The recent earthquake in California, centered around the Napa region, has been headline news since it occurred on July 19th. The total economic damage could reach upwards of $4 billion, with insurers covering about 50% of that amount. Why is only around half of the damage potentially covered? Because even in an seismically active area like central California, many home and business owners decline to purchase earthquake insurance.
Nearly every standard commercial property and homeowner insurance policy excludes damage caused by “earth movement”. It is important to understand that the exclusion for earth movement is very broad and includes landslide, soil contraction or expansion, soil freezing or thawing and earthquake. This exclusion reads as follows (from a commercial property policy, special form cause of loss):
(1) Earthquake, including any earth sinking, rising or shifting related to such event;
(2) Landslide, including any earth sinking, rising or shifting related to such event;
(3) Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;
(4) Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
The exclusion does carve out a few exceptions, such as earth movement caused by volcanic activity. However, the intent of this exclusion is very clear – if the damage to your home or commercial property is caused by shifting or moving earth, it will not be covered.
To protect yourself, we recommend you consider purchasing earth movement insurance. This coverage is available by endorsement on many home insurance and commercial property policies. In some states, like California, this coverage is often provided by a specialty earthquake insurer or association. Business owners and residents of Nevada should not forget that we are the 3rd most seismically active State in the US, behind Alaska and California. Beyond actual earthquakes, in Southern Nevada we have issues with expansive soil which can cause foundation lifting and heaving. The Nevada Insurance Commissioner has published a consumer guide to purchasing earthquake insurance that offers great information and tips.
If you would like to know more about earth movement and earthquake insurance contact us today at 702-638-0022.