Savannah morning news. [volume] (Savannah) 1868-1887, 1883-10-12
The Average Clause''-An Explanation

there are some who have not as yet eN-
actlv caught the true working of the
much objected to condition, recently
made applicable to all cotton policies; ana
while much has been said against II, niue
or nothing has been argued in defence
Now there certainly must be some Justl-
fcation for an action so universally
adopted bv companies representing NIL
lions of money as capital and managed
bv men many of whom are known 10 De
capable and intelligent business men anu
fnaneiers Now let's illustrate the APP
plicati0n of this clause. First we quote
the wording of the clause, VIZ: IL MS
company shall be liable only LOT
such proportion OF the WnOle losses tIis
insurance bears to the cash Nalue ol the
whole property hereby insured at the time
of the ire And in illustrating we VIII
assume for basis that a bale of cotton rep
resents $50. money value. Mr.. n. mas 2,OOO
bales. representing 100000, upon which
he takes out $4,000 insurance, thus prac-
tically making the insurance company
responsible for One-half the cottoh' VI
1000 bales. and assuming the response
bilitv for the other half. or LOCO bales,
himself a fire occurs. If all the
cotton is burned. evidently the company
loses $50. 600 and Mr.. y. loses $9O,oOO. But
/ supDoSe only naif the cotton Is burn
ed or 900 bales J, is 1t equity Tor MI. 4.
to say that the 1000 bales burned were
the LOCO bales insured. and the LOCO bales
saved were the 1000 bales ne had
| assumed responsibility tor: IL so,
why might not the insurance coul-
pany claim the reverse proposition
with equal Justice, and say the 1000 bales
burned were those Mr.. 4. had assumed
/ the responsibility for, and the 1000 bales
saved were those insured: Now, with
| the average clause, let's see the working
/ i'm the adjustment of the loss. Two thou
sand bales. value 100000, insured for
say $4,000. Two thousand bales burn
| insurance company loses $4,000 and Mr..
| A. loses $4,000. That Is inevitable, for
he only had $4,000 insurance on 1t; but
/ if 900 bales burn insurance company
| loses SO. 900 and Mr.. A. loses S20,O and
| 900 bales not burned is still insured for
| S25. 900. so the relation is still proportion
| ately the same. only quantity and values
| are reduced. Thus we have remaining
/ after the adjustment. say l,UOO Dales,
| value $4,000, insured for S25,0OO, Tor the
| balance Of the amount of original lnsur-
ance is left in force to protect the re-
mainder or unburnt cotton, and as only
| half the 1000 bales were burned and only
1 half the $4,000 insurance PAID, we nave
/ 900 bales left. with $4,000 insurance
/ covering on it. Now if a second ire
should occur the same line Of action would
/ be pursued. Say in second fire 100 bales
| were burned being One-tenth the remain
/ ing cotton, then the insurance company
| would pay $1,000. or One-tenth the re-
naming insurance. and leaving 900 bales
with the remainder of the policy covering
| it, say So. 800. \ third fire happens, and
( 500 bales more are burned, being five
ninths Of the cotton, then the insurance
/ company would pay five-ninths OF the re-
naming insurance, say S12,3OO, again
/ leaving 400 bales on which the remainder
1 of policy. say $4,000. would still cover;
| and for argument sake to Illustrate: say
/ another fire burns half the bales left, or
POO bales. the insurance would pay half
/ the amount Of policy remaining, say
s., 900, and the other half would still
| apply to cover the 300 bales yet unburnt,
! say $1,000. and should these BOO bales
! burn. then the insurance company would
pay the $1,000 tor the POO bales, and Mr..
A. would have collected his $4,000 in
surance for his cotton.
Now let's see what justice there is in the
arbitrary demands of our banks tor 80 per
cent additional insurance in amount, if
average clause is inserted in policies,
/ citing the foregoing case. Mr.. A. has
1000 bales value 100000. insured for 500
600. With average clause. he bOrrOWs 500
600 of the bank, and gives them cotton re-
ceipts and the $4,000 policy as collateral;
now fire occurs as stated and 1000 bales
are DESTROYED the bank would collect
$4,000 of the insurance company and
would have $4,000 remaining insurance
covering the unburned LOCO bales TO pro-
tect the balance of $4,000 unpaid loan:
thus for their $4,000 loan they would
have So, 900 in money collected from the
insurance company. and 1000 bales cot
ton protected BY $4,000 insurance, as
signed over to them. Following the illus
trations on down the successive losses as
given. and i'm the end the bank would re-
ceive from the insurance company the
whole Of the SOC. 900 original loan to Mr..
A. without ever having been without am
pie collateral security, certainly the aver
age clause would not have hurt them at
ALL But they may argue that Mr.. 4.
might pledge the other 1000 bales, or dis
pose of them otherwise; well, in that
event, if he disposed of them they would
no longer be his and the whole of the
$4,000 insurance would attach to the cot
ton held by the bank, and there would be
no excess value of cotton on which to
/ make average apply. and If he had
pledged it in some other bank, that bank
would require insurance policies to cover
it. and thus there would be two $4,000
policies covering on 1000 bales, value
I 500, 900, and there being no excess value
on which to average any loss, would
/ be paid dollar for dollar. ! claim,
therefore. that the insertion of the
average clause does not prejudice the
/ security to the banks, and if | have by the
foregoing plain statement shifted from the
shoulders Of the much-abuSed under
writer's some of the responsibility for the
/ tax of the cost of 30 per cent. extra insur-
| ance. levied on our cotton merchants by
/ the requirement of the banks, / will hope
/ that our cotton dealers viii yet see that it
is our bank officials who have done them
the injustice in the matter, and that they
may see the prOpriety of making their de-
mand for proper redress on those officials
they representing institutions more di-
rectly responsible to them, and to a very
much greater extent dependent on the
local patronage and good will of Sayan-
nah cotton merchants than the insurance
companies are, and who. we assert, "haVe
done them no wrong Let our mer-
chants, then, unite in demanding (as
some have had nerve to do individually
that the banks rescind the order requiring
additional insurance because Of the
average clause, and which | am in
formed is a requirement peculiar to Sa-
Yannah and not demanded in the rival
ports or competitive markets, though the
average clause attaches TO all cotton pol
/
North and South Carolina, Georgia, FlOri-
da and Alabama. | say let our merchants
demand this of the banks in savannah.
rather than demand of some forty or fifty
insurance companies the abrOgatiOn of
condition in their policies, the insertion
of which they deemed eXpedient, and
some of which companies have singly
more cash capital than all the banks and
bankers in Savannah combined, and who
have business all over the civilized
world; and while they solicit and appre-
ciate the patronage OF our cotton mer-
chants, yet are not nearly so dependent
on il as our banks are.
1t might be we'll to call attention to the
fact that the average clause is only at
tached to policies covering on cotton, and
that even in cotton risks the assured can
relieve themselves of all responsibility
by insuring for full value OF the cotton,
or if they wish to insure only specific
lot, they can, by giving marks and num-
bers of the bales, have it insured without
the average clause being put In.
INSURANCE.