Rubble With a Mortgage

What could be worse than a devasting earthquake in the Bay Area? The day after, when we all realize that no one is covered by insurance.

And a bad product creates a self-fulfilling prophecy: If few people buy the CEA's policy, the CEA can't afford to broaden its coverage and make it more attractive.

"It's sort of a Catch-22. When you get some more people into the pool, maybe you could see some other things," says David Unnewehr, a policy analyst at the American Insurance Association. "I think the CEA-type public approach is always going to be the approach, just because of the enormity of the problem, the concentration of the risk. I don't think we're ever going to see a situation where the CEA is not needed anymore."

And yet even with the CEA, almost no one has insurance.

The 7.0 Loma Prieta quake hit the Marina hard in 1989. Despite such 
disasters, earthquake insurance remains a hard sell. Only 17 percent of 
California homeowners are covered.
Courtesy of TimePix
The 7.0 Loma Prieta quake hit the Marina hard in 1989. Despite such disasters, earthquake insurance remains a hard sell. Only 17 percent of California homeowners are covered.

"I think it's part[ly that] they're crummy policies," says UC Berkeley's Comerio. "And in part, you know, people wouldn't buy car insurance if we didn't make them. When you get to the rational person, who's willing to do it, they take a look at the policy and say forget it. ... The policy doesn't particularly cover the things people care about."

The CEA has no plans to offer coverage for belongings, and private insurance is cost prohibitive. It remains virtually impossible in the Bay Area to insure the contents of your house against earthquake damage.

Still, the houses sell.

It's like touring the Titanic. The $600,000 home for sale half a mile from the Hayward fault is a spectacle. The dazzle distracts you from the fact that what you are standing in, though most important a fantasy of wealth and prosperity, is also a structure made of wood and bricks, built by engineers who better have known what they were doing when they poured the foundation in 1913. Such practical considerations -- is the house bolted to the foundation? -- are hard to keep in mind at first sight. It's a beautiful house, in Berkeley's bucolic Elmwood neighborhood, and it would be wonderful to live in it for a while.

But -- 600 grand. For your money you get 1,900 square feet with two parking spaces, a view of the bay, a generous deck with a barbecue corner, hardwood floors, a redone kitchen with marble countertops, tile sinks, convenient access to BART's Rockridge station, a broad living room with ample light, lovely windows with tooled frames, two working fireplaces, a few trees, an excellent garden, and three bedrooms. Still, it's no mansion, despite the price. Ten years ago it would have been another pleasant Berkeley house, maybe even an affordable one for a middle-class couple willing to sacrifice. Now it's worth a fortune, which would seem to make the nearby Hayward fault a more serious issue.

Fatima Ali, one of two real estate agents working the open house, says she gets some questions about earthquake insurance, but few, and doesn't recommend it.

"We just don't get into that, because our job is to sell houses," she says sensibly. "I don't have earthquake insurance. I was a homeowner for 17 years. So when they [home buyers] ask me, "Do I need it?' I say, "I don't have it.'"

She is sitting beside a table stacked with floor plans and listings of the property's details. She has drawn a good crowd, couples and groups, a few dozen milling from the back deck to the wide front room, twisting the dials on the very classically appointed Wedgewood stove in the kitchen, looking at the scrollwork on the baseboard trim. Ali suggests talking to her partner, Julie Nachtway. Nachtway knows more about earthquakes, says Ali.

Nachtway is in the driveway and does seem to know more about earthquakes than most people. "Of course, let me show you the disclosure form," she says. She's an enthusiastic woman representing Prudential's real estate business, Prudential California Realty. The form is called a "Statutory Natural Hazard Disclosure Statement," and is required by state law since 1991 for any home sale. Prepared by a geologist, the form tells a prospective buyer whether a house is at any unusual risk for flood, fire, and two kinds of earthquake risk: "earthquake fault," and "seismic hazard." The disclosure limits any potential liability for the Realtor or seller for future damage, says Nachtway.

But it's hard to get such information accurately. According to the form, for example, the house in Elmwood is at no unusual risk for earthquake damage despite its location. It gets a "no" checked next to "earthquake fault zone," and is marked "map not yet released by state" for the "seismic hazard" designation. On paper, the house could be in Omaha, Neb. But it isn't in Omaha, Neb. From the front door, it's a five-minute drive to the fault the U.S. Geological Survey says is going to blow its top by 2030.

(The USGS gives earthquake predictions in 30-year projections because that's how long mortgages generally are. The projections illustrate the chances of your house falling down while the bank still owns it.)

The company that surveyed the property Nachtway and Ali are selling, JCP Geologists in Fremont, works under some very narrow guidelines, it turns out, that effectively prevent the disclosure statement from accurately reflecting earthquake risk.

"The statement is for the minimum hazard required by law," says Leslie Ransbottom, one of JCP's senior geologists. To be in an "earthquake fault zone" as defined by the state, for example, you have to be basically on top of a fault, at risk of having the ground actually rupture under or very near to you.

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