1906 San Francisco Earthquake - International Assistance and Insurance Payments

International Assistance and Insurance Payments

During the first few days after news of the disaster reached the rest of the world, relief efforts reached over $5,000,000. London, England, raised hundreds of thousands of dollars. Individual citizens and businesses donated large sums of money for the relief effort: Standard Oil gave $100,000; Andrew Carnegie gave $100,000; the Dominion of Canada made a special appropriation of $100,000 and even the Bank of Canada in Toronto gave $25,000. The U.S. government quickly voted for one million dollars in relief supplies which were immediately rushed to the area, including supplies for food kitchens and many thousands of tents that city dwellers would occupy the next several years. These relief efforts, however, were not nearly enough to get families on their feet again, and consequently the burden was placed on wealthier members of the city, who were reluctant to assist in the rebuilding of homes they were not responsible for. All residents were eligible for daily meals served from a number of communal soup kitchens and citizens as far away as Idaho and Utah were known to send daily loaves of bread to San Francisco as relief supplies were co-ordinated by the railroads.

Insurance companies, faced with staggering claims of $250 million, paid out between $235 million and $265 million on policyholders' claims, often for fire damage only, since shake damage from earthquakes was excluded from coverage under most policies. At least 137 insurance companies were directly involved and another 17 as reinsurers. Twenty companies went bankrupt, and most excluded shake damage claims. However, Lloyds of London reports having paid all claims in full, more than $50 million and the insurance companies in Hartford, Connecticut report also paying every claim in full, with the Hartford Fire Insurance Company paying over $11 million and Aetna Insurance Company almost $3 million.

The earthquake was the worst single incident for the insurance industry before the September 11, 2001, attacks, and the largest U.S. relief effort ever to this day, including even Hurricane Katrina. After the 1906 earthquake, a global discussion arose concerning a legally flawless exclusion of the earthquake hazard from fire insurance contracts. It was pressed ahead mainly by re-insurers. Their aim was the globally uniform solution of the problem of earthquake hazard in fire insurance contracts. Until 1910, a few countries, especially in Europe, followed the call for an exclusion of the earthquake hazard from all fire insurance contracts. In the U.S., however, the question was discussed differently. But the traumatized public reacted with fierce opposition. On August 1, 1909, the California Senate enacted the California Standard Form of Fire Insurance Policy, which did not contain any earthquake clause. Thus the state decided that insurers would have to pay again if another earthquake was followed by fires. Other earthquake-endangered countries followed the California example. The insurance payments heavily affected the international financial system. Gold transfers from European insurance companies to policyholders in San Francisco led to a rise in interest rates, subsequently to a lack of available loans and finally to the Knickerbocker Trust Company crisis of October 1907 which led to the Panic of 1907.