OKLAHOMA CITY, March 3, 2015 /PRNewswire/ -- 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.
"We want to make sure everyone is clear on earthquake
insurance," said Oklahoma Insurance Commissioner John D. 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."
The bulletin covered three major topics:
- Exclusions of "Man-Made" Damage
- Pre-existing Damage
- Claims Adjusters
The bulletin is below in its entirety.
EARTHQUAKE
INSURANCE BULLETIN NO. PC 2015-02
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TO:
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ALL PROPERTY &
CASUALTY INSURERS LICENSED IN THE STATE OF OKLAHOMA (collectively,
"addressees")
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RE:
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Earthquake
Insurance, Excluded Loss, Inspection of Insured Property and
Adjuster Training
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FROM:
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John D. Doak,
Oklahoma Insurance Commissioner
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ISSUE
DATE:
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March 3,
2015
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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:
- "Man-Made" Earthquake Exclusion
- Preexisting Damage exclusion and
- 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 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.
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
(Mike.Rhoads@oid.ok.gov ) or Gordon C.
Amini, Senior Attorney (Gordon.Amini@oid.ok.gov ) 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.
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
Kesha.Keith@oid.ok.gov
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SOURCE Oklahoma Insurance Department