Quake Coverage for Condos Is Low on Awareness Scale

After one of those obscure legislative compromises scarcely written up in the newspapers, and certainly not discussed on television, California’s estimated 3 million owners of condos and other common interest developments potentially got their own special state earthquake insurance coverage two years ago.

But who knows about it? Apparently not too many insurance agents are aware enough of the details to fully inform their customers about what is available.

And so few condo owners have taken advantage of what is a pretty good deal that the suspicion is that most remain unaware it exists.

That’s not too much of a surprise. We are such a busy society, there are so many pressing issues, that sometimes things of some importance to fairly large groups of people fall through the cracks.

The director of the state earthquake insurance agency, Greg Butler, said Wednesday that through last month just 102,000 people had purchased some form of condo coverage since the California Earthquake Authority began functioning in 1996.

Butler noted that this is only about 5% of those eligible to buy the state condo policies through the insurance companies that have elected to participate. Insurers representing slightly more than 70% of the market share are in the earthquake authority.

Besides, Butler said, just fewer than half of the 102,000 buyers have purchased one of the most valuable condo insurance benefits--loss assessment coverage.

What is this?

When damaging earthquakes occur, condo associations must assess their members for their share of losses to satisfy quake deductibles on their master policy before they can collect off that policy and begin repairs.

Loss assessment coverage helps them pay these assessments.

It can be crucial to getting repairs underway. In the Northridge earthquake, repair of many condos was long delayed, or even aborted, by the fact that many condo owners did not have the wherewithal to pay the assessments. If a condominium development has 150 units, and half the dwellers don’t have the money for their assessments, the whole condo may go unrepaired indefinitely. It happened even with the more extensive insurance available in 1994, although in some cases the federal government came to the rescue.

Thanks largely to West Los Angeles condo owner Dorothy Harris, lobbyist Skip Daum and a few others, loss assessment coverage was incorporated into the new earthquake insurance during the final stages of legislative deliberations. It almost didn’t make it into the new law at all.

For a condo worth more than $135,000, an owner can purchase $50,000 of loss assessment coverage, while for one worth less than $135,000, $25,000 is available. Deductibles of $7,500 or $3,750, respectively, apply before the coverage kicks in.

Such coverage usually is enough to pay most of whatever assessment may be made after a quake.

And official state policy is that condo owners need buy only the loss assessment coverage. They need not purchase contents or other coverage, which under the new earthquake insurance law are quite expensive and extremely limited in value.

In much of Los Angeles the $50,000 condo loss assessment policy costs only $95 a year, Harris reports, while other, less valuable coverage added to that will bring the total annual bill to $395.

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The trouble, Harris complains, is that with the state policies being peddled by agents for the private insurance companies, many, through apparent ignorance, have been misinforming their customers that they can’t buy the loss assessment policy on a stand-alone basis. Some say that loss assessment coverage doesn’t exist at all.

And, she contends, the California Earthquake Authority has scarcely rushed to fill the breach by providing its own information.

“Surprisingly, my initial mailing [from her agent] indicated earthquake loss assessment coverage was not available,” Harris told fellow members of the Beverlywood West Homeowners Assn. in a letter. “Please note that this was, and is, incorrect.”

So, she advised, be insistent, which is pretty good advice when dealing with all insurance companies, public and private.

Daum, meanwhile, warns that it is often difficult for condo associations to buy the master policy, and there is no requirement in state law that it be sold.

It is all part of the tendency, as the years pass since the Northridge quake, for protection to diminish. The Legislature gave in to the insurance lobby and authorized a mini-policy that drastically lowered coverage. Prices were hiked, and as years pass without an earthquake, many stop buying what coverage is available. Only recently did a few private sellers reenter the market with policies better than the state’s.

At the earthquake authority, officials’ attitudes have slowly been changing. Rather than downplay reported deficiencies, Butler has been trying to upgrade the policies offered in several respects, and he now says the authority is trying to promote more condo insurance purchases.

This entails encouraging the companies through which the authority’s policies are sold to peddle them more vigorously.

Butler acknowledges: “One of the frustrations I have is that agents in general don’t have enough knowledge about the authority.

“Only a handful of questions ever have come up about condo coverage,” he says, adding that he has received few complaints.

How common it is in Sacramento to suggest that in the absence of clamor, everybody is happy.

But when the next big quake comes, a lot of condo owners, not to mention regular homeowners, will be surprised at the hit they sustain without adequate coverage.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at ken.reich@latimes.com.