1. Forms
2. HO
3. HO-04-54

What the Form Is

The HO 04 54 Earthquake Coverage Endorsement is an addition to a standard homeowners insurance policy that provides coverage for direct physical loss or damage to insured property (typically dwelling, other structures, and personal property) caused by an earthquake. Standard homeowners policies typically exclude damage from earth movement, including earthquakes. This endorsement modifies that exclusion to add coverage specifically for earthquake-related perils. The definition of an 'earthquake' in this endorsement usually includes land shock waves or tremors that occur before, during, or after a volcanic eruption. Importantly, all earthquake shocks that occur within a 72-hour period are generally considered a single earthquake event for the purpose of coverage and deductible application.

Classes of Business It Applies To

This endorsement applies to personal lines homeowners insurance. It is used for owner-occupied dwellings, and depending on the base policy form it's attached to, it can cover the main dwelling (Coverage A), other structures on the residence premises (Coverage B), and personal property (Coverage C). Homeowners in areas prone to seismic activity often purchase this endorsement to protect their financial interest in their property against earthquake damage. For example, a homeowner in California, the Pacific Northwest, or areas near the New Madrid Seismic Zone might consider this crucial coverage.

Special Considerations

• Deductible: A significant feature of this endorsement is its special deductible, which is separate from the standard policy deductible. It is typically a percentage (e.g., 5%, 10%, 15% or higher) of the limit of liability for Coverage A (Dwelling) or Coverage C (Personal Property), whichever is greater, rather than a fixed dollar amount, though newer versions may allow for a dollar amount to be scheduled. This percentage deductible can result in a substantial out-of-pocket expense for the insured. There's usually a minimum dollar amount for this deductible (e.g., $500).
• Exclusions: The endorsement typically excludes loss resulting from flood, tidal wave, or tsunami, even if they are caused by or aggravated by an earthquake. It also does not cover the cost of filling land.
• Masonry Veneer: Coverage for exterior masonry veneer (like brick or stone facing) may be excluded unless specifically indicated on the endorsement schedule that the exclusion does not apply. Stucco is generally not considered masonry veneer for the purpose of this exclusion.
• Policy Limits: The earthquake coverage provided by this endorsement does not increase the overall limits of liability stated in the homeowners policy for Coverages A, B, or C.
• Other Earth Movement: While this endorsement adds coverage for earthquakes, it's important to note that other types of earth movement, such as landslides, mudflows, or subsidence not directly caused by an earthquake, generally remain excluded under the policy unless covered by a different, specific endorsement.

Key Information for Agents and Underwriters

• Risk Assessment: Underwriters must carefully assess the property's geographic location and its proximity to fault lines or areas with seismic history to determine eligibility and appropriate pricing. Construction type and age of the dwelling are also key underwriting considerations.
• Deductible Explanation: Agents must clearly explain the earthquake deductible to clients, emphasizing that it's usually a percentage of a high coverage limit and can be substantial. Providing examples can help insureds understand their potential out-of-pocket costs.
• Coverage Scope: It's crucial to discuss what is and isn't covered, particularly the exclusions for flood/tsunami and the optional nature of masonry veneer coverage.
• 72-Hour Clause: Ensure the insured understands that multiple shocks within a 72-hour period are treated as a single event for deductible and coverage purposes.
• Market Availability and Cost: In high-risk areas, this coverage can be expensive and may have limited availability or higher deductibles. Agents should be prepared to discuss alternatives if available or explain the rationale behind the cost.
• State Variations: While this is an ISO form, state-specific versions or regulations may apply, impacting terms, conditions, or availability (e.g., California has specific earthquake insurance considerations often handled by the California Earthquake Authority - CEA).