National Casualty Company

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IN THE :\latter OF KATIONAL CASUALTY CO;VIPANY milEH, 1 TC. , IK REGARD TO Tile ALLEGED VIOLATION OF THE FEDERAL TRADE CQ.10IISSION ACT Docket 6311. Complaint, Mar. 1955~Decis'ion, May, 1956 Order requiring an insurance company with main offce at Detroit, Mich., sellng policies throug"b some 3fi to 400 independent insurance agencies throughout the nation, to cease misrepresenting the duration, coverage, and benefits of its accident and health insurance policies, and the physical requirements for policyholders in printed brochures and advertising matter sent to agents for use in soliciting prospects.

ilfr. J. W. Brookfield, Jr. and Afr. Donald K. King for the Commission.

Mr. John F. Langs of Detroit, Mich., for respondent. INITIAL DECISION BY FRANK HIER, HEARING EXA3IINEH Complaint herein issued :March 11, 1955, charging respondent with misrcprcsenting its accident and health policies by soliciting their sale through printed brochures and advertisements which stressed or mentioned only maximum benefits or coverage while omitting actual policy exclusions or limitations thereby deceiving or misleading prospects into purchasing policies not as extensive or secure as they believed, in violation of Section 5 of the Federal Trade Commission Act (Title 15 , U. A. 45). Answer admit.ted descriptive facts alleged and denied misrepresentation, and jurisdiction to proceed. On the issues joined two hearings were held to complete proponent~ proof, at the close of which respondent~s counsel moved to dismiss the complaint for lack of jurisdiction and insuilcient proof to constitute a prima facie case. The jurisclictiowLl attack was t\vo-prongecl and founded on the language of so-called Public Law 15, 79th Congress (Title 15, U. A. 1011-15). The contentions were that since respondent is a 1\fichigan corporation a,nd :Michigan by statute expressly prohibits the a,ots alleged in the complaint there was none of respondent' s business that was not "regulated by State la,v " and that even if the :Jiichigan statute be held to have no extraterritorial regulation that, nevertheless, respondent' s business was fully regulated by the separate law of each state ,vhere it does business. The first contention was denied substantively, the second solely because at le,ast one state where respondent does business, :Mississippi, admittedly has no regulation whatever. The second ground of the motion that no prima 1386 FEDERAL TRADE COJ\ISSION DECISIONS 52 F. T. C. Findings facie case had been 8hO\vn was denied on the merits, and subsequently two additional hearings were held for the reception of respondent' evidence, proof taking was closed and proposed filldings of fact and conclusions were submitted by all counsel, on consideration of which with the rest of the record herein, the Hearing Examiner finds that this proceeding was brought ill the public int.erest and makes the follmying :

PIXDJNGS AS TO 'I' lie FACTS 1. Respondent National Casualty Company is a corporation organized, existing and doing business under the hnvs of the State of ::Uichigan with its offce and principal place of business at 422 ThIajestic Building, Detroit 2. , :;\ichigan. It is a stock company ineorporated for the purpose of selling; accident, health, and all types of casualty insurance, being licensed to sell such policies in all States of the United State.s, the District of Columbia, and Hawaii, through resident agcnts located there.in. The cOlnpany does not sell life insurance and its casualty insurance is not jnvolvecl in this proceeding. In 1953 respondent received premiums of $15 5HJ 025 and in 1954 premiums of $H5 208 15J on its acciclcnt a.nd health policies. 2. Respondent uses the agency system of selling its insurance policies by solicit.ation from 350 to 400 direct but independent insurance agencies throughout the nation who operate under contract of the. respondent on commission only, in nonexelusive territories, and for this purpose respondent prepares, sends and ships to these agents direct mailing cards, stnners, one page lead sheets, form letters, applications with tear sheets and throwaways. The majority of this is shipped by mail to the agent in bulk for his use and dissemination. Something less than five percent of respondent' s direct mail advertising is dis el1inated by respondent directly from its own offces in Detroit to members of the public on be.half of its agents, and at their request, to obtain leads from prospects. Generally, the company bears the expense of printing advertising prepared by it but the agent assumes the cost of dissern ination. The record does not s11m\' exactly \yhn.t printed material \yas mailed directly by respondent from Detroit to prospects, as hereinafter found in Paragraphs 9, 12, 15 , H) , and 2:3. All it shows is tlul1 somet.hing less than five percent of respondent's business \,"as done t hat way. For thc purposes of this c1iscllssion therefore, it is a.assumed that smile of tho e mailings were of the printed material hereina.bove found to be mislead.ding or clec.eptive. 3. Eighty percent or more of a11 respondent:s accident and health policies are issued by it from its home office after receipt, checking, and consider.ration by it of t.he prospect s signed application which h NATIONAL CASUALTY CO. 1387 1385 Findings been secured by the agent. Aly policy issued by respondent is forwarded to the agent for delivery t.o the insured. A very small number of respondent's agents may issue policies directly but respondent' home offce has subsequent veto power over them after consideration OJ t.he application and policy which have beell forwarded to it by the issuing agent.

4. Respondent nOlv maintains and for the past sE'xeral years has maint.ained substantial course of trade in insurance policies ill commerce as "commerce" is defined in the Federal Trade Commission Act between and among each of the St.ates of the United States. 5. Premium collection is the agent's responsibility, only five percent or less being remitted directly to the respondent, and this because of unusual 01' tempora,ry situations. Premium notice for11s are printeel by respondent and furnished free of charge to a.1 agents who ma.il them out loca.lly. Very few such notices are mailed by respondent directly.

G. To procure business, these agents mail locally respondent's direct mailing pieces to like.ly prospects, secure leads thereby and otherwise then call and personally solicit the prospect, or they are distributed personal,lly by the agent. Although respondenes advertising pieces exemplified in the record may be primarily for t.he agent's aid and benefit in his solicitation, there is no doubt that they are a.lo shown in a substa,ntial number of instances to prospects to induce purchase and with that effect. Respondent's agents may locally advertise also but only with prior approval by responclenes home offce. The latter does not furnish leads to its tgents except on rare occasions. Occasionally also, it win mail out advertising direct from Detroit at the request of some agent. bccflllse of temporary or unusual circumstance, which make it more feasible to do so than to have the mailing clone by the agent. Respondcnfs rcnewfl.l business is just as important to respondent as its new business.

7. The insurance commissioner of Iichigan inspects respondenes acts, practic.es, and files about every foul' years but this inspection is primarily the account.ing phase of responclenfs business and respondent:s oHicia.ls do not know -whether respondents advertising is exruninecl or not. Responclenfs offcials have nothing to show approval.l of respondent's advertising by the JIichigan insurance commissioner. In any event it \yas never submitted to him for a.ppronl.1 H.esponclcnt does not submit its ach'-ertising to the insurance commissioner of the State of :Michigan lor approval before it is used. Respondenes business was not inspected by the insurance commissioner of the State of j\lichigan during the time covered,c1 by t.he complaint herein. By mutual agremnent of counsel the yetLrS 1953 ancllD54 arc the period involved. 1388 FEDERAL TRADE C01U\IISSION DECISIOKS Findings 52 F.

8. To ar011se interest in, and induce purchase of its insurance policies, respondent, in the manner indicated above has made lllll1erous statements and representations in its advertising pieces. Those alleged to be false, deceptive or mislcading by the complaint herein fall roughly into fh-e categories: (1) termination date; (2) physical condition; (3) complete coverage; (4) dollar amounts; (5) specific time covered.

9. Under the first category respondent has represented: O increase in premium because of age.

No decrease in benefits because of age.

Lifetime accident benefits.

For employed men and women ag"es 10 to 69 years inclusive. Life indemnity accident coverage.

For individuals or family groups~ages 1 day to 69 years. Security plan with lifetime benefits.

I understand this peace of mind and security wil be mine from the first day~ even for life.

"\Ve have removed all age termination limits from the policy. 10. Some of these circulars were distributed by respondent directly or through its agents in nJl states and the District of Columbia. nespondent' s offcials testified that the statements set out in Paragraph 9 supra, are representations with respect to benefits, not duration; that they were used to differentiate respondent' s policies from policies of other companies which have age limitations more narrow than respondent:s and to overcome any impression of these narrower limits which might have been built up in the public mind by old advertising of others when the limitations wcrc more narrow. 11. \V11atever the intent, these statements can reasonably be ex. pected to give a substantial number of readcrs the definite impression that the policy will continue in effect so long as premiums are paid at least until age 69, or even for life, with full indemnification. To those past 45 years particularly this is a most material and important consideration. The fact is that respondent's policies all provide that they may be terminated by respondent at its sale option at the end of any premium period. Two of these policies may be cancelled at any time by respondent. The linding is that the representations made arc dcceptive and misleading.

12. The second category of alleged misrepresentations involves the statement "no medical examination required" appearing in ten different circulars distributed by respondent in aJl states and the District of Columbia. It ha,s been used by respondent for 14 years or more and by acc.ide,nt 1lc1 health companies for 20 years. Rcsponclent adopted it because accident and health insurance has become widespread only ill the last t\"cnt.y-five years. In its early days, people NATIONAL CASVALTY CO. 1389 1385 Findings had the impression that because life companies required a preliminary medical examination, respondent ,vould also. People "hesitated buying because they feared it might require a medical examination. I think it has been (used) merely primarily, let us say, to convey to people that you could get this insurance without going through a lot of red tape.

13. The quoted statement is unqualified as to time, condition or circumstances. Yet respondent's policies all provide that no benefits will be paid for loss resulting from sickness, the cause of which is traceable to a condition existing prior to\ or within 15 to :10 days after the etrective date of the policy, and that " the company shall have the right and opportunity to examine the pe.rson of the insured when and as often as it may reasonably require during the pending of any claim hereunder." Respondent~s accident policies require that "the loss shall result directly and independently of all other causes" to show which the insured may have to submit medical evidence, obtainable only by medical examination.

14. l\ledical examinations a.re a groundless fear to many people especially those approaching or in middle age, when functional de generations set in. They are a nuisance to others. To everyone, any statement about a medical examination is most material. It would have been a simple and incxpensive matter to have added the words before issua,nce of the policy" to the quoted statement. The bare representation carries, in the llearing Examiner s opinion, the definite impression that re.spondent iIlsures without regard to the prospect' physical condition either before or after issuance of the policy. Such being Ilot the fact the statement is definitely misleading and deceptive. 15. Under the third category in Paragraph 8 supra, respondent has represented that its policies provide:

The most complete and broadest coverage at the lowest rates. :::Ionthly benefits up to $300.00 per month paid from first day of sickness or accident plus $300.00 per month for hospitalization. Hospital room and board for 100 days for each sickness or accident. Your choice of plans paying from $5.00 to $12.50 per day. Pays full benefit even if your hospital room costs less.

Guaranteed monthly income for sickness.

Guaranteed monthly income for accidents.

When I am Rick $600.00 a month as long as three months. New modern all-inclusive hospital surgical nurse protection. Occupational and non-occupational accidents fully covered. Full coverage on or off the job.

Full coverage for female diseases.

You should be fully protected against these expenses. 16. The policies, to sell which, these representat.ions were issued contain exclusions and limitations vvhich belie "most complete" or 451524--59-- 1390 FEDERAL TRADE CQ:Mj\USSION DECISIONS Findings 52 F. T. C.

"broadest coverage ': "funy protected/, " first day of sickncss " etc. This indemnity for sickness is payable only for one "which is contracted or begins after this policy has been in force not Jess than thirty days from its date. Preexisting illness as wen as illness during the first thirty days of policy Life is consequently excluded. Excluded also arc sickness caused by venereal disease: injury l'esulbng from air travel on other than a scheduled or common carrier: suicide or its attempt, selfinflicted injuries, diseases or accidents to the female organs, injuries or illness occurring outside the LJllitec1 States and Canada. Indemnity payments arc limited (reduced benefits) when illness or accident is due to tuberculosis, paralysis, hernias, female disease or ment.al derangement. Some exclude benefits for sickness or accident covered by IV orkmen s Compensation Acts, others pay only proportional indemnity, if other insurance is carried. Sickness or accidental injury must wholly and continuously disable and prevent the insured from performing any and an duties pertaining to his or her occupation. Specified indemnities for loss of limb or eye provide for immediate and automatic termination of the policy upon pa.yment thereof. In ea.ch instance, these exclusions, exceptions and limitations, appear in some of respondent's policies, in some instances, in all of its policies exhibited in the rec.ord.

17. Advertising pieces conbtining the excerpts set out above were' disseminated either by direct mail (something less than five percent) or shipped to agents and by them distributed in all states ill some instances, in a number of states in other instances. 18. The discrepancies between promise and policy set out in Paragraphs 15 and 16 supra, are obviously material and in the opinion of the Hearing Examiner may well be reasonably expected to give. a prospe.ct an impression of wider and funer coverage then he gets. To that exte.nt they are deceptive and misleading. 19. In the category of "dollar.r a.mounts~: respondent has represented in its advertising pieces, financial benefits for loss, as follows: Surgical operations, whether performed in or out of the hospital, are paid up to $300. 00 in addition to hospital benefits. Full benefits are paid to all insured members of the family group.

Surgery bils from 85. 00 to S300.00 for sickness or accident. Pays surgical operation expenses . 300.00.

Snrgieal plan to $300.00.

Three choices of surgical operation benefits; $5. 00 to $150 , $7.50 to $225. $10.00 to 8300.00, Your doctor s bils paid at home, at hospital, at doctor s offce. 810.00-$800.00 available surgical operation fees. Pays surgical operation fees up to $J50.00. '''ho pays these bils ? You should be fully protected against a11 these expensef'. Kever before has such protection been offered. KATIONAL CASL"ALTY CO. 1391 1385 Findings 20. Through sllch statements, respondent has Tepresented, among other things, that the policies to \which they refcI' provide indemnity up t.o a maximum sum of $300 for any operatiolJ serious enought'o cost such all amount.

Respondent's policies do not so provide. cnder the terms of t.he policies, payments on account of snrgicnJ operations arb in accordance with" schedule of fixed fees for different types of operations. Of the numerous operations listed, varying with the different policies frm)1 forty-seven to ninety, only a very small number (ranging from tWQ to six on the different schedules) call for payment;; of as much as $150 or $300 (depending on the amount of premium paid). By way contrast, the operations for which payments of $25.00 or less are provided, regardless of the actual cost to the policyholde"i', range fro!)l twenty-one in the case of one of the schedules 1.0 forty-three in the case of another. Furthermore, according to the terms of the policies no payments will be made for tonsillectomy, adenoidectomy, app ,lelectomy, herniotomy, hemorrhoidectomy, or for opel':Ltions for any injury or disease of the female generative organs unless the policy shall have been in force for not less than six months from date of issue. X one of these limitations or condition if' d isclosecl in tho advertising.

21. lost of the representations set out in paragraph 19 were distributed in all states; others only in some states 22. Respondenes representations referred to in paragraphs 19 and 20 have the tendency and capacity to lnislead and deceive, and, in the absence of an accompanying schedule clearly disc.osing the pa.yments for ,which the policies provide, are false and deceptive, 23. The last category of alleged misreprescntf1.tioll specific tiliH covered" are exemplified by the following:

:Ylonthly income up to $300. 00 for total disabilty from f'1cklH"f'S Ixlid from first day for two years with no confinement required at any time. Monthly income up to $300.00 for total accident or confining sickness disabilty paid from first day for as long as disabled~even for life. '''hen you are disabled by accident or sickness-what do you need most' CASH! JiJconomy Disability Policy The simple economical \vay to obtain basic Income Protection Sound protection~low cost For Accident income S...... per month Accident Total Disabilty-full monthly benefit fm 12 months Partial Disabilty~lh monthly benefit fOJ. one month 1392 FEDERAL TRADE CO:\MISSIQX DECISIONS Findings 52 F, T, C.

Sickness income $. . . . . . per month Sickness Confining total disability~full monthly benefit for six months on-confining total disabilty~full monthly benefit for one month Your security If injured or sick you are protected while at work or away from work-benefits paid in addition to compensation and group insurance-24 hour every day protection. Guaranteed monthly income for accidents.

Guaranteed monthly- income for sickness.

Monthly benefits up to $300 per month paid from first day of any sickness i accident. Sickncss indemnity; total disabilty full monthly indemnity for two years. 24. These representations reasonably give the impression of indemnification in a specific amount for a definite period of time. " rom the first day for two years " wFroJI the first day as long as totally " etc. disabled-even for life': ':Accident income $............ per month reasonably convey that impression.

25. Respondent's policies themselves, however, confer the indemnity ' prollisedonly if the insured is wholly and continuously disabled by sickness and prevented the,reby from performing any and every occupation or employment plus being under thc personal attendance of a doctor. Obviously, there is much illness and disability which does not n1cct these requirements. especially during convalescence. Some of respondent s policies require continuous confmcment to the honse, before respondent will pay. Other exclusions are any indemnity for more than one month .where loss is uue to tuberculosis, hernia paralysis, or mental derangement; no sickness which began before thirty days 'after policy issuance; disability arising more than 5, 20 or 30 days after the aceic1ent; maternity benefits only after policy has been in effect ten months-in other words, responde:qt gets ten months premiums before it has to pay for loss of time for maternity. All of these exception, exclusions, and limitations, seem to the I-Iearing Examiner to be highly important to substantial segments of pros peets and- unlikely' to occur to them as exceptions. The representations refLsonably give the impression of deiinite amounts for a definite time and to that extent are misleading and deceptive. 26. All of these representations were distributed in a substantial n number of states.

27. Hespondenfs executive vice-president, its director of age.ncies its claims adjuster, and its general agent in Detroit, YIiehigan, a1l of whom had been in the accident and health insurance business for many years, all testified that they had never pcrsonal1y received any complaint from any insured or" from any prospect as to being misled or decejved by any of responclent:s representations; that. no such com- &, KATI01\ AL CASUALTY CO. 1393 1385 1!"'indings plaint had come to them offcially through company channels; that no such complaint had ever been received from the insurance commissioner of any state; and that many of these representations had been used up to 20 years, all of them over a period of years. This, of course is not conclusive. Deception may have occurred without resulting ' in written or formal complaint and there may have been complaints also to local agents which were not forwarded to respondent. Furthermore, this evidence at most goes only to show an absence of actual deception. Under many decided cases, actual deception is not essential, it is suffcient if there is a reasonable probability of deception. Bockenstette v. 134 F. 2d 369 , 371; Empire Oil Gas Oorp. v. 136 F. 2d 868 , 872; Jacob Siegel 00. v. 150 F. 2d 751 755. That respondent s advertising was used largely to distinguish its coverage from those of life companies, or those of other health and accident companies is immaterial, as if the fact that there was no deliberate intent to deccive. Intent is immaterial in this type of case. O. v. Aig01na Lumber 00., et al. 291 U. S. 67, 81. 28. Respondent also defends on the basis of abandbnment or voluntary cessation. The record shows that respondent is 'a member of the Health and Accident l nden'Titers Conference, that a standing sub committee on ethics a,nel practices prepared a code of ethics for such insunulcc practice including advertising, that such code was thereafter adopted by the executive committee of the conference in :Vlay 1954, of which executive committee, respondent' ' executive vice president was then, and had been, for many years a member. The record further shows that thereafter respondent began to discard and discontinue such of its april1teclmatcrial as came within the conclemnation of that code, although some of them are still in use. On that basis respondent claims this proceeding to be moot and not ill the public interest and moves 29. Dismissal on thisdis111issa1.gro1lnd is discretionary with the Commission it is not a matte.r of right, nor does it defeat jurisdiction. Sears Roebuck 00. v. 258 F. 307- 10; O. v. Standard Educational Society.y, et ai. 86 F. 2el 692 , 6D7; Nationals-liver 00. v. 88 F. 2d 425 , 427; llet8hey Ohocointe Oorporation v, 121 F. 2d 968 , D71; Philip R. Parle v. 136 F. 2el 428. The very fact that an industry committee saw in this printed material the reasonable probability.y that it might mislead, even though there" had been no complaint thereof to respondent in 10--20 years, reinforces the examiner s opinion that, some of it, as above set out, does so. Respondent' discontinuance confirms this. There is nothing in the record to indicate it may not be resumed, in the same or dangerously similar form. The record shows that these " sales aids" are constantly undergoing , 1394 FEDERAL TRADE CO::I IISSION DECISIONS Conclusiolls 52 j.' , T. C. change, revision, discontinuance, repla,c.ement with Hew ideas, etc. The public interest requ ires, it seerns to this examiner, that it be made sure that it c.cannot be. resumed ill any ma,nncr. 30. The protection which this respondent sells, while not so vital as life insurance\ is nevertheless as important to the insured as his income. An insurance policy is an intangible, incapable of sensory perception like -furniture or clothing. It is a series of mental imagcs imperfectly conveyed by words. "One picture is .worth a thousand words:' or as 1\1:1'. Dooley described documents generally, decades a.go just i1 "mess of words.:' The sheer quantity of language in a policy is per se confusing to a layman. The pressure for conciseness and precision, produces plausiblypla.in but actually technical language. Expressions such as "due proof of loss; if 'any time limitation of this policy ,,'ith respect to give notice of claim or furnishing proof of loss is less than that permitted by the law of the state; resulting from accidental bodily injury effected directly and independently of H11 other callses " llave rather definite me,anings to lawyers, underwriters, and claims adjusters but are not fully understood by laymen. As the Court.said In S. v. Sylvanus 192 F. 2d 96 It goes without &'lying almost that it is extremely diffc.ult for a layman to understa.nd the terms and conditions of such policies as these * * * " Similar judicial comments are legion. Hence respondent' s argument that its agents carry specimen policies when selling and sometimes, or always 5hmv them to prospects, is of little merit. As the same Court said on this point "That the policy holders by reading their policies, might have ascertained the conditions and limitations contained therein would not alter the fact, that the policies had been misrepresented nor \vould it absolve defendants from responsibility for having lnade and t.ransmitted such misrepresentat.ions." For these same reasons t.he guardian of the public interest in preventing misrepresentation or even misapprehension must be more vigilant, more careful, and more stringent than in other cases of alleged misrepresentation. CO::CLUSIOXS OF L'\ W 1. The Federal Trode Commission has jurisdiction over all of the respondent' s acts and practices alleged in the complaint to be unlawful. 2. The public interest in the proceeding is clear and substantial. 3. The use by respondent of the statements and representations found herein t.o be false and deceptive, with respect to the terms and conditions of its policies of insurance, and its failure to reveal the limitations of the coverage of said policies, have the tendency and capacity to mislead and deceive t substantial portion of the purchasing public into t.he erroneous and mistaken belief that said state- NATIONAL CASUALTY CO. 1395 1385 Order Inents and representations arc true and to induce the purchase of sa.id policies of insurance because of such erroneous and mistaken belief. 4. The aforesaid acts or practices of respondent as above set forth are all to the prejudice and injury of t.he public and constitute unfair and deceptive acts or practices ,within t.he intent a,nd meaning of the Federal Trade Commission Act.

OlilEH It is ordered That respondent, National Casualty Company, a corporation, and its offcers, agents, representatives and employees directly or through a11Y corporate or other device, in connection with the offering for sale, sale and distribution in commerce, as "commerce is defined in the J, ederal Trade Commission Act, of any accident health, hospital or surgical insurance policy, do forthwith cease and desist from representing, directly or by implication: 1. That any such policy may be continued in effect by the insured upon payment of stipulated premiums, indefinitely or for any stated time, unless full disclosure of any other provision or condition of termination contained in the policy is made conspicuously, prominently, and ill suffciently close conjunction with the representation as will fully relieve it of all capacity to deceive. 2. That no medical examination is required, unless the respondent actually insures the policyholder without regard to his physical condition before or after issuance of the policy; or otherwise representing that the condition of the insured~s health at the time of issuance of the policy will not be considered by the respondent in determining its liability thereunder, or that the respondent will not, as a chims practice, require proof of good hcaJth of the insured at the time 01 issuance of the policy.

3. That any policy provides for payment in full or in any specified amount or for payment up to any specified amount or any ll1medical surgical or hospital service, unless the policy provides that the actual cost to the insured for that service will be paid in all cases up to the amount represented, or unless full disclosure of the schedule of payments for which the policy provides is made conspicuously, prominently, and in suffciently close eonjunction with said representation as wil fully relievc it of all capacity to deceive. 4. The extent or duration of either coverage or benefits payable under the terms of any policy, unless a, statement of all the conditions exceptions, restrictions and )imitations affecting the indemnification aetualJy provided is set forth conspicuously, prominently, and in sufliciently close conjunction with the representation as will fuDy relieve it of all capacity to deceive.

1396 FEDERAL TRADE COMMISSION DECISIOl\ Opinion 52 :W. T. C. It is furthe?' ordered That respondent ational Casualty Company, shall, within sixty (60) days after service upon it of this order file with the Commission a re,port in writing setting forth in detail the manner and form ill which it has c0111plied therewith. Ol'IXION OF TI-I CQl\nnSSlOX By SECREST, Commissioner:

This is a proceeding ill which the respondent was charged with having misrepresented the coverage and benefits afforded by its health and accident insurance policies. After appropriate hearings, during which evidence in support of and in opposition to the charges ,vas received and a number of motions to dismiss the complaint were denied, the hearing examiner filed his initial decision from which both counsel in support of the complaint and the respondent have appealed. Presented for review arc the examiner s findings and conclusions both as to the extent of the Commission s jurisdiction over the respondent' advertising practices and as to the tendency and capacity of the representations involved to mislead and deceive. The respondent, a :Michigan corporation, is licensed to sell, and does sell, its health and accident insurance policies in all of the states of the United States and in the District of Columbia tmd Hamtii. It carries on its business through an agency system composed of Saine 350 to 400 agencies located in each of the seycral states, and the respondent prepares and sends to its agents, for dissemination to prospects, advertising material in the form of direct mail cards stuffers, lead sheets, form letters, applications with tea,r sheets and throwaways. In addition, and at the request of its agents, the respondent disseminates something less than five percent of its direct mail advertising directly from its own offces ill Detroit to members of the public located throughout the country. As fL general rule, the company issues its policies from its home offce after receipt of signed applications therefor which have been obtained and forwarded to it by the agents, and the policies, when issued, arc mailed to the agents lor delivery to the purchasers.

For the purpose of inducing the purchase of it.s insurance policies the respondent, in the manner indicated, has made numerous statements and representations with respect to the coverage and benefits provided by the policies. The complaint alleged that certain of these were false and deceptive and that the dissemination thereof constituted a violation of the Federal Trade Commission Act. Grouping the challenged representations into five categories, the examiner found that those in four of the categories were deceptive and misleading, while those in the fifth were not. He held further, however, that thc KATIOKAL CASeALTY co. 1397 1385 Opinion Commission s jurisdiction extends only to the respondent's advertising disseminated by direct mail and to its transactions ill Mississippi Rhode Island, ::Iissouri, :\IontanfL and the District of Columbia, and he restricted the operation of the order to cease and desist contained in his initial decision accordingly.

The basis of the hearing examiner s conclusion as to the Commission s limited jurisdiction is that Congress, in enacting the J\fcCarran- Ferguson Act (Public Law I", 79th Congress, I" U. A. 9 1011-15), gave to the states, if they chose to exercise it, full regulation of the insurance business in all its phases (except where such state regulation is, as a matter of law, impossible or clerLrly ineffe,ctive, such as control over the l7 njted States mails) , and that each of the states other than those named fully regulates the business of insurance by legislative enactment, with the result that as to transactions in such states the Commission s jurisdiction has been withdrawn. On -this question the Commission, on April 24, 1950, fully expressed itself in its decision in the matter of The A171erican Iiospital and Life Ins'wl'aJwe 001'(&pany, Docket No. 6237. The views there stated are equally applicable here, and for the reasons set forth in that decision the examiner conclusions in this case on the jurisdictional question are rejected. This leaves for consideration the examiner s decision on the merits. As stated ill the initial decision, the respondent's advertising representations -which were alleged to have been false and deceptive had to do with continuation of the policies, physical condition of the insureds, extent of covcrage, dollar.r amounts payable for operations, and time periods for which monthly payments could be expected. As to all except those dealing with dollar mnounts payable for operations the examiner held that the representations have been misleading ' and deceptive. ",With respect to the representations concerning dollar amounts payable for operations, his holding was otherwise. Contending that its advertising statements, when read in cont arc literally true and, further, that evidence of actual deception is lacking, the respondent in support of its "appeal relies princip,Llly on the arguments (1) that the questioned advertising was disseminated almost exclusively in states having laws regulating the business of insurance, and (2) that the use of certain of the other material has been abandoned pursuant to a code of advertising cthics adopted by the Health a.nd Accident Unclenvriters Conference, of which the respondent is a member, rendering the issuance of an order to cease and desist unnecessary.

The hearing examiner s conclusions that the respondent' s claims and representations are misleading and likely to be deceptive are not seriously contested. The fact that certain of the statements, when 1398 FEDERAL TRADE CO:\ IISSION DECISIOI\T Opinion 52 F. T. C.

considered alone, may be true, is no justification for their use where the over-all impression created thereby is false. P. Lorillard Company v. Fedeml Tmde Commission 186 F. 2d 52 (C.A. 4, 1950). As said by the Supreme Court in Donaldson, Post1)W8tel' General v. Read Magazine, Inc. , et 01. 333 U.S. 178 188 (1948) : Advertisements as a whole may be completely misleading although every sentcnce separately considered is literally true. This may be because things are omitted that should be sa.id, 01' because advertisements are composed or purposely printed in such a way as to mislead. Nor is it necessary that actual deception be proved or found in a proceeding under Section 5 of the Federal Trade Commission Act. A showing that the advertisements in question have a. tendency or capacity to deceive is all that is required. Pl'ogJ'ess Tailoring 00. et al. v. Federal Trade Commission 153 F. 2d 103 (C.A. 7 , 1946). And this, we think, the examiner correctly found to bc the case. In its decision in the matter of The American Hospital and Life Insurance Company, the results of which are applicable here, the Conm1ission held that the respondcnfs advertising representations disseminated in interstate commerce are subject to the Commission jurisdiction regardless of the existence of state regulations covering the intrastate dissemination of the same material. The fact that the respondent prepared, assembled and mailed to its agents in the various states, for local distribution, advertising material containing all of the statements aUeged to have been false is undenied LJd there can be no doubt that by so doing the respondent was engaging in an interstate commercial activity. In the view the Commission takes of its jurisdiction ~ the further fact that some of the representations may not have been made in states not having regulatory statutes is \wholly immaterial, and the respondent~s a.argument on this point is accordingly rejected.

The contention that the proceeding is moot and devoid of public interest because of discontinuance of use of certain of the representa.tions is likewise without merit. As pointed out by the examiner, dismissal of a proceeding on the ground of discontinuance is discre tionary with the Commission. In the exercise of its discretion, the C01nmission must necessarily consider, among other thing::, whether there is a likelihood that the practice found to have been unlawful will be resumed ill the absence of an order prohibiting it-and this in turn, is governed by "a1l the facts which include the attitude of respondent towards the proceedings, thc sincerity of its practices and professions of desire to respect the law in the future and all other facts. Eugene Dietzgen Co. v. Federal TTade Commission 142 F. 2d 321 330 (C.A. 7, 1944), cert. denied, 323 U.S. 730. The record dis- NATIO AL CASl;ALTY CO. 1399 1385 Opinion closes that of the 45 separate pieces of advertising IWLterial introduced into evidence, containing statements of the kind aHcgec1 in the complaint to have been deceptive, 28 were stil being used as of the date the complaint was issue,d. :Moreover, it has be'81 thf)Test)Qndenes contention throughout this proceeding that its advertising, including advertising it no longer uses, has not been decep6vf; or in any manner unlawful; and that the, respondent has oiIerecl no assurances of any kind that it wil not resume the use of all of the questioned representations once this proceeding is disposed of. The respondenes argument that "The strongest assurnnc.e the purchat:ing puhlic can have that it will be treated fairly will 1m found in an "ware dedication of a company to its public responsibility" is not cornhncing in the light of the numerous claims which have been found or! this record to have been false and deceptive, and the Commission js :in full agreement with the examiner that the public interest requires the issuance of an appropriate order to cease and desist under these' iacts, In paragraphs 19 to 22, inclusive, of the initiaj de(;ision, the exan.ainer discusses t.he respondent~s adycrtising ::tatcmeDtH with respect the dollar amounts payable to its policyholck.n, tor "losses due to operations. These statements, the complaint alleged, and counsel in support of the complaint now contends, are fahw, and deceptive because they represent, contrary to fact: that the policies provide indemnification for each and every operation up tc ,!J amount of $3DO. The examiner, however, being of the opinion tha,t the contended for imprcssions are "far-fetched" and "not reasonably to be expected read the statements as meaning that some, but not necessarily a.1l, of thc insured~s surgical expenses ,will be paid Oll a slieling scale or schedule ranging from $".00 to $300. , and acC'mdingJy found that the statements accurately reflect the coverage provided by the policies, The question for determination no\v is which 01' these conflicting points of view is more nearly correct.

The respondent's advertising statements of firJalicial benefits payable under its policies for losses due to operations an; a,s follows: Surgical Operations, whether performed in or out of thf hospital, are paid up to $300.00 IN ADDITION TO HOSPITAL BE:'EFIT FL'LL benefits are paid to all insured members of the family group. SUllGERY BILLS from $5.00 to $300.00 for sickness (;1 ,jccident. Pays surgical operation expense up to $300.00. Surgical plan-to $300.00.

Three choices of surgical operation benefits $fi.OO to s.::rio. , $7.50 to $225.00, $10.00 to $300.00.

Your Doctor Bils Paid A'l' HOME , AT HOSPITAL. . 1' Y01JR DOCTOR' loe.

$10 to $300 Available Surgical Operation Fees. Pays surgical operation fees up to $150,00. , .

1400 FEDERAL TRADE COMMISSIOK DECISIO Opinion 52 F. T. C.

Who PaysTh se Bils? YOU SHOULD BE FULLY PROTECTJDD AGA.IXST ALI, THESE EXPENSES. * * * :\TEVER BEFORE HAS SUCH PROTECTIO I?EE OJrF' ERED.

, The policies to which these statemcnts refer clearly do not provide for payments up to $300 for every operation, but have attached to them riders cC?ntaining schedules of various amounts payable for specified types of operations (at least ty,O of the policies have the schedules includ cl in the policies themselves). The number of operatioilS covered by' the schedules varies from forty -seven ill the case. of onB, to ninety ill the case of two other's~ and the number for \which the jnaximul1 a1lou t of $lfjO or $300 is pa.yable (depending on the amount of premium paid) varies from tlYO in some instances to six ; $ome of t,he .others, "ith the opcl'fLtions for 'which payments of $2. 00 or less arc provided running from 21 to -'1-3. In the case of a tonsillectomy or adenoidectomy, the typical allowance under the schedules is $25 , and eve,n this amount is not paid, nor will payl)lent be madefol' an appenc1ect01ny, herniotomy, hemorrhoidectomy, or operations for tny injury or disease of the female generative organs, unless the rider shall have been in force for not le,ss than six months from date of issue.

In con iclering a similar situation in The Amen:con Ilospital and Life In.swrance 001npany case, we said: Appraising this advertisement as it is likely to he read by unsnspecting, incautious members of the purchasing public, we gain the irppression that the policy will indemnify up to a maximum sum of $1.10 for any surgical operntLon serious enough to cost sllch an amount. Thus, if a tonsillectomy cost $50, we -would think it reasonable to expect that one insured by the policy ,youlc1 be protectcd to that extent. The advertisement is therefore deceptive and misleading in that it promises benefits ,,-which the policy does not corroborate. Our conclusion is no different here. As the courts have uniformly recognized it is not the trained and experienced experts who need protection, but t,hc members of the buying public who, in making purchases, m;e governecllargely by appearance.es and ge,neral impressions. Furthermore, the ultimate impression upon the mind of a reade.r arises from the sum total of not only 'what is said in an' advertisement but also of all i,hat is reasonah1y implied. Charles of the Ritz Dist. COIp. v. Fedeml Tmde Commission H3 F. 2el 676 (C.A. 2 1944). And it/seems obvious to us that the statements referred to especially when read in conjunction \\ith such superlatives as " The Most Complete Coverage Complete Protection All Inclusive Hospital-Surgical- urs8 Protection " and "Jiaximull Protection at JIodel'ate Cost " which have also appeared ill the respondent's XATIOKAL CASLALTY CO. 1401' 1385 Order advertisements, are almost certain to mislead readers into thinking.' they are getting protection which the policies do not provide. The respondent:s practice of de.scribing in its advertising the maximmn benefits that may be received under the policies without disclosing the schedule of payments for which the policies actually provide is thus unfair and deceptive within the meaning of the Federal Trade Commission Act.

The appeal of counsel supporting the complaint is granted, the appeal of respondent is denied, and theinitia.l deeision will be modified in conformity with this opinion.

Commissioners Gwynne and :Mason dissented.

FINAL OHDEH Counsel ill support of the complaint and responc)ent, X ational Casualty Company, having respectively filed their cross-appe tls from the initial decision of the hearing examiner in this proceeding, and the matter having been heard on briefs and orn1 arglinmnt; a.nd the Commission having rendered its decision granting . the appeaJ of' counsel in support of the complaint and denying the appeal o respondent awl directing modification of the initial decision in conformity with the Commissions opinion: It is ordered That the following- paragraphs be, Rlid they hereby are, substituted for paragraphs 20 to 22, inclusive, of the findings as to the facts c.contained in the initia.1 decision: 20. Through sneh statements, respondent has represented, among. other things, that the policy,ies to ,,,hieh they refer prm-ide. indemni\y i up to a maximum snm of $300 for any operation se 'ious enough cost such an amount.

R.esponclent."s policies do not so provide. lTndeI' t11e terms of the policies, paynw.nts on account of surgical operations ai' e in accordance with a schedule of fixed fees for different types of operations. Of the numerous operations listed, varying with the different PQlicies from forty-seven to ninety, only a very small number (ranging from t,yo to six on t.he different schcduJe,s) ('n11 for payrnentsof it.s much as $1 ;'0 or 8300 (depending on the iLnlOllnt of premium paid). By ,'lay of contrast, the operations for which payment.s of $25.00 or lesslll'e provided, l'legal'c1Je,ss of the actual cost to the policyholder, range from twenty- one in the case of one of the scheclnJes to forty-three in the case of another. Fnrthermol'e, nccorcling to the terms of the policies no payments ,T"ill be made for tonsillectomy, nclenoic1ectomy: appen- ' c1ectomy, herniotomy, hemorrhoidectomy, or for operations for ily injury or diseflse of the female generative organs unless the policy shan haw. been in force for not less than six months from date of 1402 EDERAL TRADE COMMISSION DECISIONS Order 52 F. T. C.

issue. None of these Jimitations or conditions is disclosed in the gdvertising.

21. tIost of t.he representations set out ill paragraph ID were distributed in all states; others only in some states. 2. Hespondentjs representations referred to in paragraphs 19 and 20 have the t.endenc.y and capacity to mislead and deceive, and, in the absence of fin accompanying schedule clearly disclosing the payments for 'which the policies provide, are false and deceptive. is f1l,ther OI'dm' That the following paragraphs be, and they, It hereby are, suhst,itnt.ed for the conc.llsions of law included in said initial decision.

1. The Federal Trade Commission has jurisdiction over all of the respondent's acts' :tnd practices alleged in the complaint to be unlawful. 2. The public interest in the proceeding is clear and substantial. 3. The use by respondent of the statement.s and representations found herein to Imhdsc and deceptive, with respect to the terms and conditions of its policies of insurance, and its failure to reveal the limitations of t.he em-crage of said policies, have the tendency and capacity to mislead and deceive a. subst.antial portion of the purchasing puhlic into 1:.11e erroneous and mistaken belief that said state. Inents and represents.tions are true and to induce the purchase of said policies of insuranee because of such erroneous and mistaken belief. 4. The a.forcsaid acts or practices of respondent as above set forth are all to the prejndiee and injury of the public. and constitute unfair and deccptiye acts or practices within the intent and meaning of the Federal Trade Commission Act.

1t is further o"dered That the following order be, and it hereby is substituted for the order contained in said initial decision: "it is o1'dated That respondent, National Casualty Company, a corporation, anq lts offcers, agents, representatives and employees directly or through any corporate or other device, in connection with the offering for st1,le. sale and distribution in commerce, as I'comlllerce" is defined in the Federal Trade Commission Act, of any accident, health, hospit il Or surgical.l insurance policy, do forthwith cease ?ud desist from representing, directly or by implication: 1. That any such policy may be continued in effect by the insured upon the payment of stipulated premiums, indefinitely or for any stated time, ullless full disclosure of any other provision or condit.lon of termination eonhtined in the policy is made conspicuously, prominently, and ill ;nffcientl:y close conjunction ,,,ith the reprcscntation as wil fully relieve it of all capacity to deceive. 2. That no medictl.l examination is required, unless the respondent actually insures the policyholder without regard to his physical condi NATIONAL CASUALTY CO. 1403 1385 Order tion before or after issuance of the policy; or otherwise representing that the condition of the insured's health at the time of issuance of the policy wil not be considered by the respondent in determining its liability thereunder, or that the respondent will not, as a claims prac) tice, require proof of good health of the insured at the time of issuance of the policy.

3. That any policy provides for payment in fuJl or in any specified amount or for payment up to any specified amount for any medical surgical or hospital service, unless the policy provides that the actual cost to the insured for that servjce will be paid in all cases up to the amount represented, or lmJess full disclosure of the schedule of payments for ,which the policy provides is lnade conspicuously, prominently, and in suffciently close conjunction with said representation as will fully relieve it of all capacity to deceive. 4. The extent or duration of either coverage or benefits payable under the terms of any policy, unless a statement of all the conditions exceptions, restrictiolls and limitations affecting the indemnification actually provided is set forth conspicuously, prominently, and in suinciently close conjunction with the representation as will fully relieve it of an capacity to deceive.

It is jurtheT o TdeTed That responcleut, X ational Casualty Company, shah, within sixty (60) days after service upon it of this order file with the Commission a report in wri6ng setting forth in detail the manner and form in which it has complied therewith. I t is JUTther ordered That the initial decision of the hearing examiner, a.s modified herein, is hereby adopted as the decision of the Commission.

Oommissioners Gwynne and Mason dissenting.

Complaint 52 F.