Covered losses from the recent earthquake that hit the NapaValley are expected to be under $1 billion since less than 6% ofthe residents carried earthquake insurance. The area has seen closeto 70 aftershocks since Sunday.

“The area most affected is downtown Napa – a historic town withmany older brick buildings that are uncommon in California,” saidSteve Starr, general manager of BELFOR Property Restoration's SanFrancisco office. “Damage from the earthquake also included thefaçades coming off of buildings, masonry and drywall issues, aswell as broken sprinkler lines, dropped ceilings and debris.”

Images of the damage include contents thrown off of shelves,furniture tossed about and buildings that have been flooded frombroken sprinkler lines and water mains. It is harvest time in Napa,and while local wineries saw damage to some of their stock, thevineyards themselves were undamaged. “Damage estimates from thecommercial policies will be forthcoming, as these are covered byindividual insurance companies,” says Lynne McChristian of theInsurance Information Institute. “Larger vineyards typically havecoverage for inventory, supplies and equipment. They also takeadvantage of the risk management expertise of their insurers, somany have taken the necessary steps to mitigate possiblelosses.”

There are 430 wineries in Napa County according to the NapaValley Vintners website, the trade association for the wineries,and 95% of these are family-owned. As is frequently the casewith many small business owners, some of the smaller wine makersmay be underinsured for their losses.

Coverage for the damaged homes and businesses will depend on theindividual policies, but there may be some third-party options thatgo beyond earthquake coverage says Mike Levine, an attorney withHunton & Williams, LLP in their insurance recovery practicegroup.

“It comes back to what caused your particular loss,” explainsLevine, citing attenuated interruption as a possible reason to lookinto coverage provided by liability policies issued to otherparties. For example, if a homeowner sustained property damage dueto negligence from an adjoining neighbor and not the earthquake,then the homeowner may be able to collect for damages from theneighbor's liability policy. A cause and origin investigation wouldbe necessary to determine if there is any liability for theneighbor.

“If you didn't sustain any damage from the earthquake, but yourhome caught fire because there are fires burning in the area, theloss is due to the fire and not the earthquake,” he added, sayingthat a fire may be covered under a normal liability policy.

Interestingly, mortgage companies do not require earthquakeinsurance on their California properties. Since only 6% of ownersand renters purchase it according to California EarthquakeAuthority (CEA), this means 94% of the residents are not coveredfor their losses, says Martin Hartley, executive vice president andCOO of PURE, a policyholder-owned insurer. This leaves a hugeexposure for banks, since many homeowners base their decision topurchase earthquake insurance on the price of the policy and theamount of equity in the home. “If I have 20% equity in my home andthe rest is a mortgage with a 15% deductible [for the earthquakepolicy], then I'm basically buying it for the bank and this impactsthe decision to purchase coverage,” he explains.

Approximately 20% of the residents who have earthquake insuranceare insured through the CEA, which has a high deductible, around15% of the amount of coverage, and is extremely limiting because itonly covers the functional replacement cost of the home. Accordingto Hartley, there is no coverage for artwork or other high valuecontents, very little loss of use coverage, and driveways or otherbuildings on the property such as unattached garages are notcovered under a CEA policy.

PURE caters to members who have a typical rebuilding cost in the$2-5 million range, and also provides coverage for fine art andjewelry, high end vehicles and watercraft. Approximately 43% of thehomes PURE insures in California are protected by earthquakecoverage, but Hartley says the company did not have any exposurewith this earthquake.

He believes that the reason more of their members purchaseearthquake insurance is because of the value of their homes, thecontents and collections in the homes, and the fact that thecompany offers this type of coverage and services the policiesthemselves. The company also offers a range of deductibles, whichallows the policy holders to determine how much risk they want totake in terms of coverage.

The recent earthquake has also highlighted the need for an earlywarning system for the state. The U.S. Geological Survey (USGS) iscurrently collaborating on a system with scientists at severalinstitutions including the California Institute ofTechnology, University ofCalifornia at Berkeley, and University of Washington. The EarthquakeEarly Warning (EEW) system uses seismic networks to detect activityin known hazard areas so warnings can be sent to areas outside ofwhere the earthquake originated. This could provide enough time forresidents to take cover, businesses to shut down and move workersto a safer area, and for hospitals and other first responders toprepare for the aftermath. California Governor Jerry Brown signed abill last year authorizing the Office of Emergency Services tobegin identifying funding sources for the system, which will costaround $80 million to implement.

Photos courtesy of BELFOR PropertyRestoration.