Chapter 2
Quietly and almost silently the directors gathered. The only emotion apparent was that of the usual caution shown by men of large affairs who meet to face a crisis. The president called the meeting to order and stated that the object of the gathering was to inform the directors that the company was heavily involved in the conflagration which visited San Francisco on April 18, 19 and 20, 1906, that the amount of which obligations was at present unknown, that they overshadowed the resources of the company and that ways and means would have to be devised to finance the California through this crisis.
The fire maps of the company were entirely destroyed and it was not advisable to open the safe in which the records of the company were kept until it was sufficiently cool to prevent danger of combustion. In light of these facts, it was impossible to immediately ascertain the actual amount of the company's obligations.
In response to an inquiry as to the probable extent of our liabilities, I, as secretary of the company, ventured the statement that I believed they would reach a total of $1,500,000 net, explaining that I based this estimate upon the company's income and the average rate. I also knew that the larger part of the entire liabilities in San Francisco were in the burned area and that if the safe did not afford protection it would mean the loss of the company's records, leaving it without means of ascertaining the amount of the loss until claims were filed. This would cause a delay of several months before the exact total could be developed. I explained that the policy contract allowed sixty days for filing claims and expressed the thought that this limit would undoubtedly be extended by legislative action in view of the magnitude of the disaster.
In the meantime, in the April 27 edition of the Examiner, on the first page, extending over its entire width, had appeared the following statement:
"The California Insurance Company Will Pay in Full."
This was discussed and the meeting began to assume a more lively interest and the members to more actively participate. Director W. E. Dean offered a resolution that has passed into history as being, possibly, the most noticeable ever adopted by the directors of a fire insurance company. It is a question whether a motion under like conditions had ever before been put or carried or ever will be in the future. This motion was seconded by Director Mark L. Gerstle. It was as follows:
That the action of the president of this corporation in publicly announcing that the California Insurance Company would pay all its losses in full as ascertained and adjusted, be, and the same is hereby confirmed and ratified, provided that each of the directors of the corporation affixes his signature to the matters of this meeting. Unless such ratification be unanimous and evidenced by the signature of each director to the matters of this meeting, the above action of the board be null and void.
The signature of each and every director was subsequently affixed to this resolution and it then remained a matter of detail to find how funds were to be procured to make this resolution possible of fulfillment and something more than a mere matter of words.
In the absence of any specific or definite information as to the amount of the company's indebtedness this action of the directors was a most magnificent exemplification of nerve and integrity and a superb testimony reinforcing the axiom that a California man's word is as good as his bond.
The board might have instructed its secretary to make the best compromise settlements possible and have wound up the affairs of the corporation. The public mind was in a receptive mood to accept such compromise settlements and such action would have resulted in extreme financial advantage to the stockholders at the time when the resolution was passed. No one at that time believed that the California would discharge its obligations on a parity with the largest and strongest insurance companies in the world. Indeed the public announcement that the company would pay in full was regarded as ridiculous and unbelievable and was generally considered in the light of an extremely sagacious bluff.
The directors of the company were not bluffers; they were made of different stuff. They did not hesitate. They were in deadly earnest and absolutely meant to live up to their spoken word and the world knows how they redeemed their promises.
My original estimate of $1,500,000 fell far short of the final net payment which amounted to $1,840,000, but long before this had developed the stockholders were too deeply involved to think of turning back even had they desired to do so. Staunchly and loyally they stayed and paid to the end, building a monument to their good name that turned the sneers of welshing competitors into envy and admiration.
Second Meeting of the Board of Directors
In the advance of the company, the next historical date of importance was May 11, 1906, when the succeeding meeting of the Board of Directors was held at the home of Director Mark L. Gerstle, 2350 Washington street, San Francisco. Again, I was called upon to bring bad news. I was compelled to inform the Board of Directors that all the records of the company had been destroyed as the safe which contained them had been smashed by falling walls and the contents absolutely obliterated. The only thing recovered was some rolls of silver coins melted together by the intense heat. I also reported that three hundred and fifty claims had been filed for an amount totaling over $650,000.
The loss of the records was a very serious matter and complicated proceedings to a degree apparently almost insurmountable. Lost in the destruction of the safe were some $900,000 in re-insurance policies. This meant restoration of this data from the records of the re-insuring companies and at that time this looked like a superhuman undertaking. However, I immediately detailed two employes with instructions to devote their entire time to this angle of affairs. The companies met the situation with every courtesy and finally after several months' exertion all of the reinsurance was located, with the exception of about $18,000.
I do not like to harbor the thought, but nevertheless I feel that some company or companies, possibly still doing business, know that they owe the California some part of this re-insurance, which goes to show that in the insurance business, as in other enterprises, there are those who cannot bear the light of day.
About twelve months after the "Big Fire" I remember having received a re-insurance claim from a company whose home office is in New York. As this particular company was one of the very few that declined to respond to the request to assist us in restoring the lost data, I thought it the better part of wisdom to ask it to furnish the information previously requested, holding up their claim in the meantime while awaiting their reply. It never came, and their claim against the California still remains unpaid. The conclusion is too glaring to need further comment. A few similar instances might be recorded but they are best forgotten.
This meeting also made history. It levied the first assessment of $40 per share on the six thousand shares of capital stock of the corporation. This would bring in $240,000 and was subsequently followed, month by month, by seven others, until the total assessment had reached $305 per share, amounting in all to $1,830,000, of which $1,800,000, or 98 per cent, to the everlasting glory of the stockholders of the California, be it said, was paid.
The resolution bringing this about was as follows:
"Notice is hereby given that at a meeting of the directors held on the 11th day of May, 1906, an assessment of forty (40) dollars per share was levied upon the capital stock of the corporation payable on or before the 13th day of June, 1906, to Mark L. Gerstle, assistant secretary, at the principal place of business of the corporation, No. 2350 Washington street, San Francisco, Cal. Any stock upon which this assessment shall remain unpaid on the 13th day of June, 1906, will be delinquent and will be advertised for sale at public auction, and unless payment is made before will be sold on the 2d day of July, 1906, at 2 o'clock p. m. to pay the delinquent assessment, together with cost of advertising and expenses of sale."
The "'Dollar for Dollar" Resolution
It became my duty to inform the directors that a meeting of the representatives of all the fire insurance companies interested in the conflagration was called for an early date at Reed's Hall, Oakland, and that I understood the principal object of this meeting was to secure an expression of opinion as to the method to be adopted in settling San Francisco losses, whether seventy-five cents on the dollar should be paid or settlement on a 100 per cent basis be made, and I requested instructions. This was merely pro forma as the company had already announced its position publicly as being in favor and promising to pay cent for cent the full obligation of its contracts. The board gave me the instructions I had expected.
The meeting at Reed's Hall was a most memorable one. The late Geo. W. Spencer, at that time manager of the Aetna Insurance Company, presided, and to his fair and impartial rulings and usual courtesy and dignity of manner, is attributable the fact that there was not considerably more friction than developed. Even as it was, the discussions were acrid and verged at times close to personalities and the oratory, especially on the part of those who advocated the "six-bit" policy, was both perfervid and vociferous. However, the representatives of the companies that had made up their minds that their honor and contracts were worth dollar for dollar had little to say and were not influenced by the alleged arguments of the "six-bit-ers."
They felt 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. It was maintained by the opponents to the "six-bit" policy that the insuring public had paid for what it assumed to be valid contracts and was entitled to just indemnity and payment in full. Finally, the roll call came to ascertain the sense of the meeting--seventy-five cents or one dollar. The roll call was thrilling in the intensity of feeling it developed and in the position in which it revealed each company's standing, whether for an honorable fulfillment on the one hand or a dishonorable scaling of losses on the other. Alphabetically, the California Insurance Company came early in the list and I voted with those who felt their obligation to be one hundred cents on the dollar. The position which the California would take had been awaited with considerable interest. The public announcement that the company would pay dollar for dollar was still recent and this announcement had appealed to nearly every person at that gathering as a promise which the company was absolutely and physically unable to perform. The registering of the vote called forth quite a demonstration. Laughter, smiles and sarcasm predominated in the part of the hall where I was located. For a moment I was the center of attraction.
Despite the embarrassment and annoyance under which I labored, I felt that I was called upon to defend the good name of the company and, gaining recognition from the chairman, I said that the manner in which the "California" voted seemed to cause some of those present considerable amusement and that, individually, I didn't see anything in it that was funny; that it was more of a tragedy than a comedy, and that it was a solemn and serious matter for the company of which I was the representative to go on record for the second time, publicly, as pledging itself to pay so tremendous an amount of money out of the pockets of its stockholders; that I was present at the meeting to carry out the expressed instructions and wishes of these same stockholders and that they intended to be scrupulously careful in keeping their promises, backing their words with their deeds and dollars. This statement brought from the dollar-for-dollar companies a gratifying amount of applause and the "six-bit-ers" sank into silence.
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 the memorable Reed's Hall meeting, those who had battled most vigorously for the horizontal cut of twenty-five cents were those who afterward 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 "Dutchess," 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 or cessation of business in California grants, and like the Arab, they folded their tents and silently stole away.
At the termination of the meeting, President Chase of the Hartford, President Damon of the Springfield, Chairman Spencer and several others, all leaders in dollar-for-dollar ranks, some of whom are alive and some of whom are gone, gathered around and congratulated the California upon its attitude. Individually, it gave me a feeling of pride and satisfaction to be the representative of a company which manfully stood up to the rack with the best traditions of American fire insurance. It may be well to recall to mind as a historical fact that it was at this meeting the term "dollar-for-dollar" companies was born.
Coming Back to San Francisco
Early in June we made arrangements to vacate our quarters in Oakland in the Blake and Moffitt Building, and on the 5th of that month the California was moved to an office in San Francisco. This was a temporary frame structure erected on identically the same site which the company had occupied prior to the fire, and where the magnificent new skyscraper known as the "Newhall" Building now stands. As things go now, it was not much of an office either as to style or appearance, but it was roomy, light, well ventilated and comfortable and in every respect preferable to the two crowded rooms that had so hospitably housed us in Oakland. The return to San Francisco heartened us. The daily trip from the city to Oakland and return had been a hardship, in addition to the time lost when every minute was too precious to be wasted. Less time was lost in crossing the bay than in getting to and from the Ferry. The street cars were not in operation and I was compelled daily to make the walk over the hills and through the ruins threading my way through the ashes and over brick piles a distance of quite two miles, from my home to the water front. This twice a day for six days a week, and often seven, was exhausting in the extreme, so the wear was not altogether mental. The thought was very often in my mind that I had about the most trying job of anyone in the business. Other managers seemed to me to be paying very little attention, if any, to the detail of settling claims and, of course, had nothing whatever to do with providing the sinews of war. They were fortunate in being able to pursue the even tenor of their way, their entire business and time being occupied with current routine, just as if nothing of an extraordinary nature had happened. This condition arose from the fact that the companies in the East hurried to San Francisco and Oakland all the adjusters, both near and alleged, that they could obtain from any portion of the United States and a few from abroad, in order that the losses might be promptly taken care of. The home offices saw to it that the funds were provided. The special agents and field men of these offices were not disturbed in their usual work and were rarely, if ever, made use of at headquarters to make adjustments. With the California it was quite different. Our entire field force was called in and promptly clothed with authority to adjust. This left our agency plant entirely unprotected as to cultivation. Financially, we were in such a crippled condition that we felt we could not afford the expense of employing independent adjusters. These were a luxury in any event and some of them, alas, would have been dear at any price. The thought often comes that perhaps this policy was poor economics. This was a golden opportunity for representatives of the "dollar-for-dollar" companies to secure valuable agents, as carrying capacity was in large demand to replace those companies that had either failed or made unsatisfactory loss settlements. That there was an abundance of the latter admits of no dispute. Possibly, we might not at that time have been able to secure many of these valuable connections, even if we had had the field force requisite for the required technical work, for the reason that doubts were still expressed as to our ability to fulfill our promises.
Duties of the Secretary
In the California Insurance Company office, the position of secretary was closely akin to that of the celebrated "Pooh-Bah." Attached to the office was the duty of collecting the assessments on the capital stock, adjuster in chief, the underwriting, a court of appeal on technical points in disputed settlements, a diplomatic agency and encouragement dispensatory with and for the stockholders. The latter item took considerable time. Singly and in groups they fired their questions: "How many assessments will there be?" "How much do you think the losses will total?" "How soon will you know the amount?" "When we do get out of this shall we be as big as any other fire company or bigger?" This was the daily grind. But since it was their money and they were laymen, their anxiety was as pardonable as their courage was commendable.
The president occupied an office on the other side of the hail, directly opposite mine. The one door was lettered "President" and the other "Secretary."
One of the stockholders cornered me and demanded a full and explicit statement of conditions. I gave him the facts and frankly confessed that the prospect was not alluring. He bade me goodbye with a long face and went directly across the hall into the office of the president. In a brief while, he returned, his face wreathed in smiles, and quietly said 'that the president's office was "Heaven" and my office was "Hell"; that I was a "gloomy Gus" anyway, but I couldn't help it and he pitied me, but as for the president, he was the right man in the right place, and he knew our exact position.' I did not make any reply. The optimism of the president was a very great asset and in those days optimism and hope were at a premium.
Turning of the Tide
Finally the tide turned. Several months had elapsed, however, before it became generally known and admitted and the insurance world had hammered into it the conviction that the California was truly "Californian." At this time our field men were again in the saddle and the agency of the California was not only readily accepted whenever offered, but eagerly pleaded for by connections which materially contributed to subsequent success.
Adjustments
There are millions of stories with regard to the adjustment and settlement of claims during this period. All kinds of pressure, all kinds of seduction and all kinds of bribes were offered the adjusters. There appeared to be in the minds of many a conviction that this was the time to make a claim against the insurance companies; that everything was burned and that with the upset conditions any old claim could get by. Stevedores, laborers and others not generally credited with an excess amount of worldly wealth gayly and festively swore to proofs showing the loss of family plate, ancestral pictures, silk underwear, ball gowns, evening clothes and jewels. There was no possibility of disciplining these perjurors and it was up to the expertness of the adjusters to defend their companies from being looted.
There were all kinds of attempts to defraud on the part of other policyholders. One instance in which the California was interested was a proof for a $16,000 loss on a policy covering on stock of dry and fancy goods located in a building on Market street. I received a visit from the policyholder who made a request for prompt payment. I explained that our funds were being raised by assessments which were levied once a month and that, if agreeable, we would pay him sixty per cent of his claim and the balance in sixty days. This appeared to be satisfactory and he left in a happy frame of mind. Thirteen thousand dollars of the risk in question was ceded to other companies and we naturally filed claims with the reinsurers for their proportion. The following day a friend who was acting as chief adjuster for another office which was one of the re-insurers on this risk, called upon me regarding this particular claim. He laid upon my desk a photographic album and called my attention to a large photograph of the building wherein the stock was located. It was a two-story brick and the picture showed that the entire front of the second story had, as the result of the earthquake, been thrown into the street. This was taken before the fire had reached the property. He stated that the authenticity of the photograph was absolutely guaranteed and that in event of litigation, the testimony of the photographer was available. He further stated that acting for the re-insuring company, he would not follow the California for more than sixty-five cents on the dollar. I borrowed the photograph and at once sent for the claimant. He called the next day. It was found on examination that he had made the statement to the general adjustment committee that the property was not damaged prior to the fire. Unfortunately, no affidavit was taken from him to that effect. With the photograph before me, I realized at once that the claim was not an honest one. I explained that the larger part of our policy had been ceded to other companies and that some of them demanded, earthquake affidavits with every claim; that while I regretted to put him to any inconvenience, it would be necessary for him to produce this testimony. He looked me squarely in the eye and said, "I'll sign it and swear to it. Not a brick in the whole building was disturbed." He attached his signature to the affidavit. I showed him the photograph and then stated that we should be compelled to penalize him to the extent of thirty-five cents on the dollar. As a matter of equity, there was little, if any, liability under the policy. He shouted, "Fake!" "No," I replied, "simply a matter of contractural rights and of justice. The picture is absolutely bona fide." He left, emphatically stating that he would at once "go to the bat." I suggested that he submit the matter to his attorney. Fortunately for him, he had a wise one who promptly advised that he accept the terms offered.
This is another angle of the settlement of the San Francisco losses--no more nor less in fact, methods, and manner, than that with which other legitimate companies had to contend.