Earthquake Insurance
Earthquake Insurance for Homeowner Associations
It is the policy of most HOA management companies to recommend the purchase of earthquake insurance. While most boards have the authority to decide whether to purchase earthquake insurance, it is wise for boards who have such authority to permit the overall membership an opportunity to vote on this important issue unless the board decides to acquire such coverage. If a board is opposed to obtaining earthquake insurance coverage, they should always permit the overall membership to vote on the matter in order to minimize their personal liability. Such liability can result from an earthquake that results in damages.
It is important to be aware that many Directors and Officers Liability Policies (Errors and Omissions Coverage) do not cover directors and officers for their failure to obtain correct or adequate insurance coverage.
The results of any vote taken concerning the issue of whether to purchase earthquake coverage must be noted in the minutes and also filed in a separate folder, properly labeled and filed in the section "Elections".
Even if an association has earthquake insurance, individual unit owners should carry their own earthquake insurance to cover any losses to personal property, living expenses while the association repairs the building, and special assessments levied by the association to pay for repairs.
The California Earthquake Authority (CEA) offers basic coverage for owners of condominiums. Coverage can purchased through an independent insurance broker and can be purchased regardless of any insurance carried or not carried by an association. With limitations, it pays for:
- Damage to personal property,
- Emergency living expenses,
- Interior damage,
- Special assessments levied by condominium associations to pay for earthquake repairs.
Owners should also carry an HO-6 insurance policy.
The failure to purchase earthquake insurance or flood insurance can result in a catastrophe for a homeowner association and the individual homeowners and renters, but it is expensive to purchase.
Many boards ask the members of their association to vote on whether to pay for earthquake and flood insurance.
Following is sample language found in some CC&Rs that is intended to protect the board against claims by members.
Earthquake and Flood Insurance. The Association shall obtain earthquake and flood insurance if these types of insurance are available. Should the Board decide it does not want to obtain earthquake or flood insurance, the Board must obtain the approval of at least sixty percent (60%) of the voting power of the Association to waive either coverage. Any waiver must take place annually by means of a vote of the Membership by secret ballot utilizing the same rules as for voting for Directors.
Homeowner associations should have their legal counsel draft appropriate language to amend their association's CC&Rs if needed for desired.
California Earthquake Authority
The California Earthquake Authority (CEA), created in 1986, is the largest residential earthquake insurer in the United States and issues nearly 40% of the residential earthquake policies sold in California. The CEA is a non-profit entity privately funded, but publicly managed. It was created in response to the 1994, 6.7 magnitude Northridge earthquake that resulted in 93% of California earthquake insurance companies either dropping out of the market or substantially cutting back and increasing premiums.
The CEA is now the only option available for many-California property owners who want to protect their property from earthquake damage or destruction.
The CEA does not sell earthquake insurance directly but only through licensed insurance brokers and agents such as OTC Insurance Services.
California Earthquake Authority insurance covers:
- House damage up to the same dollar amount covered by your homeowners insurance policy. Some items are excluded, such as pools, fences and landscaping.
- Personal belongings from $5.000 up to $200,000. This includes furniture, TVs, clothes, toys and computers. Things like China and crystal are covered through optional breakables coverage.
- Additional living expenses (ALE) or loss of use from $1,500 up to $100,000. This covers temporary and extra costs to live somewhere else while your area is evacuated or while your home is repaired due to earthquake damage. The CEA's Homeowners Choice policy lets you purchase separate coverage options instead of the basic bundled package. For instance, coverage for personal belongings and for ALE/loss of use is optional under Homeowners Choice.
Deductibles for CEA insurance range from 5% to 25% in 5% increments, with the percentage being tied to the amount of your dwelling coverage. The deductible is the amount subtracted from an insurance claims check; you do not pay the deductible to the insurer.
CEA earthquake insurance ordinarily doesn't cover:
- Fire damage even if it's caused by an earthquake.
- Damage to land, such as sinkholes.
- Water damage. This includes damage caused by a flood, tsunami or sewer backup.
- Vehicle damage. This type of damage-can be covered under comprehensive coverage in an auto insurance policy.
CEA controls 67% of the California market for residential earthquake insurance, with non-CEA insurers accounting for the remaining 33%.
Liquefaction
Liquefaction is the process that takes place when severe earthquakes take place, shaking wet and/or sandy soil until it starts to become liquid, allowing sand to "boil up" to the surface, and causing structures to sink, and/or slopes to fail. Liquefaction causes extreme property damage and commonly takes place in areas near the ocean, lakes, rivers, creeks, streams, and large ponds. Even areas adjacent to intermittent creeks, streams, and rivers such the Los Angeles River, the San Gabriel River, and the Santa Clara River are highly vulnerable. The Los Angeles Alliance has an excellent map on its website showing areas at risk for liquefaction.
Earthquake Safety Precautions
Following are several suggestions for earthquake safety:
• As soon as you detect an earthquake, take personal possession of your emergency preparedness supply kit and keep it nearby.
• Get under a desk or sturdy table if you are indoors away from any windows. Even safety glass may shatter and cause injuries.
• Never stand under or near anything that can easily fall on you such as a bookcase or large cabinet.
• If you are in bed, cover your head and neck with pillows.
• Stay inside if you are at home. Don't go outside and don't get on the roads.
• If you are outside, stay outside away from buildings that could collapse. Stay in an open area if possible.
• Do not go into elevators. Take the stairs if needed.
• If you are driving, pull over to a large open space that is not beneath power lines or trees. Stay in the vehicle until everything settles down.
Earthquake Fault Zones - California
Earthquake Rupture Zones in California
Difference in Conditions Insurance
OTC Insurance Services
a California Corporation
5737 Kanan Road, Suite 630
Agoura Hills, CA 91301
Office: 818-658-1500
CAInsuranceAgents.com
License # 6013582
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