Oklahoma Insurance commissioner clarifies “man-made” earthquake policies: 92% of earthquake claims denied by insurers, “Until a legal ruling is made, it is generally assumed that the earthquakes are not man-made”

Insurance commissioner clarifies “man-made” earthquake policies by Adam Wilmoth, March 3, 2015, The Oklahoman in Insurance News Net
Oklahoma Insurance Commissioner John Doak on Tuesday issued a bulletin to insurance companies clarifying his department’s expectations for earthquake insurance coverage.

The notice focused on exclusions regarding man-made damage, pre-existing damage and claims adjusters. “We want to make sure everyone is clear on earthquake insurance,” Doak said. “Oklahomans need to know what they are buying. Insurers need to know my expectations regarding the interpretation of policies. And adjusters need to know how to evaluate an earthquake claim.”

About 15 percent of Oklahomans now have earthquake insurance, Doak said. The number is up from about 2 percent in 2011 and outpaces California, where about 10 percent of residents have earthquake insurance.

About 100 earthquake insurance claims were filed in the state last year, but only eight were paid.

“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 in the bulletin.

Earthquake insurance policies typically carry high deductible and are designed for catastrophic damage, Doak said.

The insurance department noted that a growing number of policies in the state contain an exclusion for “man-made” damage. While there is an ongoing debate over the cause of the state’s earthquake swarm, Doak said no legal conclusion has yet been made.

“At present, there is no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and earthquakes,” Doak said in the bulletin. “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. If that were the case, companies could expect the Department to take appropriate action to enforce the law.” [But, that’s the amazing thing about fracing. Everywhere companies are causing serious contamination and damages from fracing and waste injection, law enforcement looks the other way – just look to California and Alberta for excellent examples]

The U.S. Geological Survey last month issued a report highlighting new research linking the state’s increased earthquake activity to oil and natural gas production. The survey said a rise in recent earthquake activity in Oklahoma and other areas not usually susceptible to earthquakes was from human-induced activities, not natural processes. Most of the research has focused on possible links between earthquakes and injections of wastewater from nearby disposal wells.

Oil and natural gas industry groups, however, have pointed out that for more than 70 years, the industry has pumped produced water deep underground through disposal wells. [Not at the amounts and pressures, in big hurries, being injected with the new, ignorant “brute force” fracing. Never has the oil and gas industry produced as much toxic waste as it does now]

Social Security Closing Secrets of $10M Producers.

Legal precedent still has not been established, the insurance department said. Until a legal ruling is made, it is generally assumed that the earthquakes are not man-made, Doak said.

“This has to be resolved at some point, but we did not want insurers not paying claims until something like that is settled with a court decision,” Doak told The Oklahoman on Tuesday. [What is this commissioner talking about? Insurers are already avoiding paying earthquake claims – 92% of claims have reportedly not been paid! Refer above]

Tuesday’s bulletin also addressed insurance clauses concerning pre-existing damage.

“Insurers need to be doing some due diligence when adding earthquake coverage,” Doak said. “Our position is that if they’re not inspecting those homes, it’s going to be very difficult to prove there is existing damage to the time of the claim.”

The bulletin also addressed the department’s expectations about proper earthquake insurance adjuster education.

“We expect they would have specialized training for adjusters,” Doak said. “We don’t want an auto adjuster coming out to determine earthquake damage.”

Doak said his office has received no consumer complaints on this issue, but he wanted to make sure the relatively new policies are applied appropriately.

“We wanted to give the industry guidance barring any court case that could set precedent that these are the expectations for Oklahoma consumer protection,” Doak said. “If anyone has issues or has a claim pending and would like to involve the Oklahoma Department of Insurance consumer service, we would be happy to begin to take a look at this on a case-by-case manner.” [Emphasis added]

Notice Issued to Protect Oklahomans Who Have Earthquake Insurance by gnomes national news service, March 3, 2015

The Oklahoma Insurance Department is taking a proactive step to protect Oklahomans who buy earthquake insurance. Today the department released a bulletin to property and casualty insurance companies to address important issues surrounding earthquake insurance.

The bulletin covered three major topics:

  1. Exclusions of “Man-Made” Damage
  2. Pre-existing Damage
  3. Claims Adjusters

The bulletin is below in its entirety.

EARTHQUAKE INSURANCEBULLETIN NO. PC 2015-02
TO: ALL PROPERTY & CASUALTY INSURERS LICENSED IN THE STATE OF OKLAHOMA (collectively, “addressees”)
RE: Earthquake InsuranceExcluded Loss, Inspection of Insured Property and Adjuster Training
FROM: John D. Doak, Oklahoma Insurance Commissioner
ISSUE DATE: March 3, 2015

Background

Since 2013, Oklahoma has seen a significant increase in earth tremors and other seismic phenomena.  Last year, (2014) Oklahoma experienced several thousand earthquakes. Fortunately, most were very small and were only detectable on seismic measuring equipment; however, 567 of these quakes were of magnitude 3.0 or higher.

The news media, announcements by United States Geological Survey, Oklahoma Geological Survey, conservation groups, various state officials and the publicity surrounding several lawsuits has raised public awareness, the demand for earthquake insurance and critique of the coverage.

The purpose of this bulletin is to address the following issues in regard to earthquake insurance:

  1. “Man-Made” Earthquake Exclusion
  2. Preexisting Damage exclusion and
  3. Specialized Training of Earthquake Adjusters.

1. Exclusion of “Man-Made” Damage

Earthquake policies insure against damage resulting from earth movement caused by:

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

In general, 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.

Lately there has been heated debate as to whether earthquakes can be caused by water disposal injection wells or hydraulic fracturing (“fracking”). At present, there is no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and “earthquakes.”

Recent information, collected by my office from the larger earthquake insurance companies, indicates that approximately one hundred Oklahoma earthquake claims were filed in 2014 with only eight having been paid.

In light of the unsettled science, I am concerned that insurers could be denying claims based on the unsupportedbelief that these earthquakes were the result of fracking or injection well activity. If that were the case, companies could expect the Department to take appropriate action to enforce the law.

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.

2. Pre-Existing Damage

Earthquake policies exclude coverage of property damage which occurs, prior to the effective date of the policy and after termination of the policy.  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.

In the case of frequent potential loss events, which may or may not result in a loss, it is important that the insurer know the condition of the insured property at inception of the coverage and remain cognizant of any damage that may have occurred during the policy period.   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.

As Commissioner, I have 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.

As in the case of denials based on “Man-Made” earthquakes, 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.

3. Claim Adjusters

In the event of an earthquake, properly trained adjusters are absolutely vital to ensure that claims are properly handled. What makes earthquake insurance more difficult from a claims perspective? I suggest that the coverage may not be well understood, the provisions differ from traditional property insurance and application of the limits and deductibles is complex.

Earthquake coverage is different from traditional forms of property insurance. For example earthquake policies, define “earthquake” utilizing somewhat unintelligible scientific jargon such as:

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

“Man-Made” earthquakes are excluded. Complex fact questions arise when determining whether earth movement has resulted from a covered cause or an excluded cause.

Another example of the unique nature of earthquake coverage is the common exclusion of coverage for masonry veneer walls and chimneys, the imposition of  deductibles on various items of property that are much larger than the typical homeowners insurance deductible,   multiple deductibles may apply to a single loss and in different ways. Structural damage is always an issue and requires technical expertise to evaluate.

All of this goes to say that due to the differences and complexity of the coverage, when compared to traditional property insurance, claims adjusters need specific training in earthquake insurance. 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.

Questions concerning any aspect of this bulletin should be directed to the Oklahoma Insurance Department, Mike Rhoads, Deputy Commissioner (email hidden; JavaScript is required ) or Gordon C. Amini, Senior Attorney(email hidden; JavaScript is required ) or by mail to the Oklahoma Insurance Department, Five Corporate Plaza, 3625 N.W. 56th St., Oklahoma City, OK 73112 Attn: Mike Rhoads, Deputy Commissioner or Gordon C. Amini, SeniorAttorney.

About the Oklahoma Insurance Department
The Oklahoma Insurance Department, an agency of the State of Oklahoma, is responsible for the education and protection of the insurance-buying public and for oversight of the insurance industry in the state.

For more information contact:
Kesha Keith
405-522-4066
email hidden; JavaScript is required

SOURCE Oklahoma Insurance Department

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