover, in individual cases or as a class; and the Administrator may from time to time establish appropriate regulations regarding the classification and limitation of risks assumed by him under authority of this Act.

SEC. 105. (a) The aggregate amount of insurance issued by the Administrator to any one person or State or local government shall not exceed $300,000. No claim for loss shall be approved which exceeds the lesser of (1) the actual value at time of loss or (2) the cost of replacing, repairing, or rehabilitating the prop. erty destroyed or damaged with material of like kind and quality (less depreciation at time of loss). The insurance issued by the Administrator shall contain a loss deductible clause excusing the Administrator from paying the first $200 of a claim for loss approved by him.

(b) The liability of the Administrator under insurance or reinsurance provided under this title shall not exceed $2,000,000,000, at any one time.

SEC. 106. The Administrator is authorized to make available to any public body for the benefit of its inhabitants insurance under the provisions of this title. Any provision of this title to the contrary notwithstanding, such insurance may be issued upon payment of a premium fixed by the Administrator, taking into consideration the nature of the risks insured against, the number of beneficiaries, the possible total liability of the Administrator under the policy (which shall not exceed $300,000 per inhabitant), and the aim of making self-supporting any program undertaken under the provisions of this section. Prior to the issuance of each insurance policy under the provisions of this section, the Administrator shall satisfy himself that applicable law authorizes the public body involved to purchase such policy and pay the premium therefor, obtaining the funds required for that purpose by taxation or otherwise pursuant to applicable law.

SEC. 107. (a) The Administrator is authorized to issue such regulations regarding reinsurance under this title as he deems advisable in order to carry out the purposes of this title.

(b) The premium rate and terms and conditions of any policy reinsured under the provisions of this title shall be subjert to approval by the Administrator.

(c) In addition to powers elsewhere granted to him in this title, the Administrator may make available a reinsurance program providing for creation of a Catastrophe Excess Loss Reinsurance Fund as hereinafter provided, which shall be available to pay excess loss reinsurance claims submitted on a portfolio basis by the insurer arising out of a single catastrophe, in consideration of payments by the insurer of a fee deemed adequate by the Administrator to make this particular reinsurance program self-supporting.

SEC. 108. (a) No insurance or reinsurance shall be issued under the provisions of this title (1) covering perils against which insurance is available on reasonable terins from other public or private sources: Provided, however, That insurance may be made available hereunder covering in a single policy all natural disasters as hereinafter defined.

(b) No insurance or reinsurance shall be issued under the provisions of this title on any property used in a manner inconsistent with the requirements of State or local flood zoning laws.

Sec. 109. (a) In providing insurance or reinsurance under this title, the Administrator shall use to the maximum practicable extent the facilities and services of private organizations and persons authorized to engage in the insurance business under the laws of State or District, Territory or possession of the United States (including insurance companies, agents, brokers, and adjustment organizations); and the Administrator may arrange for payment of a reasonable compensation for such services.

(b) The Administrator is authorized to enter into agreements for financial participation of private insurance companies in the underwriting of risks assumed, and for their proportionate participation in premiums received and profits or losses realized or sustained.

(c) In providing insurance or reinsurance under this title, the Administrator may use the services of other public agencies, and pay reasonable compensation therefor.

(d) The Administrator may receive from and exchange with other agencies of the Federal Government, with State, Territorial, district, local and interstate commissions or agencies, and with private organizations experienced in the fields of insurance or reinsurance, such information as may be useful in the administration of the programs authorized by this title.

SEC. 110. Any department or agency of the Federal Government engaged in making direct loans or advances, or in participating in, insuring or guaranteeing loans made by private lending institutions for construction, modernization, repair, rehabilitation, or purchase of property eligible for assistance under this title, may require as a condition for such future financial assistance that such property be insured against perils of natural disaster to the extent such insurance is available.

SEC. 111. (a) Under such regulations as the Administrator may prescribe, he shall arrange for prompt adjustment and payment of valid claims for losses covered by insurance or reinsurance under this title. He shall collect from participating insurance companies such amounts as they are obligated to contribute toward such losses under agreements entered into pursuant to the provisions of Section 109 (b) of this title.

(b) Upon disallowance of any claim against the Administrator under color of any insurance or reinsurance made available under this title, or upon refusal of the claimant to accept the amount allowed upon any such claim, the claimant may institute an action against the Administrator on such claim in the United States district court in which a major portion (in terms of ralue) of the insured property is located. Any such action must be begun within one year after the date upon which the Administrator mails to the claimant notice of disallowance of the claim or within one year after the date upon which the claimant mails to the Administrator notice of refusal to accept the amount allowed by the Administrator, as the case may be. For the purposes of this section, the Administrator may be sued and he shall appoint one or more agents within the jurisdiction of cach United States district court upon whom service of process can be made in apy action instituted under this section. Exclusive jurisdiction is hereby conferred upon all United States district courts to hear and determine such aciions without regard to the amount in controversy.

Sec, 112. (a) To carry out the purposes of this title, the Administrator is authorized to establish three funds to be known as the (1) Disaster Insurance Fund, (2) Disaster Reinsurance Reserve Fund, and (3) Catastrophe Excess Loss Reinsiirance Fund, respectively.

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