Homeowner Associations »
Earthquake Insurance: Frequently Asked Questions
Question: Why do I need earthquake insurance?
Answer: California and the Pacific Northwest
are two of the most seismically active areas in the world, and
although earthquakes are a real and present danger, the typical
Homeowners Association policy does not cover earthquake damage.
Question: I’ve heard that if we
have a massive Earthquake in southern California, none of
the insurance companies will be around to pay the claim?
Answer: According to the Insurance Information
Institute, the Northridge Earthquake caused some $16.8 billion
in damages. This is the most insured damage resulting from a catastrophic
earthquake in U. S. history – and yet no insurance company
went insolvent as a result. More recently, the terrorist attacks
of September 11, 2001 have already resulted in claims in excess
of $38.2 billion (with the resulting claims expected to even be
higher), and yet there still have been no insurance company insolvencies.
Technical advances since the Northridge Earthquake have been made in the area
of computer modeling which assist insurance companies by helping them identify
and assess their projected exposure on known fault lines. These improvements
further reduce the potential of insurance companies taking on more exposure in
significant regions than they have the ability to handle.
Question: Are there alternatives to our Association buying
Master Earthquake insurance?
Answer: No. There currently isn’t a way
for individual unit owners to obtain sufficient coverage to fully
protect themselves against major damages to an Association by an
earthquake. Only if the Association purchases earthquake coverage,
will the owners be able to address their exposure.
Question: Do our CC&R’s require
earthquake insurance? Do lenders require earthquake insurance?
Answer: No, most CC&R’s do not require
Associations to maintain coverage for the peril of earthquake.
In terms of lenders, only Freddie Mac requires HOA’s to maintain
earthquake coverage. For individual unit owners wishing to qualify
for a Freddie Mac backed loan, the earthquake insurance requirement
can be bypassed if the condo owner pays an additional one point
fee on each $100,000 of value.
Question: What is Difference in Conditions?
Answer: Difference in Conditions (DIC) is a broader
form of coverage which serves the basic purpose of filling in the
gaps left by the commercial property insurance. One such gap is
loss from earth movement (a.k.a. EARTHQUAKE). Most of the earthquake
policies we write are DIC policies.