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Earthquake coverage is a coverage not provided in the standard fire policy of your association's insurance coverage. It must be purchased separately, and is a coverage that is both important and complex.

HOA boards can be frightened at the costs and high deductibles of earthquake insurance policies, but these policies provide an incredible protection should there be damage done by earthquake(s) to the association's property.

Things to be careful about when it comes to earthquake coverage is to ensure that there is a full understanding of the coverage being provided. An example is the earthquake deductible. Unlike the master hazard policy, the deductible is a percentage (typically 5-20%) of total insurable value (TIV), as opposed to a set figure. Many associations believe their deductible to be a percentage of coverage provided, and this is incorrect. If an association whose TIV is $20 million, and it carries $10 million in earthquake coverage with a 10% deductible, the deductible is $2 million.

Knowing the building schedule is also immensely important, as a manager or Board member. What does this mean? Unlike the master property coverage, earthquake carriers generally do not provide blanketed coverage for the property. The association's agent must submit building values for each building on-site, and the earthquake carrier will only pay out the specified amount for a given building. When reviewing earthquake insurance, it is very important to understand this and also ensure that the agent has submitted a proper schedule valuation.

Also, it is important to understand what the policy affords protections for. In addition to buildings, are there sublimits for building ordinance, unit interiors (if required by CC&Rs), sprinkler leakage, underground utilities and foundations, maintenance fee receivables, streets, pools, entry gates, sports courts, and other similar items of importance?

The complexities of an earthquake policy are numerous, and it's always important to ask your insurance agent exactly what the association is covered for, and enhance coverage if it is needed.