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Chapter Four: To the Open Sea

It has always been a source of irritation to those in the fire end of the business to hear about the glamour of marine insurance.

In the late 1920's, an embattled fire underwriter in the Southern Department of the Fireman's Fund by the name of S. White Kenan happened to be talking with John McKinney, an underwriter in the Atlantic Marine Department. Kenan still smarted from criticism leveled at him after the Roswell Mills, twenty miles from Atlanta, had been struck by lightning and burned. This was a risk he had engineered and approved. The loss was a whopping $200,000.

Knowing the Company had suffered a big loss on a ship that had gone down a few months earlier, he asked, "How much did we have on that ship that went down off the Jersey coast?"
"Oh, I'd say our loss will run about a quarter of a million."

"By God," said Kenan, with more than a trace of bitterness, "when the Roswell Mills burn up, that's a catastrophe. But when a bit ship goes down, it's a romance!"

In truth, the sea has been and will remain a source of limitless fascination to man. Countless words have been written of its beauty and cruelty. Timeless, yet ever changing, the oceans for thousands of years have carried man on his greatest adventures, in war and in peace.

Hand in hand with exploration and the growth of trade came the development of marine insurance. Somewhere, lost in the past, traders and men of money devised a simple means to spread the risk each man faced when he sent his fortunes to sea. In ancient Mediterranean lands a shipowner could borrow money on his hull and cargo before it sailed. If the voyage were completed successfully, then he repaid the loan plus substantial interest. If the ship were lost, however, he had no obligation.

Before the Renaissance, Portuguese and Flemish and Italian traders could buy insurance basically the same as that which is written today. In the sixteenth century, the Lombards introduced insurance to the English. Although many nations today write marine insurance, the English from that time have dominated the field.

Americans entered the business more than two hundred years ago, and one of the largest marine insurers in the nation today, the Insurance Company of North America, wrote its first policies in 1794. The Fireman's Fund didn't enter the business until 1867.

And its entry into the field scarcely gave indication of what was to come.

In 1866 the California state legislature authorized fire insurance companies to write marine insurance. Staples proposed that the Fireman's Fund go after its share of the San Francisco business, and after studying the proposition a few months, the directors agreed. The resolution passed on May 21, 1867.

The next day a young fellow who had been working across the street for another office applied for the job of running the new Marine Department.

Staples asked him, "Will, what do you know about marine insurance?"

"I don't know anything."

"Well, you know just about as much as I do. Now if I take you on, there is only one piece of advice I want to give you. You will make mistakes, everybody does, but don't make the same mistake twice."

And with that, twenty-year old William J. Dutton, son of founder and director Henry Dutton, became the Company's first marine clerk. Two years later he became marine secretary and, with this promotion, the youngest officer in the Company's hundred-year history.

Young Will made his mistakes, to be sure, and in later years he enjoyed telling of his first big one. In 1867, one of the San Francisco insurance companies offered Dutton a chance to reinsure $10,000 of their risk on a bark overdue from Cerro Azul, Peru, with a cargo of sugar. Dutton had heard about insuring overdue risks, and took to proposition to the small group of directors who served as a marine committee. Because of the prevailing doldrums that time of year, they made their decision: "Charge them ten per cent and take the risk." He did, and the vessel arrived safe and sound a week later. Dutton was elated.

"I had got my ten per cent on $10,000, so I walked off stepping as high as a blind horse. I had the impression I knew all about the overdue business."

It wasn't much later that another company came to Dutton with a similar proposition. The ship Ellen Sears, loaded with wheat and bound for England, was overdue. Fifty years later he recalled:

"...they were commencing to feel nervous, so they offered us $10,000 on the cargo. I said, 'She is overdue. Ten per cent; that's my rate.' So they paid us ten per cent, all right, but she hasn't arrived yet."

Despite the losses, Dutton showed a good profit in his first two years. Staples liked what he saw and in 1869 the Company took steps in increase business. Until then Dutton had written only what he could muster in San Francisco by personal solicitation.

In 1869 he traveled from San Diego to Seattle appointing marine agents. Los Angeles numbered about 10,000 then, and Seattle could boast of a wharf, a mill, and a general store. With the exception of Puget Sound, San Francisco, and San Diego, the Pacific Coast lacked a deep-water harbor. Some of the little ports were mere indentations in the hostile, rocky bluffs that make up so much of our western coast. There were a few harbors where shallow-draft vessels could enter with a high tide in good weather, but most of the coast traffic was risky business. For every risk, however, there is an underwriter who will assume it for an adequate rate. And Dutton, who in these years was merely nibbling at the crumbs left by New York and London underwriters, wanted all he could get. By working the dog holes of the coast, he mined pockets overlooked by the big offices. He also wrote river cargo up and down the Sacramento and San Joaquin, as did his agents on the Columbia. premiums were small, but it was good business.

While Durron worked at expanding the Pacific Coast business, Staples sent Secretary Bond to New York to establish the first Eastern marine office. The firm of Lawson and Walker was formed to manage the marine business of three California companies-Fireman's Fund, the Union, and the Occidental Insurance Company-who merged under the name of the California Insurance Union.

By 1871, Lawson and Walker were doing a modest but profitable business through agents from Galveston to Quebec. And then Chicago burned down. When the Occidental collapsed and the Union withdrew to California, the CIU vanished with them. From 1872 to 1895 the Fireman's Fund wrote its marine insurance only on the Pacific Coast.

In 1869 the Company hired its first marine surveyor, Captain Cory Williston, a bearded, horny-handed old salt who, before taking his first command, had sailed as a bully mate on Atlantic blackball lines. He was paid a salary for his knowledge of ships and the men who sailed them and was given an additional commission on whatever business he brought in.

Although the waling industry was a solidly New England institution, Dutton and Williston made some inroads on the near monopoly of the Eastern underwriters. With the coming of the telegraph, San Francisco became an important whaling center, and although whaling was in its decline, opportunity for the West Coast companies grew. Dutton's first whaling risk was the old bark Harrison on which he had written a $3000 policy. After a successful trip to the northern Pacific waters, the Harrison sailed for the breeding grounds of Baja California. A storm battered her against the rocks near Pichilinque above La Paz and when the skies cleared little of the ship was left for salvage. Eventually, the captain's spyglass, one of the few things rescued, was presented to Dutton. That $3000 spyglass was kept on display in the Fireman's Fund office as a reminder of the vicissitudes of the mariner's life until 1906, when one of the perils of life shore swept it, and much more, into the past.

In the late summer of 1871, forty whalers bound for the rich grounds to the north sailed into the Arctic Ocean. Thirty-three of the vessels concentrated at Point Belcher, about sixty miles south of Point Barrow, where they found the waters thick with whales. Summer is short in the arctic, and on August 11, the first hint of trouble appeared. Driven by the wind from the west, the ice threatened to trap them against the coast. Although the danger passed, local Eskimos warned of worse to come. But the prospect of huge profits drove the masters to gamble for a few more weeks of easy hunting.

On August 29, the ice began moving again and this time it was too late. Trapped in the crushing floes, with the long, bitter winter ahead, the masters could do nothing but abandon the fleet and head south in the hope of reaching seven of the whalers working in safer waters. Twelve hundred souls, including a few women and children, made their way in more than 200 whaleboats across eighty miles of ice-choked sea to safety. It seems extraordinary today that not a single life was lost on the voyage.

The Fireman's Fund had insured one of the trapped ships, the bark Carlotta, for $12,500, and reinsured $7500 of it in the Pacific and Peoples. When the time came to collect the reinsurance, the other two companies had already gone into receivership as a result of the Chicago fire. The loss put a nick in Dutton's profits for the year, but with the ingenuity of Captain Williston he more than made it back in the next two years.

The underwriters in Nantucket and New Bedford were, of course, sorely hit. All but one of the ships were total losses. Several companies failed, and all the remaining ones refused to write any insurance on whalers without a clause that excluded payment "for loss or damage occasioned by ice." The clause made the policy virtually worthless.

It remained for an upstart young marine underwriter and his wise old surveyor out on the Pacific Coast to solve the problem.

"They wanted a full load of oil, and stayed too long. If we could find some way to make these fellows come out before the new ice forms, the business would be safe enough," reasoned Williston, and he and Dutton cast around for a solution. It wasn't long in coming, and they composed the following clause to insert in the conventional whaling policy:

"Warranted to be south of the latitude of St. Paul's Island {which is about a thousand miles south of the scene of the disaster} September 15, and this Company shall not be responsible for any loss or damage occurring north of that latitude and later than that date."

For two years the Fireman's Fund wrote all the insurance they wanted on the Pacific whalers. Generally, the Company took a $5000 line on each vessel and charged a staggering sixteen per cent premium. Although the Eastern competition hooted about the size of the premium, they accepted it willingly when the Fireman's Fund began to write larger policies, reinsuring part of the risk with them. When it became clear that this clause did indeed work, rates soon dropped to there old level. The clause worked so well, in fact, that during the two years in which the Fireman's Fund wrote all the whalers' insurance the Company didn't suffer a single loss of consequence.

This is but a speck from the past. It didn't mean a great deal then, and no one but the Fireman's Fund remembers it today. It is however, first on the ever increasing list of bold underwriting innovations which the Fireman's Fund justifiably crows about today. No American company can claim so many major "firsts." Perhaps many wouldn't care to. Conservatism is a major virtue in the insurance field, and in the old days it was almost easy to make money merely by following established practice. Would that it were today.

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