STONEYBROOK VILLAS
OWNERS ASSOCIATION
____________________________________________________________
June 18, 2007
Re: Earthquake Insurance Questionnaire
Dear Stoneybrook Villas Homeowner:
On behalf of the Association’s Board of Directors, members of the Insurance Committee have been exploring the possible need for re-instating earthquake insurance for inclusion as part of the HOA’s total insurance package that it now carries. As you may be aware, earthquake insurance was discontinued within the recent past due to the ever-increasing cost for this type of coverage.
In an effort to help the Board of Directors make the decision to purchase earthquake insurance, the Committee has developed a list of questions that it would like for you, the homeowner, to answer. Along with the list of questions, the Committee has included information to help better inform you when answering these important questions.
Please take some time to read the enclosed information, and then respond to the list of “five questions” that have been compiled for your response located on the reverse side of this letter. Please return by mail or faxing to the offices of Transpacific Management Service at 562/926-8555. Your timely response is greatly appreciated!
Should you have any questions, please give me a call.
Sincerely,
At the direction of the Board of Directors
STONEYBROOK VILLAS OWNERS
ASSOCIATION
Valerie Cuonzo, CCAM
Community Association Manager
Professionally Managed by Transpacific Management
Service
A Division of the Management
Trust
12607 Hiddencreek Way, Suite R
Cerritos, CA
562/926-3372 (Ph)
562/926-8555 (Fax)
STONEYBROOK VILLAS OWNERS
ASSOCIATION
EARTHQUAKE
INSURANCE
FIVE
QUESTIONS
Please inform yourself before answering the following questions by reading the enclosed information about earthquake facts and figures:
- Do
you believe the Stoneybrook Villas Owners Association should carry earthquake
(EQ) insurance regardless of the cost to benefit ratio?
Answer: ______ Yes ______ No
Comments:
________________________________________________
____________________________________________________________
- Do
you believe that you, as a unit owner, should be required to carry your own
condo owner’s property and liability insurance in order to protect your, your
neighbor’s and the Association’s property against possible damage from within
your own unit?
Answer: ______ Yes
______ No
Comments:
__________________________________________________
_____________________________________________________________
- Do
you think you should carry your own loss assessment coverage for EQ damage or
other possible losses in addition to a condo owner’s policy?
Answer: ______ Yes
______ No
Comments:
__________________________________________________
_____________________________________________________________
- Do
you think association funds that would pay for EQ insurance might be better
spent on EQ damage prevention, i.e. structure reinforcement,
etc.?
Answer: _______ Yes
______
No
Comments:
___________________________________________________
- Would
you serve on the Board of Directors knowing there is a substantial risk for
making a wrong decision regarding its purchase due to the high cost of
obtaining adequate EQ insurance?
Answer: ________ Yes
______ No
The following information is
optional:
Name:
_______________________________________________________________
Unit Address:
_________________________________________________________
Contact Phone:
________________________________________________________
FIVE
QUESTIONS
Please read
the information included with this poll.
- Do you
think the Stoneybrook Villas Owners Association should carry earthquake
insurance, no matter what the cost to benefit ratio is?
- Do you
think you as an owner of a unit at Stoneybrook Villas Owners Association
should be required to carry your own condo Owners property and liability
insurance coverage in order to protect yourself, your neighbors and the
Association for damage from within your own unit?
- Do you
think you, as an owner of a unit at Stoneybrook Villas Owners Association
should carry your own earthquake insurance for loss assessment coverage and
some other of your losses, in addition to a condo Owner’s
policy?
- Do you
think money that would otherwise be spent on earthquake insurance might be
better spent on earthquake damage prevention?
- Would you
serve on the Board of Directors when there is a substantial risk for making a
wrong decision due to the high cost of obtaining adequate earthquake
insurance?
Please give
your answers to these questions on the enclosed postcard to the
office.
Only 22.58%
of the Total Condominium Market has Earthquake insurance.
Only 11.85%
of the Total Residential Market has Earthquake insurance.[1]
What we know
about the risk of earthquake (exposure to loss) to Stoneybrook Villas: The
Newport-Inglewood Fault is located approximately .11 to .16 miles Southwest from
Stoneybrook Villas. Risk Management Solutions, via their RiskSearch program has provided the project with a risk
score of “8” on a scale of “1” to “10.”
A score of “8” indicates “High to Very High Risk” for earthquake risk due
to the proximity to the fault line.
The Newport-Inglewood fault zone was the source of the destructive 1933
Long Beach earthquake (Richter magnitude 6.3), which took 120 lives. A major
earthquake (magnitude about 7) on this fault with in the highly urbanized Los
Angeles metropolitan area poses one of the greatest hazards to lives and
property in the nation.[2]
The cost of
earthquake insurance: Association: In October,
2006, the Association did not renew its earthquake insurance policy. The
expiring policy had a $15,000,000 coverage limit with a 15% deductible and a
premium of about $51,658 (about $9 per month per unit for about $31,847 of
coverage per unit). The Essex
Insurance Company offered us a renewal with a limit of $2,500,000 with a 20%
deductible and a premium of about $72,830 (about $12.88 per month per unit for
$5,307 of coverage per unit). The
Association did not renew the policy under those conditions.
We
understand another association near us paid a premium of $130,000 for $2,500,000
of coverage.
The cost of
earthquake insurance: Condo Owner: One of our
owners in a one bedroom unit had individual California Earthquake Authority
(CEA) coverage during the year when our Association had coverage and paid $465
annual premium for that individual earthquake coverage of $50,000 of loss
assessment, $25,000 of building property, $25,000 of personal property and
$10,000 loss of use coverages. The next year the
premium for the same coverage was $505, all of the increase of which was due to
there being no Association earthquake coverage.
In order to
obtain the CEA policy it is necessary for the owner to already have a condo
owner’s liability policy. The
premium on that liability policy runs about $132 for limits of $42,000 of
unscheduled personal property, $300,000 of personal liability, $30,000 of
building property, $120,000 of loss of use, and $5,000 of medical payments to
others and a deductible of $1,000 per occurrence.
Difference
it makes having or not having earthquake insurance: If there is
major earthquake damage to our Stoneybrook Villas Owners Association structures
the costs of repairing or rebuilding that exceeds our Association insurance
coverage must be borne by the owners or their insurance. That means the Association must levy a
Reconstruction Assessment against each Owner based upon the ratio of the square
footage of the interior dwelling area of the Unit of such Owner’s Condominium to
the total square footage of the interior dwelling areas of all Units of all
Condominiums within the Project at such time and in such amount as the Board
shall determine is necessary to cover the costs of reconstruction in excess of
insurance proceeds.[3]
Based on
recent estimates, our structures would cost to replace anywhere from $55,887,375
to $66,458,120, depending on how you calculate it and what has to be done. That
means, absent insurance, in case of a total loss, each owner could be assessed
from $118,656 to $141,100 to rebuild if they voted to do so in accordance with
the CC&R’s.
Just prior
to the expiration of our last earthquake policy a marketing report was done to
determine what insurance coverages were available to
the Association. Eighteen of twenty
of the carriers declined for one reason or another to offer coverage.[4] So the Association may not be able to
obtain coverage, but the individual owners can always obtain some coverage under
CEA and it is very important that they do so.
The
following chart prepared when we had
$20,000,000 of earthquake coverage points out the dollar difference to the
owner of having or not having their own earthquake coverage.[5]
|
How
much will owner have to come up with from their own
pocket |
| |||||
|
%
Loss |
$
Loss |
Deductible |
Association
Insurance |
Assessment |
With
owners EQ Ins |
Without
Ins |
|
48% |
19,892,400 |
6,243,720 |
13,648,680 |
13,256 |
5,756 |
42,234 |
|
40% |
16,729,920 |
6,243,720 |
10,486,200 |
13,256 |
5,756 |
35,520 |
|
24% |
10,000,000 |
6,243,720 |
3,756,280 |
13,256 |
5,756 |
21,231 |
|
12% |
5,000,000 |
6,243,720 |
0 |
10,616 |
3,116 |
10,616 |
So you
should want to purchase individual earthquake insurance unless you want to pay
the amount in the last column, rather than the amount in the second to last
column above. Without Association
coverage or substantially less Association coverage the assessment will be much
larger.
In the case
of the much lower limits of coverage offered recently our Agent offered the
following explanation of how the coverage would be
applied.
If more than one building was damaged in the same earthquake, how would one illustrate how varying degrees of damage would affect the deductible and the assessment to the owners, assuming we had the $2,500,000 limited coverage last offered us?
Response:
Earthquake deductibles, when written correctly, are applied on a
“per building” basis. For example, based on a $44,219,000 total
insurable value. I know your letter indicates that the replacement
cost may be closer to $55 Million to $66 Million – but these were the values
reflected in the 2005-2006 policy term. If only 412
Bellflower were damaged, the deductible would be only $1,291,573 (see the table
below). Keep in mind, however, that we need to prepare
individual unit owners against the possibility that every building or structure
in the project were damaged. In that event, the Association
might have to raise the first $8,843,800.[6]
|
Location |
Values |
# Units |
20% Deductible |
|
412 Bellflower |
$6,457,867 |
63 |
$1,291,573 |
|
424 Bellflower |
$5,244,580 |
57 |
$1,048,916 |
|
436 Bellflower |
$5,244,813 |
57 |
$1,048,916 |
|
448 Bellflower |
$5,244,192 |
57 |
$1,048,916 |
|
552 Bellflower |
$5,244,735 |
57 |
$1,048,916 |
|
564 Bellflower |
$5,244,735 |
57 |
$1,048,916 |
|
576 Bellflower |
$10,651,578 |
123 |
$2,130,316 |
|
Pools (2) |
$78,000 |
|
$15,600 |
|
Rec Room/Gym/Saunas |
$500,000 |
|
$100,000 |
|
Spa |
$18,500 |
|
$3,700 |
|
Tennis Courts (2) |
$40,000 |
|
$8,000 |
|
Walls Walks Fences |
$250,000 |
|
$50,000 |
|
Totals: |
$44,219,000 |
471 |
$8,843,800 |
That part of
the damages not covered by the Association’s policy would be borne by the unit
owners through an assessment to all of the owners, even if their unit was not
harmed.
We have
asked a few experts in the field to give you more information and they have
responded with the attached articles.
Please read them.
1.
Earthquake
Coverage for Condo Owners by LaBarre/Oksnee Insurance Agency, Inc.
3.
Letter dated
April 16, 2007 of Steven G. Segal
4.
Chart about
California Earthquake Authority (CEA) with some premium information, by Steven
G. Segal.
5.
Main EQ
Report by Risk Management Solutions.
6.
Map showing
distance to fault by Risk Management Solutions