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Guide To This Issue 4 AUSTIN This edition is another Special report by the Observer on the Texas insurance scandals. A guide to the insurance contents : Commissioners’ trips revealed; impact of companyfailures estimated; statewide audit ordered, Page. 1. Senator Moore’s role reviewed; some legislators involved, others explode. Page 3. Yarborough demands three insurance commissioners resign, Shivers calls it “politics,” commissioners have no such plans. Page 4. US: Trust mystery period -still unexplained; Mr. Shoemake .gives up the game. Page 5. Four examiners fired; grand juries probing. Page 6. Rep. Bergman denies a report, Irwin reaffirms what he said about some fees ; Irwin’s company frozen as board finds him unworthy of public confidence. Page 7. John VanCronkhite returns to the news. Page 8. War II. The exact total for the last four years depends on definition to an extent. Of the 32 companies on the state’s receivership. list since January 1, 1952, three were agencies. This is the list of receivered Texas insurance companies since. January 1, 1952, along with specifications of their company type when it is not explicit in The New Auditing Plan We will serve no group or party but will hew hard to the truth as we find it and the right as we see it. Trxtts An Independent Liberal Weekly Newspaper The one great rule of composition is -to speak the truth. Thoreau hstrurr Vol. 47 TEXAS, JANUARY 11, 1956 10c per copy No. 36 Mexico, Havant’, California Flights Saunders and Smith See INothing Wrong Report That Broke Firm Paid Fees to Moore, Shivers Aide’s Father AUSTIN A: pattern of Texas insurance companies operated on bort-Owed money, pumped-up assets, and wellgreased legislators and insurance examinersbecame clearer this week. More serious than the private proMoting are questions piling tip. around the Texas Insurance Commission, increasing evidence of senators’ .Participation in the. bankrupt companies, and other symptoms of high -reaching political influence. While it is too early to say conclusively, national and even international rainificatiOns may be involved incases not yet before the public. -The Texas Observer has learned that trips and hunts at the expense of insurance companies they are charged to regulate are a frequent custom of Insurance Commission Chairman Byron, Saunders and former chairman Garland Smith, who is still a -membet of the commission. The Observer can report this s week that Texas insurance company executives have flown the two officials . to Mexico City for a vacation, from Miami to Havana “for lunch,” and to various insurance conventions across the country. The Houston Post has reported Smith’s trip to Hawaii last April at the expense of the head of the company that houses the commission’s offices. The Observer has alSo learned that the father of Governor Allan Shivers’s campaign manager in Bexar County in .1954 was paid $15,000 by failing General American Casualty Company for legal services that sumflier and that Senator William T. Moore of Bryan was paid fees in the General American case. Moore has not been joined as a defendant in the $6.6 million creditors’. suit. filed last week, by the . liquidator appointed by the Insurance Commission. Early this week Saunders . and Smith acknowledged that they had been guests of .Earl Gammage, president of Pan American Casualty of Houkon; on what Saunders ..called a vacation at Gamtnage’s Mexico City home. Asked . if Gammage was the hOst, Saunders replied : “We paid’ part..and he paid part” Smith said : “You might say we went as his guests. He has a home in Mexico City.” Saunders Said: “That’s true.'” Gammage was not available _ for comment in Houston. . In an interview’. with the, Observer MOnday morning . in Saunders’s office, the two commissioners also agreed that they had been flown to Havana by Benjack Cage, president of the Insurance Company of Texas, from the Mid-winter National Association of Insurance Commissioners meeting at Miami in 1953. “Mr. Cage was going over there in his plane, flying over,” Smith said. “We took our wives. It was, just long erioughjust a 55-minute run over there, just long enough for lunch, and then back in the afternoon. Ile asked us and our wives. If that’s a crime, I plead. guilty.” Cage was not available for comment in Dallas. Saunders agreed that he flew to California for an insurance commissioners’ convention with john Ferguson, president of Houston Fire and Casualty in Fort Worth, in May or June, 1955. Both Smith and Saunders say they often hitch a ride with insurance men if they’re going the same way. AUSTIN Although an exact count not yet available, upwards to four hundred thousand people held insurance policies in Texas companies that have gone broke within the last four years. Two of the largest companiesU: S. Trust & Guaranty and General American Casualty have come’ to the fore in the last few weeks, but aboUt thirty have gone under in Texas since January 1, 1952. An unofficial estimate given the Observer of the number of policyholders in just eleven of the bigger companies that have gone into .receivership in Texas since then is 335,000 persons. Not all of. them were Texans, s as some of the companies did out-of-‘ state business. At first it was stated by the Board of Insurance Commissioners that the company officials of the U. S. Trust & :.Guaranty’ told them. there, were 1282,000 “depositors” in the company, but. later testimony. ‘indicated only 5,600 depositors and 140,000 policy, holders. These figures are not yet firm. The other large defunct companies are ‘General American Casualty, with roughly 50,000 policyholders ; Texas Mutual; 30,000 ; Lloyds .of Great State, Lloyds of North America,. United Lloyds of El Paso, and Lloyds . Fire and Casualty Assurance, each about 20,000; Pioneer Western. Mutual and Century Lloyds, each about 10,000 ; Home. Service Casualty, about 8,000; and AllAmerican Home Lloyds, about 7,000. These are approximate figures but are believed by the Observer’s in sources to be conservative. Lone, Star Casualty and -Texas Western were ‘also large s companies . but their policyholders had been shifted to other.large companies at . the time of their receiverships. A total of 61 Texas insurance companiesincluding many . subsidiaries that did not actually constitute independent’ companieshave entered receivership since just. before World Saunders said of this trip `I went to California to the convention with him. He was going. I didn’t charge the state.” Again, Saunders said, “If someone’s going that way I have gone with them. I don’t see anything wrong with it.” . The commissioners are allowed travel expenses by the state. Ferguson confirmed the California flight. He told the Observer from Fort Worth that he only met Saunders af ter he became commissioner. He said AUSTIN The Insurance Commission delivered a bOdy blow to, its critics and to shady insurance companies last week by ordering a C.P.A. audit ‘of. every insurance company in Texas during this year. The companies will pay for these audits. . Fladger F. Tannery of Dallas, president of the state C.P.A. society, pledged the full cooperation of the state’s certified public accountants. Tannery said that companies would be peraitted to choose their own C.P.A.’sbut this was swiftly refuted by commission chairman J. Byron Saunders; who said that statement was “unfortunate,” that the commission would asSign the auditors,; and that companies who objected to the commission’s choice would be assigned commission-employed auditors. Saunders’s brave words apparently were not long-lasting, however. Monday Frank Wilcox announced for the C.P.A. society that the commission had agreed that “insurance companies must be allowed to select ‘their own auditors” from those “able and willing.” Wilcox said this proposal had “shocked” the , commissioners last week in Austin but had prevailed after the society insisted “on the essential requirement of independence Of auditors.” A C.P.A. coordinator will check for their independence and will have power to reject “inferior” audits, Wilcox said. In addition, the commissioners said, companies which refuse to permit the audit will be denied their permits to do business in Texas. With such a club over them, the companies can hardly refuse. Public statements by insurance executives . lauded the plan, and it was generally thought to , be an , effectiveif timetakingway of restoring the public confidenCe in Texas insurance. Privately -some insurance men were concerned over the expense and the qualifications of C.P.A:’s to do auditing involving actuary work. Governor Shivers said at his press conference. he is “particularly proud” of the C.P.A. plan of the commission. ;Ralph Yarborough said at a Houston depositors’ meeting the. audit “may take three years.” . Comthissioner . Garland Smith said. that the commission probably does not have the legal power to order such an i audit but he justified it on the grounds . of the public interest. There could be little . doubt that a result of the mass audit and the.clevel,oping scandals would be a decrease in Texas insurance executives meeting in D.A. Henry Wade said at least 25 poilcy holders telephoned him in two days asking about the condition of Texas chartered companies. Wade also said several insurance brokers told him ..their Texas business has fallen off in the last few weeks. Six Texas nisurance executives meeting in San Antonio agreed that . the -reputation ofTexas insurance has “fallen: like the proverbial ton of bricks ” and that it’s “hard to sell” now. Out-of-state impressions are also . very unfavorable to the Texas industry. Arkansas Insurance Commissioner Harvey Combs said : “We haven’t had an insurance failure in this state since the early depression days, But I tell you one thing: We’re sure scared of those TeXas companies, They’re Tough.” the airplane for the flight “is charged to 42 corporations that we own” but that Kimbell Corporation owns it. “Byron Saunders was opposed to going. He rode out with us and he wouldn’t come back with us,” Ferguson said. “He thought it was wrong that he rifle back with us ; he was not gonna accept any invitations.” He told the repotter he was on “the wrong track” about Saunders and that Saunders “pays his own expenses when he’s with me.” Ferguson said the president of “one of the big life companies” was also in the plane. Asked who this was, he replied: “None of your damn business. All right r’ The reporter said all right. Joe Irwin of American Atlas Corporation in Dallas said he recalled giving his attorney, Frank Cain,, five $100 bills Cain said he was going to use to take Smith and Saunders to California for a convention out there in early summer, 1955. Irwin also said he paid for a “pd. vate apartment at the ,Commodore Perry” in Austin. Irwin said Cain told him to leave before the two commissioners arrived. Irwin’s American Atlas Life Insurance Company was tied up in the At Least 400,000 Policyholders