Insurance commissioner clarifies "man-made" earthquake policies

Source: Daily Oklahoman (Oklahoma City), March 4, 2015
Posted on: http://fpn.advisen.com

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.”
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.
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.
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.”

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