The Lucky and Luckless : Insurance: Quake victims who had coverage are rebuilding. ‘Now everyone wants it.’

Within a week after the Oct. 17 earthquake, Jim Hoover had permits to tear down his heavily damaged home in the mountains above this hard-hit resort town, and he’s already rebuilding on the rural site.

Hoover credits a $100,000 payoff from earthquake insurance for sparing him and his wife, Gaye, from a financial catastrophe beyond the trauma of the quake itself. They added the coverage to their homeowners policy five years ago.

“I figured that this is my investment in life,” Hoover explained. So he protected it.

Among earthquake victims, the Hoovers rate among the fortunate. But thousands of others--even those with quake insurance--find themselves saddled with big repair bills because their damages did not exceed the hefty 10% to 15% deductibles on their policies. And this has called into question the adequacy and cost of available quake insurance.

An Assembly committee has called hearings on the subject starting next week, and the industry itself is pressing the federal government to take over quake insurance as it already has taken over flood insurance.

“The cost of the insurance doesn’t bother me; it’s the deductible,” said Megan Matthews, who owns a dozen properties around Santa Cruz County but carried earthquake insurance on only one. “If they changed that, more people would buy it and the cost would go down.”

Even insurance companies concede that the coverage is costly, but they insist that lowering the deductible would only increase the cost. Depending on a building’s location and construction, earthquake insurance can cost $150 to $400 a year for $100,000 of coverage. However, damages must exceed the 10% to 15% deductible before any benefits are paid--in this case, $10,000 to $15,000.

In the Hoovers’ case, damage totaled $116,000, so they collected the full $100,000 that their State Farm policy provided. Hoover figures that it will cost him about $75,000 to rebuild; a carpenter by trade, he is doing much of the work himself. He has already spent $5,000 on demolition, and there will still be a double garage to replace.

But for every Hoover with earthquake insurance, there are four other property owners in California without it. And even in the quake area, not all regret having avoided the extra cost.

One of them is Joan Prsha, whose 95-year-old house over the Santa Cruz Mountains in Los Gatos slid off its packed-earth footing and has been condemned. The former Los Angeles resident bought the old house 27 years ago for $14,500. She declined earthquake coverage, reasoning that her home’s destruction would not lessen the current value of the land that it occupied, which may be worth more than $300,000 today, house or no house.

Despite the lack of earthquake insurance, State Farm paid Prsha $1,492 under her homeowners policy for window damage and food loss, she said.

“I was pleasantly surprised. They wrote me a check on the spot.”

Prsha said she has heard complaints from some property owners who felt ripped off by their insurance companies because damage, while substantial, did not exceed the deductible.

“Earthquake insurance was never designed to be like homeowner coverage,” Prsha said, explaining her own reasoning in declining it. “It’s protection against disaster.”

Living now in a rented apartment, Prsha is considering whether to take advantage of a low-interest government loan to rebuild her house or sell the lot and buy another.

Farmers Insurance agent John Allanson in Capitola agreed with Prsha’s assessment, even though he personally suffered $25,000 in losses on two of four properties that he owns--the two on which he carried no earthquake insurance. As soon as his company’s 30-day moratorium on new sales in the stricken area ended, Allanson said he remedied that.

Luckily for client Gerald Shanahan, Allanson had been more persuasive with him.

Shanahan, a building developer and part-time jazz musician, collected the full $160,000 from his earthquake policy with Farmers after the quake damaged his ranch home in the Aptos hills. While his coverage carried a $16,000 deductible, the total damage, as determined by Farmers, exceeded $200,000--thus making him eligible for the policy’s full amount.

“As bad as the situation was, and could have been, it’s turned out almost wonderful,” Shanahan said. He shrugged off the loss of $4,500 in furnishings, which did not exceed the separate $5,200 deductible for contents that his policy required.

“Something of that magnitude reorders your priorities,” he said. “You get down to basics.”

Leonard Gelfand, a Farmers vice president who heads the Los Angeles-based insurer’s catastrophe headquarters in the Alameda County suburb of Pleasanton, said his customers seemed aware of the limitations of the coverage that they had bought. “You only hear about the exceptions,” he said.

One that he heard of face to face was the complaint of a woman in Boulder Creek, a rural community in the Santa Cruz Mountains. She had declined earthquake insurance for the 15 years that she maintained a homeowners policy with Farmers, he said. As a result, the only insurance benefit the earthquake brought her was Farmers’ check for $160 for broken glass, which qualified, he said, under her homeowners coverage.

“She said she knew she didn’t have earthquake coverage but thought that, after 15 years, she was entitled to something more,” Gelfand said.

That victim’s plight underscored the reality of a wry observation made by State Farm agent Al Olseen in San Jose: “A 10% deductible is a lot better than a 100% deductible.”

Insurance claims adjusters, many brought in from other states, including those raked by Hurricane Hugo in September, provided damage estimates whether or not the clients had earthquake coverage. The clients were also directed to one of the two dozen emergency-aid centers set up in the quake area by the Federal Emergency Management Agency.

FEMA coordinates disaster relief programs administered by a number of federal agencies, including the Small Business Administration, after the President declares an area to be an eligible disaster region because of the magnitude of damages. Aid includes temporary-housing allowances, grants of up to $10,000 and low-interest SBA loans of up to $100,000.

A preliminary industry estimate puts the net insured loss--the amount of benefits paid by all types of insurance--at about $1 billion, but the larger and more complex claims remain to be settled. In all, losses from the Oct. 17 quake have already exceeded $7 billion--the nation’s most costly single disaster.

Meanwhile, Jim Hoover hammers away on his rebuilt home above Santa Cruz. A few hundred yards away, David and Marsha Lewis have yet to pull down their tumbled, 5-year-old house, which angles crazily down its hillside site. But throughout the earthquake area, property owners are beginning the costly job of cleaning up and strengthening their buildings for the next (and maybe bigger) quake.

And sale of earthquake insurance? Farmers’ district manager in San Francisco, Ron Hanisch, finds his agents’ clients snapping up “earthquake insurance for whatever they can get. Now everyone wants it.”

Near Hanisch’s office, where the turn-of-the-century homes on 10th Avenue are being shored up after having slipped off their foundations, Steven M. Kipperman, a nearby resident, said he still considers the $400 extra annual premium that he paid for $170,000 of earthquake insurance “cheap.”

“There’s a heavy deductible, it’s true,” he said, “but it’s nice to have the insurance there. This is a six-figure claim. I’m out of pocket, sure, but the drain on the pocket ended when it was supposed to end.

“I happen to think the policies are a reasonable business deal and make sense,” the lawyer said.

Across town in the Marina, renter Elizabeth Anne Burrie, who lived in an apartment on the top floor of a four-story building that she found collapsed onto North Point Street, prepares to get on with her life.

Burrie lost her furniture, her car--crushed in the first-floor parking area--and her cat.

“I was pretty depressed,” she recalled, “and I didn’t have earthquake insurance.” But State Farm’s claims adjuster received approval to pay her an unexpected $3,000 for glass damage to her possessions, ruling that the payment was covered under her tenants insurance.

That helped finance immediate needs, Burrie said, and she has already found a new home, a garden apartment in--of all places--the Marina. The new building is stronger, she explained, and the disaster has made friends of neighbors whom she had never met nor scarcely recognized in passing during her 14 years in the area.

“It’s amazing how many nice people there turned out to be,” she said.

And she found her cat; it was living in the wreckage of the apartment.

“She was probably waiting for me to come home,” Burrie guessed.