In the early morning of April 18, 1906, a violent earthquake struck San Francisco, triggering fires that burned for days and destroyed over 80 percent of the city. While the physical destruction was immediate, the financial aftermath sparked one of the largest legal battles in American history. Most property insurance policies at the time contained explicit exclusions for damage caused by seismic activity.
However, standard policies did cover losses caused by fire. As a result, property owners faced immense financial ruin if their claims were classified as earthquake damage rather than fire damage. Desperate policyholders argued that gas mains severed by the shaking ignited uncontrollable infernos, meaning fire was the ultimate cause of total loss.
In some cases, property owners allegedly set fire to their own damaged homes before claims adjusters arrived to ensure their losses fell under fire coverage. Insurers counter-argued that earthquake shaking was the proximate cause that allowed the fires to spread. The resulting legal gridlock forced state insurance regulators and courts to establish precedents regarding proximate cause in insurance law.
Ultimately, reputable insurers paid out millions, but the legal crisis permanently changed how disaster insurance policies were written nationwide.