Shaken awake

As business owners and residents settled their nerves last Monday after an earthquake-filled weekend, the phone never stopped ringing in the Reno office of State Farm agent Don Chang.

"It was the single busiest day in my career," says Chang, whose staff fielded dozens of inquiries from customers who wanted to buy earthquake coverage.

Busy as he was, Chang took a few minutes for one other job selling himself an earthquake policy to cover a 14,000-square-foot office building he developed near Moana Lane and Lakeside Drive a couple of years ago.

Chang wasn't alone. Many owners of business properties were paying close attention to earthquake coverage last week, most of them for the first time.

Unlike insurance for other hazards fire, for example, or flooding in flood-prone areas earthquake insurance typically isn't required by lenders who put up the money for commercial and industrial buildings in northern Nevada.

Nor have property owners been convinced of spending the money for often-expensive coverage on their own.

For lenders and property owners alike, the issue is a desire to remain cost-competitive. the issue is a desire to remain cost-competitive.

Mark Phillips, senior vice president and manager of Nevada credit for City National Bank, notes that a bank that required a borrower to get earthquake coverage is likely to lose the loan business to a competitor who didn't require the insurance.

In California, he says, the state government has mapped active fault zones much as the federal government has mapped flood zones around the country and lenders are on an even playing field when they require earthquake insurance on projects built near fault lines.

There's no similar mapping program, or requirement for disclosure of seismic risks, in Nevada.

But that doesn't mean that lenders aren't paying attention to seismic risk.

"When Wells Fargo lends on a commercial property in Reno we require an engineering report be submitted that outlines the 'probable maximum loss' in the event of an earthquake," says bank spokeswoman Natalie Brown. "If the loss amount is greater than 20 percent, we would require earthquake insurance."

Bobbi Bennett, president of Nevada State Development Corp., a big lender under a Small Business Administration program to provide financing for buildings and equipment, notes that the SBA requires engineering and architectural certification of buildings financed through the program.

That inspection, she says, includes examination of buildings' ability to withstand seismic shock.

While the SBA doesn't require earthquake insurance on buildings for which it provides financing, the agency encourages its commercial bank partners to keep the issue in mind, says David Leonard, the SBA senior area manager in Reno.

If an uninsured building was destroyed by an earthquake, and a commercial bank requested SBA payment of a loan guarantee on the structure, Leonard says federal officials probably would be reluctant to pay out.

Owners of industrial and commercial properties only rarely have purchased earthquake coverage on their own.

Todd Blonsley, a broker with Marcus & Millichap Real Estate Investment Brokerage Co. in Reno, says earthquake coverage generally is expensive.

In many cases, the addition of earthquake coverage can double an owner's insurance costs. Deductibles are high often 10 percent of the value of the building.

"It comes right from your bottom line," says Blonsley, "and anything that costs you more to operate the building reduces the value of the building. Period."

But, he adds, the swarm of earthquakes convinced him that the cost was worthwhile, and he was on the phone to arrange coverage on an office building he owns on West Moana Lane.