On February 15, 1954, the insurance company issued a draft payable to John Fuller for $324.67 to cover the October 28, 1953, accident. Mr. MCCABE. Do you know whether Mr. Fuller received the money for that payment? Mr. MORGAN. No; I do not know. However, the letter from the insurance company in the file indicates that the check was payable and issued to him. Mr. MCCABE. I have no further questions of the witness. The CHAIRMAN. Any questions, Mr. Lucas? Mr. LUCAS. Is it clear from your investigation that Mr. Martin knew at the time he paid the claim to Mr. Joe Hanley that Joe Hanley was not eligible to receive benefits under the policy? Mr. MORGAN. It would appear that way to me. Mr. LUCAS. That is, at the time he suffered the injury or sustained the illness? Mr. MORGAN. It would appear that way to me; yes, sir. Mr. LUCAS. That is all, Mr. Chairman. The CHAIRMAN. Mr. Miller? Mr. MILLER. I have no questions. The CHAIRMAN. That is all. The next witness is Mr. Jordan L. Jones. Raise your right hand. Do you solemnly swear to tell the truth, the whole truth and nothing but the truth, so help you God? Mr. JONES. I do. TESTIMONY OF JORDAN L. JONES, SACRAMENTO, CALIF., ACCOMPANIED BY CARL W. BERUEFFY, WASHINGTON, D. C. The CHAIRMAN. Mr. Jones, you are entitled to have counsel with you if you want it. Mr. JONES. I think perhaps that would be a good idea from what I have seen here. I haven't arranged for one. The CHAIRMAN. Who is your lawyer? Mr. JONES. I have not arranged for one. Would you like to sit in with me, Mr. Berueffy? Mr. BERUEFFY. My name is Carl W. Berueffy, the same as it was yesterday, and the same address. Mr. LUCAS. Do you spell it the same way? Mr. BERUEFFY. The same way, sir. Mr. MCCABE. Mr. Jones, would you state your full name, sir? Mr. MCCABE. And your address? Mr. JONES. My home address is 600 50th Street, Sacramento, and my business address is 1812 J Street, Sacramento. Mr. MCCABE. And your occupation? Mr. JONES. I am an insurance agent. Mr. MCCABE. In your capacity as an insurance agent, did you have occasion to solicit bids from insurance companies in connection with the sheetmetal workers welfare fund of southern California? Mr. JONES. I did. Mr. MCCABE. Would you tell us on whose instructions you first solicited those bids? Mr. JONES. On whose instructions? Mr. MCCABE. Yes, sir. Mr. JONES. I believe that was Charles Artman. Mr. MCCABE. Would you identify Charles Artman? Mr. JONES. Charles Artman was a business representative of local 108 at that time. I might say here I am not trying to put Charles Artman as the kingpin at that time. Mr. Hanley also had a great deal to do with it, and so did the other trustees. You are speaking now of when we asked for bids, are you not? Mr. MCCABE. That is correct, sir; when you first had occasion to solicit a bid for insurance coverage for this fund, and specifically at whose request you solicited those first bids. Mr. JONES. The letter was signed by Charles Artman. Mr. MCCABE. In his capacity as a union official or in some other capacity, sir? Mr. JONES. In his capacity as a business representative. I think that is the name. In other words, business agent. The chief of local 108. Mr. MCCABE. I think the committee would be very interested, Mr. Jones, in learning whether it is your general practice to solicit bids on employer-employee trust funds at the instance of one member only or whether you would solicit those bids at the request of the joint trustees? I think an explanation of that would help the committee. Mr. JONES. I think that is a good point. I am glad you bring it up at this point, too. The CHAIRMAN. A little louder, please. Mr. JONES. Generally, trustee cases are made up of anywhere from 3, 4, or 5 trustees on each side, which then represents about 10 people. If you are going to take orders or if any 1 of the 10 people attempt to run this thing, you are going at cross-purposes all the time. So, usually, and I think this would be borne out by other brokers, and in almost every case, a case finally settles down to 1 or 2 people who actually control the thing or do the actual business. In other words, so to speak, a manager of a welfare fund or a trust fund. Mr. MCCABE. Then is it a fair assumption, Mr. Jones, to say that you do not necessarily wait for formal action in the form of a request from a chairman of a group or an officially designated spokesman of a joint group before you ask for bids? Mr. JONES. No; it isn't fair to say that you do do that. You first designate who is to be the chairman, and then the chairman and cochairman. It is usually the person who carries the ball from there on, if I heard your question right. I may have misunderstood you in that. Is that clear to the committee? Perhaps I overrun the points. Mr. LUCAS. No; it is not clear to me. I don't know who he goes to. First he says he went to Artman and now he says he has to go to the two cochairmen. Let us get this straight. Mr. JONES. This is prior to the time that it is a joint committee, the time we are speaking about now. In this particular case, that is. That isn't true so much today, in today's negotiations, as it was in that time. Let me give you a little further background here. I believe it was the opinion of the boys represented by labor at that time that they had accepted a certain amount of money. It was, I think, 72 cents an hour, which was a lower amount to buy a welfare plan than they could have obtained in salary increases. It was their feeling, at least this is as I recall it, and I could be wrong, that since they had accepted a welfare plan for less money than they could have gotten on their check, that they felt it was their business, more or less, to select the type of plan that would be suitable for their members. After all, it was to cover their members and not the employer. Did I answer your question, or did I get off the track there? Mr. LUCAS. I don't think that is relevant. In your dealing with various groups, not simply this group, but in your dealing with other groups, to whom do you go? Do you go to somebody on the union side and say, "Say, I hear you are about to take out insurance. Let me help you"; or do you wait until the association is formed where the employer trustees and employee trustees have been designated, and then go to them officially and say, "I would like to bid on your business?" Mr. JONES. At this time that is what we do, but at the time we first started to talk about this case negotiations had not been completed. Today I never go into a case, because I know you can work your head off and get nowhere, until money has been already negotiated, and then we go in with both employer and employee. I might state we have a very good relationship with both sides. Mr. MCCABE. Mr. Jones, you had occasion, did you not, to solicit bids at the request of Mr. Artman, not in early 1950 but in a period prior to November 13, 1950, to receive some bids? I have here an analysis sheet which you submitted to the committee in response to a subpena. I would like to have you examine this and tell us if this is the kind of analysis which you prepared on the bids received? (Document handed to witness.) Mr. JONES. This is a comparison of five basic qualifications. No; this is not all of the comparison sheet by any means. This doesn't compare this simply compares whether or not all of these firms qualify for a firm rate, a guaranteed retention, or an experience rating formula, or was the enrollment fee data required. It simply states the monthly premium quoted. It does not go into retention, and it does not go into coverage. It is certainly not complete. Mr. MCCABE. Was this the form which you presented in response to Mr. Artman's request that you obtain bids? Mr. JONES. Partially. But a very small part of it. Mr. MCCABE. What does that show as to the low bidder on that insurance? Mr. JONES. Well, Pacific Mutual apparently is $10.10 and Occidental Life is $10.13. But let me go back up to guaranteed retention, and Pacific Mutual said no, it doesn't guarantee it, and Occidental said it did. We had then a 3-cent spread in rates, but we had a guaranteed retention. Mr. MCCABE. Did you have occasion, Mr. Jones, to discuss this matter with any representative of the Occidental to the extent that you told any such representative that the Occidental bid was not at that time the lowest one submitted? Mr. JONES. At this time? Mr. MCCABE. Yes, sir. Mr. JONES. No. Mr. MCCABE. And at a later time, you procured other bids at the request of the trustees; is that correct, sir? Mr. JONES. That is right. Mr. MCCABE. Would you tell us the circumstances under which you sought those? Mr. JONES. Yes; I would be glad to clear that up. At the time we got these proposals and sent them in, the sheetmetal workers had numerous friends who were brokers and insurance agents. I don't remember how many requests we had for quotations. It seems to me that it was 27 or 28. We went through the better part of them, I imagine all of them, all that came back. Some of them did not come back after we requested from them, and some of them were requesting a quotation from three companies, let us say. So we considered only the one proposal. We considered them. This was turned over to the trustees. At that meeting, there was considerable smoke and trouble brewed as to favoritism and so on, so the trustees said, "Well, we don't want anything like that," so they threw it open to bidding again. I apparently, from that point on, was not broker of record, and it went on with everybody having the same chance, I think. Mr. MCCABE. You say they threw it open to further bidding? Mr. JONES. That is right. Mr. MCCABE. Did you solicit further bidding at that point? Mr. JONES. Yes, by all means. I had done a lot of work on that case. Mr. MCCABE. You had occasion, then, to prepare a comparative analysis of the further bids, did you not, sir? Mr. JONES. I think so. You have my whole file on it. Mr. MCCABE. I show you herewith your file which was presented in response to the committee's subpena. (Document handed to witness.) Mr. JONES. I think this is the file. I am sure it is. This is my stuff, isn't it? Mr. MCCABE. Yes. Mr. JONES. All right. Mr. MCCABE. Did you recommend to the trustees that they accept the bid of the Occidental Insurance Co. ? Mr. JONES. I didn't have a chance to do any recommending at that time. The trustees in closed committee handled that, and I was in my room at the Lancersham Hotel. I did not hear about the decision until about 10: 30 or 11 o'clock that night. Mr. MCCABE. Was the Occidental the lowest bidder on that second analysis sheet? Mr. JONES. Apparently they were. In their second quotation they were $10, and your Pacific Mutual was $10.22. Mr. MCCABE. Can you tell us what the situation was with respect to retention on that second set of bids, Mr. Jones? Mr. JONES. Well, again, in this quotation they said yes. Mr. MCCABE. I am sorry, I think that Mr. JONES. In this situation they did guarantee the return. Mr. MCCABE. I am sorry Mr. JONES. And their rate was $10.22. Mr. MCCABE. What was the situation with respect to retention on both bids? Mr. JONES. Well, I wonder if I have that letter. This doesn't look like the retention. We usually go according to the company's own letter on that. Do you have the letter? Mr. BELLINO. Not in November 1950; no, sir. Mr. JONES. I believe there was some testimony this morning regarding that letter. I think it was 8 or 9 percent. I don't know what it was now. You are asking me a question about something that happened 4 years ago. Mr. MCCABE. I wondered if you could tell the committee whether there was a difference, to the best of your knowledge, between the two retention arrangements and, if so, what was that difference? Mr. JONES. There is always a difference-well, I wouldn't say always. I have had numerous quotations from Pacific Mutual since, and their letter-I won't says always-but usually their letters contain a wording similar to this: While this is the percentage we will allow under the formula now in use, we do reserve the right to change the formula if we so desire. It is not in those words, but that is the idea. In other words, it is a retention, so long as they use the formula that they are using at the moment. But the policyholder in my opinion has no control over whether they want to change the formula at any time, in which case they could then change the retention. Mr. MCCABE. Do I understand that you are telling us, Mr. Jones, that on these two bids, Occidental had a fixed retention rate which would not be changed? Mr. JONES. That is right. Mr. MCCABE. And Pacific Mutual had a fixed retention rate which was subject to change? Mr. JONES. That is right. Mr. MCCABE. One was guaranteed and the other was not? Mr. JONES. That is right. Then, also, there is another thing. This is interesting to bring out, too. There is normally not 6 percent difference in retentions, one company for another, and bidding on the same thing. If you find a retention very often that is much lower than the other companies, it can and usually is based on gross premium. That is a very catchy word. Gross premium to the average layman means, you can say, all of the money that comes in. But gross premium in a retention letter does not necessarily mean that. It means gross premium according to the company's rate book. In other words, they would charge a certain amount of money according to the rate book, and then discount it for volume. The retention figure would be figured on the rate book figure but it would be deducted from the actual premium paid the company. Mr. MCCABE. Looking at this pair of bids, you had a $10 bid with a 15-percent retention and a bid of $10.22 with a 9-percent retention. Mr. JONES. That is right. Mr. MCCABE. $10 with a 15-percent retention and $10.22 bid with a 9-percent retention. You handled this policy. I wonder if you can tell us from your experience what the difference in money would be between those two setups in the first premium year? Mr. JONES. I would have to figure that out. You have a pencil. Mr. MCCABE. I find some of this retention |