Earthquake Insurance: What's Your Exposure



...application of the deductible. There is no loss payment for the business personal property because the damage is under the deductible.


In an effort to spread risk, insurers and government agencies are using reinsurance, state and private pools, Fair Access to Insurance Requirements (FAIR) plans, and trading options on a catastrophe index that the Chicago Board of Trade maintains. However, more is needed, according to ISO. Consequently, many insurers advocate a proposal put forth by the Natural Disaster Coalition. This proposal provides for:

The exposure to loss by earthquake may be more significant than people realize. Organizations need to check periodically with their insurance advisors to ensure that their insurance coverage realistically meets their exposures.

Earthquake insurance is also available with a Difference in Conditions (DIC) policy, the topic planned for a future issue of Adjusting Today.


Courts Have Made a Distinction Earth Movement: Man-Made vs. Natural Causes

Since this issue of Adjusting Today focuses on earthquake insurance, it seems fitting to include a related subject that can likely be encountered in earth movement claims. That subject has to do with causation, and particularly whether an earth movement claim involves loss or damage caused by natural events, which are often widespread and catastrophic, or loss or damage caused by man-made activity, which usually is more confined.

Although property insurance policies contain earth movement exclusions, the courts have sometimes held for coverage when the cause of the earth movement can be attributed to man-made activities, while excluding loss from natural events, i.e., earthquake, related earth sinking or shifting, or mudslide. For example, building damages caused by nearby blasting activities or excavation on an adjacent lot that resulted in settling, sinking, and cracks and separations in the foundations were considered to be man-made activities and held to be covered, despite the earth movement exclusion.

Whether coverage applies typically depends on how the exclusion is worded, and particularly on the existence and/or strength of the anti-concurrent causation lead-in language to the exclusions. For many years, the Insurance Services Office (ISO) and the American Association of Insurance Services (AAIS) have included anti- concurrent causation language in their commercial property, businessowners, and homeowners policies. Essentially, the doctrine of concurrent causation holds that when a loss can be attributed to...