Homeowner Associations » Earthquake

Shopping For Earthquake Insurance?

Important Issues for Common Interest Developments

1. “Insuring to Value” is extremely important.

a.There is no guaranteed replacement cost endorsement available from any stand-alone earthquake carrier. This means that the stated limit on the declarations page is the maximum the carrier(s) will pay as a result of a covered loss.

2. Building Schedule must be as complete and accurate as possible.

a. Earthquake policies are always written on a scheduled basis; there is never “blanket coverage.” Therefore, the carrier relies strictly on the schedule submitted with the application – and will pay claims based on the amount of coverage on each building or structure – regardless of how much total coverage was purchased.

b. Has a value been listed for streets, curbs, sidewalks, v-ditches, pools, spas, tennis and sports courts, irrigation, entry gates, recreation rooms, support buildings?

3. The “Scope” of earthquake coverage should be fully understood.

a. With regard to projects where the Association must insure the dwelling units – is there coverage for any portion of the interior of the units? Is the coverage “bare walls,” “original builders specifications” or broader?

b. Does the carrier provide coverage beyond the bare walls if the governing documents require it?

c. Is there coverage for underground utilities and foundations?

d. Is there coverage for “Maintenance Fees Receivable?”

e. Is there coverage for walls, walks and fences? Paved surfaces?

f. Does the coverage include Building Ordinance coverage (to cover code upgrades)?

4. Providing coverage on a “layered basis” provides both strengths and weaknesses:

a. When it comes to a large risk, with catastrophic coverage, having all the Association’s “eggs in one basket” isn’t always preferred. Some risk managers argue that having multiple carriers involved reduces dependency on any single carrier.

b. The “following form” endorsement used by excess carriers places focus on the scope of coverage being provided by the lead carrier.

c. There may be no “drop down” provision. If a carrier providing a certain layer becomes insolvent, the Association becomes “self-insured” for that portion of the coverage, with the next carrier only being responsible once the loss reaches their predetermined attachment point.

5. Carrier Strength still remains key.

a. Regardless of whether the carrier is an “admitted” or “non-admitted” carrier, what is the carrier’s ability to pay claims? (What is the carrier’s “Total Admitted Assets” and “Policyholder Surplus”)?

b. What percentage of the carrier’s business is written in California?

c. What percentage of carrier’s premium volume comes from the sales of coverage for the peril of earthquake?


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