Burt M. Polson - Commercial Real Estate Broker

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Commercial Earthquake Insurance

With the recent earthquake commercial property owners are taking a second look at their insurance policies. However, much of the information available can be difficult to disseminate and at times, ambiguous.

A leased property or a property used in the operation of a business both have insurance requirements far different than a residential property. A knowledgeable and savvy insurance agent is a must-have adviser on your team.

Barrie Sandy, a Napa Farmers Insurance agent said, “Business owners don’t want big gaps in their policies or to be under-insured. They want to know how their coverage works. There are many details to be aware of to be sure you have adequate coverage.”

Liability, property damage and insuring income are the major categories of a policy for lessor’s risk. There are however, several sub-categories to consider. Basic policies do not include earthquake coverage. Depending on your carrier for liability and property damage you may be able to obtain an endorsement for earthquake coverage.

Unlike residential properties, the California Earthquake Authority (CEA) does not insure commercial real estate. Your final option may be to go to a carrier who specializes in commercial property earthquake coverage.

The Sacramento Bee reported in an article last month that overall, just 10 percent of California businesses and homeowners with property insurance also carry earthquake coverage.

In the Napa region, less than six percent of homeowners and renters in Napa have earthquake policies, according to CEA statistics. “Since the earthquake, interest in this coverage has increased considerably so there’s an expectation that there will be an increase in our county coverage numbers,” says Sandy.

“Earthquake coverage applications are fairly easy to complete,” says Sandy. Building values, year built, type of construction, age and parking configuration are generally all that is needed to get a quote. Older properties, concrete tilt up buildings built before 1974 and wood frame buildings built before 1980 with open parking underneath have higher rates while retrofitting reduces the cost.

Most commercial earthquake policies have a deductible that is based on the value of the building insured. They commonly range from five to twenty percent. “A $1,000,000 building with a twenty percent deductible would have a retention of $200,000. Even a retention of $50,000 (five percent deductible) may sound high, but it’s a small inconvenience if the building is destroyed,” says Sandy.

“Another misconception is that total losses never happen,” says Sandy. Most jurisdictions require that any building sustaining more than fifty percent damage be completely razed with a new building constructed to current building codes. “It does happen, this is why we offer building ordinance coverage, which should be purchased even on new buildings,” Sandy offered.

According to Sandy, “Earthquake coverage in critical California counties is often more expensive than BOP (business owners policy) or package policies. We find that the likely buyers of earthquake coverage are those with substantial equity in the property. Earthquake coverage is readily available, almost any entity could purchase the coverage. It’s the price that generally dissuades them.”

An ACRES Real Estate Services, Inc. Company