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

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

Earthquake insurance generally excludes losses due, in whole or part, to any “Man-Made” cause such as construction, mining, oil and gas exploration and production. As the bulletin points out, “At present, there is no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and ‘earthquakes’.”

The bulletin also pointed out that approximately 100 Oklahoma earthquake claims were filed in 2014 with only eight having been paid to date.

Doak is 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, the bulletin says, companies could expect the Department to take appropriate action to enforce the law. Doak is considering market conduct examinations to ascertain the facts surrounding what he calls the “extraordinary denial rate of earthquake claims that the preliminary data seems to indicate.”

Pre-Existing Damage

Earthquake policies exclude coverage of property damage that occurs before the effective date of the policy and after the policy is terminated. To help protect themselves from fraudulent claims, the bulletin says, insurers have a right to inspect the property as often 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 property so they can apply deductibles correctly. If an insurer intends to deny a claim, asserting pre-existing damage, the insurer may have to demonstrate that it has inspected the property before the coverage began and maintained reasonably current information as to the condition of the insured property, before the loss.

As in the case of denials based on “Man-Made” earthquakes, the insurance commissioner is “considering market conduct examinations to ascertain the facts surrounding the extraordinary denial rate of earthquake 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, the bulletin says. Due to the differences and complexity of the coverage, when compared to traditional property insurance, claims adjusters need specific training in earthquake insurance. Doak expects insurers to “take steps to ensure that claims adjusters receive training as necessary” to address the concerns expressed previously.

Questions concerning any aspect of this bulletin should be directed to the Oklahoma Insurance Department, Mike Rhoads, Deputy Commissioner ([email protected] ) or Gordon C. Amini, Senior Attorney ([email protected] ) 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, Senior Attorney.