Understanding earthquake insurance | H. Dennis Beaver

In 2024, more areas of the U.S. experienced earthquakes, leading some homeowners to face what Alaskans and Californians live through and fear: earthquake damage to their homes.

"After their homeowners insurance claims were denied, they considered themselves victims of insurance bad faith but were surprised to learn that was not the case," says Los Angeles attorney Shant Karnikian. "So, our firm and many others across the country want to educate the public on the importance of looking into buying earthquake insurance."

Karnikian is managing partner at Kabateck LLP, one of the nation's most successful mass disaster, personal injury and insurance bad faith claims law firms. Along with associate counsel Annie Martin-McDonough, they asked my help in getting this important message out.

Martin-McDonough points out, "This year's uptick in earthquake activity underscores the inherent risks of living in seismically active or oil and gas producing regions and the importance of earthquake preparedness."

We discussed what earthquake insurance covers, more importantly, what it doesn't.

Martin-McDonough: A common misconception is 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 like fire, theft, and certain types of water damage but not earthquakes, as most policies explicitly exclude coverage for damage from earth movement.

Insurance companies avoid covering earthquake damage in standard policies due to the risk of large-scale financial losses. If they were forced to cover the risk of earthquakes under standard policies, it would likely result in much higher premiums for all policy holders.

Instead, homeowners have the option to purchase separate earthquake insurance policies.

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

Dwellings: This protects the structural components of your home, such as the walls, roof, and foundation. Depending on the policy's terms, dwelling coverage also extends to attached structures, like garages or decks.

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

Does Not Cover Everything: It typically does not cover damage to landscaping, vehicles, external structures, or damage caused by pre-existing structural issues.

Karnikian: Loss of use/additional living expenses (ALE) is a large policy benefit.

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

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

Premiums Vary Widely: Depending on a home's proximity to known fault lines, or oil and gas-producing areas, homeowners face higher premiums due to the increased likelihood of earthquake damage.

Older homes, especially those without retrofitting, may face higher premiums due to the higher likelihood of damage.

Deductibles Aren't Like Regular Homeowners Insurance

Earthquake insurance deductibles are different than the fixed amount in a standard homeowners policy and range from 10% to 25% of the home's insured value.

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

Karnikian: Be pro-active. Document! Take photos and videos before you need them.

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

– Belongings with descriptions, and photos

– Purchase prices, receipts, warranty booklets, and things that make it easier to substantiate losses. Keeping this inventory up-to-date also ensures that policyholders have an accurate record of their possessions.

- Photograph and document the home's condition by creating a detailed video of the physical structure and contents in closets, drawers — everything.

Review and Understand the Policy

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

Have you performed retrofit and seismic upgrades?

Many earthquake insurance policies offer lower premiums or higher payout potential for homes retrofitted to withstand earthquakes. If a homeowner makes these upgrades, it is critical save all receipts, permits, and certifications related to the work.

Save Records in a Secure, Accessible Location

Back up all photos, videos, receipts, and documents both 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.

Concluding our interview, both lawyers stressed the importance of meeting with your insurance agent or broker and analyzing if earthquake insurance is something that you can afford and truly need.