Mandatory Earthquake Insurance Law Is Signed : Disasters: Homeowners will pay $12 to $60 into fund for coverage not provided by private policies.

Warning that “there is no way to duck” the reality of a major earthquake, Gov. George Deukmejian on Friday signed a landmark bill establishing a state earthquake insurance fund that will provide California’s 6.5 million homeowners with at least $15,000 in earthquake insurance.

The new law--the nation’s first--requires all homeowners to insure against earthquake damage that is not covered by private policies, most of which carry high deductible provisions that could cost homeowners thousands of dollars.

Coverage takes effect automatically on July 1. Homeowners will be required to pay from $12 to $60 a year into the new earthquake insurance fund, depending on the relative risk of a major quake in the homeowner’s location and the home’s type of construction.

Consumers will be billed for the coverage by their insurance companies or agents as a surcharge on their homeowner insurance bills. The state insurance commissioner will set the rate for each area.

During a bill-signing ceremony at the state Capitol, Deukmejian warned that California “is going to have more serious and deadly earthquakes . . . and there’s no way to duck this reality.”

Added Deukmejian: “For an average cost of 10 cents per day, this plan will provide protection that would have covered the damages suffered by most homeowners in the Whittier and Bay Area earthquakes.”

The governor conceded that the state plan “is no substitute for catastrophic loss coverage.” But he said he expects it to “greatly minimize the financial impact to our citizens, economy and our way of life.”

An estimated 20% to 25% of Californians presently have private earthquake coverage. But deductibles can range upward of $20,000. With the new state program to make up all or most of that deductible cost, experts expect more homeowners to buy private policies.

Under the state program, coverage for homes damaged by quakes will begin at $15,000 for the first year and climb to $25,000 after five years if the fund accumulates enough money. The new state insurance will cover only damage to the structure, not the contents of the home, saidBrian Matthews, a State Farm agent in Sacramento.

The state insurance fund is expected to contain up to $250 million in the first year. After the fund tops $1 billion, the law calls for a small percentage to be used for low-interest loans to pay for improvements that would make homes more resistant to quake damage.

Backers of the legislation maintain that if the law had been in effect at the time of the Bay Area earthquake last Oct. 17, 24,000 out of 25,000 damaged homes would have been fully covered.

The remaining 1,000 homes also would have received the benefit, but still would have needed private insurance to cover remaining costs of rebuilding.

In areas of the state where earthquake risk is the highest and buildings are older and not up to modern earthquake standards, homeowners are expected to be charged the maximum annual fee of $60. The minimum, $12 fee will apply in places such as the Sacramento Valley where earthquake risk is more remote and new construction is becoming the rule.

Deukmejian asked for the earthquake insurance plan in his State-of-the State message delivered to the Legislature last January. The measure was carried by Sen. Frank Hill (R-Whittier). It passed the Assembly by a 43-21 vote and the Senate by a vote of 28 to 3.

Legislative opponents objected to imposing a mandatory fee on homeowners who live in regions where earthquakes don’t occur often or at all. But those in the quake zones argued successfully that the obligation should be shared by all so that the burden would not fall too heavily on the affected areas.

Last October’s Bay Area earthquake killed 62 people, injured 3,757 others, left 8,000 homeless and caused $5.6 billion in property damage.

Meeting in special session, the Legislature subsequently approved a temporary 1/4-cent increase in the state sales tax to help pay for quake damage. The proposal to enact state-mandated insurance followed when the regular legislative session resumed.

“We know there will be a next time,” said Hill, who added he believed the new law will result in a “dramatic increase in the purchase of private earthquake insurance.”

But Bill Packer of the California Assn. of Insurance Cos., said there “is no way of predicting what the public reaction” to the new law will be.

Hill called the statute a “real accomplishment” that resulted from the Legislature and the governor’s office “working together” on a controversial issue.

In related action, the governor also signed into law bills to, among other things, require residential property insurers to offer private coverage for quake damage and require the state geologist to develop seismic hazard zone maps for the entire state.