Last month, Ken Brownlee discussed the various geological factors associated with North American earthquakes, and specifically, the San Francisco quake of 1906. In this second, and final, installment he examines the similarities and differences between that quake and Hurricane Katrina. There were the reactions of the victims, the government, the humanitarians, and the insurers. Have times changed very much over the last 100 years? And if so, for the better, or for worse?
After almost every major disaster (the Mississippi flood of 1927 that killed over 1,000 people, the dust bowl of the 30s, world wars, the World Trade Center collapse, and the 2005 hurricanes), the government and media proclaimed that these were the "worst disasters America has ever suffered." Certainly many were, in terms of loss of lives or monetary costs, the most expensive. But these were not necessarily the only "worst" American disasters. Another occurred 100 years ago in April of 1906. Responses to that disaster paralleled what happened after Katrina — some in a much superior way, and in other ways, a bit more frighteningly.
The First — and Worst — Victim
Unless a fireman's home was within a block or two of his firehouse and he had an alarm bell installed, firemen were required to live in the firehouse. This included Chief Daniel Sullivan, who resided with his wife, Maggie, on the third floor of the Chemical 3 Firehouse. When the quake hit at 5:12 in the morning the sky was still pitch dark. The bed in which Maggie was asleep crashed through the floor to the second level, and the weight of the debris and the bed knocked it through to the first floor, and on down into the basement. Chief Sullivan jumped out of bed and ran to where his wife's bed had been, not realizing that it was gone. He fell through the hole to the basement, and was soon covered in debris. The steam pipes to the boiler in the basement had ruptured in the shock of the earthquake, and live steam poured over the Chief as he screamed in torment. The men of Chemical 3 ran to their rescue, but by the time they dug them out Maggie was dead and the chief dying. They rushed him to the city hall hospital, but that was in ruins, being evacuated, and the chief soon expired.
This left the two remaining chiefs, John Dougherty and P. H. Shaughnessy, in charge. One was due to retire, and the other was reluctant to take leadership over the senior man. Their failure to assume a leadership role in the wake of Chief Sullivan's death may have contributed to the disaster that followed.
The Federal Role
Both the Army and the Navy reacted immediately to the fires, but in different ways. In both cases, the commanding naval officer and the Commanding General were away, and authority was assumed by their next in command. In the Navy's case, this was Lt. Commander Frederick Freeman, who commanded a torpedo destroyer that was fitted with pumps for fire service. His vessel, along with several other tugs or fire boats, supplied water from the San Francisco Bay to the San Francisco fire department in any area where they could get their hoses on the flames or supply water to the pumpers. He became one of the heroes of the disaster.
The other was Brigadier General Frederick Funston, who was basically a biologist who had fought in the Spanish American War. With his commanding officer away, Funston (for whom Camp Funston at Fort Riley, Kan., is named) took charge. By law, the role of the military in a natural disaster is to simply guard federal buildings such as the post office, court, and customs buildings. Martial law can only be authorized by the President of the United States. Military units can assume other duties only at the specific request of the mayor and governor. (This was allegedly a reason for the delay of FEMA entering New Orleans after the September storm; they had not been asked, they stated.)
Funston immediately marched his troops from the Presidio into town, and met with Mayor Schmitz. By then the fires were roaring through San Francisco's city center and it became evident that the city would become an inferno. The mayor saw his first responsibility in the protection of property. He ordered all saloons closed, and, along with Funston, issued an order that looters would be shot. Records show that only two were killed, but the notice and warning probably did prevent some looting. Schmitz then had Funston join his police in what became, in effect, martial law, with Gen. Funston, not Mayor Schmitz, in charge.
The first thing Funston decided was that the fire needed to be fought with dynamite, since water was unavailable. Unfortunately, he had no troops experienced in the use of dynamite, and his supply was limited, so it was supplemented with black gunpowder, which did more to spread flaming embers than to extinguish blazes. Smith comments that rather than use the troops in the way Funston commanded, it would have been far better to have located them on the roofs of buildings to smother or beat out flaming debris that was being blown into the air by the conflagration.
The fire created its own weather, an updraft that drew the flames forward and up the hills of central San Francisco — a fire storm that was unquenchable. Tall brick and stone buildings, once catching fire, burned upward through interior passages until the inferno collapsed into the street, scattering more flaming debris. Even the "fireproof" 11-story Phelan Building and the 18-story Spreckels Building burned. The New York Times reported the following morning, "The tall, steel-frame structures stood the strain better than brick buildings, few of them being badly damaged. The big eleven-story Monadnock office building, in course of construction, adjoining the Palace Hotel, was an exception. However, its rear wall collapsed and many cracks were made across its front." But the fires raged on for two more days, making the Times story premature.
Many bankers and businessmen felt that their belongings would be safe in the large steel vaults within their offices. However, the fires were so hot that the safes simply cooked the documents inside, shriveling them into tissue-thin strips. When the safes cooled sufficiently to be opened, exposure to air turned money and documents to dust.
One entrepreneurial banker, Amadeo Giannini, a former produce merchant who operated the Bank of Italy that loaned money to Italian and other European immigrants in the city, realized that his customers would need cash immediately. He got a wagon, removed all the money from his bank, which was in the path of the flames, and put it in the wagon, covering it with oranges and other produce. With only a pistol for protection, he hauled his wagon, containing $80,000 (worth $2 million today) to Washington Square, where he set up a kiosk teller's station and began banking again. Years later Giannini's bank would become the Transamerica — and eventually the Bank of America.
Stories of heroism and stupidity abound in both the history of the San Francisco earthquake and in the New Orleans flooding. Upon hearing that San Francisco was ablaze, Edward H. Harriman, owner of the Union Pacific and Southern Pacific Railroads, set off from New York in his private train for a record-breaking cross-country trip to the city to take charge of saving the rail lines he knew would be needed in reconstruction. Aboard his private car was the President's daughter, Alice Roosevelt. Harriman received a telegram during the trip from Teddy Roosevelt regarding his daughter's safety, to which Harriman replied, "You run the country. I'll run the railroad!" The Southern Pacific depot and yards did prove vital for the reconstruction, undoubtedly profiting Harriman well for all the aid and assistance that he personally expended. His goal was "to preserve the image that San Francisco … was safe and stable," Smith writes. Harriman immediately made the Southern Pacific Hospital, safe from the flames, available to the city's injured, and his doctors and nurses worked for six days without sleep.
"When he realized that hundreds of people were being forced to flee the city, Harriman immediately made his trains and shipping lines available free of charge for anyone who was in need of transportation, and more than 270,000 people availed themselves of that offer," says Smith. Refugees on his ferryboats were even provided free meals. "He seemed to bring out the very best in people." He was perhaps the last of the 19th Century guilded-aged barons of commerce; his son W. Averell became one of the next century's greatest international statesmen and ambassadors.
In the wake of Hurricane Katrina both the CSX and the Norfolk Southern lost bridges. But the railroads, having experienced such storms before, were prepared, and within 16 days the NS completed repairs to its Lake Pontchartrain bridge, reopening it for traffic, even though all the track and ballast had been washed away. CSX likewise lost their bridge at Bay St. Louis, but had alternative routes bypassing the stricken city. Insurance on an estimated $250 million loss involved a $25 million deductible.
Both railroads responded at once to their own employees who had lost their homes in the storm. "NS gave as much as $4,000 to eligible employees … to cover non-reimbursed losses and temporary living expenses, and said it would make interest-free loans of up to $15,000 for employees' uninsured property damage and losses," reported Trains Magazine in its December 2005 issue. "CSX provided Gulf Coast workers with guaranteed pay and benefits through September, temporary job reassignments, and cash payments to cover urgent needs and living allowances."
Insurance Industry Response
With the city in ashes and ruin, the infrastructure destroyed, and the populace homeless, San Francisco had the opportunity to begin again. But doing that would require an inflow of cash. This was not an era when a conservative Congress was prone to make large donations of the nation's money available. Private enterprise was needed, and some of that had to come from the insurance industry.
Dennis Smith writes, "Insurance companies had a mixed review of their efforts after the fire. Of the hundreds that insured property in San Francisco, only six paid what they owed, according to their policies — the Aetna Company of Hartford, California Insurance, Continental Insurance, the Liverpool, London and Globe Company, Queen Insurance of America, and Royal Insurance of England. These insurers met their obligations, according to the National Association of Credit Men, 'in a spirit of liberality and honesty.'"
One company, the Fireman's Fund, which was based in the Golden Gate City, had $11 million in claims, but had only $7 million in assets. Simon Winchester reports, "Fireman's took the unusual step of forming an entirely new company — paying out all the cash the old firm had on hand, and offering policyholders stock in the new firm in lieu of the cash they were owed."
A few companies reneged on their policy contracts, including one Austrian and three German insurers, who simply withdrew from doing business in America. Another German firm, the Hamburg-Bremen Company, paid with discounts of 25 percent, "while at the same time being accused of much discourtesy."
The issue of damage causation was serious. The value of buildings and contents already rendered a total loss by the earthquake before being consumed by flames was zero; many insurance claims were either denied or discounted on that basis. However, reports Smith, "a central committee of adjusters was created… which determined that 10 percent of the city's damage was caused by the earthquake while 90 percent was caused by the fire and dynamiting. Consequently, the companies agreed to pay 90 percent of the face value of the claim."
Charles Platt, president of the Insurance Company of North America (INA), sent out a message to his department managers. "We don't intend to let San Francisco frighten us," he said, according to William A.H. Carr in Perils Named and Unnamed. "If the entire city is destroyed, our surplus and contingent fund will not be exhausted. Our losses will be as promptly paid as they can be adjusted."
Carr reports that INA had $3,740,000 in policies in San Francisco, plus millions more in related companies. Their agent reported back to Philadelphia after a brief survey, "I find that the earthquake damage is comparatively slight … the great loss being occasioned by fire. We can count upon very little salvage."
In London, Lloyd's underwriters faced exposure not only from directly written policies, but also from reinsured insurers. The London Times reported, "More than a third of the San Francisco fire business is estimated to be in the hands of British offices, where the calculation of liability must be a matter of some anxiety." Lloyd's names eventually paid out more than $100 million, reported Antony Brown in Hazards Unlimited — The Story of Lloyd's of London.
Comparison to Katrina Response
In San Francisco the military took the initiative, and — undoubtedly illegally — declared martial law, albeit with the blessings of a frightened and inefficient Mayor Schmitz. Blunders were evident, especially in the methods of dynamiting undamaged buildings in a futile attempt to save others. Attempts to save property in some cases exceeded efforts to save lives, especially in poor or Chinese neighborhoods. But the fire and police departments responded with valor and dedication, suffering many fatalities among their own ranks. (In New Orleans, the government delayed response, abandoned both property and humans, and spent more time justifying their positions to the media than seeking to rescue victims. Many police simply walked off the job, abandoning their posts.)
In San Francisco the rail lines still intact were used to evacuate refugees. In New Orleans, Amtrak offered to evacuate refugees in the time before they had to move their coaches to safety, but the city or state made no provisions to move people to the train station or to arrange for a place for them to be taken. Thus the only refuge was the Super Dome, which proved totally inadequate. Where were the entrepreneurs like Harriman or Giannini or Phelan in the wake of Katrina?
Considering that 1906 was before there was much regulation of the insurance industry, one wonders what will be the outcome of the now-regulated claims following Hurricane Katrina. As National Underwriter's Steve Tuckey reported in the Oct. 3, 2005 issue, "Hurricane Katrina will go down as one for the history books as far as insurance adjusters are concerned. With the … claims expected to number close to seven figures, the sheer magnitude of the job facing those investigating damage is daunting." Problems include areas that were restricted, or still flooded, when adjusters first entered New Orleans. Other problems involve issues of dwellings or other buildings not damaged — or not significantly damaged — by wind, but severely damaged by flood.
"While some politicians and editorialists may berate the insurance industry for trying to use the flood exclusion to escape legitimate wind claims, specialists in the field see little trouble in discerning the difference between flood and wind loss," says Tuckey. He adds, "Mississippi Insurance Commissioner George Dale told a state legislative hearing that while insurers should not be held liable for flood damage, he did send a bulletin to insurers forbidding claim rejections without looking at the damage firsthand. In addition, he sought federal funds to hire an outside expert to spot-check residences when claims have been denied to ensure they were properly handled."
Companies responding to Katrina are considering not only their policyholders or insured claimants, but also the welfare of their own adjusters in the lethal debris of New Orleans. Tuckey reports that one company, Crawford & Co., "made immunizations available to its adjusters to protect against contaminated floodwaters. In addition, the firm has deployed satellite communication trucks to provide a stable source of power and wireless communication for the adjusters in the field."
As with San Francisco, much of the insured loss in New Orleans was reinsured in the foreign reinsurance market, possibly triggering a London reinsurance price spiral. Premium hikes across the Southeast are anticipated, and it is likely that some insurers will write considerably fewer policies there in future years. Current estimates of Hurricane Katrina losses are $34.4 billion, with another $15 billion loss potential from Hurricanes Rita and Wilma. However, National Underwriter's Mark E. Ruquet reported Nov. 7, 2005, that "fallout from Hurricane Katrina is continuing in Louisiana," and that "adjusters have done little to assess insurance losses in New Orleans due to political infighting and safety concerns, while in outlying parishes it will be months before they finish their estimates, according to Louisiana Insurance Commissioner Robert Wooley."
He explains, "In New Orleans … the claims process is plagued by political infighting between Mayor Ray Nagin and the City Council, as well as safety concerns, with adjusters requiring local authorities to provide escorts before they enter certain areas. In addition, Wooley said there were not enough adjusters, adding, 'resources are stretched pretty thin.'"
Will the losses in New Orleans bankrupt any insurers? It may be too early to tell. In a study conducted by the University of California of the San Francisco insurance claim results, it was reported that of 108 companies involved, 27 paid claims in full, and only 18 paid less than 75 percent of their total claims. Five companies went into receivership, but made some settlement with their policyholders. More than $225 million in claims were paid. In 2006 dollars, that might well equal the anticipated loss in New Orleans — considering that in both cities, there were many victims who had no insurance at all.
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