Let’s Talk About Earthquakes

     The 5.8 magnitude earthquake centered in Redwood Valley in June reminded many of us that we live in earthquake country. It inspired me to sit down with Rob McAsey of Mark Davis Insurance for a refresher course on the basics of earthquake insurance.

The Coverage Itself

     In California, insurance carriers licensed by the California Department of Insurance, referred to as “admitted” insurers, are legally required to offer earthquake coverage. While you may not love the price or the deductible, at least you can get some protection. In Mendocino County, as in the rest of the state, most earthquake policies are underwritten by the California Earthquake Authority or, less commonly, GeoVera.

     Policies can include coverage for structures, personal property, loss of use, and building code upgrades. Some options are standard, but others require an additional premium. For example, code upgrades typically come standard with earthquake insurance, while loss-of-use coverage does not. Note: most carriers require your earthquake policy amount to match your homeowner policy amount, but some carriers will let you purchase a lower limit if you choose.

Understanding the Deductible

     Insurance deductibles represent the amount of damage you have to pay for before the insurance coverage kicks in. The standard deductible for earthquake insurance is 15%, which means on a $1 million policy, you pay for the first $150,000 in losses (a combination of damage to your dwelling and its contents if you have personal property coverage).

     If your home is deemed earthquake-resistant enough, you may qualify for a minimum 5% deductible. The maximum allowed is 25%.

Loss-of-Use Coverage

     For homeowners and renters, loss-of-use coverage is a provision that reimburses costs associated with having to live somewhere else due to a covered event, in this case, an earthquake. If the damage directly caused by an earthquake forces you out of your home for an extended period and you purchased earthquake loss-of-use coverage, expenses like rent or hotel stays can be covered. If the earthquake causes a fire or flood, and the home is damaged from those, your regular homeowner’s insurance kicks in.

     If you are a landlord or you own commercial property that suffers earthquake damage, loss-of-use coverage can bridge the gap of either lost rental income or lost revenue from the inability to conduct business.

Read the Fine Print

     As I always say, the big print giveth and the small print taketh away. Be sure to read and understand your earthquake policy. Sometimes the carve-outs will surprise you.

     For example, California Earthquake Authority policies cap chimney damage at $10,000, a “sub-limit” separate from your deductible. Keep in mind the coverage for your chimney only kicks in once you exceed the policy deductible, and costs associated with repairing a chimney that go above $10,000 come out of your pocket, regardless of whether you’ve met your overall deductible. Also, earthquake insurance does not cover structural damage caused by a landslide or earth movement resulting from an earthquake (though flood insurance may apply if water caused the slide).

     Three exclusions apply across most insurance policies: acts of God, acts of terrorism, and acts of war—although some commercial policies now cover acts of terrorism. And be aware, if your policy is through a non-admitted carrier in California, you are not protected by the California Insurance Guarantee Fund if that carrier goes bankrupt or refuses to pay.

After the Shaking Stops

     In the immediate aftermath of a significant earthquake, insurance companies typically have a lot of people demanding their attention, so try to be patient. Keep records of any essential purchases that may qualify for reimbursement. Also, be aware that insurance companies put a moratorium on new policies right after big events to prevent paying on policies that were purchased after the fact.

     And once the dust settles, even if you don’t have any obvious damage, it’s a good idea to have your home inspected. The inspector will pay particular attention to wood stove exhaust and chimney pipes, brick chimneys, and brick foundations to make sure all is well. They’ll also check under-house plumbing. Broken pipes are not always apparent right away; they only become obvious days later when water appears at the foundation or in the crawl space. If you notice reduced water pressure, contact your water district. It may indicate a broken line.

     If you’re wondering whether you should get earthquake insurance, talk to your local insurance agent about it. They’ll give you advice tailored to meet your particular needs. As with so many service industries, local really is better--it’s best to work with someone you know and trust. Thanks, again, to Rob McAsey for sharing his expertise for this column.

     If you have questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

     Dick Selzer is a real estate broker who has been in the business for more than 50 years. The opinions expressed here are his and do not necessarily represent his affiliated organizations.