8.3 Earthquake Insurance

Earthquakes are excluded perils under most property insurance policies. This means that standard property policies, including many Homeowners policies, generally do not cover direct loss caused by earth movement or earthquake damage unless coverage is specifically added.

Earthquake coverage may often be added to a Homeowners policy by endorsement. The endorsement modifies the policy to provide coverage for earthquake-related losses, subject to its own terms, limits, deductibles, and exclusions.

In some jurisdictions where the risk of earthquake loss is higher, insurers may offer earthquake coverage through a separate stand-alone policy instead of, or in addition to, an endorsement. This allows insureds in higher-risk areas to obtain specialized protection for earthquake-related exposures.

A stand-alone earthquake policy is designed to insure against the specific peril of earthquake. For insurance purposes, earthquake generally refers to earth movement, shaking, or trembling caused by underground forces. This may also include land shock waves that occur before, during, or after a volcanic eruption.

Coverage under a stand-alone earthquake policy may also include related earth movement perils, such as landslides, mudslides, and mudflow, if these are included in the policy’s definition of covered earthquake-related loss.

For coverage purposes, all earthquake shocks or events that occur within a 72-hour period are usually treated as one earthquake. This rule is important because it helps determine how the deductible and policy limits apply when multiple shocks occur close together in time.

Earthquake policies generally provide property coverages that are similar to those found in a Homeowners policy. These commonly include Coverage A – Dwelling, Coverage B – Other Structures, Coverage C – Personal Property, and Coverage D – Loss of Use. Together, these coverages may help pay for damage to the dwelling, detached structures, personal belongings, and additional living expenses following a covered earthquake loss.

Some earthquake policies may also provide limited coverage for building code upgrade costs. This coverage can help pay for the additional expense of bringing damaged property into compliance with current building codes after a covered loss, subject to the policy’s terms and limits.

However, earthquake policies also contain exclusions. Property commonly excluded from coverage may include underground structures, retaining walls, awnings, outdoor antennas, exterior masonry veneer, and trees. Because exclusions can vary by policy, it is important to review the policy carefully to understand which types of property are covered and which are not.

Earthquake policies may require the insured to maintain other forms of insurance, such as Homeowners insurance and Personal Auto insurance. This is because an Earthquake policy is designed to cover earthquake-related property loss, not every type of loss that may occur during or after an earthquake.

For example, Earthquake policies often exclude loss caused by fire, even if the fire occurs after an earthquake. In that situation, fire damage would generally need to be covered by a Homeowners policy. Earthquake policies also commonly exclude damage to vehicles, which would usually need to be insured under a Personal Auto policy.

Other types of earth movement may also be excluded. For instance, losses caused by sinkholes may not be covered unless the policy specifically provides that coverage. In addition, flood damage is not covered by Earthquake insurance. If flooding occurs as a result of an earthquake, the insured would need separate flood insurance for that type of loss.

Deductibles under Earthquake policies are typically higher than deductibles found in many standard property policies. Instead of being stated as a flat dollar amount, the deductible is usually expressed as a percentage of the Coverage A limit.

Common earthquake deductibles range from 5% to 20% of the Coverage A limit. This means the amount the insured must pay before the policy responds increases as the Coverage A limit increases. For example, if the dwelling is insured under Coverage A for $300,000 and the earthquake deductible is 10%, the deductible would be $30,000.