PRESIDENT DUTTON had recently moved to the Palace Hotel which was destroyed April 18th. He was living temporarily in the home of Second Vice-President Levison which had escaped Before the fire was fairly out, Mr. Dutton intimated to Mr. Levison his fear that it would be impossible for the Company to continue, that it was undoubtedly involved to an immense extent, and that the uncertainty, because of its seriously weakened financial condition, naturally suggested the necessity of the organization of a new company to protect the plant and business of the old company outside of San Francisco. As time went on the necessity for this became more and more apparent.

The usual quarterly dividend had been declared just prior to the fire, and the first official circular following the disaster is dated April 15th, notifying the shareholders of the recision of the dividend, with the request that the checks therefor be returned, and further, that an office for the conduct of the fire insurance business had been established in Oakland, and for the marine business at the residence of Second Vice-President Levison in San Francisco.

This was followed the next day by another circular in which the predicament of the Company was described and a request made of all recording agents, reporting to San Francisco, to send in as promptly as possible copies of all daily reports on unexpired risks-surveying agents to send in copies of all unexpired policies.

On May 14th a lengthy circular was sent to the shareholders giving the details of the disaster and the financial situation as it appeared at that time and outlining alternative plans of meeting the emergency, one involving the organization of a new company to take over and continue the business.

Affairs had now reached a point where it was evident that immediate action was necessary, and the prospectus of the new company was sent out, not alone to stockholders of the old company, but broadcast throughout the country, with which was enclosed a blank application for stock. The proposition was at first severely criticized by many who did not understand it, claiming that it was an effort to transfer the assets of the old company improperly and thereby avoid payment of its obligations, etc., etc., but as a rule, consideration of the general situation and the extremely critical condition of the Company almost invariably led to approval of the plan as the only course to be pursued.

The Corporation Finds that Difficulties Have Just Begun

The difficulties, however, were still not over; in fact, had hardly started, as the Corporation could not commence business until after it had been licensed by the Insurance Commissioner, which in turn could not be done, under the California law, until twenty-five per cent of the capital stock had been paid in cash, which appeared to be a physical impossibility, in view of the disorganized conditions in San Francisco, or in the short space of time necessary to properly protect the outstanding business of the Company.

Fortunately a plan was conceived whereby the necessary sum was borrowed from one of the leading banks of the city, viz., the Crocker-Woolworth Bank, upon the personal guarantee of the Directors, the bank itself retaining the deposit, and in this way being able to issue a Certificate of Deposit, which in turn led to the issuance of the necessary authority by the Insurance Commissioner to the now organized Firemen's Fund Insurance Corporation, and thus was the new organization started on its way.

Reinsurance of Outstanding Unburned Business is Next Important Step

Once the Corporation was licensed, the next important step was the reinsurance of the outstanding unburned business of the Company, and this was effected by a regular reinsurance contract on May 22nd.

On June 5th the Board of Directors of the Company met to consider the report of their sub-committee, which had conferred with a similar committee from the Board of the Corporation, to determine the amount and character of compensation to be paid the Corporation for assuming the outstanding risks of the Company.

This was done and the old company thereby relieved of all further anxiety or responsibility in connection with any of its business other than the settlement of San Francisco losses. The records of the Company having been destroyed, it was impossible to ascertain the liabilities, and no further action could be taken until after August 18th, by which date all proofs of loss would have to be filed and the total liabilities arrived at.

The usual sixty-day period for filing proofs had been extended to four months by the Insurance Commissioner.

Newspapers Show an Unfriendly Spirit Towards Struggling Company

While the Company had the sympathetic assistance and support of practically the entire community of San Francisco, it goes without saying that there were some who took an unfriendly position. An editorial appeared in one of the leading San Francisco papers during this period, entitled "California's Financial Honor Covered with Mud by the Fireman's Fund," and later another running across the entire editorial page entitled "A Word to the Directors of the Fireman's Fund" in which the organization of the Corporation is referred to as a reorganization scheme by which the best assets and the least of the liabilities of the old company would be turned over to the new company. The effect of articles of this kind on the officers of the Company, who were struggling practically twenty-four hours a day against almost overpowering odds, can easily be imagined. Notwithstanding these attacks, the entire force was busily engaged in endeavoring to continue the business of the Company in all of its details and ramifications.

Late in July the representatives of an organization which had been called together by two prominent citizens, Harris Weinstock and Frederick Dohrmann, called the Policyholders' League, had a conference with Vice-President Faymonville, with a view of having the League appoint a committee to represent policyholders in what appeared to be the inevitable liquidation of the Company, and this League, on July 23rd, appointed a special Fireman's Fund committee, and again to illustrate the attitude of some of the press, on July 24th an article appeared, headed "Fireman's Fund Arranges to Quit," and another, "Offer to Divide Scanty Assets."

On the afternoon of August 4th Second Vice-President Levison went into President Dutton's office and found Henry T. Scott, a prominent citizen and President of the Mercantile Trust Company and the Pacific Telephone & Telegraph Company, in the room. Mr. Levison naturally had no idea of the object of Mr. Scott's visit, - simply heard him say as he was leaving, that Mr. Dutton could count upon him to do anything and everything in his power to be helpful. He subsequently stated he had really come in to suggest to Mr. Dutton that the Mercantile Trust Company be appointed receiver, but he did not have the heart to speak of a receivership because of the depressed condition in which he found Mr. Dutton.

As Mr. Levison today relates it, immediately after Mr. Scott left the room, the thought flashed through his mind that something should be done in the direction of proposing a compromise settlement, and he suggested to Mr. Dutton that the Company had the unqualified friendship and sympathy of the community and that it was perfectly legitimate and proper in some way to capitalize this, which led to a discussion as to the method employed by the Company in settling its Chicago losses in 1871, where the assets of the Company were practically swept away.

Mr. Levison Conceives Plan to Issue Scrip as Payment of Losses

Shortly afterwards Charles P. Eells, the attorney for the Company, came into the room, and the possibility of making some proposal for settlement was further discussed, on the basis of a seventy-five per cent cash payment, as at that time the aggregate amount of the loss claims filed appeared to warrant the thought that this would be possible. Mr. Eells and Mr. Levison left the building together and spent some time in an effort to work out the details of this entirely new and unique thought.

By the following morning (Sunday) Mr. Levison had developed a plan which he submitted on that day to Mr. Dutton, who showed a very sympathetic interest in it at once, and a telegram was sent to Charles W. Kellogg, Manager of the Eastern Department of the Company in Boston, to ascertain, from the Insurance Commissioner of the State of Massachusetts, whether the Insurance Department would consider scrip issued in part-payment of the San Francisco losses and to be paid out of future profits, a liability against the assets. The Commissioner replied that he would certainly consider scrip issued in payment of losses a liability, although such scrip was payable only out of future profits, adding that no such method of paying losses was contemplated by the Massachusetts Insurance Laws. This, of course, put out of the question any thought of issuing scrip. The crisis now was rapidly approaching, as on the 18th of August something would have to be done either in the nature of a proposal for settlement acceptable to the policyholders, or a receivership. The situation was further complicated by the attitude of Vice-President Faymonville, who was strongly opposed to any rehabilitation scheme. His reason was that the agents throughout the country were now giving their business to the Corporation exactly as they had been giving it to the Company, upon the presumption that the Corporation had been floated in good faith and was a going, permanent concern, and if the efforts to rehabilitate the old company should be unsuccessful - and there was no assurance of success - it would shake confidence in the Management to such an extent as to weaken the Corporation most seriously and ruin the entire agency plant.

President Dutton Outlines Situation at Board of Directors' Meeting

Mr. Faymonville was not convinced of the probability, of which definite signs had appeared, of an attack by dissatisfied policyholders upon the reinsurance of outstanding risks by the Company into the Corporation.

On August 9th the Board of Directors held a meeting, at which President Dutton outlined the situation, stating that matters had been going from bad to worse, that the hope of salvage, upon which he had pinned much encouragement, had entirely disappeared, and that the amount due from other companies for reinsurance could only be collected after considerable shrinkage. At this meeting, he stated that a plan had been formulated by Second Vice-President Levison, which had been submitted to the Policyholders' League and which Mr. Levison explained in detail to the Board.

Assessment is Levied on Shareholders of Old Fireman's Fund

The plan involved an assessment upon the shareholders, the reinsurance back in to the Company of the outstanding risks of the Corporation, and an agreement on the part of the claimants to accept fifty per cent of their claims in cash with the understanding that there might be some further payment, depending upon the ultimate amount of losses, collections from reinsurers, outcome of the assessment upon shareholders, and realization from securities and other assets sold.

Mr. Levison, in the meantime, had held a number of meetings with the Executive Committee of the Policyholders' League, and on Friday, August 17th, a general meeting of the policyholders was called by the League, at Calvary Church. On the morning of August 18th, the San Francisco papers all had favorable notices of the meeting, and on August 20th, a circular was sent out by the League's committee referring to the meeting in Calvary Church and stating "The plan proposed appears most feasible, includes the continuance in business of the old Fireman's Fund Insurance Company, the levying of an assessment on its shareholders, and payments aggregating about fifty cents on the dollar in the near future, payments in addition depending upon the successful working out of the plan under the supervision of the League."

During this period a tentative agreement had been prepared by Attorney Eells, which Mr. Levison presented to a number of large policyholders, and which was received with considerable encouragement. The Policyholders' League promised their support provided the Company could come to them with the endorsement of a sufficient number of the largest policyholders to convince them that the plan would meet with the approval of claimants generally. The plan had now taken definite shape, providing for fifty per cent in cash and the remaining fifty per cent in paid-up stock of the Company, instead of out of future profits, its success, however, being contingent on three essentials: First - the practically unanimous approval of some 5500 claimants, representing approximately $11,200,000 in claims, to obtain which seemed to be a task almost superhuman. Second - the collection by assessment upon the shareholders of $300 per share in sufficient amount to restore the cash capital of the Company, and in addition to provide paid-up stock to furnish the policyholders with what they would be entitled to under the settlement. And finally, the collection from solvent reinsurers of one hundred per cent in cash, notwithstanding the fact that it was proposed that the Fireman's Fund and its subsidiaries, the Home Fire and Marine and the Pacific Underwriters, would pay only fifty per cent in cash.

The Rehabilitation of the Company Proceeds with Rapidity

The campaign to obtain policyholders' signatures was directed and handled personally by Second Vice-President Levison, utilizing as many men in the service of the Company as could possibly be spared.

The collection of the assessment of $300 per share from the shareholders, was undertaken by President Dutton, who knew almost every shareholder personally, and interviewed or wrote to practically every one of them.

The final feature, that of collecting from the reinsurers, by no means the least difficult, was undertaken by Vice-President Faymonville, who had become converted to the plan of rehabilitation and now was most enthusiastic in its support.

An interesting point in the collection of reinsurance was whether or not a reinsurance company is obliged to pay to its original company one hundred per cent in cash, where the original company pays only fifty per cent, as indicated, and while there was naturally much difficulty at the outset, the companies, as a whole, finally conceded the correctness of the position.

Matters were moving so rapidly that it was decided to make a preliminary payment of twenty per cent on September 12th, and announcement to this effect was made through the daily press and by circular to the policyholders.

By September 27th it was reported that signatures had been obtained from claimants representing approximately seven million dollars, and previously at a meeting a committee of well-known citizens had been appointed as an Advisory Committee to represent the policy-holders who offered their services to the Company in an endeavor to bring the rehabilitation plan to a successful fruition. There were frequent meetings of this committee during the month of October, and finally, on November 5th, it was reported that all claimants with the exception of those representing approximately one million dollars had accepted the rehabilitation plan and had signed the agreement. The Advisory Committee thereupon informed the Board of Directors that in their opinion the time had now arrived when the rehabilitation might be considered a success and that the Company should proceed to levy an assessment upon its shareholders, which the Directors had deferred doing until such time as the success of the plan might be reasonably anticipated. In accordance with this recommendation the Board of Directors, at a meeting held on November 7th, levied an assessment of $300, payable immediately.

It now became evident that it would be possible for the Company to pay a little more than the fifty per cent proposed, and the Directors, upon the recommendation of the Policyholders' Committee, decided to pay an additional six and one-half per cent as the certificates of stock were delivered to policyholders. From this time on matters moved very rapidly. On November 11th President Dutton, together with Attorney Fells, left for the Atlantic Coast to interview the share-holders, particularly in Hartford, where almost thirty-three per cent of the stock was held.

"The Relaunching of the Fireman's Fund Was Successfully Completed"

On November 27th a second installment, this time of thirty per cent, bringing the total up to the fifty per cent, was paid, and on December 19th the Policyholders' Committee held a meeting at which the report was made that all claimants had signed with the exception of those representing but about $750,000.

President Dutton had now returned to San Francisco and reported to the Policyholders' Committee that in round numbers $1,700,000 out of a possible $3,000,000 had been realized upon the assessment, and Vice-President Faymonville stated that $1,100,000 had been actually collected in cash from reinsurers, $750,000 collected by offsets, and a further $900,000 was reasonably certain of collection.

At this meeting of the Policy-holders' Committee it was agreed that the rehabilitation of the Company might safely be considered assured, but no public announcement was made until the meeting of the shareholders on January 10th.

Shortly afterwards President Dutton appointed two committees, one from the Board of the Corporation, and one from the Board of the Company, to prepare for the reinsurance of the outstanding business back into the Company from the Corporation, which was accomplished on March 31st, and on April 1st, the following telegram signed by President Dutton and Vice-Presidents Faymonville and Levison, was sent to the Branch Managers and leading representatives throughout the country:

"The relaunching of the old Fireman's Fund Insurance Company was successfully completed today and its new banner thrown to the wind. We desire to express to our Managers, Agents, field men and friends our sincere appreciation of their confidence and loyal support during the past year without which we could never have so happily overcome our tremendous difficulties."

It was realized by the officers of the Company that its agents as well as the insuring public throughout the world should have authoritative information as to the entire transaction and the financial condition of the Company upon the completion of its rehabilitation and accordingly it was suggested to the Insurance Department of the State of California that an examination of its affairs should be made as of June 30th, 1907, or three months after the rehabilitation, giving time to get the machinery of the rehabilitated Company started and in motion. Accordingly the Insurance Commissioner appointed S. H. Wolfe of New York, one of the leading actuaries of the country, to make this examination.

Mr. Wolfe, after a thorough investigation, reported that the Company, rehabilitated, had total assets of $5,345,000, a cash capital of $1,600,000 and surplus over all liabilities of $579,000, and concluded his report with the following:

"It is difficult to imagine any institution being subjected to a more severe test than was the Fireman's Fund Insurance Company. It has emerged from it with its reputation untarnished and its excellent plant intact. The credit for this happy result belongs in great part to the loyalty of the officers and employees and to the remarkable plan of rehabilitating an institution which had practically been wiped out by an unusual catastrophe, but in the final summing up, due credit must be given to the loyalty of the claimants in San Francisco who united with the officers in an endeavor to prevent the extinction of a Company which had enjoyed so many years of honorable dealing with its policyholders."

With the conflagration plans settled, the outstanding business back on the books of the Company, and its treatment of policyholders and shareholders officially approved by the Insurance Department of the State of California, the old company was started once more on its course, which from that time on has been one of prosperity and success, until today it stands not only as one of California's great institutions but as one of America's leading insurance companies.

Today, twenty-five years after its great trial by fire, the Fireman's Fund's assets amount to more than thirty-eight millions and its policyholders' surplus to over eighteen and a half millions, both figures fully five times greater than they were at the opening of 1906.

How the 1906 Policyholders Fared During Past Twenty-five Years

This narrative would be incomplete without a statement showing how the policyholder who took stock in partial settlement of his loss fared, and how he stands today if he still retains his original stock and exercised his rights as the capital of the Company has been increased.

A claimant with a policy for, say, $10,000 received in cash $5650 and 10 shares of stock representing the balance of $4350. In March 1920 ten additional shares were purchased for $1500. In March 1925 fifty-three additional shares were purchased at a cost of $1987.50, and in February 1929 a further sixty-six additional shares were purchased for $3300, making a total holding of 199 shares, which, at the present market price, represents approximately $16,900. It must be borne in mind that when the capital stock was increased in March 1925 the par value was reduced from $100 to $25 per share.

Dividends on the original ten shares from January 1908, when the Company resumed dividends, to and including January 1920, when the capital stock was first increased, amounted to $2020. Dividends on the twenty shares from April 1920 to and including April 1925, when the capital stock was again increased, amounted to $2520. Dividends from July 1925 to and including April 1929 amounted to $2660, and the dividends received from that time to and including April 1931 amounted to $1990, making the total dividend payment up to the present time $9190.

[Fireman's Fund Archives: 4-1-3-4-42; 0408.]