Understanding the Earth Movement Exclusion
In the world of personal lines insurance, understanding what is not covered is often just as important as understanding what is. Standard homeowners policies, such as the HO-3 and HO-5, specifically exclude loss caused by "earth movement." This exclusion is broad and typically includes earthquakes, landslides, mudflows, and even sinkholes (unless state law dictates otherwise).
Because the potential for catastrophic loss is so high, insurers do not include earthquake coverage in the base premium. Instead, homeowners must specifically request this coverage, which can be added via an endorsement or purchased as a separate stand-alone policy. For students preparing for the complete Personal Lines exam guide, mastering the mechanics of this endorsement—particularly the unique deductible structure—is essential for passing the property insurance sections of the exam.
Exam Tip: The 72-Hour Rule
For insurance purposes, all earthquake shocks that occur within a 72-hour period are considered a single "occurrence." This means the insured only pays one deductible for the initial quake and all subsequent aftershocks within that three-day window. If an aftershock occurs 80 hours after the first quake, it is treated as a new claim with a new deductible.
The Earthquake Endorsement Mechanics
When a policyholder adds the Earthquake Endorsement to their homeowners policy, it modifies the Earth Movement exclusion to provide coverage for shocks, tremors, and volcanic eruptions. However, it is important to note that it does not cover damage caused by fire, explosion, or glass breakage resulting from an earthquake, because those perils are already covered under the standard homeowners form.
The endorsement typically covers:
- Coverage A (Dwelling): The main structure of the home.
- Coverage B (Other Structures): Detached garages, sheds, and fences.
- Coverage C (Personal Property): Furniture, electronics, and clothing.
- Coverage D (Loss of Use): Additional living expenses if the home is uninhabitable.
A critical distinction for the exam is that while the earthquake endorsement covers the shaking, it almost never covers flood or tidal waves (tsunamis) caused by the earthquake. For flood coverage, a separate National Flood Insurance Program (NFIP) policy is required.
Standard HO Policy vs. Earthquake Endorsement
| Feature | Standard HO Policy | With Earthquake Endorsement |
|---|---|---|
| Earth Movement Exclusion | Applies to all shocks | Modified to cover shocks/tremors |
| Deductible Type | Flat Dollar Amount | Percentage of Limit |
| Fire Following Quake | Covered | Covered (Standard Form) |
| Tsunami/Flood | Excluded | Excluded |
Calculating Percentage Deductibles
The most unique aspect of earthquake insurance—and a frequent source of calculation questions on the exam—is the percentage deductible. Unlike a standard $500 or $1,000 deductible, earthquake deductibles are expressed as a percentage of the limit of insurance for the specific coverage being claimed.
Common percentages range from 5% to 25%. In many states, the deductible applies separately to each coverage. For example, if a home is insured for $300,000 (Coverage A) and has a 10% earthquake deductible, the deductible for the dwelling is $30,000. This amount must be exceeded before the insurer pays a dime for dwelling repairs.
It is vital to remember that the deductible is not a percentage of the loss amount, but a percentage of the Total Limit of Liability for that coverage category. If you have $10,000 in damage but a $30,000 deductible, the insurance company pays nothing.
Example: 10% Deductible Calculation
Masonry Veneer and Other Exclusions
Even with an earthquake endorsement, certain types of construction are viewed as higher risk. One of the most common exclusions found within the endorsement is masonry veneer (brick or stone facing). Because brick veneer is prone to cracking and falling away from the frame during a quake, it is often excluded from coverage unless the policyholder pays an additional premium to include it.
If masonry veneer is excluded, the value of the veneer is subtracted from the dwelling limit before the deductible is applied, or more commonly, the damage to the veneer is simply not calculated in the loss settlement. Students should look for keywords like "exterior masonry veneer" in exam questions to determine if full dwelling coverage applies.
To test your knowledge on these specific exclusions and deductible calculations, visit our practice Personal Lines questions.