The chief means relied upon to guard against fraud are the certificate of the attending physician and the report of a visiting committee of the local union. Some of the unions require both the certificate and the report; the larger part, however, rely on the report of the visiting committee, although local unions are permitted to require that a physician's certificate shall be furnished. The duties of the visiting committee are set forth with great elaboration in all the constitutions. Thus, the Boot and Shoe Workers require that the claim shall be investigated by "three Union members of good repute not related to the sick member, each acting independently of the others and reporting individually to the local executive board." The Plumbers and Cigar Makers require that every sick member shall be visited at least once in each week and that no two members of the committee shall visit him at the same time.
Notwithstanding these precautions it has not been possible entirely to prevent the payment of fraudulent claims for sick benefits. The visiting committees of the local unions are frequently neglectful or careless in exercising their supervisory functions, and occasionally knowingly sanction the payment of unwarranted claims. Where the unions do not have an out-of-work benefit, there is always the chance that unemployed members will claim the sick benefit and that the local unions, aware that the money for the payment of the claim comes from the national union, will not scrutinize with any care the severity of the illness.
Reserving to the national officials the right to pass finally upon sick-benefit claims is not effective as a precaution against such frauds. The national officials cannot inform themselves as to the honesty of the physician who signs the certificate nor as to the good faith with which the visiting committee has performed its duties. On the whole, the better policy seems to be to place the responsibility of passing upon individual claims directly upon the local union, and to reserve to the national officials an oversight of the administration of the local unions.
In several of the unions no effective measures appear to have been taken to keep the local unions up to their duties, but in others a close scrutiny is maintained. The system in use by the Iron Molders is probably the most effective of those used by the unions which do not pay a money out-of-work benefit and in which consequently the need for supervision is greatest. Every member of the union is catalogued on a card. When he is reported as having received a benefit payment from any local union, this fact is entered on his card. Members removing from one local union to another and drawing more sick benefits than they are allowed by the rules are thus detected and forced to make restitution. The "financier" of the union also notes the sick rate in each local union. When the amount of sickness in any locality appears to be excessive, he employs for a limited time a reputable physician, who must sign all claims for sick relief. The result usually is the discovery of laxity in the local administration and the necessary corrective measures are applied.[[232]] The Cigar Makers have a staff of travelling auditors who from time to time inspect the accounts of local unions and scrutinize the administration of the benefits.
The administration of out-of-work relief is similar to that of sick benefits in that the national union must of necessity rely upon the local union. The requirement of registration from day to day is the chief administrative check upon the payment of the benefit to members not entitled thereto.
The more complete the system of benefits the less is the difficulty in preventing the payment of fraudulent claims. A union such as the Cigar Makers or the Typographia has a comparatively small problem in administration as compared with that of a union like the Iron Molders. Since the Iron Molders do not maintain an out-of-work benefit unemployed members are tempted to try to secure sick benefits. Even in the Cigar Makers the sick benefit and the out-of-work benefit are used as a form of superannuation relief. The addition of a superannuation benefit would lower the expense of maintaining the sick and out-of-work benefits.
The administration of trade-union benefits is subject to certain rules imposed by the statutes of the various states. All the commonwealths of the United States regulate by law the conduct of insurance business. In this regulation, distinction has necessarily been made between regular insurance companies and that class of organizations known as fraternal or beneficiary societies. The trade organizations described in this monograph as maintaining insurance or benefit departments fall under the latter class.
The unions paying insurance, as distinguished from benefits, have conformed to certain requirements of these laws, either by incorporating their insurance departments or by modifying the rules of the organizations in harmony with special state regulations for fraternal insurance companies.
Prior to 1894—from December, 1867, to 1894—the Brotherhood of Locomotive Engineers had its headquarters in the state of New York. In the latter year the State Superintendent of Insurance notified the Brotherhood that incorporation of the insurance department was necessary for the continuance of the business. In consequence thereof the central office of the Brotherhood was transferred to Cleveland, Ohio, and on the twenty-second of February, 1894, the insurance department was incorporated under the laws of the state of Ohio as a separate organization.[[233]] Similarly, the Conductors were forced to incorporate by the pressure of the state laws. In December, 1885, the Order moved its central office from Cedar Rapids to Chicago. In order to strengthen its power and to broaden its influence, the Order, in 1886, applied for a certificate of incorporation under the laws of the state of Illinois. The Secretary of State refused the certificate on the ground that the insurance regulations of the Order were not in accordance with the state laws, and requested that these be changed and that the insurance department be incorporated as a separate organization. The Secretary of State was willing to incorporate the Order under the Act of 1872, provided the Order eliminated from the object of organization the clauses referring to the payment of benefits or indemnity; or he was willing to issue a charter based on the Act of 1883 which provided that only such powers could be taken as are specifically granted therein, namely, "the furnishing of life indemnity or pecuniary benefits to widows, orphans, heirs, relatives, and devisees of deceased members, or accident or permanent disability indemnity to members."[[234]] In other words, the Order could have been incorporated under the Act of 1872 to do all business except insurance, while under the Act of 1883 it could have been incorporated to maintain a system of insurance, but nothing else. The only alternative was separate organization for the protective and the benevolent departments. The Order was unwilling to separate the two departments and consequently transferred its central office to Cedar Rapids, Iowa. The Board of Directors, on July 12, 1887, ordered the grand secretary to proceed with incorporation under the laws of the state of Iowa.[[235]] The certificate of incorporation, however, was not issued until the laws of the union were made to conform to the insurance laws of the state. These changes were only unimportant ones, such as the change of the name of the Insurance Department to "Mutual Benefit Department," and in no way affected the intent of any laws of the Order.
The other railway brotherhoods have conformed to the insurance laws of the states in which they do business. The insurance department of the Switchmen's Union is incorporated under the laws of the state of New York. The Brotherhood of Locomotive Firemen does business in the state of Illinois under a law enacted in 1893 whereby all beneficial fraternal associations are declared to be corporations, the insurance features of which are subject to state laws.[[236]] The Brotherhood of Railroad Trainmen operates its insurance department under a license issued by the insurance department of the state of Ohio under the Fraternal Beneficiary Society Act.