A Los Angeles Times Special Report : Coping With The Quake : Recovering From Disaster, Preparing for the Future : Q & A : Who’ll Be Picking Up the Tab

T housands of Southern California homeowners reeling from the devastating earthquake could face a plethora of financial woes--from huge uninsured losses to delays and unexpected costs in selling or refinancing a home.

Will your losses be covered? Will your house fall out of escrow? Will your lender require a new appraisal before completing your refinance?

Here are some answers.

Question: Who is insured for earthquakes?

*

Answer: Unfortunately, most California homes aren’t covered by earthquake insurance.

Estimates of the number of Southern Californians with earthquake coverage range from 20% to 40% of residential policyholders.

After earthquakes, “people rush to buy” quake coverage, said Mary Crystal, spokeswoman for the Los Angeles-based Western Insurance Information Service. “But then after awhile they decide to drop it, especially if we don’t have any quakes for awhile.”

*

Q: What does earthquake insurance cover?

*

A: Earthquake insurance, like fire insurance, covers losses to the structure and contents of your home and yard in the event of a disaster.

However, you generally must sustain large losses before this coverage kicks in, because the average deductible on earthquake insurance--the amount you must pay before coverage starts--amounts to 10% of the policy limits.

It’s important to note that quake coverage can vary widely, depending on your insurer.

Some insurers apply deductibles on structure and contents separately. Others apply just one deductible.

Additionally, if you have a so-called “guaranteed replacement cost” policy, it could cost you when you report a quake loss. That’s because some insurers hike the deductible based on the actual cost of replacing your home.

Consider someone with a $100,000 guaranteed replacement cost policy with a 10% deductible for earthquakes.

This person normally could assume that any loss above $10,000 would be covered. However, if the insurer finds the house would cost $200,000 to replace, the company may declare that the deductible is actually $20,000--or 10% of true replacement cost.

Q: What if my house was hit by fires or flooding generated by quake-damaged water and gas lines?

*

A: The answer depends on whether you were hit by fire or flood.

If your house burned down, you’re in fairly good shape, from an insurance point of view. Fire--regardless of the cause--would be covered under the fire insurance portion of your policy. The average homeowner has just a $250 to $500 deductible on this coverage.

If your damage was caused by flooding, you may be out of luck--unless you have separate flood insurance. Normally, damage from “a rising tide of water” is covered only if you have a flood rider, says Bill Sirola, spokesman for State Farm Insurance in Bloomington, Ill.

With a quake, though, the issue may be debatable. That’s because insurance does cover water damage from broken pipes.

If you need help persuading your company to provide coverage, you can seek the help of a professional--a lawyer specializing in insurance coverage or a public adjuster. Or else call the state Department of Insurance. The department’s hot-line number is (800) 927-4357.

Q: If I had damage, when should I call my agent? And how should I prepare for the conversation?

*

A: “First of all, make sure that everyone is safe,” Crystal said. “If you have earthquake insurance, or are not sure, give your agent or company a call as soon as possible.

“Before you start to clean up, take inventory of what happened,” Crystal said. “Keep a record you can share with the adjuster, in terms of what’s been lost.” Homeowners are encouraged to take pictures or use a video recorder to chronicle damage.

*

Q: What if my home is damaged or destroyed?

*

A: “If you can’t get into your house because of damage or destruction, go to a hotel,” Crystal said. “(Earthquake) insurance will cover those day-to-day expenses.”

Even insured property owners without earthquake coverage will have their hotel costs paid if they are ordered out by police or fire officials.

*

Q: I’ve never had earthquake insurance before. But now I want to buy it--before the big aftershocks, if possible--and my agent says he can’t sell it. What’s going on?

*

A: Most insurers impose temporary bans after an earthquake on the sale of new policies. The moratoriums range from a few days to several months.

Mainly, insurers want to make sure that they don’t sell you a policy for a loss that’s already occurred. They sometimes also want to determine how much they’ve lost in a particular catastrophe before adding to their “risk pool.”

In time, you will be able to buy quake coverage. Insurers are required to offer it with homeowner’s coverage in the state of California. But you may have to wait a few weeks.

Q: Does damage from an aftershock incur a new deductible?

*

A: Aftershocks tied to an earthquake are covered under the initial claim, so the deductible would not apply again, according to the Western Insurance Information Service. However, a quake that occurs several days after the initial shock might be classified as a new quake.

*

Q: What does earthquake coverage cost?

*

A: That depends on where you live and the type of home you own.

It’s generally more expensive to buy earthquake coverage for brick and masonry homes than for those made of wood and stucco. Your premium also depends on how many quakes have hit your area and their intensity, insurers say. The annual earthquake premium for $100,000 in coverage could cost between $150 and $600.

Renters can add earthquake insurance to an existing fire or tenant’s package to cover damage to household contents and personal belongings. Condo owners can buy insurance to cover the contents of their unit. Condominium associations sometimes buy coverage on the real property.

Q: Is earthquake coverage worth the cost? Considering the high deductibles, I doubt it would ever kick into effect.

*

A: That may be true. Earthquake insurance is truly for catastrophic losses only. Unless your house falls off its foundation or collapses in a quake, the chances are slim that you’ll collect.

However, there still are some property owners who would be wise to buy it.

If you have a very old home--one built near the turn of the century--you’d be wise to get earthquake coverage, because construction requirements for foundation were far different in those days, and the chance of major damage is far grater.

Also, if you live in a fill area--if your housing tract was built on landfill--or an area where the soil is sandy and loose, you’re likely to suffer greater damage than people who have homes built on bedrock.

Q: What should I look for in quake coverage?

*

A: First, consider the deductible. While the industry standard is 10%, there are companies that offer smaller deductibles and a few with higher thresholds. You should also find out how the deductible is applied. Is it combined? Are all of your losses--whether they relate to contents or structure or landscaping--lumped together to meet the deductible? Or must you meet one deductible on structure and a separate one for contents?

Then examine the exclusions. While some policies exclude nothing, others exclude all masonry structures--block walls, brick veneer and chimneys, says Larry Arnold, partner at the Santa Ana Heights law firm of Cummins & White. Since these are the items most likely to be damaged in a quake, you don’t want them excluded.

Also, look at what type of land movement is covered. While some policies cover only earthquakes, others will compensate you if your foundation cracks because the land beneath it settles, Arnold says.

Finally, look at the cost. As with other types of insurance, there is great variation in the price from insurer to insurer.

Q: I’m in the middle of selling my house. Will earthquake damage affect my escrow?

*

A: It could.

The standard California sales contract provides specific guidance on home sales after an earthquake. If the damage to the home amounts to less than 1% of the purchase price, the seller must repair the damage--but the buyers do not have the option of walking away without forfeiting their deposit.

If the damage amounts to more than 1% of the purchase price, the buyer can walk away without penalty.

*

Q: What happens to my refinance?

*

A: It will probably be delayed.

Many lenders are expected to want reinspections or reappraisals before they fund loans.