On Shaky Ground: How Can Policyholders Prepare for the Predicted Increase of Earthquakes in 2018?
This year has already been a busy one for seismic activity. In the first weeks of 2018 alone, there have been reports of a 7.9 magnitude quake off the shores of Kodiak, Alaska, a 6.2 magnitude temblor in Japan, and a series of tremors in California. And, few will forget the catastrophic earthquakes that struck Mexico City and the Iraq-Iran border last year. With this recent domestic and international seismic activity and predictions of more to come,1some corporate policyholders will ask the question: what insurance coverage is available to protect against property damage and business interruption loss from earthquakes?
While insurance terms and conditions may vary by region and from one policyholder to another, generally speaking, “all-risk” commercial property policies insure all non-excluded direct physical loss or damage to covered property. As a general proposition, many such policies may include exclusions for loss or damage resulting from “earth movement.” But many other policies identify “earthquakes” or “earth movement” among expressly insured perils along with “floods” or “named windstorms,” which coverage may be subject to specific sublimits or deductible terms.
For those policyholders currently without “earthquake” coverage but seeking to add this as an insured risk, and for those already covered for earthquake-related damage, here are four key issues to consider in the year ahead:
Because earthquakes will inevitably occur in 2018 and beyond, corporate insureds—especially those in earthquake-prone regions—may do well to accelerate their review and expansion of policy terms to address this risk. By giving due consideration to the items listed above, policyholders may be able to enhance insurance coverage for earthquake-related loss and damage. If you have any questions about insurance coverage for loss or damage resulting from earthquakes or about commercial property insurance coverage in general, please contact one of Haynes and Boone’s Insurance Coverage Practice Group partners listed below.
1 While there is no precise way to predict where or when earthquakes will occur, two geophysicists from the University of Colorado at Boulder and the University of Montana recently presented a study correlating seismic activity with the velocity of the Earth’s rotation. According to the study, a 2011 slowdown in the Earth’s rotational speed could potentially lead to increased seismic activity over the next several years. See Bilham, Roger and Bendick, Rebecca, A Five Year Forecast for Increased Global Seismic Hazard, The Geological Society of America, 2017. The study suggests even minute changes in the Earth’s rotational speed can affect the shape of the Earth and the contraction or other movement of tectonic plates, giving rise to earthquakes. See Sarah Kaplan, The real science behind unreal predictions of major earthquakes in 2018, The Washington Post, Nov. 21, 2017.
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