USA > Connecticut > History of Connecticut, Volume II > Part 10
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fractions were punishable by fines ranging from $500 to $10,000 and by prison terms, and the commissioner was given sweeping power to investigate life insurance companies at any time.
In 1877, a commission was appointed to inquire into the working of the statutes relative to insurance.56 The report was buried in the legislative committee to which it was referred. Stedman commented that the committee "was so busy with its own work that it did not have time to consider it [the report] and passed it on to the next session."57 The special commission apparently chose to direct its efforts toward the activities of the Continental Life Insurance Company and the Char- ter Oak Company which were already under attack by Stedman. Al- though it does not appear that recommendations were formally sub- mitted to the Assembly as a whole in 1879, there was passed "An Act Relating to Insurance Companies," which remains as something of a testimonial to Stedman's stewardship, inasmuch as it included the legis- lation passed under his direction.59
The Insurance Commissioner sought to apply his powers to cor- rect existing irregularities. Stedman appealed emotionally to the As- sembly when the Court of Probate of the District of New Haven denied his petition that an order to cease operations be issued to the American National Life and Trust Company, which had absorbed the assets of the American Mutual Life Insurance Company. For the Assembly, Stedman detailed transactions of the company which should have served as a rebuke to the court. Much of the so-called "guaranteed capital" of the company was characterized as "rubbish which would not, in the pockets of the subscribers, have produced one cent of income. . . . " He submitted countless allegations including the charge that the company had presented, as assets, bonds without market value, stock without worth, and real estate which was grossly over valued. Stedman con- cluded, "to my mind there is no crime against property known among men that does not shrink into trifling compared with that of despoiling widows and orphans through a criminal or reckless squandering of trust-funds of life insurance companies. ... Should not the sword of justice fall swift upon any one of them when it threatens to imperil the interests and hopes of the thousands who have trusted in it, and who are helpless to aid themselves?"60 This was the most brazen business
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THE AGGREGATION OF CAPITAL
scandal in the history of the state, and Benjamin Noyes, its President and a former Insurance Commissioner, was indicted and imprisoned.61
The Charter Oak and the Continental Insurance companies were, also, subjected to Stedman's searching criticism. The Charter Oak was
0. WISE SMITH B CO.
Budweiser
STEIGER
(Courtesy Conn. Devel. Comm.)
HARTFORD
saved temporarily by going into receivership and later by extensive borrowing. The affairs of Continental Life were aired by the Special Commission in 1878 and its allegations were admitted to be substan- tially true by the insurance committee. Yet, with the facts before them, the Assembly refused to take action. Secure in its belief in its immunity, the company continued operation until 1887, when a federal judge finally granted a petition to order the company to cease operation.
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Afterwards, the company lingered in receivership for the rest of the century.62
As Stedman acted out his role as public defender and as legislation was enacted to strengthen his powers, the importance of the Commis- sioner in the machinery of government increased. The term of the office was changed from one to three years in 1877 and three years later to four.63 When his term expired in 1880, Stedman recalled whim- sically "the ancient pastoral system of shepherds, sheep, dogs, and wolves, and the fabled diplomacy of the wolves when with assurances of their distinguished consideration they attempted to form a treaty of peace with the shepherds, the first article of which was that they should kill their dogs."64 Stedman suggested that his degree of success in execut- ing his duties was of greatest importance to himself. His work was significant as well to private individuals, to the body politic, and to the insurance companies from which he demanded a modicum of responsi- bility in an age of easy morality.
Under the aegis of state supervision, the insurance industry, in the years from 1875 to 1900, became relatively stabilized. It was a period of consolidation, elimination, and expansion. The marginal and the corrupt companies were absorbed or forced out of business. The num- ber of Connecticut companies writing life policies had been reduced during the period from ten to six.65 During the same period, the com- panies from outside the state doing business in Connecticut had in- creased from 16 to 22. The number of Connecticut stock companies writing fire insurance in Connecticut had been reduced from 13 in 1875 to seven in 1900.66 By 1900, the insurance companies had assumed the characteristics of old established businesses. The average age of the six life companies was 43 and that of the life companies 55. A measure of the tendency toward consolidation is also suggested by the reduction of the number of mutual fire insurance companies from seventeen to twelve. Despite the concentration of business in fewer companies, the business of the companies, by any standard of comparison, expanded many fold. The admitted assets of the Connecticut life companies, for example, increased from 98 in 1875 to 164 million in 1900, while that of the fire insurance companies increased more than two and one-half times, from 19 to 49 million.67 This increase was true even though the
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THE AGGREGATION OF CAPITAL
fire insurance companies had survived especially heavy losses in 1889 and had operated at a deficit of $800,000 in the year of the panic of 1893.68
The nature of the assets of the insurance companies was shifting from a concentration of real estate to an increasing percentage of in- vestments in stocks and bonds. In 1878 investments of life companies in real estate approached twenty per cent of their total assets. At this time the Insurance Commissioner believed that real property still con- stituted a superior investment. In 1880, it was learned upon investiga- tion that the companies overvalued their real property in their returns. Real estate values were, however, approaching the market prices existing before the panic of 1873. It was suggested that the companies sell their real estate and reinvest their funds.69 The percentage of assets engaged in real estate investments had been reduced to 15 by 1885, when it was implied that such investment might be prevented by law. The Commissioner in that year pointed out that real estate was not an asset which could be immediately converted to meet the demands upon the company.7ยบ Loans could be made on unencumbered real estate only up to 50 per cent of its market value. The market value of stocks and bonds was required to exceed the amount of the loan by only 25 per cent.71 Although prohibitive legislation was not passed in regard to real estate investments, the lower margin required on stocks and bonds must have attracted capital. Only 13 per cent of the total assets of the Connecticut insurance companies had been reported to be in stocks and bonds in 1875. This had risen to 24 per cent in 1890, and by the end of the century, to 34 per cent of the 164 million assets.
Reaction to the companies became more favorable. The commis- sion appointed in 1880 "to inquire into the conditions and workings of the tax laws of the state" stated boldly that "a State so dependent upon corporations, as is ours, for its revenue, could not defend for a moment its existing taxes upon franchises."73 It was held that taxes on franchises had been originally levied for the privilege of transacting business, but that, in practice, the tax was determined not by the nature of the ac- tivity, but by its extent and that the amount assessed varied in relation to the amount of property held. It was recognized that real and personal property was taxed unevenly and the commission called for a more
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HISTORY OF CONNECTICUT
equitable rate. In applying these general observations to specific indus- tries, the commission made a special appeal on behalf of the mutual in- surance companies. These, it was held, were placed at a serious disad- vantage by Connecticut's taxes since few of the other states taxed insurance companies at all.
The insurance companies were the chief beneficiaries of action taken. Through a complicated tax scheme passed in 1881 and subse- quent tax benefits, they were able to reduce the amount of the taxes they paid the state to $217,000 in 1874 as compared to $375,000 paid five years previously.74 This reduction was made despite the fact that during the same period their "admitted assets" increased by 37 per cent to a value of 26 million.75 The insurance companies had contributed 25 per cent of the state's receipts in 1879. In 1885, they contributed only eight per cent and at the end of the century they were contributing about 10 per cent of the state's receipts.76
The executive branch, too, became solicitous of the insurance companies. In 1887, Governor Phineas C. Lounsbury asked the As- sembly to observe "the vast interests which our insurance laws affect, and in large degree control" to realize the great responsibility of the state. He insisted that "there is little doubt that our insurance com- panies as a rule are managed by upright and capable men. There is no doubt that all new legislation touching these companies should be be- gun with caution and adopted only after the most patient and thorough consideration."77
The favorable attitude extended beyond the office of the Governor and the halls of the legislature. The courts of the state, all during the last quarter of the nineteenth century, apparently had been favorably disposed toward the insurance companies. Events proved that the allegations of John Stedman against the American National Life and Trust Company were correct, yet, the Probate Court of New Haven had refused to grant an injunction to force the corruption-ridden com- pany to discontinue business. The weight of public opinion had been necessary to override the opinion.78 The Continental Life had escaped unscathed until the Insurance Commissioner, Orasmus R. Fyler, had taken his petition before a judge whom he joyously reported to have "a clear conception of his duties, and a due regard for the interest of policy
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THE AGGREGATION OF CAPITAL
holders, in not permitting the remaining assets of the company to be wasted in a fruitless contest, which in the end must have resulted in granting the petition." In explaining why the company, which he de- scribed as "a disgrace to the insurance interests, and to the state which gave it birth," should have been permitted to continue operation so long, he observed that "the experiences of commissioners in the past, in bringing their petitions to the Court for the appointment of receivers, have not been such as to encourage experiments in that direction."79
NOTES-CHAPTER XXV
1 Niven, "Time of the Whirlwind," pp. 324-27; Public Documents, 1875, Report of the Bank Commissioner, p. xx.
2 General Statutes of Connecticut, 1866, p. 732.
3 Niven, "Time of the Whirlwind," pp. 324-25.
4 Ibid., pp. 326-27.
5 Public Acts, 1872, p. 10.
7 Niven, "Time of the Whirlwind," pp. 329-31.
8 Ibid., pp. 324-25.
9 Public Documents, 1875, Report of the Bank Commissioner, pp. v-X.
10 Niven, "Time of the Whirlwind," p. 324.
11 Public Documents, 1875, Governor's Message, pp. 1-5.
12 Ibid.
13 General Statutes of Connecticut, pp. 731-33; Public Acts, 1873, pp. 142, 145-46, 164-65. In 1875, the banks succeeded in pushing through the legislature a provision recogniz- ing the discount principle on loans, which was tantamount to an increase in rates, Public Acts, 1875, p. 3; Niven, "Time of the Whirlwind," p. 329.
14 Public Documents, 1875, Report of the Bank Commissioner, pp. v-x.
15 Public Acts, 1875, pp. 67-68.
16 Public Documents, 1875, Report of the Bank Commissioner, p. xi; ibid., 1876, pp. xii-xv.
17 Ibid., 1875, p. xv; 1876, pp. vi-lx; 1877, pp. v-viii; Vol. I, 1879, pp. ix, 13.
18 Ibid., p. 13.
19 Public Acts, 1877, p. 197.
20 Ibid., 1878, p. 262; 1879, P. 375.
21 Public Documents, 1879, Vol. I, Report of the Bank Commissioner, p. 13; Public Acts, 1878, p. 301.
22 Public Documents, 1880, Vol. I, Report of the Bank Commissioner.
23 Ibid., 1890, Vol. I, p. 258.
24 Public Acts, 1890, p. 9.
25 Public Documents, 1880, Vol. I, Report of the Bank Commissioner, pp. 80-82.
26 Public Documents, 1881, Vol. I, Report of the Special Commission on Revision of the Tax Laws, pp. 3-12; ibid., 1880-1900, Treasurer's Reports; ibid., 1895, Vol. I, Report of the Bank Commissioner, pp. 9-12.
27 Public Documents, 1881, Vol. I, Report of the Special Commission on Revision of the Tax Laws, pp. 3-12.
28 Public Documents, 1881, Vol. I, Governor's Message, p. 13.
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32 Public Documents, 1900, Vol. I, Governor's Message, pp. 10-13.
33 Ibid., 1881, Vol. I, Report of the Bank Commissioner, p. 4.
34 Ibid., 1897, Governor's Message, p. 7; 1888, 1890, Bank Commissioner's Reports; 1895, PP. 31-37; Public Acts, 1887, pp. 653, 754.
36 Public Documents, 1897, Vol. I, Bank Commissioner's Report; Public Acts, 1887, PP. 742, 845.
37 Ibid., 1897, P. 921.
38 Niven, "Time of the Whirlwind," pp. 338-47.
40 Ibid.
41 Hartford Times, July 5, 1871; Niven, "Time of the Whirlwind," pp. 453-55.
42 Ibid., pp. 256-59.
43 General Statutes of Connecticut, 1866, Title 7, Chapter 7, section 383, p. 168; Public Acts, 1871, pp. 723-34.
44 Ibid.
45 Niven, "Time of the Whirlwind," pp. 356-59; Public Documents, Report of the In- surance Commissioner.
46 Niven, "Time of the Whirlwind," pp. 356-59.
47 Journal, Senate, Public Acts, 1872, p. 83.
48 Niven, "Time of the Whirlwind," pp. 360-62.
49 Public Documents, 1875, Report of the Insurance Commissioner, Part 2, p. 3.
50 Public Documents, 1876, Governor's Message, p. 14.
51 Public Acts, 1876, pp. 120-21.
52 Ibid.
53 Ibid., p. 121.
54 Ibid., 1877, p. 251.
55 Ibid., 1878, pp. 291-92.
56 Ibid., 1877, pp. 198-99.
57 Public Documents, 1878, Report of the Insurance Commissioner, Part I, p. 428.
59 Public Acts, 1879, p. 396; 1880, p. 28.
60 Public Documents, 1875, Special Report of the Insurance Commissioner on the Affairs of the American National Life and Trust Company of New Haven, pp. 1-21.
61 Niven, "Time of the Whirlwind," pp. 360-61.
62 Public Documents, 1888, Report of the Insurance Commissioner, Part 2, pp. xiii-xxvii. 63 Public Acts, 1877, pp. 207-208, 230.
64 Public Documents, 1890, Report of the Insurance Commissioner, Part 2, pp. 189-90.
65 The Hartford Accident Insurance Company was absorbed by the Travelers, November 27, 1876, as was the Railways Passenger Assurance, September 10, 1878. The Con- tinental Life and the Charter Oak were forced into the hands of receivers. Public Documents, 1875-1900, Reports of the Insurance Commissioners, passim.
66 An injunction was issued in November, 1881, against the Atlas of Hartford, ordering it to cease operation. The Norwalk and the Meriden ceased operation in the early 1890's. The city of New Haven was reinsured by Security of the same city in 1876 and the Fairfield of South Norwalk by Niagara of New York in October 1880. The Peoples of Middletown was unique in that it discontinued operations in 1890 while doing a profitable business and with a surplus of $100,000. Ibid.
67 Ibid.
68 Report of the Insurance Commissioner, Part 1, p. xxvii; 1894, Vol. II, Report of the Insurance Commissioner, Part 1, p. ix; 1900, Report of the Insurance Commissioner, Part 2, p. x.
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THE AGGREGATION OF CAPITAL
69 Ibid., 1878, Report of the Insurance Commissioner, Part 2, p. 179; 1880, Vol. II, Report of the Insurance Commissioner, Part 2, p. 183; Public Acts, 1878, p. 121.
70 Public Documents, 1885, Vol. II, Report of the Insurance Commissioner, Part 2, p. viii.
71 Public Acts, 1876, p. 121.
73 Public Documents, 1881, Vol. I, Report of the Special Commissioner on the Revision of the Tax Laws, pp. 3-5.
74 Public Acts, 1881, pp. 14, 57, 83, 242; Public Documents, 1880, Vol. I, Report of the Treasurer, p. 23; 1885, Vol. I, p. 19.
75 Ibid.
76 Public Documents, 1880-1900, Reports of the Treasurer.
77 Ibid., 1887, Governor's Message, p. 9.
78 Public Documents, 1875, Special Report of the Insurance Commissioner of Connecticut on the Affairs of the American National Life and Trust Company of New Haven, pp. 1-21; Niven, "Time of the Whirlwind," pp. 360-61.
79 Public Documents, 1888, Vol. II, Report of the Insurance Commissioner, p. xxiv.
Chapter XXVI
The Power of Wealth and Industry, Railroads and Industry
I N THE FIRST period of railroad construction in Connecticut, a number of small companies had built adjoining lines which were operated under separate management.1 This was the basis for a railroad system in Connecticut, and, imperfect though it was, these in- dependent companies provided the railroad service for Connecticut un- til the Civil War was almost ended.2
A step toward the consolidation of these companies was taken in 1864, when the Boston, Hartford, and Erie assumed the direction of the lines which entered the state from Providence and Boston and pro- ceeded to Waterbury by way of Willimantic and Hartford and of cer- tain connecting lines.3 The company also formed an alliance with the Erie Railroad in the West by exchanging $5,000,000 of its bonds for $4,000,000 of Erie acceptances which it immediately turned into cash. In this operation the company illustrated the speculation which was rampant in the years following the war and which typified the nature of its own operations. The company's managers were among the most reck- less and plundering railroad pirates of the age. After the company went into bankruptcy in 1870, an investigating committee learned that only 40 miles of track had been laid in three years, yet $28,000,000 in liquid assets had disappeared in this time. The security for this sum was 250,000 shares of stock, several leases upon which the rent had not been paid, and a railroad which was half-completed and in poor repair and which earned $175,000. With the treasury depleted after months of litigation, the operation of the main line was returned to its original
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THE POWER OF WEALTH AND INDUSTRY
bond holders.4 This attempt at amalgamation failed, but, in the 1870's, the trend toward combination of the various lines was evident.
All lines soon fell under the managerial direction of one or the other of two major systems, the New York, New Haven, and Hartford
(Courtesy Conn. Devel. Comm.)
NEW HAVEN-PORT AREA
or the New York and New England. Efforts of the New York and New Haven and of the New Haven and Hartford to consolidate under the laws of the state had been delayed by the effective lobbying of their opponents, the fear of monopoly, and the opposition of rural assembly- men. The railroads accomplished by agreement that which had been denied by the Assembly. In August, 1870, they took the first steps toward unification, when it was arranged that the stock of both com- panies would be jointly held, the roads placed under a single manage-
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ment, and the net earnings split with 57 percent going to the New York and New Haven and 43 percent to the Hartford and New Haven. The Shore Line was added to the system almost immediately. When the consolidation was formalized by the Assembly in August, 1872, the system owned a double track railroad from Springfield to Williamsburg on the Hudson, trackage rights into New York City, and branch lines from Berlin to New Britain and from New Britain to Middletown. W. D. Bishop was on the board of directors of the Housatonic and Nau- gatuck railroads, and his son was president of the latter.5 Another step in the consolidation process came three years later when the manage- ment of the defunct Boston and Hartford was taken over by the New York and New England road in 1875.6 In 1883, consolidation received the formal sanction of the General Assembly through a statute outlining the procedures to be followed in the forming of such combinations.7
The opponents of consolidation could not prevent it, and their efforts to regulate some of the practices which had come to be identi- fied with railroad monopolies appear to have been equally futile. The Assembly was under tremendous pressure in regard to the question of railroad consolidation. It was alleged that for one session of the legisla- ture, the New York and New Haven employed 20 lobbyists and their op- ponents, including rival lines, employed 14.8 "Champagne suppers, rail- road passes, free excursions, and outright bribery became the accepted instruments of policy."9 Some with interest in the railroad blatantly assumed positions in the Assembly as representatives of the people and acted for the special interests of their companies. Too often, that which could not be achieved through persuasion could be bought by lining the pockets of the legislators.10 "It must be a pleasant thing," suggested a critic of the New Haven, "to own a legislature and obtain from it for the asking any and all kinds of powers for this, that, or the other thing."11 The reports of the Railroad Commissioners reveal much too clearly that for the most part the legislators acted in harmony with the wishes of the railroads.12 When other action was ultimately taken, as by the amendment forbidding town aid to railroads, it generally came after the damage had been done.
When it became apparent that private capital was insufficient for the required expansion, the railroads turned to the towns along pro-
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THE POWER OF WEALTH AND INDUSTRY
posed routes for financial assistance. It was comparatively easy to con- trol a town meeting sufficiently to assure that the town would subscribe the necessary bonds. If a proposal failed at one meeting, successive meet- ings were called until a favorable vote was received. Hartford voted $250,000 of the $350,000 needed by the Connecticut Western. The towns along the projected Airline route from Willimantic to New Haven contributed approximately $6,000,000 and all that the railroad could show for it was an unfinished road, interest due on a bonded debt of $8,000,000, and four years of arrears in taxes.14 Even the towns could not supply capital sufficient for the needed construction and the speculative desires of the stock manipulators. In 1877, not one of the railroads which had incorporated after the system of town aid was adopted had earned an interest on their indebtedness and most of them were in default of their taxes. Foreclosure proceedings had been begun against at least two.15 The mishandling of funds and the gross misrepresentation of facts by the railroads aroused the ire of the opponents of the railroads. They were successful, in 1875, in pushing through an amendment to the con- stitution to prohibit any municipality from ever subscribing to the capital stock of railroads and from extending credit in any form for railroad construction. The timorous nature of the Assembly in rail- road matters is revealed nowhere more clearly than by the fact that this matter was handled by amendment, which passed the issue on to the public for decision. The amendment was confirmed in 1877.16 The pub- lic till had been closed to the unscrupulous and the dishonest, but the towns were already saddled with a public debt. A measure of relief was provided when, in 1883, the state agreed to fund the debt for the towns for 20 years. When authorized by a vote at a town meeting, the treasurer of the state would issue state bonds in the amount of the indebtedness and accept as security municipal bonds bearing a rate of interest in excess of the state bonds.17
Many of the ills of the railroads, especially of those begun after the Civil War, were traceable to the practice of issuing stock without re- ceiving requisite payments in cash. The issuance of watered stock was an accepted practice in the wildly speculative days immediately after the war. The pattern was for a company to pay for rolling stock repairs out of current earnings, regard this as capital improvement, and to
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issue stock to cover this. Sometimes some payment was required on the share issued to raise additional capital, but more often there was no cash advance. In such instances, financial papers held that the issue "was almost always for the purpose of covering up something or deceiving
(Courtesy Conn. State Lib.)
BARKHAMSTED-BELL PORTABLE SAW MILL AS THE VALLEY WAS BEING CLEARED FOR THE BARKHAMSTED RESERVOIR
the public." The state law prior to 1878 was lax on the subject. Direc- tors of a railroad could by a two-thirds vote increase the capital as they wished with no limit on the amount or the purpose. Inasmuch as most of the stock was held by a few persons, it was not difficult to secure authorization for new issues. As a kind of absolution for all Connecticut investors, the Commissioner indicated that he had no fear of the situa- tion as long as the railroads were controlled by Connecticut men.19 In
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