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Does Your Small Business Need Earthquake Insurance?

By Christopher Coble, Esq. | Last updated on

Is your business is located in California, Ohio, Oregon, Alaska, or one of the other earthquake prone places? Do you have earthquake insurance?

Do you really need it?

The U.S. Geological Survey (USGS) predicts that a 6.7 magnitude earthquake will occur every 6.3 years in California. The Northridge earthquake on January 17, 1994 was a 6.7 magnitude earthquake. It lasted 10 seconds. The quake killed 57 people, injured 9,000 people, and displaced over 125,000 people. At final count, 82,000 residential and commercial units were destroyed. It caused $20 billion in damages, and $49 billion in economic loss. Earthquake insurance claims were far greater than expected, over $12 billion.

Can you afford an earthquake without earthquake insurance?

Commercial Property Insurance Won't Cut It.

In the same way commercial property insurance won't cover flood damage, your commercial property insurance policy will not cover any earthquake damage. It may protect against specific damage caused by other phenomena after an earthquake. If an earthquake causes a pipe in your building to burst, flooding your business with water, your commercial property insurance will likely cover it. If the earthquake caused a gas stove to explode, setting fire to your business, your commercial insurance is probably enough.

However, if an earthquake collapses your foundation, you're not covered. If the earth shakes and a sinkhole swallows your business, you're not covered. If the earth trembles and merchandise falls off the shelves, shattering on the floor, you're not protected.

For those damages, you need earthquake insurance. It will compensate you for structural damage and damage to property and merchandise caused by shaking during an earthquake.

Buying Earthquake Insurance

So if you live in an earthquake prone zone, you probably should buy earthquake insurance. Why, then, do so few people buy earthquake insurance?

The Insurance Information Institute conducted a survey and found that only seven percent of U.S. homeowners have earthquake insurance. In earthquake country, only 10 percent of homeowners bought coverage. In California, the land of fault lines aplenty, only 12 percent of homeowners bought the extra policy.

Despite the high risk of earthquakes, many people do not buy earthquake insurance because it can be very expensive. An average earthquake policy in California can cost over $800 a year. According to the California Department of Insurance, policies often have deductibles as high as 10-15 percent. If your business is worth $1M, you would have to pay $150,000 out of pocket. With the high premium and deductibles, it is understandable that many businesses would not want to invest in earthquake insurance.

Rely on Other Business Insurance Policies

Even if you decide to not buy earthquake insurance, some other insurance policies may help you protect your small business against earthquake damage.

  • Workers' Compensation Insurance -- If your employees are injured at work during an earthquake, they are covered by workers' comp insurance.
  • Business Interruption Insurance -- Some business interruption policies do cover economic loss caused by an earthquake. For example, an earthquake caused you to close your business for three days to clean up. You may be covered for the money you lost during the closure if you have a business interruption policy. Check your policy to verify that earthquakes are not excluded as covered events.
  • Commercial Auto Insurance -- Your business' cars are likely protected from earthquake damage under a standard commercial auto policy. Again, check your policy to see if it covers damages from earthquakes.

If an earthquake does damage your business, but your earthquake insurance company won't compensate you, an experienced insurance attorney may be able to help you negotiate with your insurance company.

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