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REPORT OF THE FIRE INSURANCE COMMISSION 1910 APPOINTED ON THE 4th DAY OF FEBRUARY, 1910, UNDER CHAPTER… British Columbia. Legislative Assembly 1911

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 REPORT
OP THE
FIRE INSURANCE COMMISSION
1910
APPOINTED ON THE 4th  DAY OF  FEBRUARY,   1910, UNDER
CHAPTER 99, OF THE REVISED STATUTES OF BRITISH
COLUMBIA, 1897, INTITULED "AN ACT RESPECTING
INQUIRIES CONCERNING PUBLIC MATTERS."
PRINTED BY AUTHORITY OV
THE LEGISLATIVE ASSEMBLY OF BRITISH COLUMBIA.
VICTORIA, B. C.
Printed by Kichaicd Wolfenden, I.S.O., V.D., Pi-inter to the King's Most Excellent Majesty.
1910. COMMISSIONERS:
R. S. LENNIE, ESQ., Chairman,
DAY HORT MACDOWALL, ESQ.,
A. B. ERSKINE, ESQ.
E. V. BOD WELL, K. C,
Counsel for the Insurance Companies.
L. G. McPHILLIPS, K. C,
D. G. MACDONELL,
J. W. DeB. FARRIS, ESQ.,
Counsel for Wholesale Merchants, Manufacturers
and Industrial Concerns. ] Geo. 5 Report of Insurance Commission. B 3
REPORT
OP THE
FIRE INSURANCE COMMISSION
1910
To the Honourable Thomas Wilson Paterson,
Lieutenant-Governor of the Province of British Columbia.
Mat it please Youk Honour :
Your Commission, appointed on the 4th day of February, 1910, under Chapter
99 of the Revised Statutes of British Columbia, 1897, intituled "An Act Respecting
Inquiries Concerning Public Matters," for the purpose of making enquiry generally
into the business of fire insurance as carried on in the Province of British
Columbia, including the placing of insurance by persons in British Columbia
with companies or associations in the United States and other jurisdictions, and
empowered and directed to report in writing upon the results of the said investigation
and especially as to the advisability and best methods of Government supervision of
the operations and financial standing of all companies or associations carrying on
the business of fire insurance in this Province, and as compelling them to obtain
licences from the Province authorizing the transaction of such business, and to furnish
adequate security to British Columbia policy holders that all valid claims they
may have against such companies or associations will be promptly paid, beg to
report as follows:
Notice and Sittings.
Pursuant to notice, published in the British Columbia Gazette and local newspapers, your Commissioners held sittings at the cities of Victoria, Vancouver and
Nelson, stating in such notices that sittings would be held in any other parts of the
Province upon sufficient requests made in writing to the Commission. No such
sufficient requests were made, but evidence was taken under oath in the places named,
comprising four volumes of 1915 pages of typewritten matter and 99 exhibits were
filed  during the  giving of  such  evidence.
Opening Session.
At the opening session held in Victoria on the 3rd day of March, 1910, the
Commission was read and it was announced that Commissioner Day Hort Macdowall
would act as secretary of the Commission, from whom subpcenaes could be obtained
and other information secured from time to time and to whom communications could
be addressed.
The file of correspondence received from the Department for the use of the
Commission was declared open to inspection by any person interested as well as the
daily transcript of the evidence for the use of the Commissioners and other interested
parties. B 4 Report of Insurance Commission. 1910
At the outset counsel for the Fire Insurance Companies explained the provisions
of a proposed Bill intituled, "The British Columbia Fire Insurance Companies Act,"
which is attached hereto and was marked as Exhibit I.
Thereupon, those objecting to the provisions of this Bill immediately proceeded to
criticize its provisions and give evidence against such a measure becoming law, chiefly
on the ground that it would prohibit the placing of insurance in unlicensed companies
as well as Mutuals and Dloyds.
Proposed Bill.
The important provisions of the proposed Bill, applicable to all Companies, or
Associations of Underwriters except those licensed by the Parliament of Canada, are
as follows:
1. A prohibition to undertake or solicit, or agree or offer to undertake, any
contract of fire insurance by any company without first obtaining a licence
under the provisions of the Act and filing the documents set forth, including
the appointment of an attorney within the Province.
2. To deposit, either in cash or in stock, debentures or other securities in
which trustees may invest trust money, the sum of $30,000.00 to provide for the
re-insurance of all risks outstanding in the Province in case of conflagration
depreciating the assets of the company licensed occurring elsewhere, and
providing for the administration of such securities by the Minister upon
failure to pay any undisputed claim upon application to the Court.
3. The filing of annual statements of the financial standing of the company
and providing for the cancellation of the licence issued by the Minister
(subject to an appeal to the Lieutenant-Governor in Council) in case he is
dissatisfied with the financial ability of the company to pay its losses.
4. Permission to the insurer to obtain insurance outside the Province when
sufficient insurance cannot be obtained from companies licensed under the
Act, upon payment of a tax equal to 1% of the premium paid on such insurance.
5. The appointment of an officer, to be called the "Inspector of Insurance," to
examine and report to the Minister upon all matters connected with insurance
as carried on by the companies licensed or required to be licensed under the
Act for the purpose of determining whether any of the companies licenses
should be suspended or cancelled, and the payment by such licensed companies
towards defraying the expenses of such office a sum not exceeding $3,000
annually.
6. The repeal of the provisions of the "Companies Act" relating to Fire Insurance
Companies.
Further Suggested Provisions.
It   was   also   suggested   that   the   Bill   should   provide   for   the  appointment   of   a
Fire Marshal, who should have power to investigate fire losses and make suggestions
relating to the improvement of fire hazards and that municipal taxation of insurance
companies should be abolished.
, Power to Legislate.
Early in the sessions the question arose as to the right of the Province to legislate
concerning the business of fire insurance, but the Commission announced their view
that this subject was not one upon which they were required by the terms of your
Commission to enquire into or report upon.
The Underwriters' Association.
It was suggested by the opponents of the proposed Bill that its provisions if,
enacted would create a monopoly in the fire insurance business in the Province and
lead to an increase in rates and so restrict the public in obtaining insurance as to
largely increase the cost of conducting commercial enterprises.
In this connection the Underwriters' Association was vigorously attacked respecting its methods concerning the fixing and application of its rates and it was suggested 1 Geo. 5 Report of Insurance Commission. B 5
that your Commission should enquire into the legality of this so-called combination,
but as this is obviously without the scope of the Commission, we declined to enter
upon such an enquiry. It was substantially agreed by all the witnesses that such
associations were essential to the proper conduct of the fire insurance business; one
of the witnesses, John Yeaden Ormsby, an independent insurance broker and underwriter of Toronto, who impressed your Commissioners as being an expert on the subject
of fire insurance, from whom valuable information was obtained concerning the matters
within the scope of your Commission, in referring to these bodies stated (at page 691)
as follows:
"I am a believer in a Board, gentlemen. I do not think we could run an insurance
business successfully without a Board, because the whole fabric of insurance is built
upon statistics and you cannot accumulate statistics or get information individually at
ten times the cost that you could get it through the means of a Board; therefore, a
Board is a necessity for the proper conduct of insurance."
The necessity for such a body and the part it plays in the fire insurance business
is well set forth in the
Statement op A. W. Ross, Secretary op the Mainland Board op
Fire Underwriters.
"The general public appear to have but little conception of the peculiar difficulties
surrounding the business of fire insurance. It is, we think, conducted in an intelligent, fair and business-like manner, the ratings are based upon the experience of a
large number of companies operating over a long period of time. The interest of
the insurance companies and that of their patrons are mutual, and any condition or
legislation which harms or benefits the one must necessarily harm or benefit the other.
"There seems to be a general misunderstanding" of the objects of underwriting
associations. This misunderstanding has been largely induced by the representations
from certain interests which claim that its purposes are monopolistic and- prejudicial to
the insuring public.
"The Association of Underwriters has nothing to conceal and if its principle were
better understood and more generally enforced, the public would be greatly benefitted
by obtaining more satisfactory forms of insurance and at a much less cost, as well as
in other ways which I will attempt to demonstrate further on.
"The object of the Association is to promote reforms in underwriting. We maintain a number of experts who have had extensive experience in inspections and applying
schedules to various classes of risks. Uniform practices in the manner of conducting
the business are demanded, concurrent forms of policies upon all important individual
risks are maintained. In this connection all daily reports are examined and approved,
or otherwise, as the cases may warrant. In the congested or mercantile sections of a
city, special inspections and rates are made, each risk being rated upon its own
merits. The same thing applies with respect to special hazards and all important
risks. The inspections or surveys of each risk, together with detailed information are
kept on file in our offices, and are open to the inspection of all parties interested. It
has been the practice of this Association since my connection with it, to invite the
inspection and criticism of the owners of risks, and we are only too pleased upon
every occasion to have the interested parties visit our offices and consult upon any
real or supposed grievance which may exist. We advise them always to undertake
improvements which we suggest. In this way they can. materially improve the hazard
in the risk, thereby reducing the rate. In a few instances we experience some difficulty in inducing owners to undertake suggested improvements, but we find the number
of such persons is gradually becoming less, and I am pleased to state that our
experience proves that the large property owners and public generally are daily
becoming more disposed to consult with us on the question of construction and
protection than they ever have been before.
"Our surveying staff make periodical inspections of the more important risks in
so far as it is  possible, with the assistance  employed.    Investigations  are  constantly B 6 Report of Insurance Commission. 1910
being made as to the extent and efficiency of fire departments, water supply, character
of streets, condition and construction of buildings in various cities and other important
matters incident to the prevention or suppression of fires, and the extent of the conflagration hazard.
"Sprinkler Inspection: We also employ, or have made arrangements with other
associations for the use of their sprinkling engineers, and we suggest and assist in
the drawing up of plans and specifications for the sprinkler equipments, and when
installed finally inspect and pass upon the same.
"The staff in charge and employed in the various departments of our Association
are trained, efficient, and experienced men, capable of applying the various rating
schedules for the purpose of establishing fair and equitable rates on all classes of
property within the jurisdiction of this Association.
"The general conflagrations which have visited New Westminster, Fernie, Three
Rivers, Toronto, St. John, Baltimore, Chicago, San Francisco and other places during
the past number of years has directed the attention of the insurance companies to
the alarming fact that conditions similar to these which contributed to the widespread and destructive fires in the places mentioned now exist in many other cities.
These conditions generally consist of poorly constructed buildings, dangerous
occupancies, untidy condition, unprotected openings in rear and side walls of brick
and stone buildings, inadequate fire departments, and insufficient water supply; and
while such may be confined to limited areas, they nevertheless make it possible for a
fire to speedily get beyond control and sweep everything before it. There has not as
yet been a determined effort made on the part of the municipal authorities in the cities
here to remedy many of the conditions which imperil the enormous property therein,
and this Association believes it to be a duty it owes to the public to ascertain where
such conditions exist, and suggest and insist, in so far as possible, upon improvements
which will eliminate entirely or materially improve them, at the same time consulting
and advising the proper officials of such departments as seem necessary in the way
of water supply mains, fire apparatus, and shewing individual property owners how
their buildings can be improved and made reasonably secure against fire. Unfortunately,
in the Province of British Columbia, in many of the cities and towns, unusual facilities
are present for breeding uncontrollable fires. The only means of securing needed
improvements in the conflagration breeding centres of the various cities, other than
by suggestions and education along such lines, is by increasing rates on the individual
risks affected thereby. And here I would like to impress upon this Commission and
the public generally that we would much prefer having improved conditions and lower
rates than the more hazardous features and higher rates.
"The most important result of improved conditions will be the gradual elimination
of the great menace of life and property which now exists in many of our larger
cities.
"Without such organizations as this Association, each insurance company would
be governed by its own experience only, in the matter of fixing rates. Each one would
be obliged to employ its own corps of experts for the sole purpose of inspecting every
risk within the territory in which it transacts business. This method would create
great increases in the cost of business. Each company would have a different rate,
and the difficulties and perplexities of writing insurance would be incalculably enhanced.
It is absolutely necessary also that concurrent forms for the protection of policy holders
should be demanded and this is one of our requirements. By this means satisfactory
adjustments of losses are made. Everything which enhances the cost of insurance in
this regard must naturally fall upon the property owner, but organized effort gives
the property owner the benefit of a corresponding reduction in rate. This is especially
important if the value of his property is large. Rates are uniform which could not be
if companies were not permitted to base their rates upon united experience and to
employ a few competent men to apply such schedules based upon such average
experience rather than any army of men who would otherwise be employed to fix
rates based upon limited individual experience. 1 Geo. 5 Report of Insurance Commission. B 7
"It is also of the greatest importance that policies be concurrent and forms prepared
and examined by competent men, rather than by a number of local agents scattered
throughout the country not fitted by training or education, although entirely honest
and well meaning, but who, naturally, have only a limited experience and are not able to
properly draw important contracts involving material interests. Unless different
companies can co-operate in this matter of drafting concurrent forms the policy holder
is almost sure to have trouble in the event of loss, because of the impossibility of
reconciling differences between the companies; and then again the policy holder might
find that considerable property values have been omitted entirely from the protection of
his policies on account of imperfect description or otherwise.
"For this reason the insured is as much benefitted relatively by an organization
for joint ratings and concurrent forms and inspections as are the companies themselves.
"During the sessions of this Commission so far some evidence was directed against
this Association, designating the same as a 'combine.' The name, in my opinion, is
wrongly applied for the reason that in no other manner can equitable and just rates
be made and proper credits given for improvements in risks or charges made for
increases of hazard. Every encouragement is given to each individual property owner
to improve his own risk so that he can obtain a lower rate. He is shewn just how
his building is rated and advised as to what he can do to make it better and safer.
Each change for the better thus secured- serves to minimize the fire hazard not only
of his, but the surrounding property, and so the whole character of a city or town is
gradually improved. In this connection tariff associations, with very carefully prepared
schedules for rating all classes of risks, have done more than all other causes combined
to improve the conditions, to secure better buildings, improve old ones, to increase the
efficiency of the fire departments, to provide better water supply, larger mains, improved
streets and alleys, reduce the possibility of fires, increase the facilities for fighting
the same and minimize the conflagration hazard, which at the present time in a greater
or less degree exists in every town or city. This Association has accomplished so much
good in this direction by making discriminating charges for deficiencies and credits
for improvements as to be entitled to the confidence, respect and encouragement of
property owners and the public everywhere, and I am quite confident from my
experience that the great mass of the insuring public throughout this Province are
satisfied with the work we are doing.
"Fire insurance is like no other business. A merchant, when he buys his stock,
knows to the fraction of a cent what it costs him and by an easy calculation of his
expenses can readily tell at what price to sell his goods to enable him to realize a
reasonable profit. A manufacturer can as easily determine the actual cost of any
article he manufactures and the fair selling price of the same. Railroad, steamship
and transportation companies know absolutely what it costs for transporting passengers
and merchandise. Life insurance companies, by medical examinations, actuarial means
and mortality experience can determine with mathematical exactness what it costs
to carry insurance upon the lives of its policy holders, and so it is with whoever has
anything to sell or buy—they are able to fix the prices, whether it be merchandise or
labor, so that a profit can be derived therefrom. When a policy of fire insurance is
taken a premium is exacted in proportion to the amount insured, but the company
does not know, neither does the individual, whether a profit will be sustained, or a
heavy loss.
"The business therefore is one of average. An insurance company may be willing
to fix rates upon its own experience or classification record—and this has been done by
many a company—but experience and the records prove that such a policy generally
results in catastrophe; as evidence, the number of 1800 companies which have failed
in America since 1867.
"It unquestionably takes the aggregate experience of a large number of companies
to ensure absolute protection, for the reason that such enlarged experience offers a
better average and rates based thereon will be more equitable than those based on
individual experience.    One company may make a profit upon a certain class of risks, B 8 Report of Insurance Commission. 1910
while another may lose heavily, but the average experience of all the companies affords
the best criterion on which to base equitable rates. Many merchants, manufacturers
and business men find it necessary to estimate their fixed charges from year to year and
it is therefore of great importance that the insurance rates be not only equitable,
but stable as well. If individual rates were to take the place of association or uniform
rates the fluctuations would be great and general business would become disturbed and
unsettled. If individual rates prevail, those companies which have little or no experience
of their own, and having the most meagre resources, will naturally offer the lowest
rates, because they cannot otherwise dispose of their policies, and when the day of
adversity comes it will be found that they have not received sufficient income to pay
even their normal losses, and the confiding policy holders, as has often been demonstrated, will find that there are no funds or securities to satisfy their claims."
It was desired by counsel and others appearing on behalf of certain interests that
at the conclusion of the evidence a time should be fixed for argument on the evidence
submitted and accordingly your Commissioners, by proper notice, fixed the 15th day of
June, 1910, at the City of Victoria, for this purpose, when Mr. J. J. Shallcross of Victoria,
who had conducted the opposition to the Bill at the sittings there and who showed a
comprehensive knowledge of the insurance business and ably argued the case from his
standpoint, in answer to the Chairman of the Commission, stated:
The Chairman: You think there is necessity for legislation of some kind? Mr.
Shallcross: Oh, I think so. But I think it should be such legislation as is done with the
absolute purpose to cause no impairment of the freedom of getting insurance. Of
course it goes without saying that I should be entitled to insure with Lloyds. There
is no question as to the reliability of Lloyds—and the efficiency—and to prevent us
from insuring directly with Lloyds would be an outrage upon all commercial common
sense.
And, as will appear later, it was practically conceded on all sides that in the
interests of the public at large it is necessary that legislation should be passed regulating as far as possible the conduct of fire insurance business in the Province in some
such manner as has been adopted in other Provinces of the Dominion, in England and
in various States of the Union; your Commissioners have arrived at the conclusion that
legislation in conformity with the recommendations hereinafter set out should be
enacted in the commercial interests of the Province.
Present State op the Law.
There exists on the Statute Books of the Province only four important Acts
relating to the business of fire insurance:
1. "The Fire Enquiry Act," Chapter 81, Revised Statutes of British Columbia,
1897, being an Act respecting the investigation of accidents by fire.
2. The "Fire Insurance Policy Act," Chapter 82, Revised Statutes of British
Columbia, 1897, as amended, being an Act to secure uniform conditions in
policies of fire insurance.
3. The "Companies Act," Chapter 7 of the Statutes of British Columbia, 1910,
being an Act to revise and consolidate the Companies Act, 1897, and Amending
Acts, especially Sections 150, 151 and 152, being special provisions relating to
insurance companies.
4. The "Assessment Act, 1903," as amended.
Your Commissioners, for the reasons to be hereafter advanced, consider, with
the exception of the "Fire Insurance Policy Act" that the subjects legislated upon by
the other Acts should be modified, codified and supplemented as will hereafter appear,
and for the purpose of convenience and discussion with reference to the evidence submitted to your Commission herewith reproduce the Statutes referred to. 1 Geo. 5 Report of Insurance Commission. B 9
Chapter 81.
AN  ACT  RESPECTING  THE  INVESTIGATION   OF  ACCIDENTS   BY  FIRE.
HER MAJESTY, by and with the advice and consent of the Legislative Assembly
of the Province of British  Columbia,  enacts  as follows:
Short  Title.
I. This Act may be cited as the "Fire Inquiry Act."    C. A. 188, c. 48, s. I.
Fire Inquiries.
2. The Stipendiary Magistrate, whether acting as coroner or not, or in the absence
of or in the event of a vacancy for the time being in the office of, and in localities and
places where there is no Stipendiary Magistrate, any two Justices of the Peace within
whose jurisdiction any fire has occurred, upon information on oath being laid before
him or them by any person to the effect that any house, building, or erection, or any
property, chattels, or effects, has or have been wholly or in part destroyed by such fire,
and that to the best of the knowledge and belief of the person laying the information
such fire occurred under circumstances rendering an inquiry necessary in the interests
of justice and for the due protection of property, shall institute an inquiry into the
cause or origin of such fire, and whether it was kindled by design or was the result of
negligence or accident, and act according to the result of such inquiry. C.A. 188,
c. 48, s. 2.
3. The said Stipendiary Magistrate or Justices of the Peace may, in his or their
discretion, or in conformity with the written requisition of any agent of an insurance
company, or of any three householders in the vicinity of any such fire, empanel a jury
of not less than three nor more than twelve persons, chosen from among householders
resident in the vicinity of the fire, to hear the evidence that may be adduced touching
or concerning the inquiry, and to render a verdict under oath thereupon, in accordance
with the fact.    C.A. 1888, c. 48, s. 4.
4. For the purpose aforesaid, such Stipendiary Magistrate or Justices of the Peace
shall summon and bring before him or them all persons whom he or they deem capable
of giving information or evidence touching or concerning such fire, and shall examine
such persons on oath, and shall reduce their examinations to writing, and return the
same to the Provincial Secretary.    C.A. 1888, c. 48, s. 5.
Penalties.
5. If any person having been duly summoned as a juror or witness to give evidence
upon any such inquiry, does not, after being openly called three times, appear and serve
as such juror, or appear and give evidence at such inquiry, the said Magistrate or Justice
of the Peace, or either of them, shall be empowered to issue a warrant to bring and
to have such person at a time and place to be therein mentioned before him or them
to answer his contempt in refusing or neglecting to attend and serve as such juror or
to give evidence, and may impose upon the person making default such fine as he or
they may think fit, not exceeding ten dollars:
(2) If on the appearance of a person so summoned, either in obedience to such
summons or being brought up by virtue of a warrant, such person refuses to be
examined upon oath concerning the premises, or refuses to take such oath, or having
taken such oath refuses to answer the questions concerning the premises then put to
him without giving any just cause for such refusal, the Stipendiary Magistrate or Justice
of the Peace, as the case may be, may, by warrant, commit the person so refusing to a
common gaol,  there to  remain  and be  imprisoned for  any period not exceeding one B 10 Report of Insurance Commission. 1910
month, unless in the meantime he consents to be examined and to answer concerning
the premises.    C.A. 1888, c 48, s. 6.
6. The provisions of, and the procedure and forms prescribed by, the Summary
Convictions Act, shall, so far as the same are applicable, apply to and govern the
inflicting and levying of fines and penalties and all proceedings under this Act:
(2) All fines and penalties imposed under the provisions of this Act shall be
payable to Her Majesty the Queen, Her heirs and successors, for the public uses of the
Province.    C.A. 1888, c. 48, s. 7.
"COMPANIES ACT, 1910."
Chapter 7.
Special provisions relating to Insurance Companies.
150. (1) The business of every extra-provincial insurance company, whether joint
stock, mutual or assessment, shall, for the purposes of this part, be deemed to be within
the scope of this Act, and after the first day of July, 1905, no extra-provincial insurance
company shall undertake or effect, or offer to undertake or effect, any contract of
insurance without having taken out a licence, and in all other respects complying with
the provisions of this Act.
(2) The fee to be paid by such extra-provincial company for such licence shall be
two hundred and fifty dollars and no more.    1905, c. II, s. 2.
151. Every extra-provincial insurance company shall, on or before the first day of
March in each any every year, file with the Registrar of Joint Stock Companies a sworn
statement of the financial condition and affairs of the company, and also showing their
gross income in this Province, and any extra-provincial insurance company refusing or
neglecting to file the statement by this section required, or to make prompt and
explicit answer to any inquiries put by the Registrar touching the company's contracts
or finances, or failing to take out a licence as required by this Act, shall be liable to
a penalty of two hundred and fifty dollars for each and every day during which it
carries on business after failing to comply with the provisions of this section; and
provided, further, that proof of compliance with this section shall at all times be upon
the Company.   1905, c. 11, s. 4.
152. If any promoter, organiser, office-bearer, manager, director, officer, collector,
agent, broker, employee or any other person whatsoever undertakes or effects, or offers
or agrees  to  undertake  or effect,  any  contract  of  insurance  for  any  extra-provincial
insurance company, whether joint stock, mutual or assessment, unless such company has
taken out a licence under this Act, he shall be liable to a penalty of fifty dollars, and in
default of payment shall be imprisoned, with or without hard labour, for a term not
exceeding three months and not less than one month, and on a second or any subsequent
conviction he shall be imprisoned with hard labour for a term not exceeding twelve
months and not less than three months.    1905, c. 11, s. 5.
"ASSESSMENT  ACT,   1903."
Chapter 53.
(5)  Every  insurance  company  other  than  a  life  insurance   company;
Every life insurance company, corporation or association;
Every   guarantee   company,   loan   company   and   trust   company;
Every telegraph, telephone and express company;
Every gas company and every water-works company; and
Every electric lighting company, electric power company and street railway
company—
shall be assessed and taxed upon its gross revenue, from all sources derived, arising
or accrued from business transacted in this Province, and in accordance with returns
to be made to the Assessor of the Victoria Assessment District, numbered 2 to 7 in
the Schedule of Forms to this Act, as the same are applicable to each corporation named
thereon, one per cent. 1 Geo. 5 Report of Insurance Commission. Bll
The "Fire Insurance Policy Act" as amended is practically the law of the various
Provinces of the Dominion relating merely to the conditions which are deemed to be a
part of every contract, whether sealed, written or oral, of fire insurance thereafter
entered into or renewed or otherwise in force in British Columbia with respect to any
property therein or in transit therefrom or thereto and are required to be printed
on every policy of fire insurance, with the heading "Statutory Conditions," and relate
merely to the terms of the policies themselves rather than to the regulation and conduct
of the fire insurance business, which was the subject of the enquiry by your Commission,
and, therefore, such Statute is not re-produced here.
REASONS   FOR  LEGISLATION.
In this state of the law our first enquiry was to ascertain what protection was
afforded to the public against companies now doing business in the Province. We find
that out of ninety-five fire insurance companies doing business in British Columbia,
eighty-three are licensed, one a local company, seven without a licence and four
Underwriters Associations. Of these sixty-five are Board Companies and thirty non-
Board. There are fifty-one companies licensed under the "Dominion Act," forty-one
Board Companies and ten non-Board; thirty under Provincial licence, of which half
are Board and half non-Board; seven without a licence and two with special charters.
Of the fifteen companies under Provincial licence fourteen are companies from the
American side.
(See evidence of W. A. Lawson, page 566, Victoria evidence.)
An outside or extra-Provincial Company seeking a licence, files merely its charter
and documents relating to the constitution of the Company with the Registrar of Joint
Stock Companies. No statement of its financial position is filed or required, nor is the
applicant required to state when obtaining the licence how much of its capital is paid
up. No statement of assets and liabilities, or income, losses or amount at risk, is filed,
and no investigation whatever is made of the financial responsibilities of the Company.
Such companies are required by Statute to file annual statements, but this provision is
not observed. No annual report is required or filed. It will thus be seen that no
protection whatever is afforded to the public concerning the financial responsibilities of
any company or the probability of its being able to settle its losses when fires occur.
(See evidence of S. Y. Wootton, pages 18 to 23, Victoria evidence.)
No deposit to give the public re-insurance in respect of risks carried in the Province
in case of a conflagration outside is required; the unlicensed company evades taxation
and the Courts have no jurisdiction over them; widely different conditions are contained
in the policies issued and there is no sufficient investigation of fire losses; the
municipalities issue local licences varying from $10 to $300; business is done by outside brokers for unlicensed and irresponsible companies and in many other respects
there is no protection to the insurer or control over illegitimate concerns who are
issuing policies throughout the Province, some of which are mere waste paper in case
of fire loss.
The attention of your Commission was attracted to an article appearing in the
London Times, March 11, 1910, as follows:
"LLOYD'S:    A DISCLAIMER."
"The committee of Lloyd's called attention in the Times of October 11 to certain
policies and certificates of insurance issued by an association styled "British Underwriters," represented by the W. H. Crane Company, of 49 Queen Victoria Street, E. C.
"The Committee of Lloyd's have recently received a form of policy which has been
offered by the W. H. Crane Company to persons resident in America, headed:
"London Lloyd's Marine Policy"
"Signed by Underwriting Members Only."
"The wording is that of an ordinary Lloyd's marine policy, and attached is a set
of clauses  commonly used by Lloyd's  and insurance  companies  for business  similar
to that to which the policy form in question relates, and names purporting to be those B 12 Report of Insurance Commission. 1910
of the underwriters are stamped on the policy in the form and manner customary at
Lloyd's.
"Inquiries have been made at the office of the W. H. Crane Company as to the
financial status of these alleged underwriters, but little information has been given,
beyond a general statement that they are Americans.
"Investigations made in America have been equally fruitless of result, and the
Committee of Lloyd's have no hesitation in advising the public to have nothing whatever to do with these policies offered by the W. H. Crane Company, or with those on
forms headed 'British Underwriters,' 'Royal Underwriters,' 'Royal Alliance Underwriters,' or 'Imperial Underwriters.' "
From this it will be seen that the standard Lloyds is imitated by irresponsible
persons and by reference to Best's Insurance Reports, loth Annual Edition, 1909, page
437, the following appears:
"British Underwriters, London, England."
"An effort is being made by a concern styling itself 'W. H. Crane Company,' and
giving the address as 49 Queen Victoria Street, London, E. C, to place policies under
this title, printed in close imitation of the well-known Lloyds, London, policies, and
signed by an attorney on behalf of a large number of 'underwriters.' The Crane people
have been circulizing insurance men through the United States.
"As far as we can ascertain, this company seems to exist only on paper and
the Crane Company is not known by insurance men in London, it being a new concern."
The attention of your Commission was invited to the fact that the companies
mentioned were advertising by representatives for insurance business in the Province
and your Commission deems it in the public interest that these facts should be made
known.
PROTECTION TO LICENSED COMPANIES.
The Bill as originally presented to your Commission, however, was designed to
protect not only the public in regard to the standing of the company and its financial
ability to discharge its losses, but also to protect the licensed companies in competition
with unlicensed ones and to prevent the merchant, miller and manufacturer from
obtaining insurance himself at a lower rate with such concerns as Mutual Associations
and Lloyds and also to acknowledge the principle of the imposition of a tax upon the
outgoing premium, which might be increased to such an extent as to prohibit competition in the insurance business.
A mass of evidence was taken at the original Victoria sittings dealing with the
subjects outlined above, which gave rise to numerous heated debates between counsel
for the insurance companies and the representatives of large merchants, manufacturers,
milling companies, saw mills and other industrial concerns, who were then insuring
with Mutuals and Lloyds, resulting in an opening statement at the Vancouver sittings
by counsel for the insurance companies and certain suggested modifications of the
proposed Bill, as follows:
Suggestions Filed on Behalp op the Insurance Companies.
1. All the clauses of the Act relating to the license, deposit by the companies,
the administration of securities, annual statement, cancellation of license and
other sections relating to details, be retained.
2. That the clauses relating to inspection of insurance companies be retained.
3. That the Act should also provide for an official investigation of fire losses by
an officer to be appointed by the Government.
4. That insurers in British Columbia be permitted to insure freely in unlicensed
companies.
5. That all unlicensed companies be prohibited from appointing representatives in
British Columbia, and soliciting directly or indirectly for business in the
Province.
6. That insurers give returns to the Government as to the amount of insurance
carried by them in unlicensed companies, and that such insurers shall be liable
for a percentage tax to be fixed by the Government on the premium of all such
insurance. 1 Geo. 5 Report of Insurance Commission. B 13
7. That there should be no provision for the appointment of licensed brokers.
8. That municipal taxation  on the insurance companies be abolished.
Thereafter the evidence was largely devoted to the provisions of the Bill as amended
by such suggestions and speaking thereto the following discussion arose:
(Pages 8 to  14, Vancouver evidence.)
Mr. Bodwell: * * * Section 46 of the original Act that we prepared is in these words;
"Except as hereinafter mentioned it shall be deemed an offence against this Act for any
person, firm or corporation to insure or cause to be insured, any property whatever,
real or personal, situate in or described in any policy, interim receipt or insuring
documents as situate in any part of the Province against fire loss in any company not
licensed or registered under the provisions of this Act.
"Provided that if it is proved to the satisfaction of the Minister that no sufficient
insurance can be obtained from insurance companies licensed under this Act he may
grant a permit to any person or company applying for the same to effect the necessary
amount of insurance in or with a foreign unlicensed company for a term not exceeding
12 months, and such permit shall for the said terpi exempt the said person and the
said company from the operation of this section; on the issuance of such permit there
shall be paid to the Minister a sum equal to one per cent, of the premium paid on
the insurance."
Now, from the evidence that has gone in and the discussion that has taken
place it seems to us that that provision as it is drawn there would scarcely meet the
situation. It says "that if no sufficient insurance can be obtained from insurance
companies in the Province." It would be a very exceptional case in which no insurance
could be obtained in the Province, but there would probably be instances quite numerous where insurance could not be obtained in the Province at a satisfactory or what might
be termed a reasonable rate, and the question of rate seems to be one which the insured
has a right to consider in placing his insurance. We might of course, suggest the
provision that is in the Ontario Act which says that in case insurance cannot be obtained
at a reasonable rate, a permit may be granted to go outside of the Province. Well, if
an officer was appointed by the Government who was a skilled man it might be
worked, but the probability is that it would practically amount to nothing, because the
question of rate is one requiring long experience and large knowledge. The probability
is that whoever was appointed by the Government would not be skilled sufficiently
to be an arbitrator on such questions, and it would practically mean when any one
applied for a permit, they would get the permit. That also puts the insured to the
trouble of going to the Government for a permit and puts upon its issuance the onus
of making an affidavit and we think that the result would practically be that in nearly
every case the permit would be granted.
It seems  rather useless therefore, to adopt the provision of the  Ontario  Act.
In considering these things we have come to the conclusion that we would make
some suggestion which would practically go along the line of the amendment to the
Act that we proposed last year, but which was not considered or not very well considered by those who were opposed to it. I have therefore, for the convenience of the
Commission, put in writing that tabulated statement such as we propose to make along
that line and with your permission I will speak to that.
We propose that all clauses of the Act relating to license 	
Mr. Macdonell:  Could you give me the numbers?
Mr. Bodwell: It begins at the license. I am not particular as to the form or
whether the sections shall be in the same words or the form shall be adopted. We are
speaking rather to the principles to the Act. But we propose that all those sections
which relate to license; deposit to be paid by the companies, documents to be filed,
securities, administration of securities, surrender of securities and the detail of sections
such as changing the name, fee, services, notices and that sort of thing should be
substantially as they are in the present Act; that those provisions relating to annual
statements by the insurance companies be retained, the provision as to the cancellation
or suspension of licences; the penalties, which such modifications as may be necessary
to meet the case. Inspection of insurance companies, that principle of all those sections
to be retained, but there should also be a suggestion by the Commission, and before B 14 Report of Insurance Commission. 1910
we finish we hope to give you something, practical on that line of additional clauses
which will refer to official investigations of fire losses by an officer appointed by the
Government for that purpose.
Then that the insurer should be permitted to insure freely in unlicensed companies.
We think any clause as to giving permits or making statements to the Government
would not be effective; might just as well allow the insured to make his own arrangements if he feels like going out of the Province for insurance. But we do suggest this,
that all unlicensed insurance companies operating out of the Province who haven't got
licenses here should be prohibited from appointing representatives in B. C, and should
be prohibited from soliciting directly or indirectly for business in the Province. What
we mean by that is that they should not be allowed to send agents here or have establishments unless they take out licenses; they shouldn't be permitted to solicit for
business, but if any business man in the country wants to make an arrangement of his
own, on his own account, with any outside company, that the insurance companies do
not feel like standing in the way of that, but they do think that they should be protected
from active interference, against solicitation or active interference by the companies
who are not licensed in the Province. We do not want to interfere with the freedom
of contract with the individual insurer, but we do think that under the circumstances
that those companies who do not choose to come in and take the provisions of our laws
should be prohibited from coming into the field in active competition with the companies
who have obeyed the law and put up securities or in other respects are conforming with
the Statutes in that behalf.
Then we suggest, following that out, that the insurer who does that kind of business
should make a return to the Government of the amount of insurance carried by him
in unlicensed companies, and that he should be liable for a percentage tax to be fixed
by the government on the amount of the premiums for such insurance as he does raise
outside of the Province. Inasmuch as the reason for that is plain, every company
who takes insurance in this Province as run at the present time pays 1% on the gross
premiums. If any individual insurer wants to go outside of the country for his
insurance it seems only fair that he should pay that percentage on the premium, it
would be impossible to collect it from the companies because they are not here, but
the man who takes that insurance ought to make that return if he wants to do the
business outside of the Province, and I suppose in the end it would be paid by the company who does the insurance because they would probably make that allowance to the
person who takes the insurance who is liable for the percentage of the premium.
Now there is another suggestion made by Mr. Ormsby in his evidence that does not
seem to be at all necessary, in view of what we now present. Of course Mr. Ormsby
was an insurance broker and very naturally the idea of having a licensed broker would
appeal to him but the only reason for it was to give a method by which people who wish
to get insurance outside of the Province might get that insurance. That is, that they
would operate through a broker who should be licensed, but inasmuch as we are now
suggesting that there should be no restriction on the individual, there is no necessity
for the appointment of a broker, and we don't think that the interposition of a broker
is at all necessary. The companies who are here will have their agents, inasmuch as
outside companies cannot operate here except with an individual it would not be fair
that there should be a broker who would practically represent the unlicensed companies outside the Province who do not come in and pay any fee to the Province.
We have no objection whatever to the individual getting his insurance, but we don't
think it is necessary at all to introduce an agent in the shape of a broker who would
practically act for the unlicensed companies outside of the Province; therefore we think
that the suggestion of Mr. Ormsby ought not to meet with the approval of the Commission.
And the last suggestion we make is that the municipal taxation on insurance companies per se, for instance the $300 tax in Victoria and the $100 tax in Vancouver
and other places should be abolished.    It is simply as to the cost of insurance, a direct 1 Geo. 5 Report of Insurance Commission. B 15
tax on the companies and the municipalities are really not in need of that revenue, and
we think it better that that tax should be abolished.
Mr. McPhillips: Are we then to understand that Mr. Bodwell has withdrawn these
provisions of the Bill to make it unnecessary to show why the Legislature should not
enact it? Of course if there is a question of the Legislature considering the matter notwithstanding the withdrawal of this section it might be necessary for us to produce
evidence so that that evidence would be before them. As far as we are concerned with
reference to each of the portions of the bill, if it is necessary to bring evidence on those
points, of course we can do so. We are quite satisfied that Mr. Bodwell should withdraw.   We shall have something to say in regard to that tax.
The Chairman: It strikes me that as this is a public inquiry all the evidence should
be put in, notwithstanding the statements made by any counsel. Of course Mr.
Bodwell is explaining his position as representing the insurance companies and so far
as that goes we will be able to consider what he says in the report that we make, but
at the same time, while of course we do not want to take evidence on subjects that
are admitted, there are certain things contained in this document which he has handed
in, for instance in regard to the municipal taxation and the returns to the Government,
a percentage tax to be fixed by the Government and by those who insure in unlicensed
companies that will so mix it up with the position which I understand your clients wish
to put before the Commission that it would seem almost desirable in the interest of
all concerned that you should put in your evidence.
Mr. McPhillips: We might put it in more shortly than otherwise; we will put it in
in skeleton form.
The Chairman:    Yes, that would shorten the inquiry considerably, I think.
REGULATION OF RATES.
It had previously been pointed out by your Commission that the strongest objection
to the Bill as originally proposed seemed to be that there was no means provided by
which insurance rates could be controlled and that some solution might be found for
this difficulty, but it was eventually conceded on the argument after all the evidence was
in that this could not be done for many reasons, some of which are explained in the
evidence of Mr. Ormsby at page 652, lines 2 to 12:
Q. Have you ever given any attention at all to the question of rating? A. Yes,
I should say so. That is the whole basis of our business. We have published our
own rate of schedules; we did that about five years ago. I believe we are the only
firm on the continent who have ever done so outside of the Board. They rate entirely
on a schedule. We do not bother ourselves about what anybody else's rate is, we do
our own rating, for our  schedules by our own inspectors.
(Page 655, bottom of page to 656.)
Q. Now, Mr. Ormsby, presuming that all the Board companies and all the non-
Board companies in Ontario took their full line, their absolute full line, could they
take care of all the Ontario business? A. No sir; not all of it. There are certain risks
in Ontario that it is impossible to cover in licensed companies, either Board or non-
Board altogether. Take for example, the Imperial paper mills or the Sturgeon People's
paper mills, calling for a total of something like $500,000, the Sulphide mills calls for
$420,000, that gives you $900,000, practically adjoining, there is only 35 feet of an
angle between the two plants; now it is absolutely impossible to cover that risk; I
know that, because I handled the risk. And I gave the Board officers all they liked on it.
I might say that I do a large business with the Board offices. I am not antagonistic
with them as far as that goes. And my own companies are licensed. But you have to
go outside on a risk of that description. I could think of others if you wished to know of
them. Take for example the Canada Furniture Manufactory at Woodstock. That is
partially insured, that is $100,000, we have never been able to fully fill with Board
companies, we have always had to go outside.
Q. Outside of Canada?   A. Yes.
(Page 658, line 7, to 659, line 3.)
Q. In the course of your business, do you go to any special trouble in inspecting
risks, and in making suggestions to the insurers as to means whereby they can reduce
their fire risk? A. That is the whole key note of our business. When I began this
business  I  was  a  Board  agent,  and  I  was  having  trouble  the  whole  time  with the B 16 Report of Insurance Commission. 1910
customers over the rates. The Board had raised the rates, and they would not tell me
why, or my customers why. And the customers would climb all over me. My customers
would talk the matter over with me, and there was more or less trouble, and I felt I
was in a very humiliating position, I could not give them any information except that
the companies said they were losing money. And therefore I took up the question
of surveying. At this time I was a local agent in Woodstock, a small way of business.
I took up the question of surveying, and I studied it, and I began to apply it to the
local factories. The very first factory that I went at found the man was paying 25 cents a
hundred   extra   because   his   coal   box   for   drying   sounding   boards   in—that   is   the
  Piano Company was not lined with metal.    25 cents on $30,000 makes
$25 a year. It cost, if my memory serves me right, $3.75 to line the coal box with metal
lining and take that charge off.    Gentlemen, that opened my eyes.
(Page 666, line 1, to page 667, line 4.)
Q. Now, there is a clause here, clause 46, I would like to turn your attention to.
Do you think it is fair to insurers that they should be forced to insure with licensed
companies unless they can prove to the Minister that no sufficient insurance can be
obtained from the licensed companies? A. I have to qualify my answer to that. I
should say it certainly is not fair under the present condition of affairs. I think there
could be a condition of affairs under which it would be perfectly justifiable. Now,
I would like to say, gentlemen, that I am occupying a peculiar position in this way.
I and my partners have got all the money we have got in two licensed companies, every
dollar of it and more too. Therefore, we are naturally anxious to see these companies
receiving all the protection that they are entitled to, and all the protection they should
have. On the other hand, we do a very large, I think unquestionably the largest
brokerage business in Canada. Under those circumstances, we cannot afford to be put
at the mercy of any association or combination of any description that might interfere
with our business.. Now, there is what has been the whole crux of our fight up to,
say, last year. And I think it is admitted since then we don't have any trouble. I
think, in the first place, that it is unreasonable to ask a company to pay a deposit and
to maintain an establishment and to pay a tax upon its premiums, and then to allow
anybody that likes to come in and compete with them. I think it is absolutely unjust.
I cannot see how anybody can justify it for a moment. On the other hand, I think
it is just as unjust for any insurer to be compelled to accept the dictum of any combination. I do not think it is fair that I, as insurer, should have to be told, well, your
rates is 2.40. Personally, I think it is a little high, but I cannot write it for any less,
because it is the Board rate.
(Page 717, line 22, to page 720, line 27.)
Mr. Bodwell: Would you think it possible, for a reasonable salary, to get a
Government official who would be competent to act as an arbitrator on the question of
disputed rates?    A. No sir.    I don't believe in state rating at all.
Q. I don't mean state rating, but, take this position, say the secretary makes a rate
and the agent of the assured wants that rate changed. The only appeal there is now
under the Board system is to an advisory committee formed of the chief managers.
The chairman was suggesting yesterday that some other appeal might be provided,
which while it might not be in very competent hands would insure that the case would
be heard by people who are not interested in making rates. You understand what I
mean. It would go to an independent tribunal, a staff or tribunal which had no interest
in keeping up rates? A. I don't think that would be feasible—if that is what you
want to ask me—for this reason. That in the first place you would have to get somebody who knew something about making rates, or their opinion would be no good. In
the second place, supposing you have such a tribunal, and you call me here, or somebody else who is outside of the Board, and you get my opinion, and you are satisfied
from my opinion that the rate is too high, and you say you want to compel the
companies to accept it. How are you going to do that? Suppose the case is the North
British, the question is at issue between the North British and the Royal and Liverpool
London & Globe, and John Smith the assured; the companies say it should be 4,
the assured says 3.20, and the tribunal decides it should be 3.34, that that is the fair rate.
What are you going to do?   For you cannot force the company to take it.
The Chairman: That is quite true, but suppose, at the same time, there is a rate
fixed by people who ought to know. A. Then, will you make that man go outside for
that?    Is that the idea?
Mr. Bodwell: No—but there could be no advantage in having a man who did not
understand rating, sitting as a judge.    A. No, it would be worse than useless.
Q. If you got a man that knows rating business, he would have to have so much
experience and be so high class a man, it would be very expensive to begin with? A.
Yes: a good man is worth his price. 1 Geo. 5 Report of Insurance Commission. B 17
Q. And then the further trouble would be that after he had fixed the rate you
cannot say to the companies you have got to insure at that rate. A. No. I will tell
you what it comes to there; that comes back to the question, what is going to be a
criterion?    Doesn't it?
Q. Where you are going to get your standard? A. Where you are going to get
your standard criterion. Now, under the present circumstances as I understand it,
the Board companies say, our rate shall be a criterion because we know about rating
and if the assured is not satisfied with our rate, then he has got to take it unless
he can get further relief from licensed companies outside of us. Very well. Now take
a risk calling for $350,000, most of it subject to one fire risk, he cannot get under the
ordinary circumstances, possibly over 100 or 150 thousand dollars, perhaps not as much
as that, perhaps $100,000 without going outside of the Board. Now, the Board says,
we are going to write this risk at ten per cent, and the other companies say, well, we
are quite willing to do it at 7, but we are only going to give you $100,000. What is the
assured going to do? If he is not allowed to go outside, he has either to go without
insurance or take that ten per cent. He cannot get over it. Now, supposing that you
could provide for a tribunal to decide what was a fair rate, and arrive at a method of
measuring that rate as a criterion, you understand, and then after that allow the man to
go outside; to my mind that would be the ideal system. But it is not an easy proposition.    I think it could be worked out.
Mr. Bowdell: Let me have that again, because I want to get your idea. A. Supposing now that I own a lumber mill, on which I require $350,000 of insurance, on the
mill and yard. The Board rates that mill at ten per cent; I go out after someone else,
some licensed company, I go to some other licensed company and they make a rate of
7 cents. Now, you have got a tribunal to go to. I go to that, and I say, look here, why
should I pay these people ten per cent, when I can get good sound insurance at seven?
Well, if I am shut out from going outside I have got to take the ten per cent, for
$250,000, because I can only get $100,000 at seven, and I have to get the other $250,000
of insurance. Now, on the other hand, your tribunal might say, well, we consider eight
per cent, a fair rate on this, and if these people won't take your business at eight per
cent.—we will give you absolute permission to go outside.
(G. O. Buchanan, Nelson evidence, page 103, line 28, to page 105, line 24.)
The Chairman: This question of rates has been raised both here and in Kaslo.
What suggestion have you to offer as to the recommendation the Commission could
make on that subject? Can you think of any means by which the rates could be controlled? A. No, I think I will refrain from expressing an opinion as the question is being
discussed by men who know so much more about the subject than I do. I know there
is throughout the country on the part of business men, Boards of Trade, a general
feeling of dissatisfaction with what they consider a monopoly in fire insurance and
reluctance to see it more strongly entrenched than it has been in the past.
The Chairman: When we held our sittings in Vancouver that was one of the first
things that occurred to the Commission, that there would be a good deal of complaint
from other places in regard to rates charged by the Board of Fire Underwriters and
we have been seeking ever since to have some means suggested to us by which that
could be put in shape to the satisfaction of the people, but so far we have not had much
information on the subject. The first suggestion was that the Government might have a
Commissioner to whom appeal might be taken from the decisions of the Board of Fire
Underwriters, but that seems to be impracticable for two reasons, firstbecause there is
no means of requiring the insurance companies to abide by the decision of the Commissioner, and secondly that it would probably not be satisfactory in any event unless
you had a thoroughly competent insurance man, and if you had his duties would
probably be so onerous that it would require a staff to hear the appeals that would
come before him. We had a suggestion yesterday from Mr. Starkey and the Mayor
of Nelson that the matter might be controlled by a Commission, but there are difficul- ■'
ties in the way of that too. We would be very glad to receive any practical^ suggestion
regarding that. Because after all is said and done the real objection to this proposed
measure is that it is to some degree more strongly entrenching the insurance companies
than they are at present in their so-called combination.
Commissioner Macdowall: If you had to take strong ground and say that the
rates must be much lower than the insurance companies were willing to grant the
companies might withdraw, which might be rather a serious matter.
The Chairman: We had a man before us from Toronto, a Mr. Ormsby. He does
not represent the Board companies or any Board company, he is an insurance broker
there who does a very extensive business all over the world, and we put that question
to him and he smiled and intimated that competition was the only means of solving
the rate question.   Of course I suppose it might be possible to control insurance in the B 18 Report of Insurance Commission. 1910
same way you control some other things, but insurance seems one of the most difficult
things to control.
Mr. Buchanan: I am naturally inclined to be a free trader and my principle of
government is the minimum of interference, but I quite see how in the fire insurance
business there is need for some degree of public supervision because the individual in
many cases has no means of finding out anything about the solvency of the companies
and really ought to be protected.
(Mr. Shallcross, page 147, lines 10 to 28.)
The Chairman: What is the solution of the difficulty?
Mr. Shallcross: The solution of the difficulty is this, we want free trade in insurance, and we want competition from every quarter we can reach. We cannot force any
official rating schedule upon a company for the companies are at liberty, as Mr.
Rounsfell told us, on Thursday, to refuse a risk if they do not like it. If they are going
to reserve that liberty, then in all fairness give us the liberty of insuring where we
can  get  cheap  insurance.
The Chairman:   You do not suggest it is possible to control these rates in any way.
Mr. Shallcross: I do not suggest so for one moment; I think it is impossible. I
do not think you can take your horse to water and make him drink, and you cannot
take an insurance company to a Commissioner at the Government buildings and make
it insure property at the rates he considers fair. I do not think it is practicable. I
think they will simply retire to their cave and do nothing.
THE  ISSUES.
The issues now being substantially defined, the evidence was largely devoted at the
Vancouver sittings to items 3, 5, 6, 7 and 8 of the suggestions filed, with special
reference, however, to the per centage tax to be fixed by the Government on the outgoing premiums paid to unlicensed companies and the right of such companies to inspect
premises for the purpose of rating, and from time to time during the existence of
policies for improving the rates, as well as the right to adjust losses.
THE SUBJECT OF TAXATION.
On behalf of the licensed companies it was contended that as they paid a tax of 1%
on their premium income under the provisions of the "Assessment Act," it was only
fair that a similar tax should be imposed upon the premium income of unlicensed
companies, but the impossibility of collecting that tax from such companies was
sought to be overcome by the requirement that all persons insuring in unlicensed companies should make sworn returns of the details of their insurance and pay a similar
tax on the premiums sent out of the Province. To this proposition objection was
taken upon two grounds:
1. That on principle it was wrong.
2. That if the principle were conceded there was always the possibility of the tax
being increased to such an extent as to curtail the free right to insure in outside companies and thus nullify such right and prevent competition in the
insurance business.
It was generally conceded that if the principle were avoided there might be no
objection to the general imposition of the tax on premiums. This is illustrated by the
following references to the evidence and arguments:
(R. H. Alexander, manager, Hastings Sawmill, p. 82-83, Vancouver evidence.)
The Chairman: After hearing what Mr. Bodwell had to say this morning in regard
to the objectionable features of this proposed legislation, we find now the only one
practically is a tax of 1% on the premium in case you insure with an outside concern?
A. Yes.
Q. Now you have told us you do not think that tax ought to be imposed? A.
No, I do not.
Q. Have you any other argument to advance than what you have as regards the
imposition of that tax? A. No, I do not know that I have except it is special legislation
in behalf of insurance. Why, no other business in the country is treated in the same
manner. 1 Geo. 5 Report of Insurance Commission. B 19
Q. That depends on the view you take of it, but in a matter of fairness as between
the licensed and unlicensed companies, wouldn't it seem possible that a tax should be
imposed?    A.  I am not in favor of unlicensed companies.
Q. No, I understand that you are not in favor of unlicensed companies operating
here?   A. No.
Q. But at the same time you are in favor of being able to procure your own
insurance wherever you like?    A. Yes.
Q. Or to find means of getting round the fact that these companies are not
licensed? A. Well, that may be true enough but it proposes to force us to do all the
business inside of the Province.
Q. In those circumstances doesn't it seem fair that the taxation should be
imposed?   A. No, I don't see that it does.
Q. What harm is it going to do, if it is?   A.  It is going to add 1% on the premium.
Q. That is all it will do?   A. And the trouble of making returns to the Government.
Q. Well, there would not be much trouble in connection with that would there?
A. I don't know. If it is simply an affidavit that you have insured so much out of the
Province and have paid so much premium, there would not be a great deal of trouble,
but I am opposed to the thing on principle.
Q. Yes, I understand that, but even if the principle is cast aside—if we should take
a different view of the principle than you do, then the amount of the tax is not going
to create disastrous consequences at all? A. No, I don't think it is. It would take
$ioo to pay $i.oo.    I think it is too small to—
Q. To talk about?   A. To talk about.
(W. F. Gitchell, comptroller of the B. C. Electric, pages 385 to 388, Vancouver
evidence.)
By the Chairman: Mr. Gitchell, when this enquiry first opened at Victoria, the
situation was somewhat different to what it is at the present minute. And what I
want to know from you is this. Do you think it is fair as between the companies and
the assured that merchants and others should be permitted to place insurance with
outside .companies who contribute nothing at all to the revenue of the country, or are
not subject to its laws—that they should be permitted to carry on business in that
way as against companies who are subject to the country's laws? A. Well, speaking
my own personal opinion, I do not believe it is entirely fair, if the outside companies
are taxed only on a matter of revenue to the Government. But if there is a different
object in view, I don't think it is fair.
Q. Well, presuming that the only object is to place both outside and inside
companies on the same basis, then is there anything unfair in taxing the insured the
same tax which the inside companies pay? A. I don't believe there is anything unfair
about it, providing it does not leave the opening that I have stated before.
Q. So long as there is not an opening left to increase the tax? A. I think the
insurer should be safeguarded against increased taxation of that kind, which would
serve, of course, to force them into the hands of any local organization, and thus
restrict trade.
Q. Well, of course, that is a question of taxation altogether. If it were possible,
the existing tax of 1% on the premium income would apply to outside insurance now.
And if a tax is imposed on you because you insure outside for the purpose of making
known, or arriving at the same result as in the case of insuring inside, is there anything
at all which occurs to you which we should consider as opposed to such a proposition?
A. Placing it on the basis of a tax only for Government revenue—of course the
amount involved is very small, and it is only a matter of principle, as I have said
before, and the openings that are left for future action—
Q. Well, now, tell us what the principle is that you object to. A. Well, of course,
you take at the present time, the local Board carries things with a pretty stiff hand.
There is no question about that, and we are in a pretty good position to make that
statement. And we feel that it is a great deal better for the insured, if there is some
sort of a whip hand held over the Board, and they are not given the absolute control
of the field. Therefore, this 1% tax, I don't know that it will have very much effect
on business inside or outside of the Board, but it certainly would leave an opening for
future legislation along the same line, which might be enforced or restricted.
Commissioner Macdowall: Supposing the companies at the present time are taxing
you 1% on your premium, and afterwards the Government taxes you 1% on your
premium instead of the companies, would it make any difference to you? A. None
whatever.
Q. Supposing provision were made that the tax on the premium would not be
increased, would that be  satisfactory to you?    A. I  don't know what objection there B 20 Report of Insurance Commission. 1910
would be to that. When it comes to a matter of difference in cost, of course it would
not amount to very much.
By the Chairman: Then I understand, if you were placing insurance outside,
instead of with the Board Companies you would be willing to pay the 1% tax?/ A. 1
don't believe that the company would object to that apportionment.
By the Chairman: Well, if there is uniformity in the tax as against licensed
companies, and as against those placing insurance with unlicensed companies, there
could not be any objection? A. I could not see any possible objection if there was
nothing more to it than that.
(W. A. Anstie, pages io to 12, Nelson evidence.)
The Chairman: As to this percentage tax, you object altogether to the imposition
of any tax?    A. Yes, sir.
The Chairman: Assuming that the tax is made equal to the tax on the insurance
companies' premium income, there could not be anything very unfair about that? A.
The licensed insurance companies already possess a very decided advantage in that they
have Government endorsation and they have a right to establish offices and canvas
for business here, and as I have explained, in our particular business (I may be speaking
from the standpoint of a special interest, I presume I am) we have found their rates
are too high and we have therefore been obliged to go outside. We wish to urge that
no regulation be imposed that would further increase their power to make arbitrary
rates. I have referred to the severe competition under which we have to operate and
that in our opinion is an argument why we should be allowed to go outside without
any restriction in the nature of a tax or obligation to make returns on the insurance
placed with unlicensed companies should be imposed upon us.
Commissioner Macdowall: Supposing this tax of 1% on the premiums paid were
placed in such a way that you would not be discriminated against in going outside,
would there be any objection? A. I do not think the tax of 1% in itself would be
objectionable, that is a very small sum, but under the present amended suggestion the
amount of the tax is indefinite.
The Chairman: In the original Bill and also in the amended Bill it was placed at
1% but in the suggestions it is left open. The reason it was left open is because the
other is left open, the Assessment Act could be amended at any time so as to increase
the tax on the premium income of an insurance company and apparently the reason for
this being left open is the same, it ought to be left to the Government to deal with as
a matter of taxation.    A. We object to the imposition of any tax.
Commissioner Macdowall: The Government as you know has to secure a revenue,
and if under the Assessment Act they tax everyone throughout the Province including
insurance companies on their income and at the same time they allow you to go outside of the country to insure and the companies you insure with escape this taxation,
does it not seem to you as if you were being offered a bonus to insure in outside
companies? And after all the small percentage of the tax under the Assessment Act
on the premiums you pay is so little as to be hardly worth considering. A. As I said
I do not think any objection could be taken to the tax of one per cent, but we object
to the present form of the recommendation that an indefinite tax be _ fixed by the
Government. One reason why we strongly object is, the Canadian Fire Insurance
Association endeavored to have a tax of fifteen per cent, imposed, that_ would be
practically prohibitive. I understand that on the representations of the premium payers
that proposal was knocked out in the Senate (that was before the Dominion Parliament.)
(A. W. Ross, Secretary of the Mainland Board of Fire Underwriters, pages 43-44,
Vancouver evidence.)
Q. You think there should be no tax on the insurance business, or all insurance
business in the country should pay the same tax? That is our position isn't it? A.
That is the position.
Chairman: That is to say, there should be a tax on all premiums collected in British
Columbia.
Mr. Bodwell: Yes, or there should be no tax on any. That is our position, that it is
discriminating legislation. The fact of it is, there is an Assessment Act which imposes
a tax upon all premiums taken in the Province which they can get at, but the intention
of the Legislature is to impose a tax of 1% on the premiums of all insurance business
done in British Columbia.
Chairman: Then this is simply a means of enforcing the existing law?
Mr. Bodwell: This is simply a means of enforcing the existing law, otherwise
there would be a certain amount of insurance business done in the Province, a certain
amount of premiums collected which would pay no tax. 1 Geo. 5 Report of Insurance Commission. B 21
(Mr. J. W. DeB. Farris in argument also stated at page 79, Victoria final sitting):
"Now that brings me to the discussion of the question that I had proposed would
be the only point that we had to deal with on this occasion, and that is the question of
the tax.
"This tax is not a heavy tax. I notice with the resolution a printed slip that the
Chairman has before him, leaves the amount of the tax open. But the general trend
of the discussion and the evidence given seems to be along the line that the tax
proposed there would be as an offset to the one per cent, tax put on the Assessment
Act. That seems to be the general plan. If that is so, of course the tax is a small one,
and in itself might not be a very serious matter. The very fact that it is a small one
probably makes it necessary to come down to the principle, the theory of the thing, why
that tax is required.—The next way to consider this question would be from the
standpoint of protection.—Now from the standpoint of protection I would submit that
the Commission should not recommend this tax be imposed upon the outside insurer.
In the first place it is not the functions of the local Government to deal with taxation
for the purpose of protection. The question of protection is one belonging to the
Dominion Government. It comes in the tariff,—it comes in analogy with the tariff
on other commodities. And in view of the fact especially that this insurance business
is keenly mooted at Ottawa, and considered there, I don't think that the local Government should intervene in the question of insurance as a question of tariff. I hand that
out as a suggestion.
"And in the next place it could not protect. It won't protect. It is not justified from
the standpoint of protection. The evidence shows that in the cases where these
large insurers are going outside to effect their insurance, the discrepancy in the rates
between what they get here and what they get outside are very large, matters of 25
to 100 per cent, of a difference. So that this one per cent, would practically be no
figure in the case at all. And for that reason it would not protect at all. It could only
protect if it was substantial enough to materially interfere with and handicap the man
going outside. And when you come to that position, then it would run foul of Mr.
Bodwell's concession, for he concedes the right of freedom to contract outside. To
be a protection at all, this protection must amount practically to prohibition. In Mr.
Bodwell's statements from time to time they do not place this avowedly on the theory
of protection.    They do not admit they have need of protection.
"The people that I represent have the feeling and the strong feeling that the
whole object of this is more than appears upon the face of it; and I think that that
feeling is more than justified by what has happened here this afternoon; that we have
the feeling that while outwardly and nominally they are conceding the absolute right
of freedom of trade so far as insurance is concerned, that they are at the same time
attempting to insert the thin edge of the wedge. We know well that when this Commission started they proposed to put in the whole wedge, and that it was not until
this Commission was well under way that they jumped down at all from the position
which they had taken, that the question of insurance could be entirely restricted
within this Province. And I say, Mr. Chairman, that the feeling is upon the part of
the people whom I represent, and many others that I know about, in fact, that they
only took that position at the last moment because of the discordant noise that had been
raised about their ears. And I think they feel today if the thin edge of this wedge could
be inserted that the next step of the game will be this, once that Act becomes law
they will contend that they have established the principle of protection; because if there
is any ground afterwards upon which it can be argued at all, it will be that ground,
that the only justification of this tax will be a question of protection, and that they
then will be in a position to come before the Legislature and say, this principle is all
right, but you have not gone far enough, the protection you have given us does not
protect; and then it will naturally follow that they will be able to boost that tax up
from time to time; and I say that the proper and logical time to oppose this step is
on the beginning, when you can oppose it as a matter of principle. Afterwards you
could only oppose it as a matter of degree, and from their standpoint their proposition
would probably be a logical one.
"Those whom I represent take the position that they have a right to freedom of
contract, and that they have a right to all the incidents of that freedom of contract;
that they should not be penalized in exercising that right; and they resent any
attempt to fetter that right upon a specious plea of fair play and equity or justice, or
whatever they might term it."
(Mr. Shallcross at page 119, Victoria final sitting.)
The Chairman: We are most anxious, Mr. Shallcross, to get at the equities of the
principle.
Mr. Shallcross: I have no feeling about the one per cent, because it is a small
sum, but as a principle it is absolutely unsound. B 22 Report of Insurance Commission. 1910
The  Chairman: We  cannot consider the amount.
Mr. Shallcross: I think it is absolutely unsound.
The Chairman: If you are going to consider the amount of the tax, then you
have to consider the question of the competition. But, aside altogether from that
question, is the principle a proper one?
Mr. Shallcross: I think it is an improper one absolutely, and I don't think it is
capable of application generally.
Mr. Chairman: Upon what do you base that?
Mr. Shallcross: First of all, it has not been adopted in this Province, and I believe
in Canada, as applicable to any other business except insurance. In every other
department of business we are allowed to trade outside of Canada without let or
hindrance, except customs duty.
Commissioner Macdowall: Mr. Shallcross, supposing the insurance companies
were taxed this one per cent, tax on the premiums, it is the insurer who pays the tax,
isn't it?
Mr. Shallcross: Mr. Macdowall, I thought when I opened up in Victoria before,
that the insurers paid this tax, but I have arrived at the conclusion on the evidence that
the profits are so large that practically the insurance companies can easily absorb it. I
think the evidence shews the profits of insurance companies are so large that these
little items do not affect the rate.    But I thought so originally.
Commissioner Macdowall: I think there was some evidence coming before the
Commissioners to say that the municipal taxation increased the rate.
Mr. Shallcross: There was. Undoubtedly every tax you put on increases the rates;
and Mr. Cross could reduce his rate io per cent, if the municipal rates were withdrawn;
and other people were in the same line of thought. But you had some evidence in
Vancouver where one said he thought the rates were fixed independently of these
little things.    And I am inclined to think he is right.
Commissioner Macdowall: Suppose the premiums are arranged so as to cover all
expenses, these taxes must come under the head of expenses.
Mr. Shallcross: Yes.
Commissioner Macdowall: And in that case the insurer pays the tax?
Mr.  Shallcross: Oh yes.
Commissioner Macdowall: And if the insurer who insures with a home company is
taxed for doing so, and the insurer who goes outside is not taxed, then it is practically
paying a premium to go outside.
Mr. Shallcross: Yes—Mr. Macdowall. I contend this, that the insurer is protected
in his rates by being allowed to go outside. You have first of all to decide, I think,
as to whether it is a good thing for a man to be allowed without let or hindrance to
place his insurance in the cheapest market he can find. If you admit he can do that,
then the one per cent, penalty tax goes by the board.
Commissioner Macdowall: Unless it is for income.
Mr. Shallcross:. Unless it is for revenue.
Commissioner Macdowall: Is there any other question on this one per cent, tax?
The Chairman: You have said all you can say about it?
Mr. Shallcross: Pretty well, I think so. Some reference has been made to the
municipal taxes by Mr. Bodwell, and I think it must be admitted that no case
has been properly made out to make insurance companies pay a higher tax than any
other trader would have to pay.
Counsel for the insurance companies in the closing argument dealt with this
question as follows:
(E. V. Bodwell, K.C., Victoria final sitting, p. 248 to 251.)
Mr. Bodwell: It was suggested in the argument of Mr. Farris that this was an
income tax; but that is not the case. The fact that the Legislature takes that in lieu
of an income tax, the tax of one per cent, to be levied, does not make it an income tax.
Being unable to get at the insurance companies so as to make them pay on their
income, they decided to tax the insurance business.
The Chairman: Yes.
Mr. Bodwell: So that this is a tax on the insurance business. Now the principle
of all taxation is equality, that is relative equality, the principle of our municipal
revision of taxes is equalization. It is the underlying principle of taxation of all
classes of property, each are as among themselves, to pay rateably towards the sum
which  is  to be  raised.    Therefore,  it is  absolutely  illogical  and  unreasonable  to  tax 1 Geo. 5 Report of Insurance Commission. B 23
one part of the insurance business unless you tax the whole of it. Either the tax is
one that should not exist at'all, or it should be applied equally to all the insurance
business. The suggestion that we make is that if the insurance business which is done
in British Columbia by agents should be taxed, the rest of the insurance business
which is done in British Columbia by people on their own account should also be taxed.
A man takes his insurance outside, there is then so much insurance business in British
Columbia which pays no taxes at all. We say that this part of the business that is
done by the man himself should pay its just proportion of the taxation charges placed
on the whole business by the Government.
The Chairman: The basis of your argument is equality.
Mr. Bodwell: Equality, yes'. There should be equality of taxation in respect to
the business. We would concede that there should be no taxation on the insurance
business. But we say if you tax part of it you must tax it all or you are not following
any logical principle. And the amount of that tax should be the proportion which that
amount of business bears to the rest of the insurance business of the country.
The Chairman: The other view of it is that these large mill owners and manufacturers are paying a personal property tax, they are paying an income tax, and if
you tax this you are double-taxing them.
Mr. Bodwell: You are not double-taxing them at all. Every agent and every person
in the insurance business pays his tax to the country the same as the man who is
taking his insurance out, the latter is paying on everything but his insurance business,
he is paying nothing on that, whereas everybody else in the country is paying on their
insurance business. And what right has he to say, I should not pay on my insurance
business? He has no more right to say that he should get off his insurance tax than
I that I should get off my income tax.
The Chairman: It is a tax on premiums in every case.
Mr.  Bodwell: Yes.    And the  companies do not pay it, it is fixed in the rate.
The Chairman: It is a means of getting some taxation out of the outside companies
that it helps to increase the  rates.
Mr. Bodwell: Yes, but the point is this, and all that argument is fallacious about
the man paying all his taxes, and so on, because he is trying to get out of paying the
tax that everybody else pays, that is the insurance tax. And there is no reason why he
should escape the insurance tax, if he pays an income tax, any more than he should
escape his real estate tax because he pays his income tax. There is a fundemental
fallacy in the argument.
The Chairman: Assume that there is in regard to that, then the objection they
take is one of policy, that it is not proper policy to tax an individual in respect to a
business which he does outside of the Province.    What do you say about that?
Mr. Bodwell: Why not? It all comes to this, whether I am right or not in saying
it is an insurance tax. If it is an insurance tax then he ought to pay if others pay.
The mere accident that that particular part of insurance is negotiated in a particular
way, different from the other insurance, is no reason why it should escape. That
argument is wrong in mixing the manner of the negotiations with the substance of the
tax.
Mr. Bodwell: That is my point, right or wrong. It seems to me it is perfectly
unanswerable.
The  Chairman: You say it is  not  similar to the purchase  of commodity  outside.
Mr. Bodwell: No, it is not that at all. If all the flour that is used in British
Columbia is taxed, it would not make any difference where flour was purchased, as long
as it was used here it would have to pay its tax, wouldn't it? Now, all the insurance
that is used in British Columbia is taxed, except these people say that the part they
have should not be taxed. That is not right. It does not follow upon any principle
upon which taxes are ever applied.
Commissioner Macdowall: Suppose the effect would be to make the weight of
taxation fall more heavily on the small insurers than the large ones.
Mr. Bodwell: California made them pay five per cent. I don't know what the percentage ought to be. That would be for the rating officer of the Government. But
what we say is, it ought to bear its proportion of the tax, whatever is right.
The Chairman: It has nothing whatever to do with the amount of taxes the
Government can get out of the insurance business.
Mr. Bodwell: Yes, if they will take the whole tax off that would be preferable. But
if they are going to tax us they ought to tax the rest.
Some objection was urged by the insurer that the imposition of a tax on his
premium would necessitate the filing of returns showing the details of his insurance, B 24 Report of Insurance Commission. 1910
but your Commissioners see no reasonable objection to such proposal and find that
this is a recognized feature of the permission to place insurance outside the Province
in several of the Provinces of Canada, as well as in the "Insurance Act, 1910," recently
passed by the Parliament of Canada, sub-sections 2 and 3 of section 139 of which
provide:
"2. Every person so insuring property situated in Canada shall make a return
to the superintendent giving the location and a brief description of the property
insured, the amount of the insurance, and whether insured in Lloyds' or some similar
association, or in mutuals, reciprocal or other class of insurers, such return to be
made by delivering or mailing it in a registered letter addressed to the Superintendent
not later than the first day of March in each year for the year ending on the preceding
thirty-first day of December.
"3.  Blank forms for such statements shall be supplied by the Superintendent."
Your Commission considers that the proper solution of this question is to repeal
the section of the "Assessment Act" quoted and that in substitution therefor a tax
should be imposed on the premiums paid by all insurers in the Province as the only
means of deriving a revenue on the basis of equality, and that on principle there
should be no discrimination in the amount of such tax as between those insuring with
licensed and unlicensed companies, and that such tax should be devoted to the maintenance of an Insurance Department of the Government as hereafter will appear.
FREEDOM OF CONTRACT.
The opinion that there should be a free right for individuals resident in the Province
to place insurance with unlicensed companies is universal but the means by which such
right should be permitted and at the same time avoid the solicitation by representatives
of such companies for business in the Province is a question of some difficulty. The
insurer contends that as an incident to such right the representative of the unlicensed
company should be permitted to make inspection of fire risks and adjust fire losses,
while the licensed companies contend that to allow such privilege is to permit the
solicitation, either directly or indirectly, of insurance business by such inspectors and
adjustors. The licensed companies suggested that inspection was unnecessary since
plans and specifications of the fire risks submitted by the proposed insurer were all that
was necessary upon which a rate could be based and given, and that it was unnecessary
to grant the right of adjustment because of the number of local adjustors available
tor the purpose. But in view of the mass of evidence devoted to the subject of the
necessity for the continued inspection of risks and the results obtained therefrom in
the improvement of rates, your Commissioners feel bound to conclude that this is an
essential part of such free right.
Upon this subject we find also that the Parliament of Canada, after extensive
investigation, has already legislated in the terms of the "Insurance Act, 1910," section
139, sub-section I, of which is as follows:
"139. Notwithstanding anything in this Act contained, any person may insure any
property situated in Canada with any British or foreign unlicensed insurance company
or underwriters, and may also insure with persons who reciprocally insure for protection
only and not for profit; and any property insured or to be insured under the provisions
of this section may be inspected and any loss incurred in respect thereof adjusted:
provided such insurance is effected outside of Canada and without any solicitation
whatsoever directly or indirectly on the part of such company, underwriters or persons
by which or whom the insurance is made."
Your Commissioners are of the opinion that while the solicitation of fire insurance
business by unlicensed companies, either directly or indirectly, should not be permitted,
they fear that to decline the right of inspection and adjustment would so curtail the
free right to insure as perhaps to render that privilege nugatory; and, moreover, that it
is desirable that the Provincial legislation should, as far as possible, be in conformity
with that of the Dominion. They feel, however, that the right of inspection and
adjustment should be surrounded by restrictive provisions preventing as far as possible
the possibility of solicitation of business by inspectors or adjustors of unlicensed com- 1 Geo. 5 Report of Insurance Commission. B 25
panies, and that power should be taken in any legislation enacted to the Lieutenant-
Governor in Council to make rules and regulations concerning this feature, and that the
insurer should be required to obtain a license to have his risk inspected or adjusted
from the Minister in charge of the Insurance Department.
DEPOSIT WITH GOVERNMENT PRIOR TO LICENCE.
Considerable evidence was given and discussion took place with reference to the
sections of the proposed Bill providing for a deposit of $30,000 from every fire
insurance company before a license was granted.
The proposed Bill provides that such deposit may be made in cash or securities
approved by the Minister.
In support of this requirement it is to be noted that it is a recognized custom in
most of the Provinces of Canada and States of the Union. It is also required by the
Dominion legislation and the recent "Assurance Companies Act, 1909," Chapter 49,
Imperial Statutes, Law Reports, Part 2, page 236 and of the local Legislature.
A Dominion licensed Company is required to make a deposit of $50,000 in cash
or securities, which entitles it to do business throughout Canada; in the States the
deposits vary and in some cases are as high as $200,000; in England the deposit is
£20,000 and each of Lloyds' Underwriters is now required to deposit the sum of £2,000.
Recent Private Bills of the local Legislature incorporating fire insurance companies contain the following provision:
"The Company shall give to, or deposit with, the Provincial Government front
time to time such security as the Lieutenant-Governor in Council may by Order in
Council direct and approve, and shall not commence nor carry on business until such
security shall have been given."
(See Exhibits 2 and 3.)
Thus it will be seen that this is an admitted principle of legislation.
The following evidence outlines the purposes for which such deposit is required.
(Robert S. Day, Victoria evidence, pages 312 to 316.)
Q. Now, then, you were in favor of this legislation. What has been your experience
as to the necessities of it, both from the point of view of the insurance company and
the point of view of the public. I wish you would just go into that on your own
lines. A. Well, as we have seen here very clearly, until recent years every company
transacting business in the Dominion of Canada had to take out a Dominion license,
and did possess a Dominion license. But I have found away back as far as twelve
years—■
Q. (Interrupting). Just let me interrupt you a minute—these gentlemen permitting
insurance—this was the situation was it, Mr. Day—you probably know it as well as a
lawyer—that the Companies Act of 1907, for a number of years, did not recognize
insurance companies as being companies within the meaning of that Act?    A. Certainly.
Q. Consequently, no extra Provincial insurance companies could register in this
Province at all?   A. No, they never could register here.
Q. Because they were not companies in the meaning of the Act?    A. No.
Q. I think it was 1902 or 3 or 4.    A. Some three years ago.
Q. That that Act was changed including within the definition of companies,
insurance companies.    A. Exactly.
Q. Then they began to come in and register as companies? A. They began to
find out, yes. And they went down to Mr. Wootton, and Mr. Wootton said he didn't see
he could under the Act keep them out, as they demanded registration. We always
understood it was not the intention of the Legislature to let them in.
The Chairman: That was in 1906? A. 1905. But before that time there were
bogus companies and wild-cat companies that used to come into this Province from
outside, but not to any great extent. In those days we were able by the use of the
Dominion Act and the penalty of $50 that was there for selling, a fine to keep them
out. I remember meeting in the upper country two policies of insurance that were
submitted to me by an agent up there. He had been tempted to write to the Stales
and place this insurance there because they offered him probably ten per cent, more
than he was getting from his regular company. One of these policies was known as the
London Fire Office. Now this was a company that nobody knew anything about: not
known in London, I believe, not known in England of any standing, and which has
been listed in the insurance papers of this country as a defaulter again and again, desolving B 26 Report of Insurance Commission. 1910
in the payments of its losses. The other had a high sounding French name, the Societie.
Generale, or something—I forget the exact terms now; but the idea these people had
was that they were getting the policy of a first class London office, like the London
Assurance Corporation, or something of that kind; that is what this man had the idea.
And they were sold in Vancouver, and the man was fined $50 for selling the policies
of that company in Vancouver. Well then, of course we also know—Mr. Bodwell has
already drawn it out, that companies can be formed outside with small capital, and
actually have been formed outside simply for the purpose, and they enter into this
Province and are doing business without any adequate security of any kind for the
protection of the assured. Now then, it appears to me that if the Dominion Government
insists upon my company and insists upon other companies of undoubted recognized
standing, placing with them in Ottawa considerable deposits before they will allow
them to transact business in Canada, that it is at least fair to assume that this Province
should insist upon some deposit being paid for the protection of its policy holders
by companies that have practically no standing and have no funds at their back to
meet anything like an exceptional loss. A protection of that kind is not necessary
for the big insurers like Mr. Kerr and like Mr. Palmer. There are, as they explained
to use very well able to protect themselves and to study the prospectuses and the
standing of the different companies that they insure in. But the small insurers
throughout the Province takes the ipse dixit of the agent who approaches him, and
never looks into the standing of any company. Here in Victoria, numbers of people
who insure with us simply ask is it a good company? and I say yes, and they are
perfectly satisfied with it. A great many people never dream of looking into the
standing of any insurance companies at all.
Mr. Bodwell:    And they would not understand it if they did?    A. And they would
not understand it if they did.    And then figures can be made false and misleading, to
them,  too.    And  therefore  my  experience  has  been  that  it  is  necessary Act  of  this
kind, some deposit of this kind should be made for the protection of the small insurer
throughout the Province, the workingman and the small insurer generally, who perhaps
has his little all bound up in the house and the furniture that he has built and gathered
together as the result of years of saving.    Then again, I think that the Act is necessary
because of fair competition.    In the first place, let us take the deposit of Ottawa.    As
I have instanced here, the Guardian, I am taking it as an example, it has a deposit in
Ottawa of over $500,000.    Now it might be said, and has been said, that the company
loses nothing by having that deposit at Ottawa, that it is put up in shape of bonds and
securities.    But as I have explained to you before, it is there, something of that kind
they cannot touch or draw out of the treasury in Ottawa unless they are prepared to
go out of Canada.    And I suppose it is only a small matter but still if the company has
the actual handling of its own securities in its own hands,  it can take advantage  of
the market and sell and buy, as the case may be, and make  a profit, whereas,  if these
securities are tied up in Ottawa a company in England, they have considerable difficulty
and cannot take advantage of the market to make a sale of its securities when they are
high, and they put in other securities in their place.    Those two considerations  seem
to me to shew that the deposit made with the authorities in Ottawa—to some  extent
injure the company in certain ways and in certain directions, and that a company that
is allowed to come in to Canada and do business in Canada without any deposit, and
that  can  use  its  own   securities  without  any   Government  hindrance   or   Government
supervision, is  in  a   somewhat  better  position  than  the  company  that  is  tied  down.
Then we come down to the Province, and I find, for instance, that we are paying a tax
upon our gross premium income of one per cent.    Now, all the licensed companies in
the   Province   pay  the   same.     But   those   other   companies   such   as   Lloyd's   and   the
Miller's Mutual, which are not licensed to do business in the Province, and make no
returns to the Government, do not pay that income to the Government.    The Government  of  this  country therefore,  suffers  in  its  revenue  from  this   insurance  which  is
placed outside, and to the extent of one per cent, upon their gross premium income,
and we  are  subjected to  an  unfair  competition.    Then,  I   go  further  and   I  say that
we pay, as I stated here before, a tax of $300 per annum to the City of Victoria for
the  privilege   of  doing  business  in  Victoria.     There   are   today 46   Board   companies
transacting business in this city, and there are possibly eight or more non-tariff offices
transacting business in this city, making a total, say, of somewhere in the neighborhood
of 54 companies doing business; who are paying $300 each to the Government, making—
Mr. Shallcross: To the city?    A. To the city, I beg your pardon,—making a total
revenue paid by them to the city of over $16,000; which is a very handsome contribution
exacted from the companies towards the fire department of this  city.
(C.  H.  Macaulay at pages 256 to  265, Vancouver  evidence.)
Q. At any rate if the company had to deposit with the Government $30,000 that
could be used as a reinsurance reserve in case the company did not have one for
themselvs?    A. That is really the object of the deposit with the Government. 1 Geo. 5 Report of Insurance Commission. B 27
Q. Would it be possible for a company to keep on deposit a sum there out of
which all their fire losses could be paid.    A. No, a company could not do it.
Q. But it is practicable for a company to keep an amount on deposit which would
amount to reinsurance reserve that would give the public sufficient protection to insure
the payment of their losses? A. Yes, it is as much as a company can do with
regard to its operation.
Q. Under the sections 40 and 19 and section relating to the deposit, it would give
enough to put the Government always in a position to see that companies were able
to pay their losses? That is really a matter of argument but under the first section—
1 forget the number of it just now—there would be a deposit of $30,000, under section
19 if a company did not shew a sufficient reinsurance reserve their license
could be cancelled under section 40 and if from the character of the business
they were doing or their operations in general, if the Minister was dissatisfied
with their financial position or their business methods, he could, after hearing
them and giving them a chance to rectify such a condtion, prohibit them from doing
business altogether in the Province. Now you think as an insurance agent it would
be a great advantage to the public to have security of this kind in force as a matter of
imperative legislation? A. Yes, the old principle of fire insurance business is the
security, and the various facts that the companies in making an annual statement shew
a reinsurance reserve proves that that has become necessary on account of Governments
compelling companies to make an annual statement as to their standing and showing
that reinsurance reserve as a liability.
Q. Is it practicable for an ordinary man to investigate these things for himself?
A.  I would not consider it was.
Q. So he ought to know that there is a competent official looking after this class
of business for him with reference to any companies doing business here? A. Well
that is the position taken by Governments apparently all over the—
Q Will you give us what you know about legislation in that respect in other
places? A. Well, the Dominion Act provides no company can start operating in Canada
unless it makes a statement as to its financial condition, and that statement is shewn
to be satisfactory and they have to make an annual statement yearly to shew they
continue to be in a satisfactory condition and the Act requires a deposit sufficient to
reinsure the business of the company. The Provinces of Quebec and Manitoba have
special Insurance Acts.
Q. Have you got those Acts here? A. Calling for deposits and reports shewing
the companies condition.
Q. Which Act is that?    A. That is a Manitoba Act.
Q. Give the number of the section? A. It is under the heading of securities,
bection 15: 'If on the preceding 31st day of December in any year, the company's
total contingent liability or amount of risk does not exceed $1,500,000 then every joint
stock or fire or inland marine insurance company or life or life and accident company
every guarantee and surety company, shall keep on deposit with the treasurer, if a
Provincial  company, $5,000,  if a  Canadian  or foreign  company, $10,000."
Q. Have they a provision to our section 19? A. "If on the 31st day of December
in any year the total contingent liability or the amount of risk exceeds $1,500,000, then
tor each $1,500 000 or fraction thereof each company enumerated in the next preceding
section shall, it a Canadian or foreign company, keep on deposit with the treasurer by
way of additional security a sum equal to one half of the initial deposit; and if a
provincial company shall keep on deposit $200 for every $100,000 or fraction thereof
tor which every  contingent liability is  exceeded."
Vr    ^hf  Chair,man:  Section  19 of the proposed  Bill is the  same as  section 21  of the
Manitoba Act?   A. Yes.
Mr. Bodwell: Have you got the Quebec Act there? A. The Quebec Act under
section 10.
The Chairman: Have you an extra copy?   A.    No, I have just the one copy.
Mr. Bodwell: We can lodge that. A. Section 4 of clause 92 I presume that
describes it: "If on the preceding 31st day of December in any year the total contingent liabilities or amounts at risk in this Province of the company does not exceed
$2,000,000, these deposits shall as the case may be, be as follows: For every joint
stock, fire or fire and inland marine insurance company, for every life or life and accident
insurance company, and for every guarantee and surety company the amount of deposit
of the company if incorporated by the Province or by the Dominion Government
shall be $25,000, and if a foreign company, $50,000.
Q. And there is a provision for increasing the deposit?   A. As the liability increases. B 28 Report of Insurance Commission. 1910
Q. Is there any other section in that Act which would be necessary to refer to,
which you think of just now? A. No, I think that is the principal one. There is one
relating to the securities which would be acceptable.
(Document marked Exhibit 28.)
I might further say that in the Maritime Provinces and in the Province of Ontario,
no extra Provincial or foreign companies are operating. I am led to believe this, except
those which have a Dominion license. The position in British Columbia until recently
—I say recently within the last two or three years, was practically the same, all
companies operating in British Columbia had a Dominion license and their financial
statement would be enquired into and the security offered policyholders—the public;
but since that date the Province has started issuing licenses granting any company to
operate making—requiring no statement as to their financial condition, asking for no
annual statements to be filed to show the condition they continue to be in and requiring
no deposit. In my opinion it seems that if they are going to issue those licenses that
the public should be given the same protection that it had when the Dominion licenses
were submitted.
Q. What has been the practical effect of that change in the law as to companies
coming in? A. It has caused the introduction of a large number of small foreign companies.
Large foreign companies when coming, come in the regular way by obtaining a Dominion
license, but a large number of small companies have been coming in and are coming in.
There has also been a craze apparently, recently for the formation of a large number of
Canadian companies especially in the western portion of Canada, issued with very small
capital—with little or no funds for the payment of losses, and those companies largely
operate through the country districts of the Province, owing I presume to the fact that
it is harder to satisfy the assured in large centres as to the securities, and they operate
largely in the country districts where there are small insurers who are less familiar
with the standing of fire companies. And I would take it that the small risk, or
house or barn of the smaller insurer is just as much to him as is a larger risk to the
larger insurer in the cities.
Mr. Bodwell: In that connection, Mr. Chairman, this statement of fact might here
be alluded to: Mr. McAragh, the President of the Fernie Board of Trade, writes that
the Globe Fire Co. had $700 paid up capital and in Fernie alone they left unpaid pretty
near $60,000.    Their unpaid claims in Fernie alone were very close to $60,000.
The Chairman: (To Mr. Bodwell) What are you reading from? A. A letter from
Mr. McAragh.
Mr. Bodwell: (To witness) Now, have you any personal knowledge of the class of
people that sustained those losses?    A.  In the Globe?
Q. Yes, the fire at Fernie. A. Well, I have no absolute personal knowledge, only
general hearsay:    It was the small insurer.
Q. People with small houses? A. Small houses, yes, people whom the loss would
affect very seriously.
Q. Those people came in under this license law you are speaking about, they came
in without even getting a license? A. I am not sure whether they were licensed or/not,
but any company can come in now and get a license.
Q. They did get a Provincial license I understand?    A. I would imagine so.
Q. They came in and paraded this license as a certificate of their capability.
The Chairman: A certificate of standing.
Mr. Bodwell: A certificate of standing, and wrote all that insurance and they took
the most serious conflagration risks that a company can take—a small unprotected
town of that kind—all the insurance they could possibly get.
Commissioner Macdowall: Did the Liverpool London & Globe refuse to take any
more risks?
Mr. Rounsfell: Yes.
The Chairman: What was the extent of their liabilities?
Mr.  Rounsfell: Liverpool London & Globe?
The Chairman: Yes. A. We lost about $40,000 in the town proper and a considerable amount more than that in the district round and so on—in the outside district.
The Chairman: What other companies had insurance there which you represent?
A. The Phoenix and London and British American.
Q. How much did they lose? A. All the companies I believe lost over a million
in the Fernie fire, all licensed companies.
Q. How many licensed companies lost? A. I don't remember exactly, but a great
many of them.
Commissioner Macdowall: When discussing this question of proportion, we cannot
tell what the proportion was. 1 Geo. 5 Report of Insurance Commission. B 29
Mr. Rounsfell:  I can give those figures for that.
Commissioner Erskine: When you say licensed companies, Board companies? A.
No, not at all, companies licensed to do business in the field.
Q. Would not this be one?    A. Yes, one that was licensed.
The Chairman: Is this a correct statement here, this company had only $700 paid
up capital?
Mr. Bodwell: Apparently. We wrote to him for information, and that is the reply
we got.
The Chairman: Of course he does not assert that as a fact, he said there is no
question that under the old system some shameful acts were permitted, witness, the
Globe Fire with $700 paid up.    And how much did it pay?
Mr. Bodwell: Didn't pay anything.
Mr. Rounsfell: They had nothing at all,  Mr.  Lennie.
Commissioner Macdowall: Was it incorporated by a special Act or under the
Companies Act?
The Chairman: Under the Alberta law and licensed under the British Columbia law.
Mr. Bodwell: It came in here without a license under our Act and began operating.
The Chairman: That is an outrageous proceeding, it seems to me.
Mr. Bodwell: It could be done, and done today.
The Chairman: It is possible under the existing law, no doubt about that.
Mr. Bodwell: (To witness) Just in that line, have you any circular or_ statement
soliciting business here from people who are known to be unfit to operate wild cat. A. ■
Our own office and I know of a number of other offices, and I am led to understand that
pretty generally throughout the Province, insurance officers received a notice from
a concern signing itself Frank W. Anthony, established 1880, 44 Court street, Brooklyn,
New York. A card attached makes a point of the recent decision of Judge Leitch in
M'ontreal and copies from a Montreal paper: "A decision which if upheld by the
higher court will open the door of the Dominion of Canada to all foreign insurance
companies without their being subjected to the regulations described by the Canadian
Insurance Act was rendered by Judge Leitch here today. Judge Leitch declared the
Canadian Insurance Act invalid. The decision aroused a great interest here, particularly
in view of the fact that if the Canadian Act becomes void insurance companies in the
United States will be able to do business in Canada without restriction."
Q. What information have you got about Anthony? A. In Best's Insurance News,
which I think is a standard there is an article headed "A frank rogue" reading, "A
notorious scoundrel, who for 20 years or more has lived by swindling unsuspecting-
persons through the sale of worthless insurance policies is just now engaged in
disposing of the policies of a very small Pennsylvania mutual concern. Writing to a
broker who had opened correspondence with him, after receiving one of this wild cat
operative circulars, the dealer in State policies inadvertently enclosed with a letter to
this broker another letter intended for his (the faker's) Philadelphia partner in the
operation of this particular swindle. Referring to still another individual withwhom at
the moment the wildcat operator is associated, he said in a letter to the Philadelphia
man — has  ordered   1,000 beautifully lithographed policies for the
 which we will use in his office and my office only, in outside business.
We will number them from 40,000 up. They will be something very grand—New
York standard form, simply countersigned as issued from Philadelphia. No agent's
signature on the policy.   I think this looks much better."
Q. Do you also get circulars from outside companies offering big commissions
if you place big business with them? A. This same circular letter accompanies that
card. "This letter is addressed to you for the purpose of learning if you control any
hazardous lines of insurance that you experience trouble in placing, either by reason of
the magnitude of the risk or the insured unwilling to pay the full tariff rate. If such
be the case, I can be of great service to you as I have special brokerage connections
with ten licensed companies and can accept a line of $30,000 on any class of risks
where the moral hazard is of the best and other companies are interested. In sending
me your orders, I ask you to give the full particulars and I will forward you policies
with latest official statements by return mail, less 25% commission, subject to the
approval of the assured as well as yourself. If you have the business, I can send the
policies. No company I do business with sustained any losses in past large conflagrations. Trusting to receive several orders from you by return mail, I wish to
remain etc."
Q. You can get one of those beautifully lithographed policies under a scheme of
that kind and there is no way of checking it up?   A. None that I know of. B 30 Report of Insurance Commission.   . 1910
(C. H. Macauley at pages 270 to 274, Vancouver evidence.)
Witness: The state of Ohio requires the same thing.
Q. What is that? A. The Ohio insurance laws, section 3660; the heading is "Certain
Foreign Companies must make deposit with Superintendent of Insurance.
"A company incorporated by, or organized under the laws of a foreign government,
shall deposit with the Superintendent of Insurance, for the benefit and security of its
policy holders residing in the United States, a sum not less than $100,000 in stocks or
bonds of the United States, or the State of Ohio, or any municipality or county thereof,
which shall not be received by the Superintendent at a rate above their par value; the
stocks and securities so deposited may be exchanged from time to time for other
like securities, so long as the company so depositing continues solvent, and complies
with the laws of this State, it shall be permitted by the Superintendent to collect the
interest or dividends, on such deposits."
By the Chairman: Does that entitle them to do business in any State of the Union?
A. That is only a retaliatory clause for $100,000.
Q. What is that?    A. This is the  statutes of the  State  of Oregon.
The Insurance laws of Ohio are marked Exhibit 70.
Q. Let us see what they provide for? A. Page 16, section 3718, reads as follows:
"Companies organized without the United States—what required form—
"No company, not incorporated in the United States shall be permitted to transact
an insurance business in this State except marine insurance, unless the same shall have
deposited or invested for the benefit of its policy holders in the United States in at least
one State a sum equal to $200,000 in gold coin in excess of its liabilities in the United
States, nor until such Company shall have deposited $50,000 with the State Treasurer
in approved securities."
Statutes of Oregon relating to insurance companies is marked Exhibit 71.
Q. (By the Chairman): How late is that? A. I was going to explain; there is a
revision of this Act which alters the situation, but not as regards this particular clause.
Q. What revision has been made to that? A. I am given to understand—I haven't
a copy of the revised Act—that it has been made optional whether $25,000 of a deposit
to the State of Oregon be made, or a guarantee bond—a company's guarantee bond for
$50,000.
Q. Instead of putting up $50,000 in cash, they can put up an indemnity bond erf
$50,000?    A. Yes, sir.
Q.  Or   $25,000   in   securities?     A. Yes,   sir.
Q.  (By the Chairman): Is that the way it stands now?    A. Yes, sir.
Mr. Bodwell: The change was made in consequence of the Governor's message.
Mr. Bodwell read Governor's message.
Mr. Bodwell: That is what he recommended, but what the Legislature did, I don't
know. Now, the Western Insurance Company in Toronto does business in San
Francisco, as published in the Coast Review, February number, 1910, has $100,000 on
deposit with the State Treasurer for the special benefit of California policy holders;
that looks like a $100,000 retaliatory deposit.
Q. Now do you know of any instance in which—have you covered all that part
of it?    A. I think I have pretty fairly covered that.
Q. Now can you give us any practical instance in which the deposit in a Province
has been used for the benefit of policy holders; take the Standard Mutual of
Toronto? A. The Standard Mutual of Toronto got into financial difficulties; from the
insurance journals we understood they were having some difficulty in reinsuring their
business; the Province of Manitoba retained its $10,000 deposit until the Manitoba
business was satisfactorily reinsured.
Q. By having the amount in their hands—A. They were able to do so. Another
case might be stated in the State of Oregon. The Home Insurance Company of
California had a deposit of $50,000 in Oregon, the Home was wiped out of existence
in the San Francisco conflagration, and the creditors of the company in California
endeavored to recover the $50,000 on deposit in Oregon for the payment of the San
Francisco losses, and the Oregon Government retained it to re-insure the business of
the Home in Oregon.
Q. And that made the Oregon policies safe?    A. Yes, sir.
Mr. Bodwell: We think we will be able to show you further the fact that the
Sovereign Fire Insurance Co., has $200,000 deposited in one of the States, and it undertook to go to California to do business, but they were not allowed to do it until they
were required to put up an extra $100,000 in California. 1 Geo. 5 Report of Insurance Commission. B 31
Q. Now, Air. Heap thought if we had provisions relating to inspection of companies, annual statements and so on, that it would not be of any practical benefit; there
would be no chance of the Inspector here making inspections; it would be of no use to
the public; what have you to say on that? A. I would say you would have the same
opportunity in getting correct information that the State Commissioner of any State
in the Union acquires, or the Superintendent of Insurance in Ottawa. The Superintendent of Insurance in Ottawa, Mr. Fitzgerald, receives annual declarations from the
home offices of the English companies and on those statements he renews their
licenses; I can't see why the same thing couldn't be done here.
Q. If there was any doubt, under Section 40—if he was doubtful at all from the
statements, got suspicious of the company, he could call on that particular company in
that particular case to shew that those statements were correct?    A.    Yes, sir.
Q. That is a matter of argument, but he would have the annual statements from
the company, from a responsible officer?    A. Yes, sir.
Q. And if he had any reason to doubt the accuracy he could call on the company
who would have to come here and produce to him satisfactory evidence that those
statements were correct, so investigation could be made very thoroughly; not only
those sworn statements would be taken as authentic and acted on, but in any doubtful
case, the Inspector would not have to go to the head office of the company, but
under the section the head officer has got to come here and make a shewing, and if they
are not willing to do that they can be prevented from doing business?    A. Yes, sir.
(R. H. Duke at pages 300 and 303, Vancouver evidence.)
Q. You are the manager of the Imperial Pacific Coast Fire Insurance Co.?   A. Yes,
Q. Will you tell us about that company, how is it organized and so on? A. The
Pacific Coast Fire Insurance Co. was incorporated in this Province in the year 1890,
being 20 years ago.
Q. Have you taken out a Dominion license. A. A Dominion license was taken
out for the Company in 1908.
Q. When you were incorporated here were you required to put up any deposit
with the Government?    A. Yes.
Q. How much?    A. I am not familiar with the amount that was originally put up.
The Chairman: You are incorporated by special Act? A. Incorporaated by
special Act.
Mr. Bodwell: You put up a deposit with the local Government? A. Yes.
Q. You do not know the amount. Do you know the amount that is there now?
A. I have only had dealings with the Company for about 8 years and during that time
they have had up a deposit of $15,000 with the local Government.
Q.  During all that time?    A.  During all that time.
Q. It is there yet?    A.  It is there yet.
Q. Did you have to put up a deposit with the Dominion Government? A. Yes,
deposited $50,000 with the Dominion Government in '08 when we took out our license.
Q. So you have a deposit now with both Governments? A. Yes. I may say this
is a rather peculiar condition of affairs. There is no other company that I know of in
Canada in which such conditions exist. It is understood that the Dominion Government
deposit of $50,000 or over covers the license or at least the deposit in each of the
Provinces owing to our being incorporated here originally and having the deposit of
$15,000 with the Government here, they took the ground that the Dominion Government
deposit did not cover the matter so far as this Province was concerned, or in other
words, had we been incorporated in any other Province of the Dominion, say Alberta,
and had applied to the B. C. Government for a return of our deposit if any had been
required, we would have secured it. Or to exemplify it, at the time we secured our
Dominion charter we had a deposit of $10,000 with the Manitoba Government, and
when we produced evidence to them that we had a Dominion charter, our securities,
which were deposited in Manitoba were at once returned to us. We made the same
request from the Provincial Government here but they refused to release the securities.
Q. Of course under the Act we are proposing, having a Dominion license gets one
from the Provincial Government without any further deposit, it goes as a matter of
course. (To witness) Now do you feel that the law as it now stands works unfairly
towards a company working under a license here?    A.  I certainly do.
Q. Will you give the Commission your reasons for it? A. A company incorporated
in the Province—I know of no company incorporated in the Province without requirements as to a deposit with the local Government. That deposit as I have said in our
own case when we were operating under a Provincial charter, was $15,000. A company
may be  incorporated  in  Alberta  or  Saskatchewan  where  no  deposit  is  required,  and B 32 Report of Insurance Commission. 1910
may for a license fee of $250 come into British Columbia without any deposit. In that
way the local company is discriminated against, having to put up a deposit which
costs them money and the outside company has not to put up anything. The same
applies to companies coming into the Province from the American side. At the present
time they can be admitted here for a license fee of $250.
Q. Can you give the Commission information as to the requirements you would
be obliged to comply with if you were trying to operate in the United States? Can
you give that at this stage of the evidence? A. I can do that. I have here fire
insurance and losses, taxes and fees, '09, published by the Spectator Co. of New York,
probably the leading publication on insurance information on the American continent.
This is revised to August the ist '09. Under the heading of deposits required from
foreign companies, page ill find the following:
"These are deposits required in one of the United States, Alabama, $200,000;
Arizona, $15,000; Arkansas, $20,000; California, $200,000; Colorado, $200,000; Connecticut, $200,000; Delaware, $150,000; District of Columbia, $100,000; Florida, $150,000;
Georgia, $10,000; Idaho, $100,000; Illinois, $200,000; Indiana, $100,000: Kansas,
$100,000; Kentucky, $200,000; Louisiana, $200,000; Maine, $200,000; Massachusetts,
$200,000; Michigan, $200,000; Minnesota, $100,000; Mississippi, $100,000; Missouri,
$200,000; Montana, $100,000; Nebraska, $200,000; Nevada, $200,000; New Hampshire,
$200,000; New Jersey, $200,000; New Mexico, $100,000; New York, $200,000; North
Carolina, $100,000; Ohio, $100,000; Oklohoma, $200,000; Oregon, $200,000; Pennsylvania,
$200,000; Rhode Island, $200,000; South Carolina, $100,000; Tennessee, $200,000; Texas,
$100,000; Utah, $200,000; Washington, $200,000; West Virginia, $200,000, Wisconsin,
$200,000, and Wyoming, $100,000.
Q. Can you tell us about that California deposit, whether that $100,000 State tax
would be remitted in case $200,000 was deposited in some other State? A. As I understand the retaliatory condition in the California Insurance Act, if a deposit of $200,000
were made in some other State, then the California deposit of $100,000 additional would
be required in California.
Q. That is a retaliatory section pure and simple and does not give any qualification
by itself?   A. Yes.
(W. S. Holland, pages 589 to 590, Vancouver evidence.)
W. S. Holland, a witness produced and sworn testified as follows:
Direct examination by Mr. Bodwell:
Q. You are an insurance agent living in Vancouver?  A. Yes, sir.
Q. What companies do you represent? A. I represent the Anglo American, the
Equity, the Ontario, the Winnipeg, the Brandon, the Colonial and two English
companies
Q.  Are they Board companies?    A.  No sir, none of them, all non-tariff companies.
Q. Now then, speaking from that point of view have you any reasons in favor of
the adoption of such legislation as is being suggested before this Commission, and if
so what are they? A. My reasons in favor of adopting an insurance law for the
Province of British Columbia is to restrict to a certain extent the operation of
companies in the interests of the small insurer. You will understand that is where my
large business is practically; and I am thoroughly in accord and so are my companies,
with an Insurance Act placing a deposit with the Provincial Government for the
protection of policy holders, and showing their good faith. And to illustrate 1 might
say that my premium income has been reduced in the last two years of anywhere
between thirty and forty thousand dollars, and that I attribute to the unlicensed
companies, companies not acting under Dominion charter cutting my rates. That is
all 1 have got to say about it.
Q. Well, cutting rates, although you are non-tariff, they take risks at a rate that
you won't follow? A. They take a risk that I absolutely won't take the business at
because I can't make a profit, I can't make it pay for my companies on this amount.
Q. That is what has been going on here isn't it?    A. Undoubtedly.
Q. You have found that you require a rate higher than they take, in order to get an
underwriting profit for your companies? A. Yes, that is to say, I have found in 15
years' experience that a reduction in the Board rate that we work on anywhere between
10 and 12^4 and 15%, at the very limit, that we are not able to shew an underwriting
profit.
Q. Now, how do the non-tariff companies get their rates, their schedules, or what
schedule do they have, do you know? A. I don't know. My rates are supplied to me
by my home offices.
Q. You get a tariff sent to you?    A. Yes, sir.
Q. Have you ever compared that tariff with the Board tariff?    A. Yes, sir, I have. 1 Geo. 5 Report of Insurance Commission. B 33
Q. How does it compare?    A. It is a fac-simile.
Q. (By the Chairman): You just make a percentage reduction on the Board rates
then? A. Yes. I might say that we have to do that, if we are asked for a rate, that
is a case where it has got to be figured out, why we are all at sea, that is all there is in
it, we can't do it.
(See also Exhibits 68, 69, 70 and 71.)
In some of the Provinces distinctions are made in the amount of deposit required
by foreign and home companies and the amount of deposit is regulated by the amount
at risk within the territory covered by the license.
The main objection raised to the deposit was that it might deter companies from
entering the field of insurance in the Province and thus prevent the desirable element of
competition, and that it would be impossible for some of the smaller companies to
provide such a deposit without interfering with its available capital.
Mr. W. H. Barker, president and general manager of the B. C. Packers' Association, pointed out that the Governor of the State of Oregon recommended the repeal
of the deposit law in these words (Exhibit 63):
"The growth of the State and the development of its business institutions has been
so rapid that it seems to me the time has arrived for making some change in the
insurance laws for the better protection of the people. The law, which requires the
deposit of $50,000 with the State Treasurer as a condition upon which foreign insurance
companies may do business in the State, results:
"l.  In keeping many strong companies out of the State.
"2. In driving business men to insure with companies outside of the State because
those here have not the facilities for carrying the amount of insurance
necessary for full protection.
"If security is demanded from a company as a condition to its doing business in
the State a Surety Company's Bond ought to be sufficient to protect the holders of
policies and those doing business with such company. The suggestion is often made
that a repeal of the deposit law will result in inviting irresponsible underwriters to
the State, but this can be guarded against by establishing an Insurance Department
and the appointment of a capable Insurance Commissioner, as is done in other States.
Such a department ought to be created now and ought to be entirely divorced from the
office of the Secretary of State. Is is impossible for this latter officer, with the
numerous duties which the law devolves upon him, to give that attention to the
insurance business of the State which its importance requires. The Insurance Department should be presided over by an experienced Insurance Commissioner. With such a
Department and such a Commissioner, vested with ample authority, there would be no
danger to our people on account of the admission to the State of irresponsible
companies. I trust that this matter will be taken up seriously by the Legislature and
given that careful consideration which its importance demands."
Your Commissioners are thoroughly impressed with the necessity of presenting
irresponsible companies from entering the field of insurance in the Province and
recognize the importance of strictly scrutinizing the financial standing of every
company before obtaining a license to do business, and the necessity for annual statements and reports to ascertain the standing from time to time of all companies doing
insurance business.
They also recognize that it is necessary in the interests of the public that some
fund should be available ,for the purpose of reinsuring risks carried in the Province in
case of conflagrations outside of the Province, but they feel that the public will have
ample protection from a strict investigation of the company's affairs prior to license,
coupled with the requirement that in lieu of a deposit the company shall give a satisfactory bond of a guarantee company that when called upon by the Insurance Department (to be hereafter referred to) they will provide a percentage of the amount at risk
to enable the Department to reinsure the risks carried by such company in the Province.
Your Commissioners are also of the opinion that the clauses of the proposed Bill
relating to the right to cancel licenses of companies, the financial standing of which is
not satisfactory, should be provided for. B 34 Report of Insurance Commission. 1910
LICENSED   BROKERS.
An insurance broker is one who takes risks and places them directly with any
company, association or underwriters in any part of the world to the best advantage to
himself. The evidence before us was that there are only two firms of licensed brokers
in the Dominion of Canada; those being Willis-Faber & Company of Montreal, and
the firm of which Mr. J. Y. Ormsby is the head, whose head office is at Toronto,
Ontario.
It was suggested that by providing for the licensing of such brokers a practicable
method of obtaining insurance with outside companies would be found, but since it is
conceded that the insurers should have that right there would appear to be no necessity
for making provision for the licensing of such persons. The evidence is that there
is no necessity for such brokers.
(E. F. Rounsfell at pages 559 to 561, Vancouver evidence.)
There seems to be an impression that these brokers are better able to protect the
insured than the general agent in British Columbia. Now, that is entirely contrary to
the fact. I must protest. I take exception to it absolutely. I say we are, and a
number of other offices in B. C. are just as competent and just as capable to take care
of the assured's interest as any broker that may come in here from any part of the
country. The broker is a man that is out for his commission, there is no question
about that. And in a great many instances he pulls the wool over the assured's eyes
and convinces him that he is better able to take care of his business than the agent of
a company. But that is not so. An agent of the company is not only responsible to
the assured but he is responsible to his company, and in that way, I don't think that
a broker can give any better protection to the assured than an agent of a company.
1 don't see how he can. I may say that there was one particular line of insurance in
the Upper Country, and the brokers were after it very strongly. In fact, I had to go
three times to the town to obtain the renewal of our policies, and we were able to
keep them, although we were in competition with oue of the biggest firms of brokers
and we have other lines in the same way, which show that the assured apparently have
confidence in the people doing business in British Columbia. And in addition, the fact
that the commission on this business is spent in British Columbia should carry a
certain amount of weight. The money that is made out of the business is spent right
here.
Q. By the Chairman: Do you think that there is any conflict of interest in your
capacity as agent for both parties, in effecting insurance? You see, you are agent for
the company, and you are also soliciting business from the assured? A. No. And in
the settlement of losses, as was said here before this morning, I think the agents are of
assistance to the assured. I know of a great many instances where they have been an
assistance to the assured.
Q. By Mr. Bodwell: Well, you are always making representations to Mr. Ross
and trying to get better rates? A. Oh yes, certainly. That is part of our business.'
Our Inspector will go through a plant, and if in our opinion we think that the rate can
be reduced or improved, we endeavor to have it done. Possibly the Board's Inspector
has rated certain things too high, and we take it up with the assured, and go into it
with him, or with the Underwriters' Association, and get a better rate from them, or
we will take the assured there and discuss the matter with Mr. Ross himself.
Q. By Mr. Bodwell: Let me put a case. Supposing you went to a plant, and your
inspector noticed that if the assured did a certain thing in the way of improving his
plant, it would take ten cents off on the policy, you would then go up to Mr. Ross'
office and look at the survey and find if he had been charged too high, and he would
get the assured to make a small improvement and get Mr. Ross to fix the rate accordingly? A. Certainly. We have competition among ourselves for these different risks,
and we want to get the best rate possible. And if the Inspector can show the assured
where by making certain small improvements he can make a reduction in the rate, he
does so.
(James Reed, special Inspector for the Connecticut Insurance Company, at pages
534 to 538, Vancouver evidence.)
Q. What is there that a broker can do for the benefit of the insured that cannot
be performed by an agent?    A. The individual insured?
Q. Yes.    A. Nothing.
Q. What is the—What does he say he can do to benefit the assured in order to get
business, as a rule. A. Well, the broker starts out, in the first place—In the first place,
he is usually a man without very much capital; sometimes a broken down man—that 1 Geo. 5 Report of Insurance Commission. B 35
is, a man who has failed in some other business. The first people he rounds up are
his own personal friends, and men whom he thinks will give him insurance. He is
working principally for himself. As he acquires knowledge, he may branch out a little
bit, and go after larger lines of insurance. But his relation—even if he be. a fully fledged
broker, that is to say as regards his experience, and knowledge and judgment—his
relation to the assured is simply that of an individual. He has not got the power that
an agent has, because he possesses the commission, and no company, or rarely does.
For instance, if I were a broker going to a large concern to solicit insurance, I could
not say to the assured: Now, I will furnish you today insurance of $20,000, and know
that I could deliver that insurance unless I had previously made arrangements to do so.
In other words, he has no power to bind any company unless he is an agent for a
company; whereas the local agent, the man who has the established office, who has one
or more companies hung upon his wall, he has the power to bind the company at
any time, and does do so. In that respect they differ very materially—that is, the local
agent and the broker.
Q. Where does the broker get his commissions, as a rule?    A. As a rule?
Q. Yes. A. I never heard of a case where he didn't—I never heard of a case where
he got it from the assured.
Q. Well, how does he do it? What is the process? A. Well, he—after getting
control of a certain line of business—we will just say a large sum—for instance $100,000
of insurance, he will visit the various agencies in the town in which he does business,
and he will go from one to the other and place the lines that each agency is willing to
accept on the particular risk he has to offer. In that way, he has the liability provided
for, and finally his day's work is finished, and he has covers, or he has the policies
perhaps themselves amounting to $100,000. The premiums due on those policies must
be paid, of course, by the assured, and when they are paid the premiums are turned
over, through the medium of the broker, to the agent who issued the policy, and the
agent who issued the policy allows him a percentage for the business—a commission
based on a per cent.
Q. Yes. It has been suggested here that especially when it was thought that there
might be some difficulty in placing their business with unlicensed companies there
might be a licensed broker. He would be the person to place that insurance. Now,
the reason for that apparently has gone, because the suggestion is that there should not
be any restriction on the man wishing to buy his insurance out of the country, even
with an unlicensed company. But what would be the effect of licensing a broker to do
business in B. C, and give him the right to place business where he chose? What would
be the practical working out of that proposition? A. Well, to start with, there is no
reason in the world why the assured should not buy his insurance wherever he pleases.
Q. Yes, we concede that. A. You cannot place a restriction on him, and he can
buy it for what he pleases. That is to say, with regard to the charge that is made
against him. But it seems to me, if there was—I haven't given the matter very much
thought—but it seems to me if there was a Bill, or if the Bill—(and by the way, I have
never seen this Bill.)
Q. No, this is not in the Bill, it is just a suggestion. A. Well, if it was the purpose
of the Bill to make possible the licensing of a broker, it would be "class" legislation to
start with.
Q. But if the idea of the Bill was that companies operating in B. C. should come
into the country and put up a deposit, what would be the effect of giving a man a
Government license to do business outside of the Province? A. Well, the effect would
be to admit unlicensed companies.    That is in effect what it would mean.
Q. Just shew how that would work out, Mr. Reed? A. Why it would work out in
this way. The companies who are admitted, or who you term licensed companies are
admitted under the provisions of a Dominion or Provincial Act, as the case may be.
They are compelled to follow certain requirements of the law to enable them to
do business here, and they do follow those requirements. In the case of a broker's
relations to an unlicensed company, it is simply this, if he gets a line of business to
place, the first consideration with him is to buy it in the cheapest market. That is, I
say, the first consideration, that is the ordinary consideration, to buy it in the cheapest
market. The man who gives him the order for the insurance depends on him to furnish
the indemnity. And he simply steps outside the State and he buys these policies or this
indemnity from companies that are unlicensed.
Q. And the effect would be that you would clothe a man with Governmental
authority to practically nullify the other provisions of the Act?    A. Most certainly.
Q. And in time he would really be the agent of the unlicensed companies? A. Yes,
in effect, if not actually.
Q. Do you think, from practical experience, being able to advertise that he was
a Government broker it would give him a status in the community?    A. Well, if I was B 36 Report of Insurance Commission. 1910
a  broker   I   would  like   nothing  better   than   to   have  the   stamp   of  the   Government
authority to solicit business, and to place it wherever I pleased."
(James Reed, Special Inspector for Connecticut Insurance Company, at pages 540
to 543, Vancouver evidence.)
Q. Now, there is not only the placing of the risk in which the assured and the
reputable agent come into close relations, but there is also the adjustment of the losses,
isn't there?    A. Certainly.
Q. Now, can you explain to the committee something about that, how the agent is
the friend of the assured in a different way, outside of what the broker would be, when
losses occur? A. Well, that works out in about this way, gentlemen. The adjustment
of the loss, and the solicitation of the business are two separate and distinct things entirely
and have no relation to each other at all. One is not predicted upon by the other. The
local agent, we will just cite any local agent in Vancouver, for instance—the local
agent is the representative direct of the company, whose commission he holds. He is
responsible to that company. Now, he goes to a man and solicits insurance, and if he
knows his business, and presumably they do, or the bulk of them do—his first idea is
to write him a policy that will protect him against loss. That is to say, the form shall
be of such a character as will enable him to recover under the policy contract without
any technical question arising by reason of the failure to write the form properly. He
delivers that policy. His relations with the assured are friendly, and when a loss is
reported, he reports that loss to the company whose policy he issued—or the company
or companies whose policies were issued on that risk. The company, or companies,
interested take up the question, and they send an adjustor on the ground to adjust the
claim. The adjustor proceeds to adjust without any reference, we will say to the
agent. But the agent has a certain desire, as a matter of course to see that full justice is
done to the assured, and he promptly does lend his interest to seeing that a settlement
is made as fairly as it can be made. This however, may be said in that connection that
there are few instances—at least I don't recall any at the present moment—where an
adjustor is not ready at all times to do justice to any claimant on behalf of loss under
a fire policy. The relation between the agent and the assured is closer in my judgment
than between the broker and the assured. For instance, suppose a change in location,
or any other kind of a change takes place within the lifetime of the policy, if the
assured tells his broker to see that the policies are so changed as to meet the change
that has come about in the risk, and the broker fails to tell the agent, the minds of the
agent and the assured have not met at all. In other words, a broker cannot bind the
company, and the company is not bound until the assured directly or indirectly through
a broker makes this specific request to them to have those specific changes noted in the
policy contract.
Q. By the Chairman: What part does the broker take in the adjustment of losses?
A. None whatever.
Q. None at all?    A. None whatever.
Q. By Mr. Bodwell: But if the man were to make the same statement to the agent,
the company would have notice?   A. Yes, the company would have notice.
Q. And the agent would be particular to see to it, because his commission to act for
the company depends on his diligence in the business, whereas the broker having no
commission beyond his placing the loan, has no interest or duty to perform in taking
care of the assured? A. Well, not as a rule, no. The broker, of course, makes a great
talk about that. He tries to impress the assured with the idea that he is able to do
everything that an agent is able to do, but that is not true.
Q. As a matter of fact, then, you think that a broker is an unnecessary adjunct to
the insurance business. And in the second place, that licensing brokers with a
Government diploma would be practically allowing unlicensed companies to operate in
B. C, through an agent that the Government has appointed? A. I do so think. I will
add this one statement to that, if I may qualify it. There are certain reputable, well
conditioned, and well informed brokers doing business in the States—I am not at all
familiar with Eastern Canada. The general rule that they work under is first to supply
the best indemnity that the market affords, and they generally will give the assured the
best policies obtainable, because it is to their credit in case of a loss, and to their interest
to know that the assured has policies in their possession which have been given to them
by him which will meet all the requirements of the claim when the claim matures.
Q. But they usually operate on special risks, and on large lines of insurance?
A. Yes, as a rule. They don't affect the general man at all. I make this modification
for this reason, because if you take the average insurer he is a small individual. He
does not come in contact with the broker at all—that is, the class of broker of whom 1
am speaking, but he very often comes in contact with the other class of broker. 1 Geo. 5 Report of Insurance Commission. B 37
Q. That is the curbstone man? A. Yes. He knows little or nothing about the business, and whose only interest is to secure the commission which the agent gives to him,
for placing the business with him. Now, if you could eliminate all that class of curbstone brokers, which would be a very difficult thing to do—and that is the basis of my
remark as regards class legislation—if you could eliminate that class of broker, and
simply say, well, we will pass a law which will allow a certain number of brokers to
come here, why it might work.   But I don't see how you can do it.
Your Commissioners consider that the licensing of brokers is undesirable .except
with such reputable brokers as those referred to and that to allow such brokers to do
business in the Province would subvert many of the objects of the proposed Bill, and
will, therefore, recommend that no provision should be made in the proposed Bill for
the appointment of licensed brokers.
INVESTIGATION OF FIRE LOSSES.
Your Commission are impressed with the necessity of having independent investigation into all fire losses. They feel satisfied that it will have the effect of preventing much
of the fire loss and eventually result in decreasing the cost of insurance. It would
assist:
1. In detecting fires of incendiary origin.
2. In the insured observing the conditions of policies.
3. In obtaining information of value in preventing fire losses from the same cause.
4. In improving the fire departments of the cities and towns by lending advice.
5. In improving fire hazards.
The unanimous opinion of all witnesses who appeared before the Commission was
that this was most desirable if not absolutely necessary, as will appear by the following
references to the evidence:
(R. S. Day, at pages 300 to 303, Victoria evidence.)
Q. Now then, as to creating a Government inquiry into fire losses, what do you say
about that, Mr. Day?    Do you think that would be a good thing?    A. I do.
Q. For what reason? A. I think it would tend very largely to prevent fire losses.
A great deal has been said before this Commission about the high rates that are being
charged by the insurance companies. While we shall give evidence to shew the basis
upon which those rates are made, that they are not empirical or excessive, but made
upon sound'basis, similar to those upon which every well organized business is carried
on—while we shall give evidence to shew that, I might say that there is no question
whatever in the minds of any thinking man who has at all looked into this question—I
do not refer to insurance men or say that they think more than anybody else—but take
the case of the Insurance Commissioner of the different States of the United States south
of us, I have seen their reports again and again, and they almost invariably lay stress
upon this fact, that the cause of the high rates is due to the enormously excessive fire
waste of the United States and Canada. As compared with the fire loss and the fire
waste in England, I am correct in using the term, it is enormously excessive.
Q. Then a large amount of this, or quite a large proportion of course, is
undoubtedly, due to fires that are doubtful in their origin? A. In our experience we have
come across a great many fires that are doubtful in their origin. You cannot absolutely
say that they are incendiary, but you are very very doubtful about them. And there
is practically no means in this Province by which an investigation can be made into
those fires except at the request or expense of a fire insurance company.
Q. Well then, the company has to refuse to pay? A. The company has to refuse to
pay. I remember one case that came up in Rossland many years ago, where a fire
inquest was held—the only time I knew of a fire inquest held in British Columbia at
the request of the public themselves. The case was a very peculiar one; it was proved
there—I was interested in it—it was proved there that the dry goods man or his wife
had carefully closed up every means of looking into the store by hanging draperies and
other things in front of all the openings on the day in question; that there had been—
that when the fire brigade got into the building there were five distinct fires burning
in the building, and the stove was cold. The excuse given was that the little boy of the
family had been sent out to buy fire crackers, and he had been allowed to set off fire
crackers in the dry goods shop, and that is what caused the distinct fires. We had to
pay that loss; because the company took this view, that if the Attorney-General did not
care to prosecute, it was not worth while to prosecute for a small loss. B 38 Report of Insurance Commission. 1910
Q. And more than that, if they had made a mistake and taken the wrong case, there
is considerable odium on the company? A. It puts considerable odium on the company.
And when an insurance company prosecutes it is almost impossible to secure a
conviction, it is a well known fact there is hardly a jury in the land will give a verdict
against anybody when an insurance company prosecutes, or when an insurance company
appears prominently in connection with the suit. And on that account, insurance
companies do not prosecute; and therefore this enormous fire waste is occurring, partly
due to incendiarism.
Q. You recommend, then, a public inquiry carried on by the Government official
whose responsibility would be only to the Government?   A. Yes.
Q. And whose duty it would be to investigate of his own motion or upon request?
A. Yes. And I recommend that, not merely because of any benefit it would bring to any
insurance companies, but because fire is as great a danger and creates as great a loss to
the insured and the general public as it does to the insurance companies. My contention
is that this would be of still greater benefit to the general public than it would be to
the insurance companies.    And I ask it in the public interest as well as in our own.
Q. And you are quite certain it has every tendency to bring down rates?
A. Wherever it has been done I believe it has.
Q. Give me the States? A. Wherever it has deen done I should say it has been a
great benefit to reduce the fire loss, and as when Mr. Ross gives evidence you will see
the method on which our rates are based—it will bring down the^fire rates eventually,
in time, of course, as experience becomes more favourable.
(J. Y. Ormsby at page 717, Victoria evidence.)
Q. It would be a good thing to have a Government investigation into the cause of
the fire? A. First class. Nothing better. I don't think there is an insurance man who
knows his business who would not hold up both his hands for a good system of
investigation into the causes of fire losses at once. And I think a good man in that
position would save his salary four times over. You appoint one for British Columbia
and I will help pay him. Put in a good man, and I will pay proportionately to the
cost—what the premiums show my part is.
Q. It would have the effect of reducing rates eventually wouldn't it? A. I think
so, it ought to.
(L. G. McPhillips, K.C., pages 34-35, Vancouver evidence.)
The Chairman: Neither of you have anything to say at all in regard to item 3
respecting an official investigation of fire losses, to be appointed by the Government?
Mr. McPhillips: No, there is no objection to that. Possibly it might be a good
thing, I do not see anything wrong in that but we are not asking for it, though we
do not see why the Government should not do so, if they want to.
(R. H. Duke, Vancouver evidence, at pages 308 to 311.)
Q. What would you think of a provision in the Act providing for any official investigation as to fire losses? A. In reply to that I would say that I am very much pleased
to note that there is a suggestion that the Provincial Government should appoint a
Fire Commissioner, whose duty among other things shall be to investigate the cause of
fires. I have here an item from the "Shareholder and Insurance Gazette" of Montreal,
February II, 1910. And this item is copied from "The United States Reveiw," one of
the leading insurance publications. This deals with the enormous waste of property
from fire on the continent.    It reads in part as follows:
"We have frequently called attention, in the editorial columns of this paper, to the
enormous waste of accumulated wealth in this country, due wholly to fires, having their
origin in the negligence of the occupants of the buildings in which said fires occurred,
or to conditions leading to the unnecessary spread thereof in structures other than
those in which they originated, and to the wholly unnecessary and far too expensive
loss of life occasioned thereby."
Following down in the same item it says:
"The property loss in this country and Canada during 1909 from preventable fires
was probably not less than $100,000,000. In many of the countries of Europe stringent
laws have been enacted and faithfully enforced, holding the party guilty of negligence
resulting in damage from fire strictly accountable for the loss thereby occassioned to
the party or parties injured, and in some cases, providing for imprisonment, where
judgments recovered are not paid. In all such countries the fire loss ratio to the
value of combustible property is very low, certainly less than one-third of the ratio in
this country. This is due in some measure to physical and climatic conditions, but there-
is no doubt that it is also due in very large measure to the stringent enforcement of
the laws above mentioned.    By the  enactment of such laws in this  country,  supple- 1 Geo. 5 Report of Insurance Commission. B 39
mented by proper building laws in the cities, and strict enforcement thereof, we believe
that the national fire waste could be reduced fully 33 1-3 per cent, and the cost of fire
insurance lowered in the same proportion."
Another item on the same page refers to the fire waste again, and is copied from
the "Insurance Register."   This reads in part as follows:
"In view of the fact that a very large proportion, probably one-half, of the loss of
property from fire damage and destruction, amounting in this country and Canada
annually to about $200,000,000, is due to preventable causes, it is evident that the work
of fire prevention is very inadequately performed, and that there should be enacted
legislation providing for holding property owners and occupants responsible in actions
of tort for negligently caused fires which damage or destroy the property of other
persons. It is no infringement of true civil liberty to enforce by legal enactment the
sound, equitable maxim, that one must so use his own property as not to injure or
destroy another's."
In connection with the reference here is loss of life. I have seen reports where on
this continent in one year as many as seven thousand lives have been lost through fire.
The sheet from which witness read the above extracts is marked Exhibit 72.
Q. 50% of Canadian fires are preventable? A. This is speaking of both Canadian
and American.
In further connection with that I would like to say that the experience of our own
company, covering possibly 8 years shows that in over 45% of the losses which have
occurred, the cause of the fire has not been explained, and while I do not suggest that
all of these fires were of incendiary origin, I do think that each one should have been
investigated by a competent Fire Commissioner, appointed by the Government.
Manitoba is, I believe, the only Province in the Dominion where such a Commissioner
is appointed, and the good work being accomplished by the appointee is evident by the
information contained in the following resolutions passed by the Western Canadian
Fire Underwriters Association of Winnipeg on February 15th, 1910.
"Resolved that this association wishes to place on record its appreciation of the
work now being done in the Province of Manitoba by the Fire Commissioner, Mr. A.
Linbeck, in educating the public by publishing bulletins touching on the various fire
hazards, by urging in his report a more direct individual responsibility as to fires,
inspection of premises, and surroundings, with a view of lessening the chances of fire
by improving municipal protection throughout the Province, and by the proposed
instruction of school children in the cause and prevention of fires; and
"Be it further resolved that this association give the Fire Commissioner their
assistance in having the present Fire Prevention Act so amended as to provide greater
scope and facilities for investigating fires of incendiary origin in the Province."
(F. W. Rounsfell at pages 468 to 473, Vancouver evidence.)
Q. By the Chairman: Well, then, the other important item is this question of fire
insurance investigation and the general idea seems to be that that would be a good
thing?   A. Yes, sir.
Q. In the public interest. But as Mr. McPhillips suggested the other day, there is
a provision now by which an inquest could be held in connection with any fire by the
coroner. Now, what objection is there to that sort of inquest? A. Well, I don't
think it reaches the point. I think it is unwieldly for one thing, and another thing is
that the companies don't take advantage of it. You will have to get some other person
on the stand to explain that.    I have not had any experience.
Mr. Bodwell: I can give you an idea—
The Chairman: I want to get it from Mr. Ross. A. You cannot get it from me. I
am not in a position to tell you. I know that it has not been satisfactory. I know
that they won't resort to,  except in a very unmistakable case.
Mr. Rounsfell: I can tell you that we have tried it, and the results were always
disastrous.
Q. By the Chairman: Now, can you give me some instances of where you have
made use of it, and where it did not come up to expectations? A. (By Mr. Rounsfell)
I cannot remember the names of the people. It is so many years ago, but originally-—
It is probably seven years ago, there was a loss, which was unquestionably of incendiary
origin, and my partner took it up, and we attended the coroner's enquiry, but it was
very unsatisfactory, and we finally allowed the case to drop.
Mr. Bodwell: You see the point is this. The idea of this Act is to have an officer
who is skilled in such things, and a coroner is not qualified, to begin with, to conduct
an investigation of that sort. He has no previous experience. But a man who is used
to adjust fire losses, and a man claims certain material is burnt in a building, when the
adjustor goes on the ground he knows in an instant whether that stuff was ever there. B 40 Report of Insurance Commission. 1910
If he has had training in that class of business, he knows, and he can see if there is
anything wrong, and if there is a claim for loss of material burnt up that was never
there. And in the next place, the coroner does not make any investigation himself.
He summons a jury, and the jury is summoned from the vicinity, all friends of the man
that is burnt, and they are the last people in the world before whom you ought to take
an investigation of that kind. Our point is not to have a jury chosen of haphazard
men, or to have an investigation before a medical man, but to have an officer appointed
by the Government who is skilled in that class of business, and whose investigation
would result in something worth while. He would be an insurance man and trained
in the business.
The Chairman: And I suppose the other object is to leave it in his discretion at
any time he chooses to make an investigation?
Mr. Bodwell: Yes, and then there would be a uniformity in the procedure, and all
that kind of thing. And his report, from a company's point of view, would be very
beneficial, because doubtful cases could be submitted to him without the company taking
the time of deciding the claim.
Mr. Rounsfell: That is one of the reasons that it is not desirable to have an
investigation—the company does not like to take the onus of an investigation, although
there might be certain evidence of incendiary origin. There was a case two or three
years ago which came up of that kind, whereas if the case had" been tried by a
Commissioner it could have been proven that they were guilty of incendiarism. The
Chief of the Fire Brigade in Vancouver was very strong on the point, and did his best
to have Mr. Banfield, I think it was, to go on with the case. But as no doubt you know
unless you can absolutely prove it, it is very difficult. A company does not like to take
the onus of it, because it is always used against them if they fail, and we feel from the
company's point of view if there is a Commissioner appointed, and a Governmant man
to investigate these things, it is better for us, and better for the public.
Q. By the Chairman: Well, could that man be the same man who is called the
Inspector of Insurance under this proposed bill?    A. I don't see why not.
The Chairman: Because if a man were appointed as an investigator into fires, it
will probably keep him busy all the time.
Mr. Rounsfell: Well, it would be only in cases of doubtful origin he would be
required to investigate. You would not ask him to investigate every fire, but there are
a great many fires that are of doubtful origin.
Q. By the Chairman: How would it come to his attention. A. The company would
draw it to his attention, the company interested.
Mr. E. V. Bodwell: There would be another thing too. If a man like that were
appointed to make reports, even where there is no suspicious circumstances, or suspicion
of bad faith, but simply negligence on the part of the assured, it would have a great
effect on the whole community. If it was pointed out that even though the loss was an
honest loss, but that the fire was caused by the very dangerous up-keep of the premises,
the people would begin to look about and remedy those conditions.
Mr. Von Eltinger: Mr. Chairman, might I draw your attention to what prevails in
other countries? Take in Germany, there is a law there against paying suspicious
losses. In this way, they are not entitled to pay that loss or pay the assured until
it has been looked into. If the Government finds it has happened through the assured's
own carelessness, he has so much deducted from his loss. The company has to pay it,
but the Government takes off so much for the fire, so much for the_ investigation, and
they claim that that man's carelessness has endangered the life of his neighbors. And
the same thing applies in Austria and Germany and all over Europe. The cost of
insurance is a fraction of what it is here. We have better Government supervision, and
consequently, the people get lower rates. The percentage of doubtful losses is very
much less than they are here, and it is all done through Government supervision.
Q. By the Chairman: How long has that Government supervision obtained there?
Mr. Von Eltinger: Well, for the last fifty years—Well 30 years. I have not the
figures for that.
Q. By the Chairman: What is the experience of the United States and Canada?
Witness: We will give you that.
Q. By the Chairman: That is forthcoming later.
Witness: Well, if it is not forthcoming, I will attend to it. I asked one of the other
witnesses to bring it in, but if he does not, I will bring it in.
Mr. Rounsfell: I would like to give you an instance of that point, in Vernon, that
fire where eleven lives were lost. The coroner there failed in his investigation to bring
a verdict, and we all, as insurance men, feel if the case had been gone into in a thorough
manner it would have had different results. 1 Geo. 5 Report of Insurance Commission. B 41
(A. P. Lange, at pages 501 to 506, Vancouver evidence.)
Q. Now you would be in favor of an official inspection of fire losses. A.
Absolutely so.
Q. Do you consider that the present law in British Columbia is an adequate service
in that direction?   A. I can't figure that it has ever done us any good at all.
Q. Can you name any case in point? A. Yes sir, the Okanagan Hotel at Vernon
owned by Albert Sansieglet was destroyed about the 6th of August last year. There
were ii men cremated in that fire, and a coroner's jury was empanelled and sat for
several weeks, but owing to what I think poor handling of the case, the jury never
arrived at any verdict further, than to say that the men lost their lives by fire, or ;by
the destruction of this building. In the first place, a certain person, Alex. Smith was
suspected as having been the incendiary, and he was allowed to escape from Vernon
before the coroner's jury was ready to take evidence. He has never been found, he was
not arrested, he was not even kept under proper surveillance, but disappeared the day
before the jury began to take evidence, and the jury seemed to think it was useless to
try to do anything until they got Smith. Well, they haven't got Smith yet. During the
sitting of the jury Seiglet, one of the partners, was asked whether he had any theory as
to how that building happened to be burned, and he said he had, he believed it had been
set on fire.    He was asked by whom, and he said his partner Alberts.
Q. (By the Chairman): Were you there? A. Yes, I was there for my company.
Then he was asked why he thought Alberts set it on fire, and he said under oath that
at the time they bought the property some year and a half or two years before the fire,
Mr. Alberts had said to him that if the investment did not prove a profitable one they
could always get out whole by touching a match to it. I then tried to get Mr. Burns
to follow that lead and press the question of insurance value, whether or not it would
pay to have burned the property. Unfortunately they had an estimate brought in there
by some architects showing the building to be worth a great deal more than the amount
of the insurance. That is easily done, you can get an estimate of any kind you want.
But I made enquiry, and found that the insurance on the building, and the value of the lots
based on an offer made the day after the fire, was only a very slight amount less than
several agents in that town had been authorized to dispose of the property at. I tried
to get them to follow that up, but they absolutely declined to do it, and it was left for
two companies—there were six companies interested and four of them had unfortunately
taken proof before the coroner's jury met, before they knew these things, and it
devolved upon two companies, mine was one, to take the onus of refusing payment on
those policies until they could be satisfied that it was not a clear case of incendiarism
on the part of one of the partners.
Q. Do you think if that investigation had been in the hands of a man who was
skilled in adjusting losses, experienced in insurance matters, a different result would
have been obtained? A. I do. One who handles losses habitually soon learns the ear
marks of incendiarism. I don't mean to say he suspects, in fact he is a very
incompetent man if he suspects the average loss of being of incendiary cause; only a
small portion are incendiaries, but he detects the ear marks. In this case I might say
that the statements made by citizens, among them Mr. Billings, who is the City Solicitor,
was to the effect that Alberts had always borne a hard reputation, that he was known as
an erratic man, and his father had been accused of having burned some property in
Russia. Now an insurance inspector would have followed that up and tried to show the
connection.   Might not have succeeded, and again he might.
Q. Then there are certain marks on the ground; for instance if a building is
burned and the contents burned, just go on and state about the remains, whether or not
certain of those things could have been in the building? A. Yes, very frequently, when
a man makes a claim of a certain amount of furniture in his house, when you diagram it
properly—he may have 8 beds and a lot of bureaus and dressers and chiffoniers and so
forth, and when you come to diagram it you find that in order to get all that stuff in
the house he must have piled them up one on top of the other. Again we frequently
have them say that the fire originated in a clothes closet, and a great amount of valuable
clothing is reported as destroyed, and when you come to search the ruins for buttons
you don't find any.
Q. (By Commissioner Macdowall): Won't buttons burn? A. Bone buttons will
burn, but not metal buttons.
Q. Then insurance men often see these ear marks?   A. Yes, sir.
Q. You couldn't expect a medical man or an ordinary juror to have their attention
directed in the right manner to get at these? A. I can give you a good illustration of
that. Right near Vernon, a little town, Enderby, Mr. Gordam, who resides in
Vancouver, was deputy constable over there, and he discovered what was known as the
alarm clock fire. A jeweler sustained a loss in Enderby, I think this was less than a
year ago, and claimed to have lost a lot of jewelry destroyed in the fire, and the adjustors B 42 Report of Insurance Commission. 1910
demanded, I understood, that he shew these ruins, that is for instance, various pieces
of jewelry that wouldn't be burned, although they would be practically rendered
valueless, and Mr. Gordam was stationed to watch the ruins while this adjustment
was going on. That next night they found one of the claimants in the ruins, salting
the ruins by placing a lot of jewelry that he had cached somewhere in the ruins, thte
adjustor found them there I understood. Well they followed that up a little further,
arrested the man, and then he confessed to having started the fire himself, although
he was not in the town, and had not been in the town for 12 hours before the fire
started. It seems he had arranged an alarm clock that at a certain time the alarm
would ring, and would start an emery wheel, the emery wheel pressed against
some matches and the matches burned and fell into a pile of shavings that
had been laid there for that purpose. Moreover, he contrived to fix that
alarm clock—I wish I knew how he did it—so it wouldn't ring the first
time, but would ring the second time, and he set it for six o'clock, and it didn't
ring the first time at six but the second time it did, and so when the fire occurred
he and his partner were in Armstrong and had been there and could prove they had
been there some hours previous. Well they caught them and put them through the
thirty second degree and got a confession out of him, and he is in jail, but unfortunately
the other fellow who was also put in jail, managed to break jail and is a refugee from
justice. Now a man like Mr. Boardman can do more from his skill in detective work,
he is a specialist in this kind of work, can do more in an official capacity or clothed
with official authority, than ten of us can do.
(C. R. Elderton at pages 605 to 609, Vancouver evidence.)
Q. You are an insurance agent residing in Vancouver?   A. Yes, sir.
Q. What company do you represent? A. The Yorkshire and the Holmes of New
York.
Q. You have been making some inquiries on the subject of Fire Marshal? A. I
have.
Q. What is done in other places, and what his duties ought to be from an insurance
standpoint. Will you just give the Commission the benefit of what you have considered
on this point?     A. The duties of a Fire Marshal:
1. To enforce existing by-laws throughout the Province.
2. To investigate the cause, origin and circumstances of every fire occurring in the
Province, and in the event of the cause being suspicious, to endeavor to obtain
additional information, with a view to procuring the conviction of the guilty person,
and whether a condition ensues or not, to make his report as public as possible.
3. Supervision of streets, allies, buildings and premises with powers to order
repair or removal of dilapidated buildings, and the removal of inflammable or otherwise
dangerous material and obstructions.
4. Supervision of buildings under construction with powers to order stoppage of all
work not being carried out in conformity with the existing bylaws framed for the
protection of life and property.
5. Recommendation of additional by-laws for cities, towns and municipalities, with
a view to the establishment of laws for the greater safety of life and property from
the danger of fire, special attention to be given to the erection of lofty buildings, more
particularly apartment houses.
6. To issue literature of such a nature as will make people who reside outside the
city limits, realize the necessity and advantage to themselves of guarding against
defective flues, defective electric wiring, the accumulation of combustible rubbish, and
such other hazards, which at the present time are responsible for a large percentage
of fire.
7. The Inspector of Insurance shall submit annually as early as consistent with full
and accurate preparation a detailed report of his official actions to the Minister of
Insurance.
We would also recommend that the Inspector of Insurance should prepare annually
a blue book stating the premiums, losses and expenses, and also the assets and
liabilities of all companies holding a Provincial license only, so that the insuring public
may have the means of ascertaining the financial standing of any company doing
business in the Province.
Then with regard to the benefits which will result from the appointment of such an
officer:
1. Owing to the prosecution or the publication of the Fire Inspector's reports in
connection with a suspected loss, even if it has not been possible to obtain a conviction,
the result would be that undesirable characters who would be likely to set fire to
their premises would be driven away from the Province,  and anybody contemplating 1 Geo. 5 Report of Insurance Commission. B 43
arson or incendarism, would hesitate, knowing that the Government would undoubtedly
prosecute them to the utmost extent.
2. Life and property would be much safer.
3. The fire losses would be materially minimized, and the probable result would
be a reduction in the fire rates, from which the public would benefit.
In the State of Ohio where they.have a Fire Marshal and two deputies, in his
report he states:
"When the department was first organized in 1901, the number of incendiary fires
ill the first year was 292. Owing to the thorough way the outbreaks were investigated,
the number of incendiary fires was reduced to one hundred and nine for the year 1908,
the details for the intervening years being as follows, namely:
* ear Incendiary  Fires.
1901         292
1902         222
1903         190
1904        168
1905           97
1906        134
1907        126
1908        109
In 1909 no less than 70 persons were convicted of arson in the State of Ohio.
Q. That is a very difficult crime to bring home, isn't it? A. One of the most
difficult, I should think.
Q. Have you got the Ohio law there?    A. I have.
Q. I think the Commission would like to have that. What sections relate to the
Fire Marshal? A.  It is here in full, they call it the Ohio Fire Marshal's Law, page 74.
Q. And is the Insurance Law in that pamphlet also?   A. No.
Q. What is the rest of that pamphlet taken up with? A. The report for the
year 1908.
Q. You can hand that in to the Commission? A. Yes, certainly. In his report he
states: "The need of a Fire Marshal to secure evidence in cases of incendiarism is
shewn by the fact that in the last two and a half years, the number of convictions for
incendiarism in Ohio has exceeded that for 100 years of that preceding the creation of
the  Fire  Marshal's  Department."
Examined by the Chairman:
Q. Have you compared that with any other Statute? A. Yes, I have compared it
with the Manitoba, and they are very similar, as a matter of fact, I can hand you in
both of them.
Q. What is the name of the Manitoba Act? A. An Act to Amend the Fire
Prevention Act.
Q. Do they have in Manitoba a Fire Marshal?   A. Yes, sir, a similar officer.
Q. Whose duties are similar to what you have outlined here? A. Very much, yes,
sir. There is an item in his report, in the Manitoba report which says that during the
year 1908 the City of Brandon and the towns of (two towns) have received reductions
in the insurance rates through fire departments having been put under the supervision
of this department.
Q. Does it give the experience? A. It gives a very full report. It is at page 74 of
the 9th Annual Report for the year 1908 to the Governor of Ohio, and the Manitoba
Act referred to is chapter 28, 1906, being an Act to amend the Fires Prevention Act.
Both of them marked Exhibit 87.
(Henry Lye at pages 611 to 615, Vancouver evidence.)
Examined by Mr. E. V. Bodwell, K.C.
Q. What is your full name?   A. Henry Lye.
Q.  You are an insurance adjustor, Mr. Lye?   A. Yes.
Q. The question has arisen here as to the need of an investigation into fire losses,
and the methods, if any, which are now adopted for that purpose. A. The present
method is that of laying an information under Ch. 80—I think it is—of the Provincial'
Statutes, whereby a Stipendiary Magistrate or a Police Magistrate has power to hold
an investigation, and to empanel a jury. I don't know of many such investigations
in B. C. There has been one before the Stipendiary Magistrate Williams. The consequences of it the party that had incendiarily started the fire decamped. B 44 Report of Insurance Commission.
1910
Q. Do you consider that the present method is satisfactory? A. It is not for this
reason, that an investigation which is held at the request of insurance companies is
looked upon by the public in general, and by the magistrates and juries generally as
Deing a plot on the part of the insurance companies to escape the payment of loss
And the consequence is that those investigations are always held with a prejudice
against the parties who give evidence, and who are interested in respect to the insurance
They don't consider the peril to property in general, and the peril to life. And they don't
consider, that in most of the fires (I say most of the fires) there is loss to the individuals
outside of the insurance companies, and there is danger to life, because those who set
fires to buildings are not careful as to the lives they imperil. I have had a great many
cases of that. I have acted as adjustor for about forty years—and I have had a great
many cases of absolute criminal incendiarism, and have had more than one in this
Province. I have had an experience covering from St. Johns, Newfoundland, to the
Province of Ontario and British Columbia.
In respect to the. appointment of a Fire Marshal there is one thing which is very
seldom considered, and that is, the moral effect of it. If it is known publicly and
generally that in the case of a fire where there is any doubt as to its origin, an
inspection would be held by a public officer withont an interest in the insurance
companies, or in any way interested in the result of it, I may say, except in the matter
of doing his duty, the moral effect of it would be to prevent a great many of these losses.
It is not merely the investigation of the loss itself, but if it is in the mind of the man that
if he sets fire to a propetry he is almost surely to be caught, and punished by those who
have no financial interest in the result, the effect will be different. And in respect to the
present condition of fires in British Columbia, I have heard of several absolutely
incendiary fires in British Columbia, and no one has ever been punished for them. I had
a case at Enderby, Ontario—
The Chairman: Enderby, B. C.
Witness: Yes, B. C, I beg pardon. It was in a jewelry shop. I got there on the
Saturday, and I felt doubtful as to the cause of the fire, so I said that I would have all
the debris removed and sorted piece by piece to ascertain what had been there at the
time of the fire. On Sunday, one of the parties—one of the incendiaries—-went into
the woods, and took some of the jewelry from there, and had it burnt so as to make
it appear that it had been burnt in the fire. But when he was gathering it up, he
gathered some small pieces of bark. It is years since I have seen that—but it was just
sufficient to be seen under a microscope. He had this in a stocking which he carried
in his hip pocket. On Sunday night I might say I had men on the watch—on Sunday
night he was noticed to go in the night—after midnight—to go around the block from
time to time, and afterwards he ventured on the premises where he was immediately
seized, and this big stocking with the jewelry was found upon him and the jewelry
which had been removed by those two men was found intact in a travelling case up m a
lumber room in the hotel. You have no doubt had all the details of the fire before, but
those two men were put in prison for trial—one at Vernon, and one was put in prison at
Kamloops, and they both escaped, and they are free men today, and have never been up
to trial.   Now, that is the state of affairs as they exist at present.
The Chairman: How did they escape?
Witness: Well, I am not here to accuse the police officers or the warden of the
prison.    That is apart from my business.
Q. By Mr. Bodwell: Well, a Fire Marshal, too, would have duties prior to a fire,
in collecting up waste, and preventing fire conditions. Is there need of that from your
experience in the city? A. I should think that would be the duty of the police and the
fire department. I think so. If you give a man too much to do, you get him spreading
out too thinly. I think the most valuable thing in connection with a Fire Marshal is
the moral effect. I think it would prevent a great many of these incendiary fires and
there are undoubtedly a great many incendiary fires. And another thing a Fire Marshal
could do would be to look after fires that are not incendiary, but which are caused by
bad construction. In this City of Vancouver, there are building inspectors, whose duties
are to do this, but who are so overloaded with work that they really do not inspect the
construction of a building, and I have had several cases in Vancouver of such
construction as make a fire inevitable. That is, there is insufficient protection under the
hearths where the fire place is, improper methods of building chimneys on brackets, and
no absolute regulation for the cleaning of it when a chimney is built on a bracket the
.stove pipe must stand above the base, and below that the soot accumulates, and the
slightest sign of a spark in there will cause a fire. It might remain there for weeks
before it absolutely bursts out into a blaze, but it is almost an inevitable consequence in
the long run. There are a great many such things, and there are many varieties of fires
owing to improper construction, over which there is no control. The insurance company simply pays the loss, and tries to avoid  similar  experiences.    But you  cannot 1 Geo. 5 Report of Insurance Commission. B 45
possibly inspect every fire case. These things are very often in new buildings, and not
necessarily from dilapidated buildings.
Q. By the Chairman: The consequence of that is, that the insurance companies
charge you a higher rate? A. They don't appear to charge higher rates. I am speaking
now simply of dwelling houses, where the companies almost take dwelling houses for
nothing.
Q. By Commissioner Macdowall: Are there many fires caused by poor electric
wiring? A. There are a great many fires attributed to the electric, wiring, which you
cannot tell after the fire whether it was caused by electric wire or not. If you inspected
them before the fire, you might tell whether the wiring was defective or not. But a
great many doubtful fires are attributed to electric wiring, and you cannot possibly tell
after the fire if that is the cause or not.
(A. W. Giles, at pages 97 to 98, Nelson evidence.)
Mr. Giles: As regards the question of a Fire Marshal I want on the part of our
company to give our most hearty support to that recommendation.
Q. That is a Provincial Fire Marshal? A. Yes, I have had very wide experience in
the insurance business in Canada, 23 years practically, and the necessity for independent
enquiry by proper authority has been presented to my notice time and time again,. It
is almost impossible for the company's representative to obtain the information he
would like to obtain, when he appears on the ground he may hear lots of rumors but
no one will come out and give evidence.
The Chairman: You had an investigation in Vernon.   A. Yes.
Q. Held  by the  coroner.    A. Yes.
Q. And both sides represented by counsel.    A. Yes, I think so.
Q. And that was before a jury.   A. Yes.
Q. Was that investigation conducted with satisfaction to the insurance company or
otherwise? A. We were not personally interested, I heard no complaints from the
insurance interests, of course you know they were not successful in ferreting out what
they wanted. But the appointment of a Fire Marshal would have great weight as a
deterrent, and would, I believe, considerably reduce fire losses. I have no personal
knowledge of the results that have accrued from the appointment of a Fire Marshal
in Manitoba, but I have been told repeatedly by the representatives of companies there
that it has made a big difference in the ratio of losses. The reduction in losses reacts on
the premiums, and the result is that the public gets insurance cheaper than before.
The Chairman: Do you think an investigation by a single official preferable to one
by a jury? A. Yes, because you have a trained man and if he has full power to call
witnesses and so on I think it would be much more efficient. He would be free from
local interests to begin with, which is not always the case with a magistrate or coroner's
jury.
t
(G. O. Buchanan, at pages 106 to 107, Nelson evidence.)
The Chairman: Then there is a suggestion made that a great many fires are of
incendiary origin and that the appointment of a Government investigator of fires would
have a deterrent effect on that crime and in the course of time that would result in
reduction of rates, because the Insurance Companies say these rates are on a scientific
basis and should not be altered just to satisfy the whims of anyone. What do you think
of the possibility of that serving a useful purpose?
Mr. Buchanan: I would be inclined to favor that proposition very strongly. I
think it would be a relief to the insurance companies, they cannot well investigate
rigorously or stand on all their rights in regard to investigation because they would
make themselves unpopular. I think it should be done by a Government official who
could do the work without injuring either the fire insurance companies or the
claimants, he would be in an independent position.
The Chairman: Do you think that would be a better means of investigating fires of
that nature than by a coroner with a jury of local people? A. Practically he would be
a coroner wouldn't he?
The Chairman: Yes, for that purpose, but he would be a skilled man and he would
not have the assistance of the jury. Would it be better to dispense with the assistance
of the jury in a case of that kind?
Mr. Buchanan: I think so, a jury of local people would be in a very invidious
position and could not be expected to find against the claimant.
Commissioner Macdowall: Especially in small places? A. Yes, too much local
influence.
The Chairman: We seem to find general commendation of that feature. B 46 Report of Insurance Commission. 1910
On this subject A. W. Ross, Secretary of the Mainland Board of Fire Underwriters, says:
"It has been suggested by the insurance companies that an Insurance Department
be established by the Government of this Province.
"This is a question of a common welfare and is one which must be confronted by
the people and legislators, in order to reduce the constant drain upon the wealth of this
country. Statistics shew that the fire waste of this Dominion amounts to about twenty
million dollars ($20,000,000) per annum, or something over $3.00 per capita, while in the
European countries the average is about 33c. per capita. The wiping out of existence of
this immense amount of taxable, real and personal property is a direct and irremediable
loss. In the interests of the Province of British Columbia and the Dominion of Canada
as a whole, some definite action should be taken which would tend to reduce this
appalling waste. As a large proportion of this loss is attributable to doubtful, suspicious
and unknown causes, it is obvious that the suggestion made by the companies is not
entirely in the interests of 'soulless corporations,' but will add greatly to the general
welfare of the community. In this connection also a competent Fire Insurance
Commissioner should be appointed, and legislation enacted which would minimize the
storage of explosives, regulate the storage and use of gasoline and other inflammable
and combustible materials, and who would exercise a general supervision and inspection
over the unfavourable conditions which now obtain in different towns and cities. This
official would likewise suggest and recommend improved construction and protection of
buildings, and insist within reason upon the carrying out of regulations which provide
for the safety of citizens, having particular reference to the more important industries
and public buildings where large numbers of people are likely to congregate.
"Referring to the subject of public fire protection, I would favor the adoption of
every precaution to lessen the possibility of fire, and to that end would favor giving
authority to every Chief of the Fire Departments, or other proper official of every city,
town and village, to visit and inspect every building therein for the purpose of determining its condition, whether it is kept free from rubbish, provided with substantial
brick chimneys, gas brackets, gasoline lamps, and other lighting and heating apparatus
kept in safe condition, and see that the laws with respect to the storage and sale of
inflammable and dangerous oils and explosives are rightly complied with, giving them
absolute authority to enforce the necessary regulations for the greater safety of
buildings and their protection from fire.
"Careful inspections are made from time to time by Inspectors of fire insurance
companies and this Association, but as we have no authority to enforce laws, the
inspections do not have the same weight as instructions received from a public official.
"So much has been said by certain of the witnesses before you regarding inspections,
that if it is not asking you to go beyond your duties, before concluding your labors, I
would cordially invite you to visit our offices and examine some of the work done by this
Association. You will then be able to determine what inspections are made, and also
to satisfy yourselves as to the thoroughness of the same.
"As further evidence of what this Association and the insurance companies
generally are doing in their way of reducing the fire waste of the country, will say that
this Association is an active member of the National Fire Protective Association and
also the Underwriters' Laboratories of Chicago. The work of the Underwriters'
Laboratories is confined to investigations bearing upon the fire hazard and is undertaken
as one means of securing correct solutions of many of the problems presented by the
great and disproportionate destruction of property by fire. The results of the laboratory
tests on various appliances and materials are promulgated in circulars, cards and
pamphlets which the Mainland Fire Underwriters' Association secure, and distribute
entirely free of cost of any kind to the public. Apparatus of all kinds approved by
Underwriters' Laboratories is accepted by the Insurance Companies, owners of buildings, manufacturers, architects and others as standard. The best and fairest scientific
opinions regarding the merits or demerits of every device, system, or material affecting
the fire hazard is thoroughly inspected by specialists in the various departments,
accuracy and uniformity in their findings is the result.
"On account of this close relationship with the expert engineers connected with the
Underwriters' Laboratories, our office is daily consulted by owners, builders and
architects upon the various items entering into the questions of building construction,
materials, protection against fire, fire fighting appliances and precautions, with the result
that continually a better class of buildings is now being erected in various parts of the
Province. This is particularly noticeable in the City of Vancouver, and eventually the
fire waste will be greatly diminished on account of the adoption of suggestions received
in the office of this Association.
"For the purpose of the conduct of business and the inspections of the various
devices herein referred to, a large three-story and basement fire proof building, with all
openings   protected   by   non-combustible   materials   (I   herewith   submit   photographic 1 Geo: 5 Report of Insurance Commission. B 47
illustration of the building and testing apparatus necessary for the carrying out of the
inspections) is owned by the Association in the City of Chicago. Almost every conceivable facility is here provided for the thorough inspection of all classes of protective
apparatus. It may be fairly termed as an 'educational institution' maintained at the
expense of the insurance companies.
"I had the pleasure of spending some days looking over the work done by this
organization about the close of last year, and I am safe in saying that the operations
there conducted are most commendable from the public standpoint of anything known to
the underwriting and construction professions. The effect of their labors is bound to
result in improved conditions, and although operating only for the past few years, their
offices and laboratories are daily being visited by great numbers of large insurers and
they are constantly being consulted, free of charge, by correspondence from all over the
world.
"I desire to submit as evidence to the foregoing statements a parcel of circulars and
pamphlets issued by the Underwriters' Laboratories and National Board of Fire Underwriters, and kept in stock in our offices for free distribution. This parcel includes the
following pamphlets of rules and requirements:
"Centrifugal fire pumps;
Chemical fire extinguishers;
Coal gas producers;
Electric fire pumps;
National electrical code installation rules;
National electrical code construction rules;
Storage and use of fuel oil;
Fire doors and shutters;
Gas and gasoline engines;
Gasoline lighting systems;
Hose for fire department use;
Private department fire hose;
Unlined linen fire hose;
Hose house for hill yards;
Rotary fire pumps;
Protection against lightning;
Signalling systems;
Sky-lights;
Automatic sprinkling equipment;
Uniform requirements of building construction;
Wired glass; also
Suggestions for organizing private fire department, and a pamphlet containing
a list of tested and approved electrical fittings.
"Also the following circulars containing lists of approved apparatus:
"Watchmen's time recording apparatus;
Automatic sprinklers;
Dry pipe valves;
Hose;
Fire extinguishers;
Metal frames for wire glass;
Oil storage systems;
Gasoline engines;
Gasoline lighting systems;
Acetylene gas machines;
Fire doors and shutters.
"As an illustration of the general use made of the information published by the
Underwriters' Laboratories, I will say that the City of Vancouver Wiring By-law now
being revised will contain the National Electrical Code as a whole, the City Electrician
having been furnished absolutely without charge 300 copies of the National Code, at
the request of the Mainland Fire Underwriters' Association. In fact, all electricians
throughout the Province, I believe, are supplied with a copy of the Code referred to
through our offices, as it is recognized as the standard almost everywhere."
In view of the foregoing evidence and the statements of substantial responsible
business men, your Commission will strongly recommend that provision be made for
the proper investigation into fire losses by an officer to be appointed by the Government.
MUNICIPAL TAXATION.
The only objection to the abolition of the license fee payable by companies in
municipalities for doing business therein was that it would deprive them of the revenue
derived therefrom.    It appeared that such license fee in the City of Victoria was. and B 48 Report of Insurance Commission. 1910
had  been  for  some  time,  $300  annually;  in  Vancouver  and  New  Westminster $100
annually; and in Nelson $10 annually.
Whether these license fees are taken into consideration in the fixing of rates in
a particular municipality does not appear quite clear, but the lack of uniformity in the
amount of the license is not desirable. The revenue so derived goes into the general
revenue of the cities and is not much in any case.
Your Commissioners, therefore, consider that it would be well to abolish this
license fee in consideration of the advantages the municipalities would receive by the
recommendations to be hereafter named, and that such license should be sufficient to
enable the licensee to do business throughout the Province without interruption from
any inferior authority.
SUMMARY.
The foregoing digest of the evidence on the particular subjects treated indicates
the importance of the proper regulation of fire insurance business throughout the
Province and the necessity for local legislation on the subject and uniformity as far
as possible in the business.
The rapid growth of commerce and the tremendous development in the different
sections of the Province, leading to the springing up of many cities and towns, with
their constantly increasing population, render it necessary that this special branch of
business affecting the whole of the people should be to some extent under Government
supervision and control in the interests of those engaged in the business and those
providing it.
The many instances cited of bogus companies or underwriters doing business,
shew its necessity from the standpoint of the people as a whole; the numerous instances
of unaccountable fire losses indicate the necessity of investigation and the insufficiency
of the existing laws; and the lack of uniformity and the absence of necessary provisions
indicate the necessity for the revision of such laws.
It is to be expected that an efficient officer of the Government, with such assistance
as it may be necessary for him to have, will protect the public, assist the underwriters,
reduce the fire waste and eventually lower the insurance rates.
Your Commission, after carefully considering the evidence submitted and the
exhibits filed, and the arguments of counsel representing the different interests, has
reached the following conclusions:
1. That the Government should create an Insurance Department.
2. That no unlicensed companies or associations of underwriters, or their representatives, should be permitted to solicit fire insurance in the Province.
3. That all insurers should be permitted to place their insurance freely with such
unlicensed companies or associations of underwriters, including Mutuals and
Lloyds, and should have the right to obtain inspection of their risks and adjustments of their losses upon obtaining a license for that purpose only from the
Department, naming the inspector or adjustor; and that the Lieutenant-
Governor in Council should have the right from time to time to make and
enforce regulations to prevent the solicitation of business by such inspectors
or adjustors.
4. That any companies or associations of underwriters should be required to
obtain a license from such Department entitling it to do business throughout
the Province, without further license from municipalities, and as a condition
of obtaining such license it should satisfy such Department of its financial
standing and make a deposit in cash or securities, or a satisfactory bond of a
Guarantee company in lieu thereof, for the reinsurance of its risks, to be
administered by the Department; the amount of such cash or bond to be
determined by the Inspector, considering the evidence submitted, but not to
be less than $20,000, with the right to require a further deposit after its annual
statement is filed.
5. That such Department should have full power to investigate all fire losses and
give out the information so obtained upon request. 1 Geo. 5 Report of Insurance Commission. B 49
6. That the Department should have power to cancel licenses, subject to an appeal
to the Lieutenant-Governor in Council.
7. That for the purpose of maintaining such Department a tax should be imposed
on the premiums paid by all insurers doing business with licensed or unlicensed
companies, and that there should be no discrimination in the amount of
such tax.
8. That there should be no provision for licensed brokers.
9. That in consideration of the benefits to be derived from such Department and
for the purposes of creating uniformity in the license fees payable, the present
municipal license fees should be abolished.
10.  That the proposed  Bill,  with  these  modifications,  substitutions  and  additions
should be approved and the existing laws repealed.
Your Commissioners desire to express their appreciation of the assistance they
received from Mr. E. V. Bodwell, K.C., counsel for the Licensed Companies, Mr. J. J.
Shallcross and the witnesses who collected valuable information and statistics which
assisted and facilitated the enquiry.
All of which is respectfully submitted.
We have the honor to be,
Your obedient servants,
R. S. LENNIE, Chairman.
D. H. MACDOWALL,
A. B. ERSKINE.  INDEX.
Page.
Notice  and  Sittings          3
Opening  Session           3
Proposed  Bill          4
Further Suggested Provisions       4
Power to Legislate         4
The  Underwriters'  Association          4
Present State of the Law       8
Reasons for Legislation   11
Protection to Licensed Companies    12
Suggestions Filed on Behalf of the Insurance Companies  12
Regulation of Rates  15
The Issues  18
The Subject of Taxation  18
Freedom of Contract  24
Deposit With Government Prior to Licence   25
Licensed   Brokers     34
Investigation of Fire Losses    37
Municipal Taxation  47
Summary and Conclusions  48 

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