1. Forms
2. HO
3. HO-04-36

What the Form Is

The HO 04 36, Loss Assessment Coverage for Earthquake, is an endorsement to a homeowners insurance policy. Its primary purpose is to provide coverage for assessments levied by a condominium association, cooperative, or other homeowners association against the insured unit owner when the association's collectively owned property sustains direct damage from an earthquake. Standard homeowners policies typically exclude earthquake damage, and the basic Loss Assessment Coverage (often provided by endorsement HO 04 35) also excludes assessments resulting from earthquakes. This endorsement specifically fills that gap for earthquake-related assessments. Coverage includes assessments resulting from land shock waves or tremors before, during, or after a volcanic eruption.

Classes of Business It Applies To

This endorsement is primarily designed for individuals who own a residential unit within a common-interest development, such as:

• Condominium Unit Owners (typically insured on an HO 00 06 form): These insureds are most likely to need this coverage, as they are part of an association that owns common areas (buildings, grounds, amenities) that could be damaged by an earthquake, leading to assessments.
• Homeowners in a Planned Unit Development (PUD) or other Homeowners Association: If the association owns common property and has the authority to levy assessments for earthquake damage to that property.

Real-world example: An insured owns a condominium unit in California. An earthquake causes significant structural damage to the condominium complex's clubhouse and swimming pool, which are collectively owned. The condominium association levies an assessment of $10,000 per unit owner to cover the repair costs. If the insured has the HO 04 36 endorsement, they can claim this assessment under their policy, subject to the endorsement's limit and deductible.

Special Considerations

• Excluded Peril Coverage: Earthquake is a specifically excluded peril in most unendorsed homeowners policies. This endorsement buys back coverage for assessments related to this peril.
• Deductible: A single deductible applies to all assessments arising from one earthquake occurrence. This deductible is typically the lower of a fixed amount (e.g., $500) or a selected percentage of the selected limit of insurance on the endorsement. ISO revisions in 2022 aimed to clarify earthquake deductibles by allowing a dollar amount to be entered on the endorsement.
• Limitations: The endorsement does not cover assessments charged by a municipality or other governmental unit. It also does not cover loss assessments arising from flood or tidal wave, even if attributable to an earthquake.
• Policy Compatibility: This endorsement can generally be used with most standard homeowners forms (like HO 00 02, HO 00 03, HO 00 04, HO 00 05, HO 00 06) but is typically not available for use with the HO 00 08 (Modified Coverage Form) or the HO 00 14 (Contents Comprehensive Form for Renters).
• Other Units: Coverage can be extended to condominium units other than the residence premises if scheduled.

Key Information for Agents and Underwriters

• Risk Assessment: This endorsement is crucial for clients in earthquake-prone regions who are members of a homeowners or condominium association. Underwriters should consider the seismic risk of the location and the construction quality of the common property.
• Limit Adequacy: Agents should discuss appropriate coverage limits with insureds. The limit of liability is often based on the insured's proportionate interest in the value of all collectively owned buildings and structures of the association. Associations may carry their own master earthquake policy, but assessments can still occur for deductibles, underinsurance, or excluded items.
• Gap Filling: Clearly explain that this endorsement covers a specific gap left by the base policy and the standard Loss Assessment Coverage (HO 04 35).
• Deductible Explanation: Ensure the insured understands how the deductible is calculated, especially with the option for percentage-based deductibles.
• Master Policy Review: It can be beneficial to understand the association's master insurance policy, including any earthquake coverage and deductibles, to better advise the client on the appropriate limit for the HO 04 36.