Earthquakes get the headlines, but the ground moves for many reasons. Whether a property loss is covered when the ground shakes, shifts or sinks depends on what the policy says. Earthquake coverage is a very well known, but relatively narrow coverage limited to damage caused by naturally occurring seismic activity. Few buyers are aware of earth movement coverage, which offers broader protection for a wider scope of perils. While most clients choose earthquake coverage, they may want to consider whether earth movement policies make sense, given their specific risks and how it fits into their overall property program.
NATURAL AND MAN-MADE
California, the Pacific Northwest and areas along the New Madrid fault in the center of the country run significant earthquake risk. That seismic risk is much lower in other areas of the country, but landslides, mine subsidence or sinkholes and other ground movements pose risks on a localized basis. Oklahoma is an anomaly as the state has been hit with hundreds of smaller earthquakes in recent years, which state officials view as linked to waste water injection wells associated with fracking, or hydraulic fracturing, in oil and gas fields. (Source)
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This is an example of how definitions within a policy can be crucial. Because the Oklahoma quakes may be seen as man-made, coverage will depend on whether the policy addresses man-made earth movements and expressly excludes it. Such man-made risks present challenges for carriers because they can’t currently be modeled to provide an adequate risk assessment. Oklahoma provides a special challenge because most DIC earthquake markets don’t write coverage in the state. In addition, while a strong argument can be made that the quakes are man-made, the matter isn’t settled.
BROADER COVERAGE, FEWER MARKETS
While earth movement coverage is broader, fewer markets offer it. Most quake coverage is placed through MGAs and those that only write earthquake are not as familiar with the perils involved in earth movement and man-made earthquakes. Many California MGAs are likely to only write earthquake shock. Fewer excess and surplus (E&S) carriers are willing to do earth movement as the market in general is more focused on catastrophe exposures. In areas where earthquake is the main exposure, insureds need to consider whether they would unduly limit their market choices by seeking earth movement coverage.
DEFINITIONS MATTER
While carriers may define earthquakes differently, the coverage is always triggered by a natural, seismic event. Risks such as landslides to mudslides, rockslides, mine subsidence and sinkholes, are generally excluded from earthquake policies. An earthquake policy may cover a landslide triggered by an earthquake, but earth movement insurance, which includes earthquakes, provides a much broader scope of coverage that doesn’t have to be triggered by seismic activity.
One key point for earth movement coverage is whether any reference is made to specifically include or exclude man-made earth movements. One major carrier, for instance, specifies “any earth movement,” including earthquakes and other main causes without mentioning “mad-made.” Some major carriers specifically expressly include man-made earth movements. It’s worth remembering that the broadest definition may be quite short. For excess coverage, it’s important that the definitions in all excess policies should be follow form of the primary policy to avoid coverage gaps and ensure that there is no conflicting language in the placement that could jeopardize coverage.
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BOTTOM LINE
Earth movement policies provide broader coverage than earthquake and often for relatively modest additional premiums. Potential buyers of earth movement insurance, however, have fewer markets to consider, and may depend on where they are located. As always, it comes down to the risks. CRC Group’s risk analysts can help identify earth movement risks that may be overlooked using site specific soil hazard data. Insureds, however, should be aware of the coverage and its potential advantages and limitations. Educated buyers make more informed decisions to better match their coverage to their own risks.
Contributors:
Jeff Bianchi is a Senior Vice President in CRC’s San Francisco, CA office and member of the Property Practice Advisory Committee.
Paul Long is a Senior Vice President in CRC’s Chicago, IL office and member of the Property Practice.
Stacey Newman is a Senior Vice President in CRC’s Chicago, IL office and member of the Property Practice.
Mark Sangenito is a Broker in CRC’s Dallas, TX office and a member of the Property Practice.
Natalie Sienkiewicz is the Office President of CRC’s Bothell, WA office and a member of the Property Practice.
Jonathan White is a Broker in CRC’s Bothell, WA office and a member of the Property Practice.