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appropriate. I said so at that time that I did not think we should play flood politics with the disaster and that we should concentrate in these hearings on the business of flood insurance and disaster insur


I ask the chairman once more, and I hope we can end this matter by just sticking to the flood-insurance end of it and cut out the politics. Governor Ribicoff who testified here said, and I think we all agree, that this is not a partisan matter. It is a matter in which we are all very deeply interested. Therefore I beg the chairman-I do not want to go back and criticize the administration prior to this, although I could make a very severe condemnation of them for the way the floodinsurance program was handled in 1951 and 1952. The material which I put in the record this morning will give the legislative history of this matter and will show that despite the urgency of the situation in 1951 and 1952, when the disaster struck in Missouri in July 1951, that the then administration did not send a specific flood-insurance bill to the Congress until May 1952. I think what we want to do is to accumulate all of the information we can here without any recriminations. Nobody will believe this administration is dillydallying about this thing. What we want is to get some unity of feeling here and get a program that we can agree on. So I hope the chairman will not resume these inferences about the laxity of the administration in this


I am very sorry. I have a great personal respect for the chairman, as he knows, and we are very good friends, but I just cannot let these things pass.

Senator LEHMAN. I think if it is agreeable to you we should stand in recess until 2:30.

Senator BUSH. I agree.

(Whereupon, at 1:20 p. m. the committee recessed until 2:30 p. m. of the same day.)


Senator LEHMAN. The hearing will resume.

I am going to ask Mr. George T. Carmichael, senior vice president of the New York, New Haven & Hartford Railroad, to testify.


Mr. CARMICHAEL. Mr. Chairman, my name is George T. Carmichael, senior vice president of the New York, New Haven & Hartford Railroad Co.

I am appearing today in place of Mr. Patrick B. McGinnis, president of the New York, New Haven & Hartford Railroad, who was tied up at a special directors meeting in New York City.

The New York, New Haven & Hartford Railroad was very vitally affected in both floods. I have with me two maps, one of which I would like to present to the committee, which shows the extent to which the property was damaged and out of service in the August floods, and a corresponding map to show that the damage was not so extensive on the main line between New Haven and New York in the October floods.

The New Haven Railroad has a depreciated investment in real property, that is, road and equipment, of $351 million in the 3 New England States, with a small section in New York State. The cost to replace that property today, depreciated up to today, would be probably over $500 million. In connection with these floods we now estimate that our total loss is $10,694,000. That is made up of the $9,417,000 in physical property and other expenses which were incurred of $1,277,000. That would be expenses in transportation where we had to have wire trains, and for diverting traffic and using buses to transport our passengers between South Norwalk and Stamford, and miscellaneous expenses of that kind.

Senator LEHMAN. Does it include any indirect losses, such as loss of traffic?

Mr. CARMICHAEL. No, sir. I am coming to that.

Lastly we estimate our revenue losses to be $2,367,000. That gives us total losses of over $13,061,000, but, if covered by any disaster insurance for real property, of course all we could collect is $9,417,000. Senator LEHMAN. I did not get that. You did not say you were


Mr. CARMICHAEL. No, sir. I say if it had been possible to have complete coverage, that is all we could have collected. So there are some $4 million that would be uncovered unless we could buy use and occupancy insurance, so-called, which pays for loss of revenue.

Our loss in physical property was divided as follows: The loss in Connecticut, $7,814,000; the loss in Massachusetts, $1,382,000; Rhode Island, $204,000; and in New York State only $17,000.

We had some minor washouts. Our damages consisted of 47 bridges washed out entirely. We had 265 washouts scattered over New Eng land in places marked in red on the map. We had 22 landslides and it affected 120 miles of railroad.

That means, are we interested in disaster insurance? We certainly are, and we strongly advocate it. There have been many questions raised. I think in your bill, Senator, there was a $300,000 maximum. In the so-called Kennedy-Saltonstall there was a $250,000 maximum. Both of your bills provided for certain deductibles which, of course, is normal in insurance. I think yours provided for a deduction of $300 and the Kennedy-Saltonstall bill provided for a deduction of $250, with 10 percent of the balance of the difference of the loss, which is a complicated way to figure it out, I think. I think the insurance should be made as simple as possible.

As to what the maximum should be I cannot recommend any definite amount. I go along with the Governor to a certain extent, that there cannot very well be limits set. For example, in the case of a railroad extending over the mileage that we do, we would have to be confined to a loss in a single area.

For example, take fire insurance. We have property worth $120 million insured for fire, but carrying a maximum of $3 million for any one conflagration or in any one area, and we have a deductible.

Any insurance, I think, that is put out, certainly should be in the hands of insurance companies. It will need very close scrutiny, as it is very complex, and I think that the Government could probably step in in some way and guarantee it. But it must be a widespread coverage, because I agree with the Governor that if we had insurance

of this type it would be taken by many people, and eventually a reserve would be built up.

In addition to insurance we certainly and thoroughly believe that there must be flood protection, but that is a long-range problem and will take a long time to cover. I think insurance is the quickest and surest remedy for giving businesses in the New England area the stability and the knowledge that they can be covered against disasters of this kind.

In 1954 we were hit by 3 hurricanes, and in 1955 by these 2 disastrous floods. We have arranged to borrow $10 million with the help of the United States Government, who have stated they will guarantee 90 percent of the loan with a syndicate of banks, and we think that will cover it.

Senator LEHMAN. May I interrupt you to make an observation for a minute?

Mr. CAMICHAEL. Yes, sir.

Senator LEHMAN. Mr. Carmichael, you referred to flood control. Mr. CARMICHAEL. Yes, sir.

Senator LEHMAN. As being a very necessary thing. I am in full agreement with that. I know my colleague here is also, and I think every member of the committee is. I think it is an essential thing to have. If we had it of sufficient size and diversity I think we could reduce the flood damages considerably.

I emphasize that to show my great sympathy with it. However, I do want to say, and largely for the benefit of the press and some of our friends who are here today and may not understand it-that this committee has absolutely no jurisdiction with respect to flood control. We were appointed and are sitting in connection with disaster insurance, and not flood control.



Senator LEHMAN. Even though I believe everybody is in favor of In the same way I know one of the Congressmen here today, I think it was Congresman Patterson, spoke about taking remedial action on the Housatonic River immediately. That too is entirely outside of the jurisdiction of this committee, which was appointed to look into the question of national protection against disasters, that is, natural or manmade.

I just want to mention that so that you gentlemen may know the breadth of our jurisdiction. I do not want to give you the impression we have anything whatsoever to do with flood control, even though we are much in sympathy with it.

Mr. CARMICHAEL. Thank you, Senator.

Senator LEHMAN. I shall tell you right now that I shall vote as I have for every sound flood-control project. I would like to see the amount which is appropriated very much increased.

Mr. CARMICHAEL. Yes, sir. I am glad to have that clarification, but also want to add even with flood control I still think we are going to have the necessity for disaster insurance.

Senator LEHMAN. You are quite right.

Mr. CARMICHAEL. We will have flash floods and floods we cannot help, no matter what kind of flood control we have. I can't see even partial flood control in the next 5 or 10 years in any amount that will reduce these losses. But I think if we have the proper insurance put in and as experience goes along we will build up a natural reserve, and

each corporation will have to decide what insurance to take out. That is why I think it is a mistake to have any insurance limit proposed here of $250,000 or $300,000. It is altogether too small for any large corporation.

Railroads have a special problem because we have so much territory to cover. We are likely to be hit one year in Massachusetts and the next year in Connecticut. That must be taken into consideration.

We do not expect any free insurance. We are willing and want to pay a reasonable premium for insurance protection. For 2 years I tried to obtain water or flood insurance for the New Haven Railroad and have not been able to get it. It is not obtainable from insurance companies. So there must be some Government assistance to get it started and placed where we need it so badly.

We have borrowed money. Of the $10 million loss we have, to show you how fast we spend money, up to last Friday night we spent $5,839,000 in actual cash right out of the treasury on repairing bridges and restoring roadway from the damage caused by these two floods, and things of that kind. That is why I think it is imperative, and I know your committee is fully aware of the speed that is necessary in securing this legislation.

That is all I have to say.

I certainly thank you for the opportunity to appear before you. Senator LEHMAN. Where did you borrow that $10 million? From what agency?

Mr. CARMICHAEL. All of our negotiations are with the Assistant Secretary of the Treasury, and through his good offices there was a syndicate formed in New York with the Chase-Manhattan Bank representing 8 New York banks and 1 bank from Providence and 1 from Boston. They have made up a syndicate which will loan us $10 million. To obtain that $10 million we have to obtain the approval of two-thirds of our preferred stockholders. So in the meantime we have borrowed $4 million on a short-term loan from the Chase-Manhattan Bank, and $2 million we withdrew from other funds.

Senator LEHMAN. Is the loan guaranteed by the Government? Mr. CARMICHAEL. It is participated in by the Government 90 percent. Yes, sir. The $10 million loan would be. That is because we could prove we could not borrow the money any other place. No bank would lend that amount of money.

Senator LEHMAN. That is under the Defense Production Act? Mr. CARMICHAEL. Yes, sir. I think it is sections 702 and 703. Senator LEHMAN. I suppose that some of this property you lost was collateral for some of your bonds?

Mr. CARMICHAEL. Yes, it was. It was under mortgages. I might mention in connection with this property, that the Governor spoke of income-tax savings through these loss deductions. Of this amount in excess of $10 million, over $3 million was charged to capital which, of course, does not give us any income-tax deduction; but we do hope we will get from the Defense Department some acceleration certifi cates for at least 80 percent of that, so that we can amortize it over a 5-year period.

Senator BUSH. Mr. Carmichael, what do you think would be a reasonable premium, or what would strike your company as reasonable to pay for the kind of insurance you mentioned?

Mr. CARMICHAEL. Senator, it is a very difficult thing to say. I think it has to be a premium based on a rate of so much per hundred on the value of the property you insure.

Senator BUSH. Fifteen percent, or 10 percent? Give us an idea. Mr. CARMICHAEL. I can't because we have not made a study of it. The losses are so terrific you cannot figure it out.

As an example, on our insurance for $120 million with a $3 million maximum and a $100,000 deductible, we pay about $95,000 a year for insurance premiums. We have not yet had a fire which the company is responsible for which amounted to $50,000 in the past year. We did have a $60,000 to $75,000 fire on one of our bridges in Derby, which was being repaired, but that is a contractor's liability.

Senator BUSH. If you were going to buy $10 million worth of disaster insurance and the rate was 5 percent, that would be a half a million dollars a year.


Senator BUSH. That would be a lot more than you are paying for insurance.

Mr. CARMICHAEL. A great deal more. I think it would be a high premium, but it should be worked out by the insurance company, because I certainly hope that the insurance companies, who are well organized and have been really prohibited from putting in this kind of insurance, could get into this picture and do a real job of administering it and settling the claims and give a good recommendation on what the rates might be.

Senator BUSH. Thank you.

Senator LEHMAN. I have one other question. Your New York, New Haven & Hartford is a great railroad.

Mr. CARMICHAEL. Thank you.

Senator LEHMAN. I have traveled on it very often, as recently as Friday, but it operates within a relatively limited area.

Mr. CARMICHAEL. Yes, sir.

Senator LEHMAN. Which could be and has been subject to a disaster in the whole area.

Mr. CARMICHAEL. Yes, sir.

Senator LEHMAN. And you do carry insurance. But would a company like the Union Pacific, or the Southern Pacific, or the Southern Railroad, which cover many, many States, and an area much broader than you do-do they carry any insurance?

Mr. CARMICHAEL. They carry some insurance. Yes, sir. I am sure they do not carry any flood insurance because they cannot buy it. Senator LEHMAN. I do not mean that, but general insurance. Mr. CARMICHAEL. Yes, sir. All railroads carry insurance. For example, the New Haven Railroad carries fire insurance and catastrophe insurance for our passengers. We are insured for $7 million for death and injury to passengers in any major train wreck or calamity, and we also carry $1 million insurance on wind and hurricane, which we have been able to obtain since the three hurricanes of 1954. We are covered for everything we can be in insurance. A large corporation must of necessity do that or else be self-insurers, and only a very large company can afford to be self-insuring.

The theory of insurance, as I understand it, is like automobile insurance, that is, to spread the risk among a large number of people,

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