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Following the San Francisco earthquake of 1906, insurers decided to pay out 76% of all claims, even though their policies explicitly did not cover damage resulting from earthquakes.
The earthquake and the ensuing fires devastated the city, causing damage estimated at $500 million in 1906 dollars (or $14 billion in 2021 dollars, according to this reputable site).¹
90% of San Francisco’s properties were covered by a fire policy, but those policies specifically excluded earthquake damage and fire damage resulting from earthquakes.²
Despite that, insurers ultimately paid out about $180 million of the $235 million in insured losses (76.59%).³
While this decision bankrupted some companies, it proved to be a marketing boon for many others.
Famously, Lloyd’s underwriter Cuthbert Heath (heckuva name) sent a telegram to an agent in San Francisco at the time, ordering him to “pay all of our policyholders in full irrespective of the terms of their policies.” This may have ended up being one of the most gutsy and worthwhile marketing maneuvers in the 20th century.
Lloyd’s of London ultimately paid out all claims, which cost the market back then $50 million (or $1 billion in 2021 dollars). But it also skyrocketed Lloyd’s reputation in the US - today, the company remains a major force in the US insurance market.
Hurricane Katrina, which hit the Gulf Coast in 2005, caused $161 billion in damage,⁴ of which $41 billion were insured losses.⁵ However, most of the damage was due to flooding, which was not covered by the majority of policies. So instead of paying out all claims in full, in 1 state alone - Louisiana - it’s estimated that, on average, homeowners received $5,700 less than the state believed they should have after the storm (a shortfall of $900 million).⁶
With the crippling winter storm that hit Texas this past February, insured losses could hit $18 billion. With mavericks like Cuthbert Heath absent from the scene, it remains to be seen how much policyholders will receive towards the damage.
Now What?
Earthquakes, fires, hurricanes, and floods are out of our control (unless you’re Bruce Almighty), but you can look into your own policies to see what’s covered. We also recommend checking out our blog post covering some of the common exceptions to standard homeowners insurance policies.
