THE LOS ANGELES EARTHQUAKE : Want Earthquake Insurance? Have to Wait a While

Insurance companies temporarily suspended the sale of new earthquake coverage in Southern California in the wake of Thursday’s temblor, which the insurance industry has designated as a catastrophe.

State law permits moratoriums of up to 60 days on the sale of new earthquake insurance in order to contain damages due to the immediate quake and its aftershocks, which can continue for several days.

The shortest moratorium was declared by 20th Century, based in Woodland Hills, which said it would resume selling earthquake insurance as an option on its homeowners policies starting Monday.

State Farm, which insures about 1.1 million of the state’s 7 million homes--about 20% of them with additional earthquake protection--said its moratorium will last 30 days. Farmers Insurance Group in Los Angeles said any new coverage will take effect after 60 days.

Suspending sales temporarily “prevents muddying the waters,” explained Tim Dove of the Insurance Information Institute in San Francisco.

“If someone has a crack in the foundation or side of their home, and they go out and buy earthquake insurance now and another earthquake occurs, how does the insurance company know whether the damage happened before or after the last quake?”

Also, Dove said, such disasters often will motivate homeowners to buy coverage that they may not really need or want.

Just how much of Thursday’s property damage will be covered by insurance will not be known for days, if not weeks.

Most earthquake policies pay off only in catastrophic situations. Typically, earthquake coverage is 10% deductible, which means it pays nothing on the first $10,000 of damage on a house insured for $100,000. Some policies are deductible up to 25%, although others carry a flat deductible amount of $2,500.

Queries on New Policies

Wayne E. Hall, a Torrance insurance broker, said Friday that he had “quite a few” queries from homeowners seeking earthquake policies, including one woman who had let her coverage lapse last month for the first time in years. “Luckily, she escaped without damage, but she wants it restored,” he said.

Although the damages from Thursday’s quake have not yet been tabulated, the industry’s Property Claims Services in New York, which alerts insurance companies to major potential losses, almost immediately notified carriers that insured property losses would easily exceed the $5-million threshold that defines an insurance catastrophe.

The temblor was the 40th catastrophe so far this year involving U.S. insurance companies. Its most recent predecessors were all storms--a $20-million loss in Texas last month and two Midwestern storms in August that generated insurance losses of $77.5 million.

While some homeowners may collect on their earthquake policies, few public buildings have such insurance. And taxpayers also will pick up the bill for any repairs required on the area’s network of freeways and roads.