Aviva companies and the San Francisco earthquake disaster
At 5.15 am on 18 April 1906 the inhabitants of San Francisco were woken by an earthquake estimated to have registered 7.9 on the Richter scale. The quake itself lasted only a minute but a combination of ruptured gas mains and sparks from newly installed electrical equipment led to fires which ravaged the city for three days. By evening on the first day, the heart of the city, including almost all its important buildings, lay in ruins. The event was described by one contemporary as the greatest devastation visited on a city since the burning of Rome under Nero.
According to eyewitness George Brooks of the California Insurance Company, later a subsidiary of Commercial Union, with the city water system destroyed there was:
‘Nothing apparently except divinity itself, to prevent the conflagration from finally burning to the ocean.’
He later described the events of those three days as:
‘A most sublime tragedy! It meant impoverishment and lack of homes to thousands; it meant the sweeping away of years of endeavour; it meant beginning again to climb the uphill trail to success; and last but worst, it meant the tremendous death toll either from immediate cause or from after effects’.
According to a contemporary report, recorded in the Norwich Union staff magazine, the burned district was 4.11 square miles or 2630 acres, composed of 514 city blocks and 25,000 buildings. About one third of the populated area of the city was burned and the total valuation of property destroyed by the earthquake and the fire was estimated at $400,000,000. The number of lives lost was put at between 450 and 700, although more recent research has estimated the death toll to have exceeded 3,000. 25,000 people were made homeless and the fire lasted 72 hours. It was estimated that the cost to the world’s underwriters was at least £45,000,000 and there was no disaster in the history of fire insurance to that date to compare to it.
Arriving several months later from Head Office to survey the damage, E. Roger Owen of Commercial Union wrote the following:
‘It is beyond my power to describe the enormous extent of the calamity, it is indescribable and no idea can be conveyed to anyone who has not seen it of the damage done’.
The events of the morning of April 18 1906 had a huge impact on the city and shaped the histories of the insurance companies involved. News of the disaster quickly reached the head offices of Aviva group companies who were then operating in the area, including Commercial Union, Norwich Union, Scottish Union and National, Palatine, Northern, North British and Mercantile, and the Union Assurance Society.
The first cable message to Commercial Union from the assistant manager, Mr Neibling, received 20th April read:
‘Heavy earthquake. Office intact. Now fires. General brigade crippled. Report later.’
A second received on the 22nd continued:
‘Fire still raging. Everything except extreme western addition doomed. Will cable liability earliest moment.’
Although intact when the first report was sent, the Commercial Union’s offices burned down at 3.45pm on the 18 April. Some records, notably maps showing risk areas, were rescued, but when smoke and debris finally allowed the vaults to be opened on the 4th of June all the contents were found to be destroyed, even those kept in fireproof boxes.
J.L Fuller, assistant Manager of Norwich Union’s Pacific East Coast Department, wrote an article for the staff magazine describing his experiences in the disaster, ‘which, is doubtless the greatest of the kind the world has ever known’.
According to his report, when he finally reached the office at about 8 o’clock in the morning he found the building on fire:
‘I went into the office and, as the result of the earthquake, found the floor bulged up some two or three feet in the centre from front to rear and the furniture badly dis-arranged. The limited time at my disposal was employed to the best advantage possible under the circumstances, in the saving of property and within 20 minutes after my arrival the office itself was wrapped in flames’.
Despite this devastation the company was lucky in that all the records in its vaults survived intact.
Naturally the biggest worry for the insurance companies, once they knew their staff were safe, was their liability for claims following the disaster. In the aftermath, the representatives of insurance companies involved met at Reeds Hall, Oakland, and the proceedings were later described by George Brooks of the California Insurance Company. According to his report, some companies wanted to pay out no more than 75% of claims while others argued that ‘in the last analysis there was no logical, honest argument for the discounting of payments unless it were a case of absolute insolvency with individual companies.’
Many companies decided to pay claims in full, including the Aviva constituent Scottish Union and National, which published an article to this effect in the local press. Similarly, the North British and Mercantile, which paid out £666,000, was included in what the local press entitled the ‘roll of honour’ a list of companies which had met their obligations at once, honourably and without vexatious delays. However, as Brooks also records, other insurers acted very differently:
‘As the days passed and the tumult and shouting died it gave a certain amount of satisfaction to find that amongst the jeerers and sneerers at that memorable Reeds Hall meeting, those who had battled most vigorously for the horizontal cut of 25 cents were those who afterwards developed into the worst welshers and shavers in the entire history of the loss settlements of the San Francisco or any other conflagration. The sparkling Rhine, the still Moselle, the far-famed Duchess, the German of Freeport, the Traders of Chicago, The Austrian Phoenix, the Calumet, the American of Boston and others soon after sought the seclusion which a receiver of cessation of business in California grants, … they folded their tents and silently stole away’.
Brooks’ own company, the California, which eventually became part of the Commercial Union group in 1913, behaved in an exemplary fashion. It covered losses of $1,800,000 in the disaster by raising money from stockholders with each stockholder paying 305 dollars for every share they held. The reputation of the California was significantly enhanced as a result but certain companies, like the Transatlantic Fire Insurance Co of Hamburg, which described the event as an ‘Act of God’ which was not covered by its policies, did try to dodge their responsibilities. This led to industry members as a whole being described in the press as welshers, and British companies in particular were labelled ‘crooked cockney companies’. Rudolph Herold, who resigned the agency of the Hamburg-Bremen because he did not approve of the methods of their adjusters, was reported in the contemporary press saying:
‘These companies that are cutting when they have no right to do so will wake up one of these days to find their business all gone. Never in all my business experience have I seen such a short-sighted policy pursued by any corporation. I cannot understand what the officers of these companies are thinking about.’
Initially Commercial Union, its subsidiary the Palatine, and Norwich Union believed their exposure to claims was limited because their policies excluded liability for losses by fire arising from earthquake. Early correspondence between Head Office and the temporary San Francisco branch of Commercial Union concentrated on the problems of proving how each particular fire was started, of knowing how many buildings were first lost to the earthquake and of deciding what to do about those dynamited by the authorities to stop the spread of fire. In the end, having sought legal advice which indicated that their conditions did not entirely protect them, and influenced by potential damage to their reputations, the boards of these companies resolved that generous compromises be made. Norwich Union eventually recorded its total liability as not exceeding $500,000 while Commercial Union paid out $434, 432 or roughly £800,000, equal to 34% of the company’s fire premium income for the year. Between them this would be the equivalent of over £133 million today.
While some companies, like the North British and Mercantile, thrived and used their ability to cope with such huge claims in later advertising campaigns, many smaller companies went to the wall. These included the American Fire Insurance Company of Philadelphia which had been established in 1810 and was acquired by Commercial Union after the disaster. The company’s estimated losses came to $1,780,000 and it attempted to come to an agreement with policyholders to pay them between 30 and 50 cents on the dollar. Trying to justify this, the company’s loss adjuster, Waite Bliven, was quoted in contemporary newspapers saying:
‘The American of Philadelphia is doing the best it can to settle its losses. It was hard hit by the fire and is doing its best to straighten its affairs out. It is going out of the business and hopes for its own sake and the sake of its policyholders to go out of business quietly. We are paying our losses as best we can.’
Of the British companies involved the biggest victim of the earthquake was perhaps the Union Assurance Society. One of the oldest fire insurers, having been established in 1714, the Union’s heavy losses after the earthquake contributed to the end of its independent existence. It paid out £828,446 to its policyholders which amounted to 5% of the total sum paid out by all the insurance companies and, thus financially weakened, was shortly afterwards acquired by Commercial Union.
Of the three major Aviva general insurance constituents the General Accident alone was not impacted by the disaster, its main business in the US being confined to Philadelphia. Yet it too recorded the event in its board minutes, and the fact that it gave $1000 to the relief fund.
