Topics covered:
General information
Insuring agreement
Deductible
Definitions
Single limit of insurance
Coverages

Sublimits

Coverage B
Property not covered
Coverage C
Coverage D
Other coverages
Losses excluded
Rights concerning claims investigation
Conditions

General Information

There must be a companion policy in force for the full term of the earthquake policy. The companion policy is an insured's basic dwelling policy and provides coverage for other perils; at minimum it must provide fire insurance coverage. The companion policy must be issued by a carrier that is a participating insurer of the California Earthquake Authority. The companion policy and the earthquake policy must be issued by the same carrier. If for some reason a companion policy is not in force at the time of an earthquake loss, the earthquake policy is void and no payment will be made.

The dwelling and other structures limit for the earthquake policy can be the same as the coverage A limit of the companion policy. Coverage for personal property ranges from $5,000 to $100,000 and coverage for loss of use ranges from $1,500 to $25,000. Building code upgrade coverage is from $10,000 to $20,000, and coverage is not available for mobile homes.

Guaranteed replacement cost is not available for this policy. If the loss exceeds the applicable limit of insurance, full repair or replacement is not an option.

The deductible can be a dollar amount or a percentage of the coverage A and coverage B combined limits of insurance. The deductible does not apply to coverage D, loss of use, or the first $1,500 of coverage provided under other coverages for emergency repairs. If the Authority does not have sufficient funds to meet losses, claims may be paid on an installment or pro-rata basis; this means that an insured may not be paid the full amount of his claim. The state of California is not responsible for payment of any earthquake claims. Likewise, if the Authority funds are completely exhausted, a surcharge of up to 20% of an insured's annual policy premium may be applied.

Insuring Agreement

The policy clearly states that coverage is provided for accidental, direct physical loss from an “earthquake” that begins during the policy period due to a “seismic event”. Property described in coverages A, B, and C is covered and coverage D, loss of use, is available. Standard deductible, premium payment and policy period clauses are present in the agreement and policy and claim services are provided by the insurer that provides the companion policy.

Deductible

The policy has a separate deductible provision that details what part of a loss to which the deductible is applied. The deductible does not apply to loss of use, and the deductible is a percentage of the combined single limit of insurance for property covered in coverage A and coverage B. A separate deductible applies to coverage C, personal property. The deductible is applies one time for each event. Costs that are applied to meet the deductible are the reasonable and necessary replacement cost of covered damage to property under coverages A and B, but only up to the amount of applicable sublimits for property for which there is a sublimit. Included is the cost of emergency measures in excess of $1,500 under other coverages that is used to protect property covered in coverages A and B. Also included is the reasonable and necessary cost to replace, rebuild or restore land that is covered under other coverages but only up to the sublimit of $10,000. The cost to replace or repair personal property is not applied to meet the deductible.

Definitions

Many definitions are similar to standard policy language and some are self-explanatory. There are however, some particularly unique definitions due to the specialized nature of the policy. As described earlier, this policy is issued by the “California Earthquake Authority” (CEA) which is authorized by state law to transact insurance as necessary to sell policies of basic residential earthquake coverage. Required in order to obtain an earthquake policy is a “companion policy” which is the fire, homeowners, or other insurance policy that provides fire insurance for the property covered by this policy. A “participating insurer” is the carrier that issued the companion policy and meets the requirements to offer residential earthquake coverage by participating in the CEA; the “participating insurer” provides policyholder and claim services for the earthquake policy on behalf of the CEA.

“Chimney” is defined because there is a separate sublimit for that item. A “chimney” is defined as the flue or vent and the building code-required structure that surrounds it, including exterior chimney facings from the firebox to the outside of that structure. Hearths, mantels and fireboxes are not included in the definition of “chimney.”

“Domestic partners” are separately defined and are not included in the definition of insured. The relationship must be registered by the California Secretary of State through the filing of a Declaration of Domestic Partnership.

The definition of “dwelling” specifically excludes land including that under the structure or mobile home, and does not include other structures unless they share a common wall or continuous roofline, or are attached by a continuous foundation or one that is contiguous to the foundation of the structure. Other structures such as garages, sheds, or gazebos are not covered unless attached to the dwelling.

“Earthquake” is defined as a vibration-generating rupture event caused by displacement within the earth's crust through release of strain associated with tectonic processes. The surface of the earth is composed of large plates that move slowly; the plates can get stuck creating tension. When plates then shift, tension is released causing vibrations from the energy that is released from the plates. This energy travels through the earth's crust and causes the shaking that is felt. Included as earthquake are effects such as ground shaking, liquefaction, and damaging amplification of ground motion. These result from the displacement of the earth's crust. Landslides caused by an earthquake and would not have resulted but for the earthquake are covered.

A “seismic event” is defined as one or more earthquakes within a 360-hour period, which is fifteen days. Since earthquakes often have aftershocks for several days after the original earthquake, this includes all earthquakes and aftershocks for fifteen days following as part of the original event.

Because “sublimits” subtract from the available payout, they are defined. A “sublimit” is defined as a dollar limit on a coverage for a specific type of property within a category of property with a higher total limit of insurance. For example, “chimneys” are subject to a $10,000 sublimit; this $10,000 is included in the total amount available for coverage A, so if $10,000 is paid for damage to a “chimney”, there is $10,000 less available for damage to other property under coverage A. However, no more than the $10,000 sublimit will be paid for loss to any or all chimneys.

Natural adjustments of the earth's crust that are completely in response to regional stress conditions caused by natural dynamic forces within the earth's interior are “tectonic processes”. Any adjustment initiated in whole or in part by any human activity is not considered “tectonic processes.”

Single Limit of Insurance

Because limits are handled differently, a separate section exists. The policy has a combined single limit for property covered under coverage A and coverage B. Unlike the standard homeowners policy, coverage B is not a percentage of coverage A. One limit is available for both. Payment under one portion of the policy will reduce funds available for payment under another section of the policy.

Coverages

Coverage A includes wall-to-wall carpeting attached to the dwelling and contains a $5,000 sublimit for “chimneys” regardless of the number of “chimneys”. Included in coverage B are equipment and utility services structures for electric, telephone, gas, heating oil, water, septic and sewer that are owned by the insured and located outside the foundation of the dwelling and affect the habitability of the dwelling. Walkways, driveways, decks, patios necessary for regular pedestrian or non-ambulatory ingress or egress to the dwelling are included, as are bulkheads, piers, retaining walls, and masonry fences integral to the structure of the dwelling.

Notice that throughout the policy decorative other structures are not covered. Transportation of debris of damaged property is included under coverage A, and includes transportation to landfills or disposal facilities and disposal of debris at such facilities. Should the limit of coverage A and B be exhausted, up to five percent of that limit is available for debris removal.

Sublimits

Sublimits exist for chimneys and wall-to-wall carpeting. The limit for chimneys is $10,000 as discussed earlier. The limit for carpeting is $5,000, and is coverage for the presence of fungi that appears as the result of an earthquake. Included in the coverage is the cost to repair damage for fungi as well as testing, monitoring, mitigating, abating, removing, disposing of or remediating fungi. This limit is reduced by payments for emergency repairs resulting from fungi.

Coverage B

Coverage B is different from what is covered in the homeowners coverage B. While the homeowners policy covers other structures under coverage B, this policy specifically identifies the types of covered structures. Coverage B covers equipment and utility services structures for electric, telephone, natural or bottled gas, heating, oil, water, septic and sewage systems owned by the insured and located outside the foundations or wall of the dwelling, but on the premises, and affect the habitability of the dwelling.

Also covered are walkways, driveways, decks or patios that are on the premises and necessary for and regularly used for pedestrian ingress or egress to the dwelling or ingress or egress from the dwelling by a nonambulatory person. Only the sections necessary for ingress or egress are covered; sections of walks, driveways, decks or patios not regularly used for such purpose are not covered.

Bulkheads, piers, retaining walls and masonry fences on the premises that are integral to the stability are also part of coverage B. If the premises are part of a common interest development that is governed by an association, loss assessment in the amount of $10,000 is available. Coverage is only to the extent of coverage for items discussed above. Debris removal is covered under coverage B up to five percent of the combined coverage A and B.

Property Not Covered

Under coverages A and B, property that is not covered includes land and land under the dwelling, land stabilization, structures, apparatuses or devices to stabilize the land, and engineering associated with land stabilization unless coverage is found in the other coverages section. Land is generally not covered in homeowners policies, and while this policy specifically covers damage from earthquakes, coverage for damage to land is limited under the other coverages section.

Other property that is not covered includes awnings and patio coverings and their support structures, antennas, satellite dishes, towers, brackets and support systems, exterior masonry veneer, plaster, and any decorative or artistic features including but not limited to works of art, statuary, murals, stained glass, mirrors, mosaics, chandeliers, carvings, aquariums, fountains and their systems. If any such decorative items serve a utilitarian function, the cost to replace or repair the feature is covered provided the cost does not exceed the cost to replace it with a non-decorative functional replacement.

Except for what is specifically listed as covered in coverage B, there is no coverage for other structures including outbuildings and detached garages; underground structures or equipment including but not limited to irrigation, sprinkler and water reclamation systems; underground pipes, cables, flues, drains, electrical supply systems, walkways, driveways, decks, and patios; and bulkheads, fences, piers, outside walls including retaining walls.

Likewise, except for what is specifically covered in other coverages, additional costs for ordinance or law, or building codes are not covered.

Not covered are landscaping, trees, shrubs, and plants, even if damaged by repairs to the property. Swimming pools, spas, and hot tubs, including the tile or other material linking the pool to a deck or the dwelling are not covered.

Coverage C

The personal property coverage is pretty standard; property owned or used by an insured at the insured location is covered, as is property owned by others that is on any part of a dwelling up to $2,500. Debris removal for damaged personal property is covered and the cost to repair or replace property or remove debris does not apply to the deductible.

Special limits of $250 apply to money, bank notes, coins and medals, including parts of a collection. Securities, checks in any form, money orders, accounts, deeds, passports, tickets and similar items are also limited to $250. Computer equipment including storage media and software, whether or not used in business is limited to $3000. Business property other than computers and electronic data processing is limited to $1,000. Jewelry, watches, furs, precious and semi-precious stones are limited to $3,000 but no more than $1,000 per item. Collectibles, including sports cards, collectible dolls, model trains, toys, stamps, autographs, memorability, and commemorative items and other collectibles are limited to $3,000. Likewise, beverages contained in bottles or other glass, ceramic or pottery containers, including but not limited to wine, port, liquor, beer and all other alcoholic or non-alcoholic beverages are limited to $3,000.

Property not covered is similar to standard policy language except for lack of coverage for artwork including but not limited to paintings, frames, sculpture, photographs, rugs; glassware, crystal, china and porcelain. These items are easily broken and are among the first things to be damaged in an earthquake; therefore, there is no coverage. Trees, shrubs, plants in their containers, watercraft, pools, spas and hot tubs are also not covered as well as the standard items such as animals, motor vehicles, aircraft, and other items.

Coverage D

Coverage D provides additional living expenses and loss of rents, again with standard policy language. Coverage for evacuating the property based on orders from a civil authority has no time limit, unlike the standard policy that limits coverage to two weeks.

Other Coverages

Additional coverages are available for emergency repairs, debris removal, building code upgrades and land. Emergency repair coverage includes measures taken to protect against further damage, measures to remove broken glass or to repair broken windows if the dwelling is otherwise habitable. A sublimit of five percent of the limit of insurance for covered property involved is the amount of coverage available. The first $1,500 is not subject to the deductible, although costs beyond that are subject to the deductible.

Debris removal also has a five percent sublimit of the limit for coverages A and B. This is additional insurance and the deductible does not apply to this coverage.

Building code upgrade coverage is dependent on the insured repairing damage to property covered under coverages A and B. If that is repaired, then the limit shown on the declarations page is available to bring the property up to local code standards in place on the date of the earthquake, but only for the reconstruction costs necessary to meet the requirements of securing governmental approval of the reconstruction permit process for repair of the property.

While most insurance policies do not cover land, this policy allows $10,000 for the cost, including engineering costs, to replace, rebuild or otherwise stabilize or restore land that is necessary to support the dwelling or covered extensions to the dwelling; or to add devices to stabilize the land that supports the dwelling as long as the need for stabilization is directly caused by an earthquake that occurred during the policy period. This is a sublimit of the limits for coverages A and B, and reduces those limits if payment is made under this coverage.

Coverage is also available for energy efficient and environmental safety replacement upgrades with a $25,000 sublimit. Coverage is for additional costs to repair or replace property with material adheres to such standards. Included in this section are energy efficiency upgrades, electronic equipment-Energy Star replacement, window, doo, roofing and insulation upgrades, and plumbing upgrades. Environmental safety upgrades include interior finish materials upgrades, elimination of ozone-depleting substances upgrades, and flush out of reconstructed space.

Losses Excluded

The policy states that it does not insure for any loss that is not directly caused by an earthquake that occurs during the policy period. Certain losses that may be caused by, contributed to, result from, or are aggravated by regular losses are not covered. Therefore fire and explosion; nuclear hazards; pollution of groundwater, land, or personal property as well as expenses and cleanup; theft, vandalism or other human conduct; requirement of ordinances or laws not covered in the other coverages section; power failure; insured's neglect to take reasonable action to protect property; war and other such actions; and intentional acts are excluded.

The water exclusion is unique in that while the standard water exclusion applies, an exception is made and coverage applies for damage that results from an earthquake that is the release of water from water heaters, refrigerators, or water supply pipes in the dwelling; displacement of water from swimming pools, spas, hot tubs and decorative pools; the release of water from municipal water supply lines on or off the residence premises; or the release of water or sewage from sewers or drains on or off the residence premises.

Earth movement, settling, shifting, mudflows, subsidence, or earth rising, shifting or sinking is excluded unless it is induced by and would not have occurred in the absence of an earthquake and causes loss that occurs within one year after the earthquake that caused the loss. Therefore, if an earthquake loosened the dirt and six months later heavy rains created a mudflow that is covered.

Rights Concerning Claims Investigation

The policy lists specific rights of the insured. The right to have the claim handled in accordance with the California Insurance Code and Regulations, the right to be represented by an attorney at the insured's expense, and the right to privacy under California and Federal law.

Conditions

The standard policy provisions apply with a few modifications. Under loss settlement for coverages A and B, loss to plaster is paid up to the amount to replace the plaster with sheetrock or drywall. Glass will be replaced with safety glazing when required by ordinance or law. Coverage for walkways, decks, patios or driveways is covered only to the extent to restore ingress and egress by pedestrians or non-ambulatory individuals. Coverages A and B are settled at the lesser of the replacement cost of the property; cost to repair or replace the property; or the applicable limit of insurance. Damage to chimneys is paid at the lesser of the $5,000 sublimit; the cost to replace a masonry chimney with a non-masonry, earthquake-resistant chimney; or the amount necessary to replace or repair the damaged chimney.

Losses to personal property are paid at replacement cost except for property that by its inherent nature cannot be replaced; property that has not been maintained in good or workable condition; or property that is obsolete, outdated, or not useful for its intended purpose. Such property is paid at actual cash value.

The carrier has the option to examine the property and make tests to determine if the damage was caused by an earthquake. If the opinion of the carrier is that the property did not sustain earthquake damage and the insured wants further testing, the insured is responsible for payment for that testing unless it proves that the damage was caused by an earthquake.

If the insured's initial payment is by check and it is not honored on presentation, then the policy is void from the date of inception. If the insured does not pay the renewal premium, the policy is automatically terminated. If the companion policy is cancelled, this policy is cancelled as of the same effective date.

If the policy expires between the date of an earthquake and thirty days after the earthquake, the carrier can refuse to make any changes requested by the insured such as changing limits, deductible, or purchase of additional coverages. The carrier may also inspect the premises prior to granting any renewal request with different terms.