MANY PARTS of the state are exposed to significant earthquake risk, and companies that don’t have proper coverage may not get the claims payments they expect if their business is damaged in a quake.

Unfortunately, business owners are often surprised to learn after the fact that their commercial property policy won’t cover damage from an earthquake. To fill this gap, you can turn to a “Differences in Conditions” policy.

A DIC policy can be useful if you face either flood or earthquake risk in your area and your property carrier doesn’t offer coverage for these risks, cannot provide full limits to cover potential losses, or can only offer this coverage at rates that are essentially prohibitive.

What it covers

Most property policies are written on an “open perils” basis (meaning they will cover many types of claims resulting from acts of God), but they usually exclude flood and earthquake risk.

Besides providing coverage for flood and quake losses, a DIC policy may also be used to provide excess limits over flood and earthquake coverages made available by endorsements to a commercial property policy or through the National Flood Insurance Program.

Furthermore, a DIC may be used to address other risks that may not be covered in commercial property policies, such as property in transit, property overseas, or business interruption claims arising from an earthquake or transit loss.

A DIC policy is what’s known as a “non-filed” policy. That means insurers do not have to file rates with the Department of Insurance, and they have greater flexibility in setting rates and drafting policy language. Insurers are often willing to negotiate coverages and limits.

Often, the terms and conditions in a DIC policy can vary from one insurer to the next, so you need to choose carefully. Opting for a DIC policy with terms and definitions that conflict with your underlying commercial property policy can cause coverage problems.

Does your business need a DIC policy?

You need to ask yourself if you need more protection than that provided by standard property insurance, especially with regard to flood and earthquake perils. If you live in an area that’s prone to temblors and your commercial property policy excludes such events, you may need it.

Since flood or earthquake losses can be catastrophic, no one insurer may be willing to write a DIC policy with the limits requested or needed by the insured. In such cases, two or more carriers may be willing to share the risk on a layered basis or through a quota share (an agreed-on percentage) approach.

We are here to help you by comparing the coverages and exclusions of various DIC policies to find which one would best fit your needs.

What a DIC Covers

The typical commercial DIC policy can provide earthquake and/or flood coverage for:

  • Buildings.
  • Tenant improvements and betterments.
  • Business personal property and/or stock.
  • Loss of business income, rental income or if you incur extra expenses.

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