Payout
It may fairly be said that the late 1800’s were, if not a golden age, but a time of great expansion and profit for British insurance companies. With the growth of Empire, these entrepreneurial enterprises followed the flag into Africa, India and the Americas, setting up many branches and subsidiary companies, some of which still exist today. In the UK however, competition was fierce. Companies had not yet begun to form themselves into groups, and so individual companies traded in sectors of business or localities where they felt themselves to be strong, and the underpinning strength was service, – speed of claims payment, generosity of settlement and support of local agents (insurance brokers were something of a rarity at this time, and, – with the exception of London – tended to operate on a very local basis). This desire to ingratiate with the community is graphically demonstrated by the fact that, despite their less than prompt attendance at the blaze, the L&L&G paid an ‘ex gratia’ amount to the local fire service, in effect doubling their submitted account. Much business was placed through local agents, these were professional companies, such as solicitors, accountants or motor garages, who were given agencies by insurers, and encouraged to persuade their own clientele to place their insurance business with the insurer to whom they were associated, and in return, were paid a commission. Some of their employees may even have been part of the Fire Brigade. This is of relevance here because of how the claim was settled. Wokingham at the time of the fire (1884) had ten insurance agents, one of whom was WJ Stone of Peach Street, who had an agency with the L&L&G. Mr Stone was a grocer and wine merchant. It is probable that, having introduced the business to L&L&G, Mr Stone then took a back seat, and the insurer effectively serviced the business themselves, surveying the premises, suggesting risk improvements, and discussing sums insured and other underwriting information with the client themselves. Mr Stone would be aware of his client’s insurance programme, and would handle day-to-day queries, but most technical issues would be referred to the insurer. This knowledge is perhaps why such detail of the values at risk and sums insured were so quickly available to the newspapers.
We must accept that, due to the repeated use of the phrase ‘fully insured’ by both the Mercury and the Observer, that this was indeed the case. So, with liability under the policy not in doubt, insurers were ready and willing to settle the claim. It would not be difficult to ascertain the replacement costs of the new machinery, and, dependent on its age, a replacement rag-puller could also be priced. It is harder to work out the value of the stock. The value of the finished paper, weighing 150 tons we are told, again could be costed from the company books, but how to calculate the value of the raw materials? These were rags, off-cuts, pulp with little or no intrinsic value of their own, so an agreed figure – called an ‘indemnity settlement’ would almost certainly have been found. The working out of this settlement, probably with the help of a loss adjuster, would take some weeks, and then the replacement machinery has to be sourced, purchased and installed, – again, several weeks are likely to have passed before this is completed. Next, the raw material has to be sourced. Previous suppliers will not have waited patiently for this work to be done, they will have sold to other mills, and may have built up order books without the need for the turnover generated by Emmbrook Mill. Similarly customers will have moved on. So, even if the plant is replaced quickly, it is likely to have been six months at least before the mill was ready to be back in operation.
This supposition takes no account of staff. We know that 50 persons were ‘thrown out of employment’ (‘Observer’). Some will have been kept on, either in the offices, or in a maintenance capacity, but there are no ‘key’ operatives need to work the machinery, so these employees will have had to find alternative employment. So, as the mill is once more ready for action, there are no bodies to do the work. All of which confirms that, even once operational again, the mill will not revert to its immediate pre-fire capacity and order book, – this, in itself, is likely to take up to a further 6 months, even if customers had remained loyal, and if possible at all. That’s 12 months after the date of the fire
Let us now fast-forward ten years. We know that by 1894 (ten years after the blaze) both Westcott brothers had been made bankrupt. The probability is, that their bankruptcy occurred around 1890 – although this is speculative. How, therefore, can a thriving business, fully insured, go from blaze to bankruptcy in approximately six years? The probable answer lies again in insurance, or lack of it. Business Interruption insurance (BI), or Consequential Loss insurance or Loss of Profits cover – it has many names today – was virtually unknown. The first formalised cover was noted in UK in 1899, but this fire represents almost a perfect working example of why the insurance was created and how much it was, and is, essential to many businesses. The principle of the cover is that BI insurance will pay for the standing charges (rent, rates, water, heating etc) that must be maintained notwithstanding that the business is not functioning or generating any turnover. In addition, for a fixed period of time, insurers may also meet some of the costs of the wages of those emplolyees retained or deemed essential to the business. The client’s rate of gross profit is also worked out in accordance with a pre-agreed formula, and the loss of profit thus calculated is also met by insurers for a fixed, pre-arranged period. It’s also possible to build into a loss settlement the costs of retaining suppliers or customers or finding new ones. This insurance cover would probably have enabled the Westcott to continue to develop their business during the refurbishment period, and also, if necessary, to assuage the concerns of their bank manager. But without BI insurance, the business in its pre-fire format was unsustainable, and the costs of trying to build up the business again may well have been the main contributing factor to the brothers’ bankruptcy.
We know that a further mortgage was taken out after the fire – interestingly, not with a bank, but with a private individual, and this, in turn, would lead to a further dispute in the future. We must presume that this additional funding was to help ease the business back on to a commercially viable footing, but, evidently, it did not succeed. Even today, with adequate insurance protection, recovery to the pre-fire status of the business from a catastrophic loss such as this, with all the necessary rebuilding and re-equipping, would take a minimum of 18 months. It is, perhaps, interesting to note that, in the bankruptcy proceedings, the company creditors received less than 10/- in the £ (£0.50), and the Westcott brothers were also publicly criticised for not keeping proper accounts.
