With the dramatic increase in the number of earthquakes in Oklahoma — which some say are at least partly attributed to waste water injection wells related to the practice of hydraulic fracturing in oil and gas drilling — Oklahoma Insurance Commissioner John Doak wants insurance companies to make sure they are not abusing the “man-made” earthquake and preexisting damage exclusions in earthquake policies in order to deny claims.

In addition, in a bulletin sent to insurers, the Oklahoma Insurance Department said insurance companies also should make sure their adjusters are specifically trained on the complexities of earthquake insurance and how to properly handle an earthquake claim.

“We want to make sure everyone is clear on earthquake insurance,” said Doak. “Oklahomans need to know what they are buying. Insurers need to know my expectations regarding the interpretation of polices. And adjusters need to know how to evaluate an earthquake claim.”

Since 2013, Oklahoma has seen a significant increase in earth tremors and other seismic phenomena. While Oklahoma experienced several thousand earthquakes in 2014, most were very small. Oklahoma Geological Survey reports 567 were of magnitude 3.0 or higher, the point at which the temblors can be felt by humans and property damage may occur.

The increase in earthquakes and the growing public awareness of them has resulted in an uptick in earthquake insurance sales in Oklahoma. Around 15 percent of Oklahomans have purchased earthquake insurance, the OID previously reported.

Beginning this year, property/casualty insurance agents are required to take one hour of continuing education on earthquake insurance.

In the Mar. 3 bulletin sent to all P/C insurers in the state, Earthquake Insurance Bulletin No. PC 2015-02, Doak pointed out that “it would be correct to say that earthquake insurance excludes loss due, in whole or part, to any ‘man-made’ cause such as construction, mining, oil and gas exploration and production.”

He said the insurance department has collected information from larger earthquake insurers indicates “that approximately one hundred Oklahoma earthquake claims were filed in 2014 with only eight having been paid.”

Doak maintains that the science is unsettled as to whether earthquakes can be caused by water disposal injection wells or hydraulic fracturing, or fracking.

“In light of the unsettled science, I am concerned that insurers could be denying claims based on the unsupported belief that these earthquakes were the result of fracking or injection well activity,” Doak said in the bulletin.

He said the insurance department could be expected to “take appropriate action to enforce the law” if companies are found to be wrongly denying claims.

“I am considering market conduct examinations to ascertain the facts surrounding the extraordinary denial rate of earthquake claims that the preliminary data seems to indicate,” Doak said.

The Mar. 3 bulletin, Earthquake Insurance Bulletin No. PC 2015-02, was sent to all property/casualty insurance companies licensed in Oklahoma.

Preexisting Damage

Property damage that occurs prior to the effective date of the policy and after its termination is excluded in earthquake policies, according to the bulletin.

“Insurers understandably are only responsible for covered loss which occurs during the policy period. To help protect themselves from fraudulent claims, insurers have a right to inspect the property as often as required to ascertain the condition of the property,” the bulletin states.

“In addition, since earthquake policies have a ‘single covered event clause’ maintaining current knowledge of the insured property is essential to the proper application of deductibles,” it states.

Doak said that as the state’s top insurance regulators he has “an obligation to enforce the insurance laws. Part of that responsibility is monitoring claims practices to determine whether insurers are employing fair claims practices and otherwise acting in conformity with the terms of their policies. If an insurer intends to deny a claim, asserting ‘pre-existing’ damage, I expect that the insurer has inspected the property prior to inception of the coverage and maintained reasonably current information as to the condition of the insured property, prior to loss.”

Doak is also considering market conduct exams to “ascertain the facts surrounding the extraordinary denial rate of earthquake claims that the preliminary data seems to indicate.”

Claim Adjusters

Doak said earthquake insurance may not be well understood by claims adjusters as the provisions differ from traditional property insurance and application of the limits and deductibles is complex. It also contains jargon specific to the coverage and may be confusing, such as:

• “natural faulting of land masses” or
• “convulsion of the earth’s surface caused by natural seismic forces “or
• “displacement within the earth’s crust through release of strain associated with “tectonic processes.”

As such, in order to ensure that claims are properly handled adjusters need specific training on earthquake insurance, the bulletin stated.

“I expect the addressees of this bulletin to take steps to ensure that claims adjusters receive training as necessary to address the concerns expressed above,” Doak said.

*This story previously ran in our sister publication Claims Journal.