About Insurance Companies – Then and Now

Great American Insurance is trying to weasel out of a claim in Houston, Texas, where three people died in a building fire, a fire that was maliciously set.

It seems Great American has an exclusion in their policy’s fine print that says they don’t have to pay off if deaths are caused by “pollution.” They’re claiming the people died from smoke and not from the fire and, since smoke is pollution, they’re off the hook.

How times have changed!

One of my first jobs right out of college was with the Hartford Insurance Group. I was assistant editor of the monthly magazine sent to all the independent agents around the country who sold the Hartford’s various insurance policies. In that job, I learned a good deal about the company’s history, and the news about Great American triggered the recollection of a story from the Hartford’s past involving the Great San Francisco Earthquake and Fire of 1906.

In those days, the typical fire insurance policy didn’t cover earthquake damage, so when considering claims resulting from that catastrophe, insurance companies had to determine if the building in question was destroyed by the earthquake (not covered) or by the subsequent fire (covered). Just to further complicate things, if the building was partially damaged by the quake, then totally destroyed by the fire, the insurance company would pay off based on the appropriate percentage.

A number of insurance companies took the easy way out: they refused to pay any claims on the grounds that they would be bankrupt if they did. That meant they would forfeit the right to do business in California in the future but – hey! – better than the alternative, eh? So what if their insureds were screwed.

The Hartford Fire Insurance Company, as it was known then, took a different approach: The company’s board of directors decided they should pay all claims in full, without making the earthquake-versus-fire distinction. That’s what they did, and they went broke doing it.

So the Hartford Fire went literally across the street to the Connecticut Mutual Life Insurance Company and borrowed a million dollars, which was a helluva lot of money in 1906. And with that infusion of cash, plus additional money raised through a new stock offering, the Hartford Fire went back to San Francisco and paid every claim on every policy.

You see, in those days, the old line insurance companies – like the Hartford and the Aetna and the Travelers – considered one of their policies to be an unbreakable commitment.