Loss Assessment Coverage on an Earthquake Policy [and Why you Want it]

Loss Assessment might just be the most important insurance coverage that a Condo Unit Owner has never heard of. And in regards to Earthquake Insurance it may be the reason that you should get an Earthquake policy. EQ Loss Assessment Coverage should be procured by every condo unit owner in the state of California, assuming they can afford it.

In this article we will discuss what a Loss Assessment is, what Loss Assessment Coverage is, and the exact CEA policy wording of Loss Assessment coverage. Lastly we will discuss who and why needs this valuable coverage.

What is a Loss Assessment?

While the term Loss Assessment Coverage is defined on the internet frequently – the simpler term Loss Assessment is not defined well. Progressive simply defines a Loss Assessment as ” your share of a fee that may be charged against you for loss to property owned in common by the members of your condo or homeowners association. “

Square One Defines it as “A financial charge levied on condominium unit owners by the condominium corporation, to cover deductibles or shortfalls in the corporation’s insurance.”

It should be noted that just because you are charged a Loss Assessment – your Loss Assessment Coverage may not apply. In order for the Loss Assessment coverage to apply the triggering situation must occur as defined by the policy terms, definitions, and policy language. [Read your Policy] With the case of earthquakes a triggering seismic event [as defined by the policy] must occur. [There are other requirements of the situation by the policy as well.]

A simple example of a Loss Assessment that is assessed by a landslide is a good example. Other forms of land movement, such as Land Slides are typically not covered by Earthquake policies and hence any Condo assessments due to a landslide would not trigger the Loss Assessment coverage of an EQ policy.

What is Loss Assessment Coverage?

According to the CA DOI: “CEA condo unit policies provide up to $100,000 for your share fo certain assessments if your association imposes an assessment for covered damage caused by an earthquake.”

According to Nationwide: “Provides protection for condo owners on claims involving the building, its common areas and possibly the building’s exterior or property. Extends loss assessment coverage to include earthquakes as a cause of loss.”

According to Condo Insurance Law: “A loss assessment is a demand by an association of owners requiring you to pay for damage to commonly owned property. Coverage E allows for payment up to the stated limit for EQ-related damage, not otherwise excluded.”

According to Adams Stirling: “If an association does not carry earthquake insurance, loss assessment coverage (if available) will pay for special assessments related to earthquake damage. (See California Earthquake Authority (CEA) website for more information and talk to an insurance broker.)”

From the CEA: “Loss Assessment coverage helps pay your share of certain additional assessments levied by your HOA on its members for earthquake-damage repairs or to pay a master-earthquake policy deductible. This coverage can help with charges for repairs to the exterior of your condo development or certain common areas, as well as building code upgrades.”

It should be noted that Homeowners Loss Assessment Coverage and Earthquake Loss Assessment Coverage might not be the exact same in many situations. This article focuses on EQ Loss Assessment Coverage.

Loss Assessment coverage helps pay your share of certain additional assessments levied by your HOA on its members for earthquake-damage repairs or to pay a master-earthquake policy deductible.

With Condos -When a “… demand by an association of owners requiring you to pay for damage to commonly owned property” is assessed due to “any one seismic event, “the Loss Assessment coverage option may potentially help you. It should be noted that Loss Assessment coverage is an Option on many Earthquake Policies. Coverage amounts need to be chosen as well. Not all earthquake policies are the same.

California Earthquake Authority Loss Assessment Wording:

“COVERAGE E: LOSS ASSESSMENT
If a limit of insurance for “COVERAGE E: LOSS ASSESSMENT” is shown on the DECLARATIONS page of this
policy, we provide the following coverage, subject to that limit of insurance, the application of the “Deductible—Coverage E” clause, all of the terms and conditions of this policy.

The limit of insurance shown on the DECLARATIONS page for “COVERAGE E: LOSS ASSESSMENT” is the
most we will pay under this coverage for all claims arising out of any one seismic event, regardless of the number of assessments that are assessed against you or the number or amount of claims you make under this coverage. If no limit of insurance for “COVERAGE E: LOSS ASSESSMENT” is shown on the DECLARATIONS page of this policy, this policy does not provide any coverage under “COVERAGE E: LOSS ASSESSMENT.”

Losses Covered—Coverage E

1. Assessment By Association of Owners: We cover your share of any assessment charged by the association ofowners against all property owners in the common interest development, if all of the following threerequirements are satisfied:a. Requirement One: You have a legal obligation to pay the amounts assessed against you by theassociation of owners, and the assessment is properly and legally made as a result of a loss that is directlycaused by an earthquake that commences during the policy period as part of a seismic event thatcommences during the policy period;b. Requirement Two: The assessment is not made as a result of a loss specified in “Losses Not Covered—Coverage E”; andc. Requirement Three: The assessment is made as a result of a loss to structures or other real property, andthose structures or other real property are owned by one or any combination of the following threecategories: (i) all members of the association of owners collectively, (ii) the association of owners, or (iii)you.If an assessment is made as a result of a combination of (a) losses that are not covered, including but not limitedto losses specified in “Losses Not Covered—Coverage E” or in “LOSSES EXCLUDED,” and (b) loss toproperty that is covered under “COVERAGE E: LOSS ASSESSMENT,” then we will pay only that pro rataportion of your share of the assessment equal to that percentage of the entire assessment that is based oncovered loss that is not excluded.There is a sublimit of $10,000 under this coverage for your share of any portion of an assessment resultingfrom the cost of reconstruction to bring the property up to local residential building code standards in effect onthe date of the earthquake that caused the loss, as required as part of the approval of the reconstruction permitprocess for repair of the covered property. Any amount we pay for losses that are subject to this sublimit willreduce the applicable total limit of insurance for “COVERAGE E: LOSS ASSESSMENT.”

2. Reduction In Value Of Your Ownership Interest:a. What Reduction In Value We Cover:If there is physical loss to structures or other real property at the common interest development directlycaused by an earthquake that commences during the policy period as part of a seismic event thatcommences during the policy period, and the association of owners elects not to repair or replace thatproperty or is permanently prevented by a government authority or court order from repairing or replacingthe property, we cover the resulting reduction in the value of your ownership interest in the dwelling unitand the common interest development, if both of the following requirements are satisfied:i. As a result of the unrepaired damage, the dwelling unit either is unfit to live in or cannot legally beoccupied; andii. The reduction in the value of your ownership interest in the dwelling unit is not the result of a loss toproperty specified in “Losses Not Covered—Coverage E.”b. Partially Covered LossesIf the reduction in the value of your ownership interest in the dwelling unit and the common interestdevelopment is the result of a combination of (a) losses that are not covered, including but not limited tolosses specified in “Losses Not Covered—Coverage E” or in “LOSSES EXCLUDED,” and (b) loss toproperty that is covered under “COVERAGE E: LOSS ASSESSMENT,” then we will pay that portion ofBEQ-6B (2020 revision) Page 16 of 26the reduction in the value of your ownership interest in the dwelling unit and the common interestdevelopment that directly results from covered loss.c. How the Value of the Loss Is CalculatedThe amount of reduction in the value of your ownership interest in the dwelling unit and the commoninterest development under this coverage for “Reduction In Value Of Your Ownership Interest” will becalculated by determining the dollar amount of that portion of the loss in fair market value of yourownership interest that is directly attributable to physical loss to covered property directly caused by theearthquake upon which your claim under this coverage is based, reduced by the following amounts:i. Any payments that we make, under “COVERAGE A: BUILDING PROPERTY” or “COVERAGE E:LOSS ASSESSMENT” of this policy, for losses arising out of the same seismic event upon which theclaim for this coverage under “Reduction In Value Of Your Ownership Interest” is based;ii. Payments made under any other insurance policy, including the companion policy or an associationmaster policy, to you or to holders of mortgages or deeds of trust secured by your ownership interestin the dwelling unit and the common interest development, for damage or loss to the dwelling unitor the common interest development arising out of the same seismic event upon which the claim forthis coverage under “Reduction In Value Of Your Ownership Interest” is based;iii. Payments made to you or to holders of mortgages or deeds of trust secured by your ownership interestin the dwelling unit and the common interest development by any government agency arising out ofthe same seismic event upon which the claim for this coverage under “Reduction In Value Of YourOwnership Interest” is based, including but not limited to disaster relief payments;iv. Payments made by the association of owners to you or to holders of mortgages or deeds of trustsecured by your ownership interest in the dwelling unit and the common interest developmentarising out of the same seismic event upon which the claim for this coverage under “Reduction InValue Of Your Ownership Interest” is based, as a result of the following:(A) The collection of any insurance proceeds relating to damage to the dwelling unit or the propertyof the common interest development; or(B) The liquidation or sale of any asset or capital that is not included in the calculation of the fairmarket value of your interest in the dwelling unit and the common interest development.

Loss Assessment: Square One Defines it as “A financial charge levied on condominium unit owners by the condominium corporation, to cover deductibles or shortfalls in the corporation’s insurance.”

Losses Not Covered—Coverage E

We do not cover any losses under “COVERAGE E: LOSS ASSESSMENT” that arise out of any of the following:

1. Loss or damage to land, including land underlying any structure.

2. Loss or damage to detached garages, outbuildings, structures other than residential structures, or fences andmasonry fences and walls that are not integral to the stability of the residential structure containing thedwelling unit or integral to the stability of other residential structures at the common interestdevelopment.

3. Loss or damage to awnings and patio coverings, carports, or their support structures.

4. Loss or damage to antennas or satellite dishes, or to any towers, brackets, or attachments that support orsecure them.

5. Loss or damage to any decorative or artistic features of any property at the common interest developmentthat are decorative or artistic features of the property, including the items of property specifically listed inthis exclusion and any items of property, whether or not specifically listed in this exclusion, that are artisancrafted or that are unique and cannot be replaced with a commercially-made, identical replacement thatwould be readily available for purchase in the open market. Such decorative or artistic features include, butare not limited to, works of art; murals; stained or leaded glass; mirrors; chandeliers; mosaics, statuary orBEQ-6B (2020 revision) Page 17 of 26sculpture; carvings, inlays, or reliefs; and fountains, aquariums, and their systems. If at the time of loss anydecorative or artistic feature is serving a utilitarian purpose, the cost to repair or replace the decorative orartistic feature is not covered to the extent the cost of repair or replacement exceeds the cost of replacing itwith a non-decorative, non-artistic functional replacement.

6. Loss or damage to exterior masonry veneer. For purposes of this exclusion, stucco and exterior chimneyfacings are not exterior masonry veneers.

7. Loss or damage to plaster, to the extent the cost to repair or replace it exceeds the value of its replacementwith sheetrock or drywall.

8. Loss or damage to exterior water supply systems including, but not limited to, irrigation systems, sprinklersystems, and water reclamation systems.

9. Loss or damage to underground structures or equipment located outside the perimeter of the dwelling unitfoundation, including but not limited to underground pipes, cables, flues, drains, electrical supply systemsand electrical lighting systems.

10. Loss or damage to walkways, driveways, decks, or patios, except that portion of those walkways,driveways, decks, or patios that are necessary for and regularly used for ingress to and or egress from theresidential structure containing the dwelling unit by pedestrian or non-ambulatory occupants of thatresidential structure.

11. Loss or damage to fences, bulkheads, piers, and outside walls including retaining walls.

12. Loss or damage to landscaping, trees, shrubs, lawns, or plants, even if damaged by necessary repairs tocovered property.

13. Loss or damage to swimming pools, spas, and hot tubs, whether part of the dwelling unit or not, includingthe tile or other material linking or attaching the pool, spa or hot tub to a deck or to a structure.

14. Assessments that do not relate directly to the reconstruction of structures or other real property damaged ordestroyed as a direct result of an earthquake that commences during the policy period as part of a seismicevent that commences during the policy period.

15. Assessments made for the purpose of improving, bettering, or updating covered property to a condition orstatus better or more costly than the condition and status of the property as it existed immediately precedingthe earthquake causing loss to the property. This exclusion does not apply to your share of any portion ofassessment resulting from the cost of reconstruction to bring the property up to local residential buildingcode standards in effect on the date of the earthquake that caused the loss, as required as part of theapproval of the reconstruction permit process for repair of the covered property, subject to the applicablesublimit of $10,000.

16. Assessments that follow or relate in any way to the payment or distribution to you, or any other member ofthe association of owners, of capital or assets of the association of owners, unless the payment ordistribution of capital (a) is made as a result of a loss that is directly caused by an earthquake thatcommences during the policy period as part of a seismic event that commences during the policy periodand (b) is made for the purpose of payment or reimbursement for the repair or replacement of covered lossto property at the common interest development.

Source CEA Policy Basic Earthquake – Common Interest Development – BEQ-6B (2020 revision) Page 14/15.

*Please note that not all insurers have the same or even similar wording. Your earthquake policy may different – read it to understand.

Who Should Get the Loss Assessment Option on the CEA Earthquake Policy?

Every condo unit owner should seriously consider a CEA earthquake policy. And hence all those owners should consider the maximum loss assessment coverage that they can procure. At the same time it is important to investigate that the master HOA building has its own earthquake policy. Having both the unit owner AND the buiding have earthquake policies is a best practice.

Every Condo Unit Owner Should Seriously Consider a CEA CEA Earthquake policy …all those owners shoudl consider the Maximum Loss Assessment Coverage…

The presence of a master HOA building earthquake policy may suggest that a lower unit owners loss assessment coverage may make more sense. Then again fully understanging both the total master HOA building coverage and the master building deductible relative to the actual rebuild cost is likely well out of intellectual range for most consumers. Hence even in situations where the HOA building has an Earthquake Policy – the Unit owners likely should Still procure loss assessment coverage on their unit owners earthquake policy.

Why You Should Want Loss Assessment Coverage on an Earthquake Policy:

Owners of residential condo units should want loss assessment coverage to protect one of their biggest financial assets – their individual condo unit. Earthquake Condo Coverage is incredibly complicated. Most building HOAs surprisingly do NOT have earthquake coverage. Units owners are often responsible for just the interior of their unit. However they are still typically part owners of the entire building. Procuring a Loss Assessment Coverage selection on a CEA or other independent earthquake provider could be a real financial saver.

Who Offers Earthquake Loss Assessment Coverage?

Not all Earthquake Insurers offer the Unit Owner Condo Coverage form. Some do. Some don’t. Of the the insurers that offer Condo Unit Owners Earthquake policies most offer some version of Loss Assessment Coverage. The California Earthquake Authority obviously offers this valuable endorsement. There is one standalone earthquake insurer that takes some condo unit owners on a case by case basis.

Earthquake Loss Assessment Coverage Sources:

Progressive: https://www.progressive.com/answers/loss-assessment-coverage/

Square one https://www.squareone.ca/resource-centres/insurance-glossary/loss-assessment

DOI Source: https://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/eq-ins.cfm

Nationwide: https://www.nationwide.com/privateclient/coverage/articles/earthquake

Condo Ins Law: https://www.condominiuminsurancelaw.com/2022/11/insurance/is-your-california-condo-covered-against-earthquake-damage/

Adams Stirling: https://www.davis-stirling.com/HOME/L/Loss-Assessment-Insurance

CEA: https://www.earthquakeauthority.com/california-earthquake-insurance-policies/condominium

CEA Condo Sample https://www.earthquakeauthority.com/sites/default/files/document/condo-unit-policy-sample.pdf