Timothy Cline Insurance Agency, Inc.
Homeowner Associations »
Earthquake Definitions
Admitted Status: Admitted means that the insurance
carrier is licensed to transact in the State of California. Licensed
insurance carriers submit to financial and examination requirements
by the State of California. Admitted carriers can only sell what
the State has approved. Admitted carriers also participate in
the State insolvency guarantee funds. For example, if an Association
is with an admitted carrier and at the time of your loss the
carrier goes insolvent and/or bankrupt, the State of California
will step in and pay the claim. However, keep in mind that the
state will only pay up to $500,000 (or the amount of the claim
if it is below $500,000, whichever is less), regardless of the
actual amount of the loss. Admitted insurance carriers must also
follow the State form and rate filing requirements, giving them
little or no liberty to rate as they wish.
Non-Admitted Status: A non-admitted carrier
is not licensed in the State of California and does not participate
in the State guarantee funds. This means that if there is
a loss and the carrier is unable to pay for the claim, the
State of California will not step in and help. Non-admitted
carriers are not subject to form and rate filings by the
State. In essence, non-admitted carriers have the freedom
to rate as they wish with little or no oversight.
A.M. Best Rating: An industry’s independent
third party evaluation company that ranks the financial strength
of insurance companies. Their purpose and/or mission is to “perform
a constructive and objective role in the insurance industry
towards the prevention and detection of insurance insolvency.” In
other words, A.M. Best ratings gives the consumer an indicator
of how the insurance carrier may be expected to perform in
the future, based on past and present performances in its
ability to pay claims.
A.M. Best assigns traditional LETTER GRADES,
ranging from the very highest, A++ (Superior) to the lowest,
F. They work like school grades; the higher the grade,
the higher the performance level the carrier is expected
to meet. The assigned letter grades are grades that compare
a specific carrier’s performance to that of other
carriers.
A.M. Best assigns NUMBER GRADES to express a carrier’s financial size.
This is also referred to as the Financial Size Category (FSC). The financial
size category is an indicator of how much capital, surplus and conditional
reserve funds the carrier has. Financial size categories range from one to
15; one being the poorest, and 15 the richest. Many insurance buyers consider
buying insurance coverage from companies that they believe have sufficient
financial capacity to insure their risk.
Amount of Coverage: The total dollar amount
the Association can collect for any given catastrophic
claim in one policy year.
Bare Walls: Refers to a type of coverage
that stops as soon as the wall ends; no fixtures, additions,
or even paint is covered in a bare walls policy.
Building Ordinance: Can better be described
as code upgrade coverage. For example, if there is a catastrophic
earthquake which damages 50% or more of a building or structure,
the County Department of Building and Safety will likely
require that the association restore the entire building.
This includes both the damaged portion and the undamaged
portion up to current code before issuing a builder’s
permit. Building Ordinance coverage provides three types
of protection to address this exposure; 1) Demolition Coverage,
to tear down the undamaged portions if it may become necessary,
2) Loss of Value, rebuilds the undamaged portion, 3) Increased
Cost of Construction brings both the damaged portion and
the undamaged portions up to current building code.
Deductible: In the event of a loss, the
deductible is the predetermined dollar amount the association
must pay before the insurance company kicks in. Naturally,
the loss must exceed the deductible for the carrier to
pay anything at all.
Extended Building Definition: The building
definition is extended to include coverage for walls, walkways,
fences, pools, spas, and sport courts.
Foundations: Many insurance policies specifically
exclude items that are below the ground level. The term
foundations, when included, indicates that the carrier
is specifically addressing coverage for the reinforced
concrete slabs and footings which support the structure,
even though they may be below ground level.
Maintenance Fees Receivable: Maintenance
Receivable protects the Association from monthly homeowners’ dues
that they are unable to collect from unit owners whose
units become uninhabitable after an earthquake loss.
Minimum Deductible: All earthquake policies
have a minimum deductible per occurrence, meaning that
the loss paid out needs to exceed the minimum deductible.
Policy Holder Surplus: Money set aside
to pay catastrophic claims.
Pregnant: When a fault line is due for
an earthquake, and scientists are predicting heavy activity,
the fault is said to be “pregnant,” or due
for a quake.
Total Assests: The sum of all admitted
assets disclosed by the carrier.
Underground Utilities: Refers to electrical,
gas, telephone, and cable lines which service an insured
building or structure. Without being specifically referenced,
coverage for these utilities below ground would be excluded.
Unit Owners Betterments and Improvements: Betterments
and improvements in an earthquake policy is broadened to
include the following: any of the following types of property
contained within a unit, regardless of ownership, fixtures,
improvements and alterations that are a part of the building
or structure and appliances, such as those used for refrigerating,
ventilating, cooking, dishwashing, laundering, security
or housekeeping.