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Homeowner Associations » Earthquake

Earthquake Insurance 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.

 

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