Many people believe that the increase in the number of earthquakesin Oklahoma, among other states, over the last few years hasbeen caused by changes in methods of oil exploration, particularlythe use of water injection wells or hydraulic fracturing, betterknown as fracking. The situation has given rise to much debate,with valid arguments on both sides.

To protect property owners who buy earthquake insurance, onMarch 3 the Oklahoma Insurance Department released a bulletin to property and casualty insurance companies doingbusiness in the state that addresses important issues surroundingearthquake coverage.

“We want to make sure everyone is clear on earthquakeinsurance,” said Oklahoma Insurance Commissioner John D. Doak in astatement. “Oklahomans need to know what they are buying. Insurersneed to know my expectations regarding the interpretation ofpolices. And adjusters need to know how to evaluate an earthquakeclaim.”

The bulletin addresses the following issues in regard toearthquake insurance:

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

Exclusion of ‘Man-Made’ Damage

Earthquake policies insure against damage resulting from earthmovement caused by:

• the natural faulting of land masses,
• convulsion of the earth’s surface caused by natural seismicforces, or
• displacement within the earth’s crust through the release ofstrain associated with tectonic processes.

Earthquake insurance generally excludes losses due, in whole orpart, to any “Man-Made” cause such as construction, mining, oil andgas exploration and production. As the bulletin points out, “Atpresent, there is no agreement at a scientific or governmentallevel concerning any connection between injection wells or frackingand ‘earthquakes’.”

The bulletin also pointed out that approximately 100 Oklahomaearthquake claims were filed in 2014 with only eight having beenpaid to date.

Doak is concerned that insurers could be denying claims based on“the unsupported belief” that these earthquakes were the result offracking or injection well activity. If that were the case, thebulletin says, companies could expect the Department to takeappropriate action to enforce the law. Doak is considering marketconduct examinations to ascertain the facts surrounding what hecalls the “extraordinary denial rate of earthquake claims that thepreliminary data seems to indicate.”

Pre-Existing Damage

Earthquake policies exclude coverage of property damage thatoccurs before the effective date of the policy and after the policyis terminated. To help protect themselves from fraudulent claims,the bulletin says, insurers have a right to inspect the property asoften as required to ascertain the condition of the property.

Because earthquake policies have a single covered event clause,insurers should maintain current knowledge of the insured propertyso they can apply deductibles correctly. If an insurer intends todeny a claim, asserting pre-existing damage, the insurer may haveto demonstrate that it has inspected the property before thecoverage began and maintained reasonably current information as tothe condition of the insured property, before the loss.

As in the case of denials based on “Man-Made” earthquakes, theinsurance commissioner is “considering market conduct examinationsto ascertain the facts surrounding the extraordinary denial rate ofearthquake claims that the preliminary data seems to indicate.”

Claims Adjusters

In the event of an earthquake, properly trained adjusters are“absolutely vital” to ensure that claims are properly handled, thebulletin says. Due to the differences and complexity of thecoverage, when compared to traditional property insurance, claimsadjusters need specific training in earthquake insurance. Doakexpects insurers to “take steps to ensure that claims adjustersreceive training as necessary” to address the concerns expressedpreviously.

Questions concerning any aspect of this bulletin should bedirected to the Oklahoma Insurance Department, Mike Rhoads, DeputyCommissioner ([email protected] ) or Gordon C. Amini, SeniorAttorney ([email protected] ) or by mail to the OklahomaInsurance Department, Five Corporate Plaza, 3625 N.W. 56th St.,Oklahoma City, OK 73112 Attn: Mike Rhoads, Deputy Commissioner orGordon C. Amini, Senior Attorney.