Requirement. Unless their governing documents require it, associations are not required to purchase earthquake insurance.
Board Authority. Even though earthquake insurance is normally discretionary, boards can purchase and renew earthquake insurance on their own without membership approval, provided the premiums are within the association's budget limitations (20% increase for regular dues or 5% for special assessments). If the premiums require an increase above these limitations, boards need membership approval.
Discontinuing Insurance. There is no law requiring associations to purchase earthquake insurance. The only obligation to carry such insurance might be found in the association's governing documents. If no such obligation exists, boards have the authority to discontinue earthquake insurance. Before doing so, boards should seek membership input. In the event any changes are made in the association's insurance (cancellation, non-renewal, changes in deductibles, etc.), the board must immediately notify the membership. (Civ. Code § 5810.)
Commercial Policies. Earthquake insurance for associations is available through commercial carriers such as Farmers and State Farm. To help make the premiums affordable, associations must balance the amount of coverage with deductibles. The higher the deductible, the lower the premium.
Owner Insurance. In addition to any insurance purchased by the association, owners may purchase a residential policy through the California Earthquake Authority. While California Earthquake Authority Insurance is important for all owners to carry, there are risks if the association does not itself carry earthquake insurance and instead relies entirely on the CEA’s loss assessment coverage.
-
CEA loss assessment will only pay for residential structure damage. There is no coverage for pools, clubhouses, detached garages, patio coverings, walkways, driveways, fences, etc.
-
It will not pay for bringing residential structures up to building code standards.
-
It will not pay for special assessments to cover bad debt (caused by members who walk away from their units).
-
Relying on owners to carry loss assessment coverage is risky. Many or most owners will not carry it, thereby providing limited resources for rebuilding after an earthquake.
-
The maximum coverage for CEA Loss Assessment is $75,000 and the deductible is 15% of the coverage amount.
Because of these limitations, boards would be ill-advised to forgo earthquake insurance and rely solely on owners purchasing earthquake loss assessment coverage.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.