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Shaken up about earthquake insurance

By Kelly G. Richardson

Q: I live in a 100-plus unit condo complex without HOA earthquake insurance. I have CEA earthquake insurance for my home. Have you written any articles I could read on how to cover myself if my building suffers structural damage?

-R.M., San Diego.

Q: Is a planned development HOA required to maintain earthquake coverage insurance? Our association is considering dropping this coverage in order to save money.

-B.W., Huntington Beach

Q: My daughter recently purchased a condominium. The financial reserves of the homeowners association seemed strong, good property management, no obvious area of neglect. However, the HOA does not carry earthquake insurance and on its website suggests you get your own. I can’t find an insurance company that will issue earthquake insurance for just one unit particularly since the fire and general casualty insurance is with the HOA.

-L.M., Fountain Valley

Q: Our condominium HOA board decided to make common area upgrades rather than obtain earthquake insurance. They feel it is too expensive. I think this is foolish, if not negligent, as it puts the equity of all owners at risk. Do you feel obtaining earthquake insurance is an obligation of the board?

-J.H., Laguna Hills

A: Most HOA and residential insurance policies contain an exclusion for damage resulting from earth movement. Owners can purchase an amendment to that insurance, commonly called “earthquake insurance,” in which the insurer agrees to pay for a certain amount of earthquake damage. Many Los Angeles County HOAs learned in 1994 after the Northridge quake how helpful it can be to have earthquake insurance. Associations can obtain this to insure rebuilding of common area structures from such damage, however, it is costly and normally comes with a larger deductible.

The California Earthquake Authority (“CEA”, says there is a 75 percent chance of a magnitude 7.0 (Richter scale) earthquake occurring in Southern California by 2044. By comparison, the 1994 Northridge earthquake was measured at 6.7. (A 7.0 is three times as powerful as the Northridge quake.)

CEA insurance is available to individual owners, covers only the homeowner’s unit, and would not rebuild the entire condominium building. Only an insurance policy secured by the HOA would pay to rebuild the building.

California law does not require HOAs to carry earthquake insurance, but boards should check their CC&Rs. Most CC&Rs either do not mention earthquake coverage or allow it as an option, but some require it.

Associations should carefully decide regarding whether to have earthquake insurance. Such an investigation should include a meeting with the association’s insurance broker and discussion with the HOA’s legal counsel. Associations with older buildings may also want to consult a construction expert to determine if affordable modifications might strengthen the buildings against earthquake motion – perhaps the cost could offset several years’ premiums?

Normally the decision to procure earthquake insurance is within the authority of the board. Some boards decide to obtain such insurance and others do not because of the cost. Given the great potential risk, cost, and benefit of earthquake insurance coverage, HOA boards should disclose to the membership information on the subject and determine if a consensus view emerges to provide another factor in that important decision.

This article first appeared in the San Diego Union-Tribune on September 28, 2019. Access the article here.