Personal Lines Earthquake

[Hefe]

Here's the situation, a 15 unit condo building currently has a master earthquake policy. A member of the HOA asked about cancelling that policy and replacing it with 15 personal lines earthquake policies. The HOA would require each owner to submit proof of coverage.

The personal lines earthquake policies would have enough coverage to match the master policy's limit. The cost would be about 60% of what they pay now.

I pointed out things like the common areas, foundation and roof are not owned by any individual owner and would not be covered. The HOA member would like to assess each owner $50k (loss assessment limit in the personal lines policy) to pay for the uncovered items.

Besides being a nightmare to keep track of, is there something else I'm not thinking of? I don't believe this is a good idea and can't imagine it would work but can't find policy exclusions to convince the HOA member otherwise.
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Nevermind, I found the special provisions that change the policy wording for coverage A for condominium.

 

[Guest]

well, step #1, it all depends on what is written in the CC&R'S.

 

[Hefe]

I asked him that first, the CC&Rs don't mention earthquake insurance. The master policy was implemented after a vote of the owners.

It's all a moot point anyway since the personal lines policy restricts coverage to inside the unit. They wouldn't be able to rebuild the building.

 

[jhuang]

Policy Sample from AXIS REinsurance Condo Policy:

COVERAGE A. DWELLING
"We" insure against the risk of direct physical loss by "earthquake" to:
1. The additions, alterations, appliances, fixtures and improvements which are part of the building
contained within the "residence premises" for which "you" are responsible under the
"condominium association's" covenants, conditions and restrictions;
2. Items of real property that are part of the "residence premises" used exclusively by "you".

 

[Guest]

Just a couple of thoughts:

1. The EQ cost is lower with individual EQ policies because the unitowner's EQ rate does not contemplate rebuilding the structure since it is excluded.

2. Typically the HO6 has language that loss assessment coverage is excess over other valid collectible insurance carried by the association. Therefore, it does not cover losses excluded by the association insurance or damage to property in the absence of insurance. Also, typically the loss assessment coverage does not apply to the association's insurance deductible or may be subject to certain dollar maximum.

 

[Aram Fingal]

One other major thing to consider, is how do you make sure the individual owners keep their policies up? What happens if 25% of your people don't have EQ insurance when the quake hits? Besides that, the condo policy does NOT NOT NOT cover the structure of the building as mentioned above. At absolute best it covers everything inside the studs. And even then most people don't increase their dwelling coverage amount to cover that.

There is a REASON that the personal EQ insurance is 60% less

So if there is an earthquake, it will be YOUR E&O insurance that pays to replace the building if you do this for them. Either talk them out of it or walk away.

 

[Hefe]

Relax guys, I posted after I read the addendum to the policy. See the edit to the first post?

But Cowbell, the loss assessment does cover the master policy deductible. Its specifically written in the policy.

 

[Aram Fingal]

Sorry, I missed the edit.

I've run across similar weirdness that was actually done with policies and it's kind of a pet peeve of mine that there are agents out there that would do some of the stuff I've seen.

I'm not putting you in that category because you obviously care enough to do some research before making a change like that. It's one thing to not know, and ask. It's something else entirely to not know and not ask to make sure you keep the commissions. But the ones that really piss me off are the ones that know better and do it anyway because "Hey, I still get paid"

 

[OCinsurance]

What if one unit owner fails to renew a policy?

 

[Hefe]

Not that it matters since the personal lines policies won't cover the building anyway, but, the HOA president was going to work on a system that would require the owners to submit their policy and proof of payment to the HOA.