Understanding Earthquake Insurance | e. Dennis Beaver | opinion

In 2024, more areas in the United States will experience earthquakes, causing some homeowners to confront what Alaskans and Californians live and fear: earthquake damage to their homes.

“After homeowners' insurance claims were denied, they viewed themselves as victims of insurance bad faith, but were surprised to learn that was not the case,” says Shant Karnikian, a Los Angeles attorney. “So, our company and many others across the country want to educate the public about the importance of considering purchasing earthquake insurance.”

Karnikian is the managing partner of Kabateck LLP, one of the most successful mass catastrophe, personal injury and bad faith law firms in the country. They have asked me, along with co-counsel Annie Martin McDonough, to help spread this important message.

Martin McDonough points out that “the increase in earthquake activity this year underscores the risks inherent in living in seismically active areas or oil and gas producing areas and the importance of preparing for earthquakes.”

We discussed what earthquake insurance covers and, more importantly, what it does not cover.

Martin McDonough: It's a common misconception that homeowners insurance covers all natural disasters, including earthquakes.

Standard homeowners insurance policies do not cover earthquake damage. A separate earthquake insurance policy is required to protect against the financial impact of earthquake-related losses.

Karnikian: Homeowners insurance typically covers events such as fires, theft, and certain types of water damage but not earthquakes, as most policies explicitly exclude coverage for damage caused by ground movement.

Insurers avoid covering earthquake damage in standard insurance policies because of the risk of widespread financial losses. If they had to cover earthquake risks under standard insurance policies, this would likely result in much higher premiums for all policyholders.

Alternatively, homeowners have the option of purchasing separate earthquake insurance policies.

Martin McDonough: Earthquake insurance covers losses caused by the ground shaking, shifting and cracking, including:

Housing: Protects the structural components of your home, such as the walls, roof, and foundation. Depending on the terms of the policy, dwelling coverage also extends to accessory structures, such as garages or decks.

Personal property: This includes property inside the home, furniture, electronics, and personal property that may be damaged or destroyed. Some policies offer specific limits for certain categories of property, so high-value items such as jewelry, art or collectibles may have sub-limits or need additional coverage.

Doesn't cover everything: It typically doesn't cover damage to landscaping, vehicles, or outdoor structures, or damage caused by pre-existing structural issues.

Karnikian: Loss of Use/Additional Living Expenses (ALE) is a big benefit of the policy.

If the home is uninhabitable, it covers temporary living expenses such as hotel bills or rental costs during repairs if it can be repaired. It usually has a specific limit and time frame, therefore it is important to know how long this support will last.

Martin McDonough: Premiums, deductibles and policy limits can be a significant financial investment. Always weigh its cost against the cost of repairing or replacing the home and its belongings.

Premiums vary widely: Depending on a home's proximity to known fault lines, or oil and gas production areas, homeowners face higher premiums due to the increased potential for earthquake damage.

Older homes, especially those not subject to retrofitting, may face higher premiums due to a higher potential for damage.

The deductibles are not like regular homeowners insurance

Earthquake insurance deductibles differ from the fixed amount in a standard homeowners policy and range from 10% to 25% of the insured value of the home.

This means that in the event of a claim, policyholders will pay a significant portion of the repair costs themselves.

Karnikian: Be proactive. document! Take photos and videos before you need them.

To support a future homeowner or earthquake insurance claim, create a comprehensive home inventory that includes the following:

– Belongings with descriptions and photos

– Purchase prices, receipts, warranty booklets, and things that facilitate proof of losses. Keeping this inventory up to date also ensures that policyholders have an accurate record of their holdings.

– Photograph and document the condition of the home by creating a detailed video of the physical structure, contents of cabinets, drawers, and everything else.

Review and understand the policy

Familiarizing yourself with the terms and coverage details of both homeowners and earthquake insurance policies will help understand what is required to prove your loss and avoid surprises during the claim process.

Have you performed retrofits and seismic upgrades?

Many earthquake insurance policies offer lower premiums or the ability to pay out higher amounts for homes that have been retrofitted to withstand earthquakes. If the homeowner makes these upgrades, it is important to save all receipts, permits and certifications related to the work.

Keep records in a safe and accessible place

Back up all your photos, videos, receipts and documents physically and digitally to the cloud and a safe deposit box at a financial institution.

Earthquake insurance is a critical component of preparedness. Understanding the scope of coverage, policy limits, and deductibles can prevent financial devastation in the wake of a seismic event.

At the conclusion of our interview, both attorneys stressed the importance of meeting with your insurance agent or broker and analyzing whether earthquake insurance is something you can afford and really need.

Dennis Beaver practices law in Bakersfield and welcomes comments and questions from readers, which can be faxed to (661) 323-7993, or emailed to [email protected]. Also visit dennisbeaver.com.

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