1104 Senator LEHMAN. Thank you very much. If not, I think we will recess now. We will recess now until 3 o'clock. Before we recess, I would like to place in the record communications received from the American Municipal Association, the AngloFabrics Co., Inc., and the National Association of Mutual Insurance Agents. (The communications referred to follow :) Hon. J. W. FULBRIGHT, AMERICAN MUNICIPAL ASSOCIATION, Chairman, Senate Banking and Currency Committee, United States Senate, Washington 25, D. C. DEAR SENATOR FULBRIGHT: It has become necessary because of the press of other business to cancel the appearance of Mayor Leo Carlin of Newark, N. J., who was to appear before the Securities Subcommittee on Friday, February 17, to testify on behalf of the American Municipal Association in favor of disaster insurance. In lieu of Mayor Carlin's appearance before the committee, we respectfully request that this letter and the enclosed American Municipal Association policy resolution be made a permanent part of the record of the subcommittee hearings. You will note that our national municipal policy on disaster insurance calls upon the administration and the Congress to develop a plan for natural disaster insurance which will adequately protect our cities and which will allow the maxiThis policy statement was adopted mum participation of private business. unanimously by the representatives of the 12,000 American cities who belong to the AMA. The mayors and city officials who represent our cities are unanimous in their opinion that some form of disaster insurance is needed. They are equally united in their belief that this insurance should also cover municipally owned property. The experiences of last fall in the New England area and later on the west coast have shown that natural disasters do millions of dollars' worth of damage to city-owned property. These losses are incurred at a time when the citizens of our cities are least able to bear the financial burden. To cite a single example, we would call the committee's attention to the experience of Waterbury, Conn. A preliminary estimate of the damage to municipality owned property in that city in last August's floods indicate that approximately $13 million worth of property was destroyed or damaged. This included bridges, streets, city schools, fire and police equipment, water and sewerage systems, and various other municipal facilities and equipment. This loss, none of which was covered by insurance, is approximately equal to the annual municipal budget for that city. It has been estimated that it will require nearly a generation for this community to replace the damaged facilities and to recover fully. On behalf of this association I wish to extend my sincere thanks for the opportunity which has been afforded us to present the views of America's municipalities before this committee on this vitally important issue. Sincerely yours, PATRICK HEALY, Jr., Executive Director. RESOLUTION 5-NATIONAL MUNICIPAL POLICY ON DISASTER INSURANCE Passed Unanimously by the 32d Annual Congress of the American Municipal Floods of unprecedented magnitude have struck our cities the past year. These disasters have come without warning and have left in their wake a wide path of death, destruction, and suffering. Cities are unable financially to bear the tremendous costs of replacing municipal property that is destroyed. The principle of distribution of risk through the medium of insurance is soundly established in this country. However, there is no insurance available which will cover losses to our cities from natural disaster; therefore, be it Resolved, That the American Municipal Association calls upon the administration and the Congress to develop a plan for natural disaster insurance which will adequately protect our cities and which will allow for the maximum participation of private business. Hon. HERBERT H. LEHMAN, ANGLO FABRICS CO., INC., New York 18, N. Y., February 16, 1956. United States Senate, Washington, D. C. MY DEAR SENATOR LEHMAN: I have today received a copy of your release dated February 6, 1956, regarding the flood disaster insurance bill. I am taking the liberty of voicing my opinion regarding flood insurance as I personally was a victim of the last flood. To insure plants up to $100,000 would help, but it might not be enough to protect these plants so that they may continue to stay in business after a disaster, according to the experience I was unfortunate to have had personally. The cleaning-up process costs much more than $100,000 if it is a plant employing more than 200 people and a plant that requires a great deal of machinery to produce goods. If such disaster insurance could be made compulsory all over the country, the premiums could be very low and plants in disaster areas could be fully insured and still the overall cost to the Government would be minimal. Factories not being exposed directly to disaster areas would have to participate in such a program. If this would be the case, the cost to the Government might be very negligible. The insurance would have to include not only flood, but any disaster not covered by the extended coverage of the insurance companies. In any event, I would like to thank you very much, Mr. Senator for the splendid work you are doing to protect the industry of the country which is very much appreciated, as the industry needs such help very badly. We cannot have peace of mind for a minute until we can clearly see that our existence is not threatened to be jeopardized by disaster. Respectfully yours, LEO HONIG, President. STATEMENT OF NATIONAL ASSOCIATION OF MUTUAL INSURANCE AGENTS, WASHINGTON, D. C., PHILIP L. BALDWIN, EXECUTIVE SECRETARY "Potential victims of disasters can and must be afforded some means of protection against catastrophic occurrences of natural and unforeseeable origin." This is the conclusion of the National Association of Mutual Insurance Agents, with its 6,000 members, as expressed by its special committee on catastrophe insurance at a meeting held in Washington, D. C., on December 15, 1955. The committee consisted of Hugh H. Murray, Jr., chairman, Raleigh, N. C.; Clifford C. Nelson, Yardley, Pa.; Augustus W. Preble, New Haven, Conn.; Henry Duke, Cumberland, Md.; and Earl A. Lamb, president. It is the conclusive thinking of this group that this major problem facing the Nation can be solved through the intelligent cooperation of American free private enterprise and the Government. It must be remembered that some type of catastrophe could befall citizens in any part of the country. It matters not whether they live on mountain, plain, coast, or valley, as nature excludes no one from catastrophe. Now, in addition, manmade potential disaster in the form of nuclear explosion and contamination faces us. It is suggested that the following points are worthy of consideration: 1. Insurance against catastrophic loss should be included in all property insurance policies. 2. Coverage should be written to include a realistic deductible provision. 3. Adequate waiting periods should be included to prevent the purchase of insurance against impending disaster. 4. Catastrophe coverage of the type contemplated should include nuclear fission, earthquake, windstorm, wave wash, explosion, flood, and tidal wave, as well as war damage. 5. Reinsurance capacity should be afforded through a Government-created corporation similar to the War Damage Corporation for those hazards which the industry does not presently cover. Some portion of all catastrophic exposures, however, should, be assumed by the industry. 6. It is our conviction that a program handled in this way by private insurance facilities will most adequately take care of the need. We, the National Association of Mutual Insurance Agents, stand ready, willing, and anxious to lend a hand in solving these problems for the American public. 1106 Senator LEHMAN. We will recess until 3 o'clock. (Whereupon, at 12:17 p. m., the subcommittee recessed, to reconvene at 3 p. m., this date.) AFTERNOON SESSION Senator LEHMAN. The hearing will come to order. Mr. Mitchell Wendell, who represents the State of New York Joint Legislative Committee on Interstate Cooperation will be the first witness. STATEMENT OF MITCHELL WENDELL, NEW YORK STATE JOINT Mr. WENDELL. S. 2862 seeks to provide for an experimental national flood indemnity and reinsurance program *** The New York State Joint Legislative Committee on Interstate Cooperation is an official agency of the legislature of the State of New York mandated to initiate, implement, and facilitate Federal-State and interstate cooperation. Recently, the committee was requested by the legislative leadership to prepare recommendations with respect to the role of the State government in natural disasters and, notably, with respect to floods. An interim report containing some initial recommendations with respect to State disaster law will shortly be presented to the New York Legislature and will include provision for State grants to aid in meeting damages to the property of political subdivisions. In accordance with its mandate the committee has tried to keep in touch with thinking on this subject at the Federal level. While it cannot take a definite position on any legislative proposals at this time, it would seem desirable for it to comment on some aspects of S. 2862 in the interest of effective Federal-State relationships in this field. At the outset, the committee wishes to pay tribute to the effort made by the bill to meet some of the very difficult problems which are involved. Certainly, the proposal merits very careful consideration. In an effort to aid rather than criticize, this committee does wish to present some points which are very important from the viewpoint of the States. Under the terms of the bill, States which participate in the program will make (except for the expenses of administration) contributions equal to those of the Federal Government. Under these circumstances, it is only reasonable that the participating States should have a specific voice in the determination of policy under the program and that such a voice should be of more than an advisory character. Two of the essential policy decisions that the Federal Government has power to make under the pattern embodied in this legislation are: The limitation of its own total liability both in respect of the total financial commitment ($3 billion) and also in respect to individual indemnity contracts. In this latter respect, section 102 of the bill gives the Administrator the power to decline to cover properties. It is equally essential that the States have the power to make the same policy decisions with respect to their own commitments. This should be made abundantly clear by the very language of the bill itself. For this purpose, we suggest the insertion of a sentence in section 102, page 4, line 25, after the words "estimated rate" to read as follows: "Refusal of a State to contribute to payments on any individual indemnity contract or on indemnity contracts for any class of properties in accordance with State law shall not be construed to exclude the State from participation with respect to any other property or class of property for which indemnity contracts are available." In view of the financial contributions of the States and the effect which this indemnity program could have on land-use policies, generally made under State police power, it is equally essential that States participating in the program also should take part in the formulation and revision of the basic philosophy underlining the program and in the administrative implementation of that philosophy. For that purpose, we suggest the establishment by specific provision in the legislatiton of a body representative of participating States to act in more than an advisory capacity with the Federal Adminis trator. In addition to the questions relating to specific indemnity contracts and classes of indemnity contracts already discussed, there are a large number of other important decisions or considerations in which the States should participate fully. The following are offered only as a few of many possible illustrations: (1) The precise fixing of the rate of private payment should it be the minimum of 60 percent or some higher figure? This determination will affect the size of the contemplated State contribution no less than the size of the contemplated Federal contribution. (2) The consideraion of the extent to which the program is needed in individual States desiring to participate. The present legislation delegates this decision to the Federal Administrator. (3) The making of rules and regulations and the formulation of contract provisions in such a way as not to upset or discourage State land-use restrictions, e. g., possible flood plain zoning. The present language of the bill is at best hortatory on this score (see sec. 405 (a), p. 14, lines 6-11). (4) Helping to insure that contract forms do not raise any undesirable situations for the States in respect of the obligations of contract clause of the United States Constitution (for example, what would be the effect of a renewal clause in an indemnity contract to which the State has made a contribution?) Finally, it is necessary to point out that the entire bill rests on the assumption that States can participate in the contemplated indemnity program by helping to pay the premiums necessary to purchase contracts. We believe that such State contributions are possible, but only if the language of the bill is worded more carefully in order to meet the technical requirements posed by most State constitutions. Section 102 specifically requires direct State payment into the Federal fund and requires that such payment be on account of indemnity contracts (see sec. 102, p. 4, lines 9-11 and 20-24). Many State constitutions specifically provide (as does ours in New York) that no State money may be paid in aid of a private purpose. It seems inevitable that State contribution to payment for an indemnity contract on a private home or business establishment would fall within this prohibition. 69096-56-pt. 2—14 There may be ways of securing the contemplated State assistance short of amending State constitutions. One possibility would be for a State to require its localities to abate taxes on property to the degree necessary to take care of the 20 percent contribution. This could be done on condition that the property owner did in fact purchase an indemnity contract. The State law could also provide that in these eventualities the State would make up the tax loss suffered by their localities. The language of section 102 could very easily be adapted for this purpose by making two minor changes as follows: On page 4, line 10, strike the words "by the State" and substitute therefor the words "as directed by the laws of the State"; on the same page, line 22, strike the word "paid" and substitute the words "by law required the payment." In any event, State control over State commitment and State participation in policy are essential to an effective Federal-State cooperative relationship and to the assumption of substantial responsibilities by the States. We recognize that this proposal dealing with a very difficult problem has been formulated under the spur of constant political clamor and pressure. Under such circumstances there has been almost no time to consult the States. Nevertheless, it is desirable when the success of a measure depends to such a large degree on effective Federal-State cooperation that there be consultation with the States, possibly through the Council of State Governments. We urge such action. That is the end of the prepared statement. If the committee has any questions, I will, of course, be very glad to answer them. Senator LEHMAN. I notice that you have only dealt with S. 2862. How about the other bill? Mr. WENDELL. I have done that for two reasons, actually. In the first place, the jurisdiction of our committee is limited to matters of intergovernmental relations, and so at least insofar as the other two bills that you are considering, Mr. Chairman, are concerned, they do not precisely fall within the jurisdiction of our committee. We were particularly interested in this bill of Senator Bush's, because of the Federal-State scheme which it contemplates. However, I might say in addition that while the other two bills here do not contemplate any State participation as such, I think that many of the things that are contained in this statement are applicable as well to them in that I know the States, and certainly we in New York, would want to see a piece of Federal legislation that did not in any way interfere with anything that the State might want to do under its police power with regard to the restriction of land use so as to minimize the possibility of flood damage. Senator LEHMAN. Well, I wonder in what regard S. 3137, introduced by some of our colleagues and myself, would conflict with either the constitution of the State of New York or the laws of the State of New York. Mr. WENDELL. Since your bill, Senator Lehman, does not require any State payment or any State participation as such, it would not. And in fact any scheme for straight-out Federal flood insurance or indemnity would not raise a State constitutional question. However, what I would also like to point out is that while so far as your bill is concerned, and so far as any experimental scheme now |