Suppose you own a commercial property. It's an old building; one that's susceptible to damage by earthquakes. But under applicable law, you have until 2018 to renovate the building for seismic safety.
Quiz time: if there's an earthquake that damages your building, can you be found negligent (and therefore financially responsible) for any deaths or injuries your tenants suffer? If the building is in California, the answer is "yes."
Last month, the Mastagni family found this out the hard way in a San Luis Obispo, California courtroom. A civil jury awarded US$2 million to the families of two women killed in the collapse of a building they owned in the 2003 San Simeon Earthquake.
Think you can count on liability insurance to pay this type of claim? Think again. General liability insurance policies don't provide earthquake coverage. And earthquake coverage generally covers only physical damage to a structure—not negligence.
What this means is that if you own commercial property in California, the 2018 deadline for retrofitting it in accordance with current earthquake resistance standard is meaningless. You must retrofit it before the next earthquake hits, whenever that may be. If you don't, and an occupant of the building is injured killed, you're liable. And it's highly unlikely you can purchase insurance coverage to mitigate the risk.
You say it's too expensive to retrofit the building? That was the Mastagni's response when they received a proposal to shore up their 111-year-old masonry building leveled in the 2003 quake.
Well, tough luck. It doesn't matter what the cost is. If you don't want to pay for the retrofit, sell the building. Or rent wrecking crane and level it. (Naturally, if the building is "historic," this is probably illegal.)
Let's hope that the Mastagnis had a well-crafted asset protection plan in place years before their building collapsed. They're going to need it.
Copyright © 2008 by Mark Nestmann
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