SUNDAY, FEBRUARY 12, 2012
Earthquakes are clearly capable of causing tremendous damage to people's homes and properties. Earthquakes can cause the following damages:
1. Risk of structural damage and collapse.
2. Earth movement may cause flood and water damage due to breaking water mains.
3. Risk of fire because of rupturing gas lines.
Although most people expect their homes to be covered for the perils listed above, the truth is that homeowners insurance policies generally exclude coverage for earthquake related losses. Modern homeowners insurance policies exclude losses resulting from earth movement which refers to the quakes, landslides, sinking and volcanic eruptions. Limited coverage might be provided by homeowners policies for losses that are strictly attributed to fire or water damage in the event of an earthquake. For example, if two similar homes are insured under regular homeowners insurance, and an earthquake hits the neighborhood. House A suffers massive fire that totals the entire house, but no collapse. In that case the insurer may end paying for the entire loss. House B suffers minor fire damage but a total collapse. In this case the insurer may only pay for the minor damages resulting from the fire, and not the collapse of the structure.
Decades ago many courts awarded damages resulting from earthquakes on the base of 'concurrent causation'. The practice was heavily used in the early part of the 20th century in the San Francisco area. Almost all companies are specifically excluding all damages, directly or indirectly related to earthquakes, including items that can be attributed to damages of concurrent causation.
Earthquake insurance is not required by banks and financial institutions offering loans to home borrowers. Homeowners insurers place more emphasis on other perils such as fire, water damages, etc.
Cost of Earthquake Insurance
Cost of earthquake insurance depends on the area in the country. For example, the Federal Emergency Management Administration identifies certain parts of the country as high risk, while other parts as lower risk, For that reason, earthquake insurance in Missouri (low risk area) is much cheaper than California (higher risk).
Most earthquake insurance policies are costly because they are normally demanded by people who or when people think that earthquake insurance is very much needed (hence there is a belief that an earthquake is eminent).