Last week we received the renewal notice for our earthquake insurance policy. The California Earthquake Authority (CEA) sent the entire policy, which is unusual; typically we get only a declarations page. I hadn’t read an insurance policy in more than a year. Could I still read one without quitting or nodding off first?

The answer is a qualified yes. I read it through, but needed breaks.

Because earthquakes are inevitable in California and real estate values are sky-high, commercial insurers won’t take the sucker’s bet of covering private homes. So the State of California has ventured where the market fears to tread, creating an earthquake insurance program (the aforementioned CEA) for homeowners, condo owners, mobile home owners, and renters. Coverage isn’t cheap, but it is within reason, so we purchase it.

There’s a big deductible. For an additional premium you can buy the deductible down to as low as 5% of your home’s assessed value (still tens of thousands of dollars for most people). You can also buy additional coverage for loss of personal property, temporary housing, upgrades to modern building codes, etc.

Once the cost of earthquake damage to your home exceeds the deductible, the CEA’s coverage kicks in. It keeps paying up to the assessed value of your house. After that, you’re on your own. And be warned! If statewide losses exceed the CEA’s assets, the CEA can cut its payout proportionally; for example, if losses exceed assets by ten percent, you’ll get only ninety percent of what you’re entitled to. (And then the next year they can raise your premium twenty percent.)

Those were the main things I wanted to understand. But I learned a few other things reading the policy. For one, I didn’t know that you must have homeowners insurance to have earthquake insurance. It’s understandable, because the CEA processes claims through the insurance company that provides your homeowners coverage, saving itself the expense of retaining thousands of its own adjusters and administrative employees. (No doubt there’s plenty in it for the insurers, too.) But I hadn’t realized it’s mandatory.

Another thing I learned lurked in the exclusions. Every insurance policy has a section that says “here’s what isn’t covered by this policy.” The first ten exclusions make sense — fires, explosions, etc. This is an earthquake policy, after all. But Exclusion 11 caught me short. It excludes coverage for:

Declared or undeclared war, acts of terrorism, insurrection, rebellion, revolution, warlike act by a military force or military personnel or any person, destruction or seizure or use for a military purpose, and any consequence of any of these. Discharge of a nuclear weapon will be deemed a warlike act even if accidental.

Whose lawyer insisted that last sentence be included? I guess I can see a reason for it: the accidental “discharge” of a nuclear weapon would likely generate considerable ground motion, tempting non-obliterated policy holders to file claims for earthquake coverage. Good lookin’ out, counselor! We wouldn’t want the CEA’s precious assets exposed to the greedy survivors of a twenty-megaton oopsie!

Oh well. Perhaps there really is a good reason for that last sentence and I’m just strutting my ignorance. (Now that I’ve retired, I can confess: I wasn’t very good at reading insurance policies.) But even if there is a good reason, methinks the lawyers and underwriters who crafted that language would better spend their time developing a CEA-like insurance program for wildfires, which are rapidly becoming as commercially uninsurable as quakes.

San Francisco’s Marina District after the October 1989 Loma Prieta earthquake.

Former Risk Manager at UC Berkeley, author of four books, ectomorphic introvert.

Former Risk Manager at UC Berkeley, author of four books, ectomorphic introvert.