The memorial history of Boston : including Suffolk County, Massachusetts. 1630-1880, Vol. IV, Part 23

Author: Winsor, Justin, 1831-1897, ed; Jewett, C. F. (Clarence F.), publisher
Publication date: 1881
Publisher: Boston : Osgood
Number of Pages: 760

USA > Massachusetts > Suffolk County > Boston > The memorial history of Boston : including Suffolk County, Massachusetts. 1630-1880, Vol. IV > Part 23

Note: The text from this book was generated using artificial intelligence so there may be some errors. The full pages can be found on Archive.org (link on the Part 1 page).

Our Boston underwriters, with the possible exception of Mr. Marion, were unquestionably backward in discovering the advantages of carrying on their business by means of incorporated companies. In a somewhat crude way, under a deed of settlement, a fire-insurance company had been started in Philadelphia in 1752, and marine companies began operations in that town and in Baltimore a year or two before our first Boston company came into existence. The two Boston companies referred to must have confined themselves pretty closely to marine business, for though the Massachusetts company had the chartered right to insure against losses by fire, it is not at

183

RISE AND PROGRESS OF INSURANCE IN BOSTON.

all probable that at the outset it had much opportunity to exercise this privilege. The marine business was what these early companies mainly depended upon for their profits; and that they were well employed may be judged by the fact that in eight years after the first company was started - that is, in 1803 - the insurance capital of the stock-insurance companies in Boston was nearly $2,000,000, not to speak of the money indirectly invested in the business in the one mutual company, and by individual underwriters.

Although the possibility of carrying on the marine-insurance business even without the intervention of corporations had been clearly demonstrated by the usage of nearly three quarters of a century, there is no reason to believe that the practicability or utility of insuring property on land against loss by fire was generally conceded before the Massachusetts company was in- corporated. As mentioned above, a Philadelphia organization, - which is still in existence, - known as the Philadelphia Contributionship, was started in 1752, having Benjamin Franklin as one of its original members; and a few years after that date its arbitrary course of action led to the formation of a rival company. These two associations were for years the only ones in America issuing fire policies. Before the year 1795 it is not at all likely that there was a single building in Boston insured against fire. Shortly before the War of 1812 some of the English fire-insurance companies estab- lished agencies in Boston and in New York, but this was after a desire for this species of protection had been built up by the exertions of local organizations. It is easy to believe that the individual suffering due to the relatively frequent fires in Boston, a hundred years or more ago, must have been in many cases intense; and it is well known that efforts were fre- quently made to equalize these losses. It was a common practice, for a citizen whose house or store had been burned, to send out a subscription paper calling public attention to the misfortune he had met with, and ask- ing his fellow-townsmen to assist him, on the ground that the loss which had come to him might at any time visit them, if God should so will it, and that they then would need the help which he now implored of them. It may be assumed that these petitions for aid were generally responded to with great liberality, as they seem to have been made after almost every fire, and not unfrequently by those who were not in absolutely destitute circum- stances. It was, in a word, a rude system of insurance, - a recognition of the principle that a loss spread out over a large number of individuals is more easily borne than when its incident falls sharply upon a single person ; only, by this method the payment of premium was voluntary and always uncertain, and it must have been a rare instance where the sufferer by the fire received a sufficient amount in charity to make good his losses.

The first successful effort to protect the property of the citizens of the town of Boston against loss by fire was made by those who were instru- mental in procuring the charter of the Massachusetts Mutual Company, in 1798. These men were Paul Revere, Henry Jackson, William Eustace, Edward Tuckerman, George R. Minot, Elisha Ticknor, and several other

184

THE MEMORIAL HISTORY OF BOSTON.

prominent Bostonians. The company, by the limitations imposed by the State, was not allowed to do business until its incorporators had obtained in Boston and its immediate vicinity two million dollars' worth of property to be insured; and as the company was restricted to insuring only four-fifths of the value of the risk assumed, the incorporators had to find owners of property to the extent of $2,500,000. When one takes into account the low value of the entire building property of Boston at that time, and that quite a number of the local companies now doing business in this city have. less than the amount named at risk in Boston and its suburbs, the demands of the Legislature seem unreasonable, and can only be explained on the assumption that the Great and General Court looked upon the enterprise as one of questionable utility, and was not willing to sanction it, without it could be shown, in an unmistakable manner, that there was a popular call for it. The charter, thus encumbered, was however accepted, and the gentlemen named, with some associate members, went upon a canvass among their personal and business friends to obtain the desired amount of insurance. The record books of the old company show that this canvassing was a trying task, particularly as the direct individual interest in it of any one person must have been very slight; for the opportunity to insure his property was the most that any member of the company could hope to obtain. A number of the canvassers relinquished the undertaking, and their places were supplied by others; but at the end of a year the total amount was obtained, and the company opened its office on State Street for business.

For a number of years this office seems to have done a greater part of the fire-insurance business of Boston. Its trustees must have borrowed the information needed for their operations from the experience of the com- panies in England and in Philadelphia. The policies they issued were for a term of seven years, and none were written for a shorter period. One of their first efforts was to teach their policy-holders the necessity of protect- ing themselves. They offered rewards of money, not exceeding ten dollars, for good service performed by citizens at fires. If any of the holders of pol- icies allowed their pumps to get out of order, and permitted them to remain so after a notification from the office, they were fined two dollars, and two dollars additional for every week that they continued out of repair; while those who allowed their chimneys to get on fire were fined one dollar.

The question of rates of premium was one which they found it very hard to settle. The scale adopted at the outset did not give satisfaction, and after a number of changes a committee consisting of John Lowell, Tristram Barnard, Ebenezer Gay, Elisha Ticknor, and William Gay, which had been appointed to consider the subject, after due deliberation submitted the fol- lowing report : -

" Your Committee are of opinion that brick or stone buildings, covered with slate, tiles, or metal, standing alone, similar to the store in Marlborough Street, occupied by William Leverett, or the house by Joseph Coolidge, Esq., of New Boston, may be

185

RISE AND PROGRESS OF INSURANCE IN BOSTON.

safely taken by the trustees at 35 cents per $100. That brick or stone buildings in blocks, with slate, tile, or metal, separated by brick partition walls and battlements, agreeable to law, similar to those on Mt. Vernon, at 45 cents per $100. That wooden buildings, standing alone, similar to Henry Hill's and Samuel Elliot's, Esq., at 55 cents per $100. That buildings, part of brick or stone and part of wood, and wooden buildings in blocks, similar to those of Samuel Smith and Stephen Higginson in Fed- eral Street, at 70 cents per $100."

The scale thus given shows that in spite of the great height of our mod- ern buildings, and the dangerous character in many ways of their appliances for heating and lighting, the liability to loss by fire is now very much less than it was when the committee prepared the above report. Another diffi- culty which the trustees of the company encountered was in determining questions of law. They had to work completely in the dark, in the entire absence of precedents to guide their action. Theophilus Parsons and other legal authorities of the day were frequently consulted; and though the advice given was no doubt judicious, it did not always save the company from litigation. In less than three years after it began business a fire oc- curred (Dec. 16, 1801) on Ann Street, which destroyed, besides other prop- erty, the dwelling-house, cooper-shop, and fish-store of Amasa Stetson. These latter were insured in the Massachusetts Mutual, but the trustees refused payment on the ground that the property had been changed after the policy of insurance was taken out, in such a manner as to increase the risk; and also on account of alienation of title. This disagreement led to the first fire-insurance lawsuit tried in the courts of this country; the Massachusetts Supreme Court, in 1807, rendering a decision in favor of Stetson.

It should, in justice to the fire underwriters, be said that this first dis- pute over a loss finding its way into the courts was not followed for a long time by other lawsuits. In the edition of 1825 of Bigelow's Digest the case of Stetson v. Massachusetts Mutual Insurance Company appears as the only one on record. In Willard Phillips's Treatise on The Law of Insur- ance (ed. of 1823) the author's intention seems to have been to cover the entire field of insurance, but the work, which is a fairly bulky one, is made up almost exclusively of precedents bearing upon marine underwriting. Fire underwriting is referred to, but in the simplest possible terms, as a form of contract but little understood for want of experience, and the laws laid down as governing it do not occupy more than two or three pages out of the entire work, - a comment which also holds good of life insurance, a branch of business in which the author, later on, greatly distinguished himself.

This absence of litigation, by means of which legal precedents could be established, was no doubt largely due to the contracted character of the business. The New England, Suffolk, and Union offices were opened in the early years of the present century ; but they seem to have confined them- selves very closely to marine insurance. As late as 1823 the Merchants' Insurance Company published a tract on fire insurance, of which only one VOL. IV. - 24.

186

THE MEMORIAL HISTORY OF BOSTON.

copy now seems to be extant, in which it is asserted that the fire policies issued by the Boston companies are for the most part taken out by those who are members or stockholders of the several companies. The directors of the Merchants' Company felt called upon to explain the nature of the business; and in their preface they say : " Presuming the subject of Fire In- surance has fallen under the consideration of but comparatively few persons, they trust no apology will be thought necessary for this publication." That they had but a dim perception of the dimensions the business was in after years to attain may be judged by the remark made, that " the only danger insurance companies have of losing their capital is that the directors may err in judgment and insure for too small a premium,"- thus indicating that they did not think it conceivable that property-owners throughout the city would insure their buildings and merchandise, and thus make the companies liable to an overwhelming loss should a conflagration occur. They go on to say : -

" He who loses his all at sea by not insuring, instead of sympathy meets with re- proach for his temerity. He who suffers by fire, although equally chargeable with rashness and imprudence, not only claims exemption from reproach, but appeals with confidence, and often with success, to public sympathy. The distress and misery resulting from this misfortune have been so often witnessed or felt, as to render it un- necessary here to enlarge on the subject. It is sufficient to refer to the frequent appeals to public charity. When the low rate of premiums is considered, it is matter of surprise that so great a proportion of the property in this country is uninsured, and the fact can only be accounted for on the supposition that it is not known at how small an expense insurance can be effected. Probably in no country in Europe is there so great a proportion of the property uninsured as in this country. There, more particularly in Great Britain, it is a very general custom to insure Furniture and Houses, as well as Merchandise and Stores,"

This, and much more to the same effect, proves that in the first twenty- five years of its existence in Boston the business of fire underwriting made but very little progress. Merchants insured their stores or stocks of goods, on which they were obliged to obtain mortgages or credit; but the citizens generally did not comprehend the value of the protection which a policy of insurance afforded, or thought that their chances of suffering by fire were altogether too slight to make it an object to pay anything to a corporation to assume the risk. Hence, when a fire occurred, it was still a common occurrence to have a subscription paper started for the aid of the citizen whose property had been destroyed.

Indeed, in most matters appertaining to loss by fire the citizens of Boston at that time do not appear to have been particularly enterprising. The plan of using hose in the fire department for the purpose of carrying water to that point in the burning building where it could be employed to the greatest advantage, and also for pumping water from a distance, had been adopted in Philadelphia in 1808; and although many attempts were made here to have it substituted in place of the bucket supply, which the citi-

187

RISE AND PROGRESS OF INSURANCE IN BOSTON.

zens generally took part in serving, it was not until 1826 that the change was brought about. By that time quite a number of new companies had been organized. One was incorporated in 1816, one in 1818, one in 1822, three in 1823, one in 1824, and two in 1825. These new companies found ample ground for action in the growing commerce of the port, which was each year requiring a larger amount of insurance capital properly to protect it. The conditions under which the voyages of Boston ships were under- taken were not appreciably better than they had been in the last century ; and therefore the marine policies of this period are noticeable on account of the exceedingly high rate charged for coasting ventures. A few of the larger English insurance companies seem to have established agencies in Boston subsequent to the War of 1812, for when the Exchange Coffee House was destroyed by fire in November, 1818, the only company called upon to pay insurance upon the loss was the Phoenix of London. It is noteworthy as indicating the low opinion entertained of the security given by insurance companies, that though this building, with its contents, was thought to be worth not less than $500,000, its owners had covered it with only a single policy for $10,000.

The business of life insurance was the last in Boston of these three forms of protection to develop itself. In the Old World life insurance seems to have antedated fire insurance, for the oldest work on underwriting, Guidon de la Mer, published in France about 1600, says that it was a common prac- tice at the time of the Crusades for men about to go to sea to take out policies on their lives, the money to be used to ransom them when captured by pirates, and to revert to their relatives if they were never heard from. In 1769 a mutual association was formed by the clergymen of the Episcopal Church in the Province of Pennsylvania for the purpose of paying small an- nuities to the families of the insured, after the death of the latter, and the system was afterward extended to Maryland, New Jersey, and New York; but life insurance, in the sense that it is now understood, did not come into existence in this country until 1812, when the Pennsylvania Company for Insurances upon Lives was incorporated. There is every reason for think- ing that insurances of this class were looked upon by the great mass of the people as immoral contracts. The duration of a man's life, it was held, rested upon the will of God, and if He chose in His divine wisdom to re- move him from this world, it was an act of impiety on the part of the latter to speculate on the probable workings of Almighty power. This feeling was doubtless stronger in Massachusetts than in any other of the United States"; and it is questionable whether in the second decade of the present century our Legislature would have sanctioned the incorporation of a life- insurance company on simple business principles. But on Feb. 24, 1814, the trustees of the Massachusetts General Hospital obtained the right to grant annuities on lives. That this venture into the field of life insurance was condoned by public opinion on account of the charitable disposition which was to be made of the resulting profits seems more than probable,

188

THE MEMORIAL HISTORY OF BOSTON.

for six years later the trustees debated for some time over the question of whether they should also apply to the Legislature for permission to carry on a lottery, - an enterprise which might then have been sanctioned here, as it has since been in other parts of the country, for the direct aid its suc- cess would give to some deserving institution. Having obtained the right to negotiate for annuities, the trustees of the hospital did not care to exercise the privilege, thinking, no doubt, that it would necessitate a greater amount of labor in managing the financial details of the scheme than they could afford to give to it. Presumably for this reason, and because the plan could under a different management be better expanded, it was decided to organize what is now known as the Massachusetts Hospital Life Insurance Company. This company was incorporated in 1818, with a capital stock of $500,000, and with the provision in its charter that it was to pay annually to the trustees of the Massachusetts General Hospital one third of the net profits which should arise from the insurance on lives made during the pre- ceding year. Under these conditions the company must have found some difficulty in starting, for in 1823 its directors entered into an agreement with the trustees of the hospital, by which it was arranged that the annual pay- ments were to be one third part of the net profits accruing to the company from insurance on lives, reversionary payments, and generally from all kinds of contracts in which the casualties and contingencies of life, and the interest of money, are principally involved, after deducting for the use of the stock- holders the legal interest on the amount of capital actually paid in by them. That is to say, the stockholders were to be sure of six per cent per annum on their investment when that amount was earned, and two thirds of what- ever profits the company made over that percentage. This agreement was on the following year ratified by an act of the Legislature. But in order still further to protect the stockholders, the special statute creating the Hospi- tal Life Company contained the provision that so long as the company paid to the General Hospital the share of profits agreed upon, it should not be lawful for any persons or corporations within the Commonwealth to make insurance on lives upon land without they were empowered to do so by future legislatures; and if such grants were made, the obligation of this company to pay a part of its profits to the hospital should cease, unless the same obligation were imposed upon those to whom such rights were granted.

It is difficult at the present time to understand why such an agreement was made, except on the supposition that the State would not bestow the privilege to do a life business to a company that did not turn over a part of its profits to charitable uses. Mr. Bowditch, in his History of the Massa- chusetts General Hospital, says that his father, Dr. Nathaniel Bowditch, who was the actuary of the company, thought that the arrangement was an eminently fit one, as it prevented a great deal of the jealousy which would otherwise be displayed against the insurance company ; though why there should be more jealousy evinced at the success of a life company than at

189

RISE AND PROGRESS OF INSURANCE IN BOSTON.

the good fortune of a fire or marine company is not explained, and is comprehensible only on the grounds already stated. Certain it is that life insurance sometime in the not distant past was looked upon as an immoral proceeding, and was prohibited by statute in Rotterdam, Amsterdam, and other continental cities, and by a general ordinance of Louis XIV. in France ; the received opinion being that such a contract was opposed to the law of nature, and was therefore void.

The Hospital Life Company issued its first policy on Sept. 15, 1823, in- suring the life of John Minot for two years. From that time for a number of years it did a small life business, granting policies in almost every case for short terms, these in most instances having for their object the securing of money loaned by third parties to the insured. Among these early policies was one on the life of Daniel Webster, which was issued, presumably, to protect the lender of a sum of money. The conditions then imposed on the insured are decidedly curious, considering the liberty now accorded to those who take out life policies. He was supposed to remain at home, and to subject his life to no hazard not coming in the ordinary course of his daily existence; hence, indorsements such as these are not infrequently found on the policies : "Permission is given to the assured to go to New York; " "The assured is to have the liberty to go to Portland by boat," etc.

During the first part of the second quarter of this century the business of marine and fire insurance seems to have been constantly on the increase. Between 1825 and 1835 ten new companies came into existence. Before the former date the chief occupation of the underwriters had been found in taking marine risks; but shortly after that period public opinion appears to have been educated up to a partial appreciation of the value of fire in- surance. In this work of popularizing fire insurance, President Balch, of the Merchants', Insurance Company, was exceedingly active, and hardly a year passed at that time in which he did not send out printed circulars and tracts descriptive of the system of protection which his company offered to the citizens of Boston. In 1831 the Firemen's Insurance Company was organ- ized for the purpose of doing a strictly fire business. For a stock company thus to limit itself was looked upon as a very venturesome undertaking, and the older underwriters did not hesitate to predict that it would be impossible for the company to sustain itself .. In this they were so far correct, that the officers of the company must have had for a long time very hard work to make its operations profitable, and for a series of years it did not pay its stockholders as much as four per cent per annum on their investments. That our Boston companies limited their fire business very closely to this city may be assumed from the fact that the great fire in New York city in 1835, which destroyed fifteen million dollars' worth of property, and com- pelled twenty-three out of the twenty-six insurance companies of that city to suspend business, does not appear to have troubled them in the least. There was no appreciable falling off in their dividends, and their stocks are quoted as selling quite as favorably after the fire as before it.

ICO

THE MEMORIAL HISTORY OF BOSTON.

It was not until the panic of 1837 that the Boston companies experienced any decided check to their onward progress, and this change was due to circumstances over which their managers had no control. In 1836 there were twenty-five stock companies in operation in this city, having capitals amounting to about seven million dollars. More than half of this sum was invested in bank stocks, and as these depreciated greatly in value, and divi- dends ceased to be paid upon them, the assets and incomes of the insurance corporations suffered a corresponding decline. This depression seems to have continued for six or eight years, and in the mean time eight of the com- panies were forced to discontinue business, and the insurance capital of Boston was reduced by more than thirty per cent. It was not alone the depreciation in the value of their assets that underwriters had to contend with, for fire and marine losses increased in their aggregates to an alarming extent. The worth of property upon sea and land was so far reduced, that the temptation became very strong on the part of its owners to " sell it out " to the insuring companies. Although positive instances of incendiarism and barratry were not frequent, it is not at all doubtful that owners who found their property greatly over-insured were much less careful than they had been in guard- ing against the possibilities of a loss. In 1838 the Boston stock companies had at risk about $50,000,000 on marine ventures, and $52,000,000 under fire policies; amounts which were respectively reduced in 1844 to $33,000,000 and $42,000,000.

Need help finding more records? Try our genealogical records directory which has more than 1 million sources to help you more easily locate the available records.

The memorial history of Boston : including Suffolk County, Massachusetts. 1630-1880, Vol. IV, Part 23

Author: Winsor, Justin, 1831-1897, ed; Jewett, C. F. (Clarence F.), publisher Publication date: 1881 Publisher: Boston : Osgood Number of Pages: 760

Author: Winsor, Justin, 1831-1897, ed; Jewett, C. F. (Clarence F.), publisher
Publication date: 1881
Publisher: Boston : Osgood
Number of Pages: 760