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On shaky ground

Costly earthquake insurance leaves many homeowners in a quandary, facing high deductibles and no coverage for garages, pools and other structures.

May 04, 2003|Jeff Bertolucci | Special to The Times

More than 300 earthquake faults crisscross the fractured crust of Southern California, some 100 of those in the Los Angeles Basin alone. And with the recent study of the Puente Hills fault, a 25-mile fissure capable of producing a massive 7.5 quake, homeowners here have yet another reason to lose sleep.

Yet, despite the fact that even a moderate temblor can result in thousands of dollars of household repairs, an increasing number of homeowners are forgoing earthquake insurance.

The number of state homeowners who have quake coverage has plummeted from roughly 30% since 1996, the year the Legislature created a government agency to issue earthquake policies, according to the California Department of Insurance. Only 15% of California homeowners today carry the insurance.

Consumer groups believe current earthquake policies, with their high deductibles, limited coverage for household contents and lack of coverage for detached garages, swimming pools and other peripheral structures, offer little value to homeowners.

For The Record
Los Angeles Times Thursday May 08, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 49 words Type of Material: Correction
Earthquake insurance -- An article in Sunday's Real Estate section incorrectly stated that a deductible on a California Earthquake Authority insurance policy was 15% of the home's value in an example of a Reseda homeowner. The deductible is actually 15% of the home's replacement cost, not the market value.
For The Record
Los Angeles Times Sunday May 11, 2003 Home Edition Real Estate Part K Page 3 Features Desk 1 inches; 51 words Type of Material: Correction
Earthquake insurance -- An article in the May 4 Real Estate section incorrectly stated that a deductible on a California Earthquake Authority insurance policy was 15% of the home's value in an example of a Reseda homeowner. The deductible is actually 15% of the home's replacement cost, not the market value.

State and insurance industry officials argue that other factors, including a soft economy and rapidly fading memories of recent quakes, make earthquake insurance less appealing to consumers.

Even homeowners who have endured major quakes question the value of coverage.

Artist Michele Weston Relkin was asleep in her Thousand Oaks home at 4:31 the morning of Jan. 17, 1994, when the Northridge earthquake hit.

Suddenly, "we were getting pulled back and forth like a washing machine, left, right, left right," Relkin recalled. "And then the windows blew out and the fireplace fell into the living room."

Relkin's house was salvageable, but repairs would cost more than $120,000. The artist, known for her 1993 portrait of President Clinton's family cat Socks, didn't have earthquake insurance.

"At the time my husband said, 'You know, if the Big One hits, it'll be so big we won't need insurance,' " said Relkin, who was able to rebuild her home with the help of a low-interest disaster loan from the federal government's Small Business Administration.

Does the Relkin family now have an earthquake policy? "After all that, my husband doesn't want it," she said. "And I've heard it doesn't offer much for the money."

Roughly two-thirds of the state's 1.15-million residential earthquake insurance policies are issued by the California Earthquake Authority, or CEA, a public-private hybrid carrier created by the state Legislature following the magnitude 6.7 Northridge quake that caused more than $40 billion in damage.

From 1994 to '95, major insurers such as Allstate, Farmers Insurance Group and State Farm threatened to abandon the California homeowners insurance market after paying out at least $12.5 billion in claims.

According to UC Berkeley professor Mary Comerio, the primary author of a 1996 report entitled "Residential Earthquake Recovery," some 333,000 people received payments from private insurers following the Northridge quake. The average homeowner payout was about $30,000.

But many San Fernando Valley homeowners such as Sara Bacon believe their insurers deliberately low-balled repair estimates. Bacon, for instance, sued her insurance company and eventually received a much higher payout, which she can't disclose under the terms of her settlement. The legal process, however, took two years. "It seemed like forever," she said.

"The insurance industry realized that, after paying out this enormous amount, they would be bankrupt in another Northridge," said Jerry Davies, spokesman for the Personal Insurance Federation, which represents State Farm and Farmers insurance in the CEA.

The Legislature responded by creating the CEA, which since 1996 has offered California homeowners earthquake coverage through its 18 member carriers and has collected more than $7 billion to pay claims. CEA spokesman Stan Devereux said the amount is enough, because of current high deductibles, to cover two Northridge-size quakes.

Critics, however, say the CEA policy is too expensive and doesn't provide adequate protection. "You pay a lot of money for not a lot of coverage," said Amy Bach, executive director of United Policy Holders, a nonprofit consumer organization in San Francisco.

"It's an expensive product that doesn't provide particularly useful coverage, except when your house is leveled," said Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights in Santa Monica. "For consumers who don't have much equity in their homes, CEA insurance doesn't offer anything."

CEA officials agree their policy doesn't protect homeowners from minor or even moderate damage. But then, it's not supposed to. Insurance executives point out that earthquake coverage isn't designed to protect every crystal vase and beveled mirror in your home but rather to restore the four walls and ceiling following a catastrophic temblor.

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