What's the Deal With Earthquake Insurance?
While it is difficult to surpass the natural beauty of California, some say that all this beauty exacts a price. Natural disasters are part of the price we all pay for living in beautiful California. Fires, mudslides, floods, and earthquakes are a few of the natural disasters common to our state. Earthquakes in particular send a tremor of fear through most Californians. Impossible to predict, earthquakes can cause major damage to your home and personal property, not to mention the loss of human life that can occur in severe earthquakes. Earthquake insurance is one way to protect one of your most valuable assets: your home.
Many property owners utilize earthquake insurance to help defray the expense of costly earthquake repairs. Residential property insurers (insurance companies that sell homeowners policies and policies for qualifying condominiums and apartments) are required under California Insurance Code (CIC) Section 10081 to offer earthquake coverage for the peril of earthquake. The mandatory earthquake offer must:
- Be made in writing
- Describe coverage amounts
- List the deductible offered
- State the policy premium
You have 30 days from the date of mailing from the insurance company to accept the offer of earthquake coverage. If your homeowners insurance company does not receive a response from you, then they consider the offer rejected. Your insurance company is only required to make the offer of earthquake coverage every other year. The law prohibits an insurer from canceling, rejecting, or refusing to renew a residential property policy solely because the policyholder has accepted the offer of earthquake coverage.
Earthquake Coverage
Every offer of earthquake insurance must provide coverage for your dwelling, for your personal property (not less than $5,000 or 10% of the covered dwelling loss), and for any additional living expense (ALE) of at least $1,500. You may waive ALE coverage if you or your family do not occupy the dwelling you wish to insure. CIC Section 10089(b) states that the maximum deductible that can be charged is 15% of the policy dwelling limit. It is common for the deductible to be the maximum 15%. If you desire earthquake insurance offering more than the minimum limits and a deductible less than the maximum established by law, then you may contact your current residential property insurer or earthquake insurer to see if higher limits or lower deductibles are available. (Please see the "California Earthquake Authority" section of this brochure.) Also, you may want to contact a broker-agent to assist you with securing a monoline "stand-alone" policy. Stand-alone policies are offered by a few specialty insurance companies who do not require you to purchase your homeowners insurance from them in order to offer you earthquake coverage. They offer a stand-alone policy, which is referred to as a monoline policy (one line of insurance) by the insurance industry.ALE coverage is designed to pay for the cost associated with living somewhere else while repairs are being made to your home. Typically your insurer will cover increases in your normal living expenses to help you maintain the standard of living you had before an earthquake damaged your home and personal property. ALE coverage can include costs for the following:
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- Temporary rental home, apartment, or hotel room
- Restaurant meals
- Telephone or utility installation in a temporary residence
- Relocation and storage
- Furniture Rental
- Laundry
Payment on ALE coverage is limited to the reasonable time required to repair or rebuild your home, or for you to permanently settle in another residence. It is important to note that ALE only covers the extra amount you have to pay in order to maintain your normal standard of living while outside your home. ALE coverage can also pay costs you may incur due to the police or other civil authority denying access to your home in the event of an evacuation.
California Earthquake Authority(CEA)
The CEA was formed to provide earthquake insurance to residential property owners including homeowners, individual condominium unit owners, mobile homeowners, and renters. Under the CEA plan, the CEA member insurance company is required to offer earthquake coverage subject to the minimum dwelling and personal property requirements as outlined in CIC Section 10089 and as discussed in the "Earthquake Coverage" section of this brochure. Your dwelling must be covered according to the CEA policy guidelines; however, other structures such as outbuildings, swimming pools, and masonry fences are specifically excluded (as is the case with the majority of earthquake policies). The CEA has more recently offered broader coverage in response to growing claim reserves and positive reports of plan solvency.You cannot purchase earthquake coverage directly from the CEA. The CEA does not offer stand-alone earthquake policies. Only licensed California insurers who are CEA member companies can sell CEA policies. You must have a residential property policy in-force or be purchasing a new residential property policy from a CEA member insurer in order to be offered a CEA policy. The residential insurance companies participating in the CEA currently underwrite over 70% of the residential property insurance sold in California. A participating CEA company can only offer CEA policies. For more information on the CEA contact a CEA member residential property insurance company or access the CEA Web site at www.earthquakeauthority.com.
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Special Earthquake Provisions
Insurance companies are required to offer earthquake coverage even if your property does not meet current Building Code and Health and Safety Code requirements relating to foundation anchor bolting and water heater bracing. However, your insurer may charge additional premium and/or an increased earthquake deductible if this is the case with your dwelling. Also, your insurance company must disclose any available discounts (such as retrofitting) for earthquake hazard reduction to your property in writing.Retrofitting acts to strengthen your home to minimize future earthquake damage. Many consumers have utilized earthquake retrofitting as another way to be as prepared as possible for an earthquake. Look into retrofitting your property. In some cases taking simple steps such as bolting your wood frame home to the foundation can save your home from severe earthquake damage and can reduce your earthquake insurance premium. Residential retrofitting includes, but is not limited to the following:
- Anchoring a dwelling to its foundation through seismic bolting
- Reinforcing and/or bracing the fireplace chimney
- Securing and bracing the water heater to the dwelling frame
- Installing automatic gas shut-off valves
- Installing bracing for sheer walls
If your dwelling has been completely retrofitted as verified by your insurance company, you must be offered $10,000 coverage for reconstruction costs to bring your dwelling up to current building codes as required for approval of the reconstruction permit after an earthquake.
Proximate Cause
Sometimes an earthquake and/or its aftershocks can cause other events to occur that result in damage to your property. When an earthquake triggers other property losses (such as a bursting water pipe), the earthquake is referred to as the "proximate cause" of the damage, not the "direct cause." CIC Section 10088 states that unless earthquake coverage is in-force at the time of an earthquake, the resulting loss is not covered, even if the direct cause is a covered peril under your residential property policy. This section does not prevent an insurance company from specifically providing coverage for direct loss due to explosion, theft, or glass breakage resulting from earthquake when an endorsement or earthquake policy does not exist. Read your policy and contact your insurance company whenever you experience a property loss due to an earthquake. Do not assume that the damage to your property is not covered.
Fire
Fires in the aftermath of an earthquake can often pose just as much threat to property damage as an earthquake itself. CIC Section 10088.5 provides that your residential fire insurer cover all fire losses that are caused by or follow an earthquake, regardless of whether you have earthquake coverage. Fire is the only exception to the proximate cause law.
Reporting an Earthquake Claim
Knowing what to do in the aftermath of an earthquake property loss or any property loss can help you deal with the claims process in the most efficient way possible. As with all insurance claims, an earthquake claim needs to be reported to your insurance company as soon as possible. Your insurance company is required to open a claim upon your notice that a claim has occurred. Always document each phone call to your insurance company by getting the name, title, time of the call, and points you discussed.
After you have filed your claim, you need to schedule a time for the claim adjuster assigned to your case to come out and survey the damage. Show the claim adjuster all the damage that you have discovered. The inspection should include hidden areas of your property such as basements, crawl spaces, slabs, and raised foundations. Determining the true extent of earthquake damage can be difficult because some types of damage can be hard to detect at first. Steady attention and effort paid to investigating your earthquake property damage is necessary to make sure that all visible and potential hidden damage is assessed and calculated in your claim. Your insurance company should conduct a thorough inspection of your property as soon as it is practical after you have discovered earthquake property damage. This includes the discovery of additional damage after the first inspection has occurred.
Timely reporting of earthquake property damage to your insurance company is crucial. Your policy and the law states that an insurance company can deny claims that are not reported within one year of the "inception of the loss." Inception of the loss is that point in time when you first notice (appreciate) property damage or should have noticed damage if you had focused steady attention and effort on discovering all possible earthquake damage to your residential property. If you perceive any damage or you know of any situation that may indicate that damage exists, then you must act to report the claim as soon as possible.
You can give the Baldwin Insurance Agency a call anytime at 510-274-9766 to talk about your earthquake coverage needs. You can also stop by our office in the Intero Real Estate Building at 3185 Castro Valley Blvd, or visit our website at http://www.baldwininsuranceagency.com
