2005
Insurance Reference Manual
Personal Insurance Federation of California Insurance Reference Book
California Insurance Codes Regarding Earthquake Insurance
as of January 1, 2004
This is a summary of the key California Insurance Code sections that address the issue of earthquake insurance coverage. All section references are from the California Insurance Code.
Residential Property Insurance; Mandate to Offer Earthquake Coverage (Section 10081):
No residential property insurance policy can be sold in California without an agent or company offering an applicant for homeowner's insurance the opportunity to purchase earthquake insurance coverage. This policy can be sold either as an endorsement or by specific policy provision, or in a separate policy or certificate of insurance which specifically provides coverage for loss or damage caused by the peril of earthquake alone or in combination with other perils.
Required Scope of Coverage (Sections 10082 and 10089):
At a minimum, an offer of earthquake insurance must cover: 1) dwelling (not including outbuildings, appurtenant structures, swimming pools, masonry fences and walls not necessary for structural integrity of the dwelling, walkways and patios not necessary for ingress or egress from the dwelling, landscaping, or masonry chimneys); 2) contents coverage of $5,000 (which may exclude glassware, china, art and other similar items); and 3) additional living expenses (ALE) of at least $1,500. The maximum authorized deductible is 15% of the coverage provided for the dwelling.
Loss Requirements, Appraisals and Adjusters (Section 10082.3):
When a loss occurs, the insured shall give written notice to the company of any loss without unnecessary delay, protect the property from further damage, separate the damaged and undamaged personal property, furnish a complete inventory of the destroyed, damaged and undamaged property showing quantities, costs, actual cash value and amount of loss claimed within 60 days after the loss, render a signed and sworn proof of loss statement to the company listing the time and origin of the loss and all information pertaining to the person's interests in the loss, the losses and cash value amounts, all other contracts of insurance, along with any plans and specifications of any building, fixtures or machinery destroyed or damaged. The insurer shall notify every claimant that they may obtain, upon request, copies of claim-related documents. Plus, in case the insured and the company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. If an agreement is not made within 15 days, then on the request of the insured or the company, an umpire shall be selected by a judge of a court of record in which the property covered is located.
Adjusters: If a third or subsequent adjuster to be responsible for a claim is assigned within a six-month period by an insurance company, the adjuster shall provide the insured with a written status report.
Reduction in Premium for Retrofitting (Section 10082.5):
If an insurer charges a higher premium for homes that do not meet certain safety standards including:
a) anchoring of foundations; b) bracing requirement for cripple walls; and c) anchoring requirements for hot water heaters, an insurer must reduce its premium amounts if these safety standards are brought up to acceptable levels.
Language Required for Mandate to Offer (Section 10083):
The offer for earthquake coverage must be made prior to, concurrent with, or within 60 days following the issuance of the homeowner's policy. The codes also require a written statement be provided to the applicant at the time of offer including, among other things: 1) that the policy does not include earthquake coverage; 2) that California law requires that it be offered; 3) a listing of the amount of dwelling coverage and the applicable deductible; and 4) the rate or premium.
Requirement to Re-Notify Homeowners Who Reject Earthquake Coverage (Section 10086):
If a homeowner does not accept earthquake coverage at the original time of sale, the insurer is required to re-notify the homeowner at the time of renewal or change in policy coverage - on an every other year basis - of the opportunity to purchase earthquake coverage.
Notice of Non-Coverage (Section 10086.1):
If a homeowner still chooses not to purchase the additional coverage of earthquake insurance, a homeowner is to be notified at the time of renewal on an every other year basis that earthquake coverage is not included.
Anti-Discrimination Language for Purchase of Earthquake Coverage (Section 10086.5):
It is unlawful for an insurer to cancel or refuse to renew any homeowner who elects to purchase earthquake coverage. It is also unlawful for an insurer to use discriminatory pricing practices in determining the premium to be charged a homeowner if a homeowner elects to purchase earthquake coverage.
Disclosure of Deductibles (Section 10087.5):
Every earthquake insurance policy must disclose on the declarations page all applicable deductibles. All advertisements used by an insurer must disclose the amount of the deductible.
Loss Assessment Coverage for Condominiums (Section 10087.5(c) & (d)):
Every policy of residential property insurance or endorsement covering an individual condominium unit for loss or damage from an earthquake shall disclose if the policy or endorsement provides no coverage for loss assessment, or if limitations are placed on loss assessment coverage under specified conditions.
Insurers are Required to Insure for Fire Following an Earthquake (Section 10088.5):
An insurer shall cover the losses associated with a fire caused by an earthquake under a fire insurance policy regardless of whether the homeowner has purchased earthquake insurance coverage.
Reconstruction Costs; Retrofitted Dwellings; Optional Coverage (Section 10089.1):
After completing and verifying retrofitting of a residential dwelling, coverage in the amount of $10,000 will be available for the purpose of reconstruction costs required to bring the residential dwelling up to required current local residential dwelling building code standards as required by the local entity as part of the approval of the reconstruction permit process after an earthquake.
Consumer Notification of Discounts or Surcharges (Section 10089.2):
At the time of offer of earthquake coverage, or offer to renew, all discounts and surcharges must be disclosed to an applicant for homeowner's insurance.
Insurance Adjuster Training for Earthquake Damage Evaluation (Section 10089.3):
On or before December 1, 2004 , insurers shall train and accredit adjusters in accordance with Department of Insurance standards.
Geographically Based Earthquake Assessment System; Fees (Section 10089.4):
No person may use a geographically based earthquake assessment system or program for the purpose of requiring earthquake insurance, or imposing a fee or any other condition in lieu of requiring earthquake insurance, in connection with a loan secured by a condominium project or an individual unit of a condominium project unless the system's or program's analytical assumptions and methodology used in the assessment have been submitted to and approved by the California Insurance Commissioner.
The California Earthquake Authority can be found in (Sections 10089.5 through 10089.54
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