I manage a lot of HOAs and get this question all the time.
First, you need to check the CC&Rs and condo plan to see what you are responsible for. If you own a townhome-style condo, you might be responsible for a lot of the structure. If you live in a stacked-style condo, you are probably responsible for very little, basically just your own personal property, like cabinets and flooring. That means you cannot insure, on your own, most of what would be damaged, which is common area that only the HOA can insure. So, if the HOA does not have earthquake insurance, you would probably be at a great loss in the event of a destructive earthquake, regardless of what insurance policies your neighbors have.
A big benefit of buying your own earthquake policy is the loss assessment coverage, meaning the insurance company will cover a certain amount of a special assessment imposed by the HOA for rebuilding. However, this coverage is available only if the HOA carries earthquake insurance.
So, obviously, unless you are completely responsible for everything, the typical solution is to get the HOA to buy earthquake insurance, and then decide what risk to take for yourself on your share of the deductible plus your own property. You might find that most of your neighbors are 100% mortgaged and have nothing to lose if they walk away from a pile of rubble. Or you might find that they have a lot of equity and will understand that it would all be lost if they didn't have insurance. They will decide accordingly whether to support getting earthquake insurance for the HOA. Here's what to tell them.
Consider this example of an HOA I got earthquake insurance for: A 200 unit condo building has a replacement cost of $44,000,000. The HOA is responsible for everything but fixtures in the units, like cabinets and floorings. In a total loss, if the HOA has no insurance, that means each unit would be special assessed $220,000. Your own earthquake insurance would pay nothing toward that assessment because the HOA had no coverage. Most likely, few of the condo owners would pay that assessment, and the HOA would be defunct and the land sold off to a developer, and the sale proceeds would go to your mortgage company while you walk away from your mortgage on a condo that no longer exists. The proceeds from your own insurance company, like for cabinets and flooring, would be taken by your mortgage company and you'd get nothing but a foreclosure on your record, and maybe some loss of use payments.
If the HOA had earthquake insurance with a 10% deductible, each unit's special assessment would be only $22,000, and your own earthquake policy would pay that, subject to a deductible like $3,500. You would also get paid for your internal fixtures and could collect loss of use and other benefits. Probably, most all condo owners would pay the $22,000, whether or not they had their own insurance to cover it, or the HOA would get a loan to cover the deductible, and the HOA would get rebuilt, brand new and better than before. The HOA would also collect loss of business income; for example, if some owners were killed in the earthquake and stopped paying their monthly assessments, the insurance company would pay that.
That HOA's annual premium is $125,000. This could mean that insurance carrier is calculating for a major loss in the HOA maybe once every 300 years. This sounds reasonable to me; the last megaquake was in 1857. What if you live past 100? Are you wiling to take that much of a 300 year risk without insurance? What about your neighbors? Are you willing to risk that they'd pay their share of a special assessment? What about smaller earthquakes? The building doesn't have to be destroyed for it to be uninhabitable. Do you want the building to be uninhabitable while waiting for your neighbors to decide what to pay or walk away? What if just your unit burns? Do you trust your neighbors to pay their share immediately to get your place rebuilt? Will you even be able to get a contractor to take your job if you don't have insurance to pay them?
After the Northridge earthquake, many buildings and units were uninhabitable or badly damaged. The first to get repaired were those that had earthquake insurance companies to pay contractors. No contractor wants just a promise of payment from a displaced homeowner when they can get a guaranteed payment from an insurance company instead. Do you and all your neighbors want to wait a year to get a contractor to work with you? Do you trust a contractor who can do a bad job for you and go work with an insurance company instead? If they're working with insurance companies, they have to do consistently decent work or they'll get cut from the vendor list. Why would you want to be at the mercy of a contractor who was so bad that they got cut from a vendor list of an insurance company that badly needs vendors?
Earthquake insurance for HOAs has become quite cheap and is getting cheaper every year, since there have been almost no payouts since 1994. The peace of mind of covering yourself is a pretty good value for your share of the cost. For the example above, it costs them $52 per condo per month. Is it worth saving $52 a month to make yourself at the mercy of your neighbors' collective decision making?
If you're not getting this information from your HOA management company, look on Yelp for HOA management companies in the greater Los Angeles area that have at least four star reviews. And never use an insurance agent who does not have a good book of HOA business. Any agent will sell you a policy, but only established HOA agents can be reliably trusted to give you correct advice, and only they might have access to a broad array of earthquake insurance carriers for the HOA. It takes a big book of business to get the requisite relationships. Your HOA management company should tell you who some of those insurance agents are and a qualified agent could advise you about your specific situation.
Make sure to find out whether your HOA has earthquake insurance. All HOAs carry a "master insurance policy" as many people call it, but those policies never cover earthquakes (except earthquake sprinkler leakage, if so endorsed). Earthquake insurance is always a stand alone policy that adds to coverage in the "master insurance policy." The insurance agent can explain how this is set up at your HOA. I don't know of any mortgage companies that verify an HOA's earthquake insurance, so don't rely on yours to tell you if your HOA doesn't have earthquake coverage.
