Charles Shiflett Column December 11, 2005

Don't You Want To Know?

I have a project for you. If you can find it, go dig out and review your homeowner's insurance policy. As
you scan through it, look carefully at the coverage exclusions. If you've never read your policy before
you may be in for a shock, as were a large number of homeowners along the Gulf coast as they
scrambled to recover from hurricane Katrina.

Thousands of people living along the coast had their homes severely damaged from the storm surge
that came with Katrina. These homes were somewhat inland and not in a flood zone, so therefore no
need for additional flood insurance coverage.

While damage from hurricane winds was covered, most insurance companies are standing by
language in their policies that deny coverage for external water damage. Homeowners, along with
Mississippi's Attorney General, are claiming that the storm surge was not a flood or subject to the
external water clauses, but was instead the result of Katrina's winds driving the water.

Some homeowners are planning legal action, but technically the insurance companies have solid legal
footing. Realistically though, the insurers are treading dangerous waters.

Meteorologists predict many more years of above average hurricane activity. If you were a mortgage
company, would you now loan money to someone to buying or building a home near the coast…
knowing that the home would not be insured for storm surge damage?

Unless insurers bend a little on this issue, the possibility is very real that some states will revisit the
issue of homeowners insurance policy design and may force insurers to rewrite policies to cover more
perils under their standard coverage. Look for big fights in state legislatures across the South at some
point down the road.

Now back to your policy… no danger of us taking a direct storm surge hit from a hurricane around
here, so here's another policy design flaw. You probably think your home would be rebuilt if damaged
or destroyed by an earthquake. Sorry, the majority of you would be out of luck.

Several years ago I added an earthquake coverage rider to my policy. It's very inexpensive and I'm
surprised more agents don't mention this rider to their clients.

Some of you may be saying… “Hey Chuck, this ain't California. Why should I get an earthquake
rider?” We all know our earthquake risks are significantly lower than in the western states, but there
are risks.

Earthquakes out west tend to be deeper under the earth and more concentrated, while quakes east of
the Rockies are shallower but impact a much wider area.

During the winter of 1811-1812, three 8.0 quakes along the New Madrid fault line in Missouri caused
severe damage in the sparsely populated areas within 250 miles of the quake zone, and caused
damage as far away as Charleston, SC and Washington DC.

Scientists estimate a 90% likelihood of a significant New Madrid quake within the nest fifty years. A
look at the probable impact zone of another major quake along the New Madrid reveals that minor
structural damage could easily occur in north Georgia. Surprised?

Just up the road in Walker County is a fault line capable of producing a temblor with a magnitude of
7.0 or greater, and some geologists believe it's overdue for a major shift. Many of us felt the small
quake centered near Fort Payne, Alabama a couple of years ago.

Of course the Carters Fault runs several hundred miles down the Appalachians, along the Pine Log
Mountain area and near Allatoona Dam. It is then intersected by the Emerson fault that runs westward
through Bartow County into Alabama.

Take a hike along the base of Pine Log Mountain and you can find areas that show where a significant
earth shift occurred at some point in the past. A road cut near Carters Lake Dam clearly shows the
fault.

I own a software package that allows the user to pull up any piece of property or general area in the
state of Georgia and take a detailed look at the soil type, geologic structure, and all fault lines.

Now most of these faults are very minor and aren't capable of much if anything, but it was interesting
to note several small faults within a mile or so of my home.

There's a good chance we'll all live out our days without ever experiencing a damaging quake in this
area. Then again, there's always that possibility and that's what insurance is for… to provide coverage
for the unexpected.

Earthquakes and external water damage aren't the only things excluded from most homeowner's
insurance policies. I know it's boring to read a policy, but don't you want to know?