Quake-Insurance Law Can Be Very Unsettling

Question: As a result of the new law requiring home-insurance companies to offer earthquake insurance, which you discussed some time ago, I am hoping that you will address yourself to the pros and cons of the subject.

I would assume that much would depend on how close one is to an active fault and what kind of soil one’s house reposes on. I have seen some maps showing this information, but they are far too general to bring it down to my specific lot.

Also, it would be of great interest to know what happened to frame-stucco houses built since World War II in the Coalinga (Calif.) quake. I know that the downtown was devasted, but I don’t recall any news about newer homes.--T.A.P.

Answer: For reasons that hardly need belaboring, Californians have the same fascination with earthquakes that a chicken has with cobras.

And no, unfortunately, you won’t find any map of earthquake faults that is worth a diddly-whoop in pinpointing how little or how much danger your own home may be in. While the fault itself, according to John McCann, regional vice president for the Insurance Information Institute in San Francisco, is a relatively thin line between the Continental and the Pacific plates, it doesn’t help much to know this because the plates are about five miles under the surface of the earth and extend out for many miles. The epicenter of the earthquake can be literally anywhere in this sprawling area, and the effects can radiate all over the place.

About 200 faults

Unfortunately, there are about 200 faults in all crisscrossing the state, McCann adds, although the two biggies are the San Andreas, which is capable of a shake in the 8.3 range on the Richter scale (making it the equivalent of the 1906 San Francisco rumble) and the Newport-Inglewood fault, which has the potential for a 7-7.5 shake.

“The rule of thumb,” he continues, “is that if you’re 50 miles or more away from a fault line in California, you’re in pretty good shape. The trouble is, though, that we’ve got so many that if you’re 50 miles away from one fault there’s a good chance that you’re sitting on top of another one.”

Most of the 200 lesser faults in the state, happily, have a dish-rattling/broken-window potential--in the 4.5 area on the Richter scale.

In a curious way, and despite the earthquake press that California gets, McCann continues, we’re in better shape because of our soil than--of all places--the Midwest and the potentially deadly New Madrid fault in Missouri. And this is because of California’s relative youth, geology-wise. The extent of the physical shaking is directly related to the soil, McCann adds. There’s less shaking with rocky soil, more shaking with deep, alluvial soil.

“And along the Mississippi, the alluvial soil is about five to six miles deep. So, if you’re in pretty good shape in California 50 miles away from a fault, you can be 200 miles away in the Midwest and still not be safe. In other words, in California a quake might radiate over a 10,000-square-mile area, while in the Midwest an earthquake of the same magnitude could cause damage over hundreds of thousands of square miles,” McCann says.

All of this was of small comfort in Coalinga--a town that wasn’t supposed to be in earthquake territory--on May 2, 1983, when a jolt measuring 6.5 on the Richter scale pretty well did it in. At least 225 homes were either destroyed or experienced substantial damage. Virtually all of the downtown section--almost exclusively of brick construction--fell down.

About $31 million

“Actual damages in Coalinga,” according to McCann, “came to about $31 million, and there was virtually no earthquake insurance in the town at all. About $10 million in claims have either been paid or are in the process of being paid--not on earthquake coverage, but on other claims that were paid because of the doctrine of concurrent causation on all-risk policies.”

Among the homes damaged or lost in Coalinga, “the hardest hit were older houses that weren’t affixed to their foundations. Newer ones, securely fastened to their foundations, did much better. Almost everything made of brick or adobe came down--they have very little resistance to lateral movement. The frame ones fared much better.”

Californians learned a lot about earthquakes and construction--the hard way--from both the 1906 San Francisco experience and from the Long Beach quake of 1933. Among the lessons: the desirability of affixing buildings to their foundations with something besides mortar. Many of these lessons have been embodied in building codes rewritten since World War II.

But a once highly regarded technique known as the “cripple wall”--a horizontal sheeting, frequently plywood, that is placed between the foundation and the house--proved less than satisfactory as an anchoring at Coalinga unless the wall was thoroughly bolted to both the foundation and the house.

“There were a lot of badly damaged houses in Coalinga,” McCann adds, “because the cripple walls had only been bolted to the outside walls and to the vertical 2x4s, and it proved to be ineffective resistance against the lateral movement.”

The lessons of California’s last notable earthquake, incidentally, are under study at Coalinga all this week at the first Earthquake Institute at West Hills Community College. The five-day seminar is drawing experts in the field from all over the country for an in-depth look at this natural phenomenon and what it did to one unsuspecting California town.

Houses Moved

“One of the problems in Coalinga,” McCann says, “was that many of the houses had been moved in from outlying areas by the six oil companies located there and had been put down on cement or rock foundations without any fastening. When the quake hit, they simply slid off their foundations and collapsed--a total loss.”

The curious fact that the insurance industry is in the process of paying off about $10 million in claims in Coalinga despite the almost universal lack of earthquake coverage there is because of a glitch in the law under which the courts have interpreted “concurrent causation” (two or more causes contributing to a loss) to mean earthquake damage even though (along with war) it’s specifically excluded in the average, so-called all-risk policy. The court decisions (which are being appealed) are based, the industry feels, on a too-liberal interpretation of the phrase all-risk . Fire damage alone, as a concurrent causation following a quake, has always been automatically covered by the standard basic policy.

The recent drive to inform all policyholders of the existence of separate earthquake insurance (by certified mail)--Assembly Bill 2865--was prompted by the industry’s ongoing efforts to define “concurrent causation” to exclude earthquake damage, specifically, from all-risk policies in a way that will satisfy the courts, while, at the same time, underlining the availability of separate insurance to cover it. AB 2865 was supposed to do that, but, as McCann puts it: “The wording is a little confusing, and as a result there’s still a lot of uncertainty. Hopefully, the wording will be changed soon.”

As long as the glitch remains in place, though, a major earthquake in the Los Angeles area could stick the casualty-insurance industry with a potential loss of $29 billion in property damage alone-- which would effectively wipe it out. With earthquake damage specifically excluded from all-risk policies, but available separately, the losses, McCann adds, could be held to about $5.5 billion.

So, is earthquake insurance worth the cost? Premiums vary from company to company, of course, but one major insurer charges $125 a year for a $100,000 frame house, which should ride out a quake better than a brick or masonry house, but with a 5% deductible. Some of the deductibles go as high as 10%.

Whether it’s worth it is a question without easy answers. The risk of a major quake here is real enough, but at the same time not all houses would be damaged even then. The 1971 San Fernando quake caused varying degrees of damage, McCann volunteers, to about 12,000 houses, which was only a fraction of the potential. And, presumably, a sizable percentage of those damages fell in the deductible range.

Like fire insurance in the absence of a fire, earthquake insurance can be considered a “waste” if the quake never happens.

So, how lucky do you feel?

Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.