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September 13, 2007
In the Event of An EQ -Are You Willing To Walk Away From Your Home? Lose Your Investment?
I will say it again: In the Event of An EQ -Are You Willing To Walk Away From Your Home - Lose Your Investment? How about this: Are you willing to force others out of their homes? If you are on the board, do you want to set your association up for failure in the event of a big earthquake? Do you want to let those with little invested in their homes dictate the level of protection of property for everyone in the development? Would you adopt the “Chicken Little " philosophy (“the sky is falling in so why bother planting the seeds”)?
Think about it. Certainly, if there is a devastating earthquake and your association is downed, that would be a very bad thing, but that does not mean the world is coming to an end. What is left are owners that need a solution. Certainly, there would be serious repercussions. The question is: is there going to be a chance that your members will be able to support rebuilding? And: What are you going to do to try and make sure it is within the realm of possibility that your association can rebuild?
If you are not willing to look at the possibilities, you can always throw your hands up and say - “if there is a big earthquake we are all cooked! So why try?” This is the “Chicken Little” philosophy.
I am in favor of the former, which is, looking at all options, and presenting all options to the members of the Association. I believe that Boards should look past the rising premiums and the lowered coverage aspects - painful as it might be - get above the anger with the insurance companies for doing this, and the disdain for the messengers (agents and brokers) who are scrambling to find you coverage, and get on with a plan to succeed if there is a big earthquake and if it hits your community hard.
Looking forward, and backward for that matter, if there is/was an EQ centered in your community, and it devastates your association, and others within a reasonably small radius, the Chicken Little "world is falling in" theorizing will/will have buried you. There will be heck to pay, lawsuits and pointing fingers all over the place. Few will think back that the $500, $1000 or $2000 that each owner would have had to pay for a year of some very basic protection was too heavy a price to pay.
And think about this too: even if the governing documents do not require the purchase of earthquake insurance, they do require that the board take measures to protect and preserve the property values. What can be more graphic a misstep than allowing the EQ to lapse, suffering EQ damage, and finding the property values are in the dumps?
This is why Boards need to take great pains to make sure that owners understand the ramifications of letting all EQ insurance go. There are various layers of coverage that can be considered to save money, and as layers are added, the price goes down. Individual owners can get protection through the CEA for up to $50,000 in loss assessment coverage for any special assessment they might have to pay in the event of an EQ event. If you as a Board tell owners they can get the coverage, and you take it a step further and calculate the amount of protection owners could get by multiplying the number of owners in your association by $50,000, you can realistically look at a reasonable deductible that may be higher than anything you have considered acceptable in the past. If 100 owners got the CEA coverage in your association, that is $5,000,000 worth of coverage (by my math) and encouraging this practice could allow raising the deductible, which could save some dollars.
It's a tough decision, purchasing earthquake insurance, or any insurance for that matter, as it seems like money gone into the wind, if there is no "event". But if we buck up and pay now, we may not have to pay 100 times over later on. Betting against yourself may seem a waste, but to me, the fact that such insurance still can be bought is a blessing in disguise. Some of the wind and flood damaged areas of the country no longer offer any of this kind of "sleep-at-night" protection at all.
Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She is provides several publications written in plain English to help people who information about California law as it relates to homeowner associations. She posts a wealth of information on her web site at www.californiacondoguru.com.
Posted by Beth Grimm at September 13, 2007 9:59 AM