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Who's at fault? Quake calls defined by insurance policies

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EDITOR’S NOTE: This is the fifth installment of a multi-part series on earthquakes prepared by the Enid News & Eagle. The sixth installment of this earthquake series runs Sunday, Oct. 11, 2015.


John Doak was concerned.

Citing data indicating an “extraordinary denial rate of earthquake claims,” the Oklahoma Insurance Department commissioner issued a statewide bulletin to insurers on March 3.

At the time of his March bulletin, there was no scientific consensus be­­tween Oklahoma seismologists and state officials that injection wells were linked to earthquakes.

“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 or production,” Doak wrote in the bulletin.

In 2014, 100 earthquake claims were filed in Oklahoma. Doak said only eight of those claims were paid.

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“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,” Doak wrote, underlining the word “unsupported” in the March bulletin. “If that were the case, companies could expect the department to take appropriate action to enforce the law.”

In the month following Doak’s memo, on April 21, the Oklahoma Geological Survey said it was “very likely” the majority of Oklahoma’s quakes were triggered by injection wells associated with oil and gas production.

On Aug. 4, Oklahoma Gov. Mary Fallin agreed there was a “direct correlation” between Oklahoma’s increased earthquake activity and disposal wells.

That same month, Doak called for a “national meeting for insurance regulators” to discuss earthquakes, according to an Aug. 20 press release.

The commissioner lauded the insurance industry and the Oklahoma Corporation Commission for moving quickly to better protect this state’s policyholders.

“We have been monitoring the rapidly advancing science on this issue for quite some time,” Doak said in the release. “The initial uncertainty surrounding the cause of earthquake swarms was one of the reasons I suggested a national meeting for insurance regulators. Since I proposed the meeting, scientists at both OGS and University of Memphis have concluded that many of the earthquakes in Oklahoma were likely caused by wastewater disposal wells.”

As seismic science evolves, the state Insurance Department says the decision to cover man-made or natural earthquakes is defined by individual insurance company policies.

Denial data

In 2014, the U.S. Geological Survey recorded 585 earthquakes magnitude 3.0 or greater.

That same year, Doak requested denial and approval rates of earthquake claims from Oklahoma’s top 10 insurance writers, said Insurance Department General Counsel Gordon Amini.

An Enid News & Eagle request to interview Doak was redirected to the Insurance Department’s general counsel.

In August 2015, the state surpassed the 2014 earthquake record. Between April 21 and Aug. 4 of this year, the state recorded 743 earthquakes of magnitude 2.5 or greater, according to the USGS.

Although Oklahoma already surpassed 2014’s earthquake record, the Insurance Department has not made another call for denial data, Amini said.

State Farm Insurance spokesperson Jim Camoriano said his company participated in the department’s data call in 2014.

Of homeowners with State Farm insurance, about 5.5 percent had an earthquake endorsement in 2011, Camoriano said.

Then a record-breaking 5.6 magnitude earthquake shook Prague, with seismicity felt in at least 17 states, according to the USGS. The agency had more than 60,000 individuals from 14 states report their observations about the historic event.

After the 2011 earthquake swarm, Camoriano said State Farm’s earthquake endorsements in Oklahoma doubled to 10 percent.

Although the figures aren’t publicly available, Doak told The Oklahoman around 15 percent of state residents had earthquake insurance last January, compared to about 10 percent of California residents.

Amini said the largest insurance entity in Oklahoma claims about 50 percent of the marketplace. The insurer paid about 10 percent of its earthquake claims.

According to the department’s 2014 annual report, the largest insurer for earthquake endorsements was State Farm.

Amini and Camoriano would not divulge the total amount of Oklahoma earthquake claims.

In 2014, state residents spent more than $13 million on earthquake premiums, according to the department’s market share report.

Despite the record earthquakes shaking the state in 2015, and the “extraordinary denial rate,” Amini said the department has not requested any new denial data because circumstances haven’t changed since the last data call in 2014.

“There is no reason to believe there is any more damage being incurred today than there was at that time,” he said.

Oklahoma does not know the number of claims denied or approved in 2015 because it does not track that data, Insurance Department officials say.

Camoriano said the data is not impossible to retrieve — and most companies keep it — but it is time-consuming and difficult to procure.

‘Unique nature of earthquake coverage’

When an earthquake claim is submitted, all factors — weather, local events, structure of the house, ground composition — are reviewed, Camoriano said.

Why would a claim be denied?

“Someone calls in with a cracked foundation, we investigate each claim based on its own merits,” Camoriano said. “We have a large number of people who have been specially trained to determine if the crack (in a property) was a sudden change in the earth movement or if it was a long-time settling.”

Amini said drought causes cracks in many housing foundations.

Like Camoriano, Amini said many companies have teams of trained engineers to determine the cause of damage.

If it was an earthquake, Amini said coverage of man-made earthquakes — those caused by injection wells — would depend on the insurance company.

Amini said it will always be an issue of causation.

“It depends on the policy, whether it covers man-made earthquakes or not,” Amini said. “People need to ask the agent. There are plenty of policies out there that provide coverage in induced quakes.”

Camoriano said State Farm does not have specific earthquake eligibility rules in regards to human-induced, natural or wastewater disposal wells.

Some of the fine print in policies include the coverage of brick and “masonry veneer,” which the National Association of Insurance Commissioners said may not be covered under a policy.

“ … 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,” Doak said. “Multiple deductibles may apply to a single loss and in different ways. Structural damage is always an issue and requires technical expertise to evaluate.”

If damage is covered under the policy, it must meet the deductible threshold, Camoriano said.

“Earthquake insurance is catastrophic coverage,” Doak told News on 6 of Tulsa in July. “You really want it if the home comes down, or the fascia comes off; it’s not for small cracks.”

Camoriano said most of Oklahoma’s earthquakes are around a magnitude of 3.0. He concurred with Doak that most insurance is for “large damage” because deductibles are high and based on the insured value of the property.

“A majority of our homeowners (with State Farm) have a 2 percent deductible, but it varies,” he said.

Some claims may not meet the deductible, Camoriano and Amini said.

Amini said the number of claims was considerably small because most deductibles are 5 to 10 percent of a property’s value. For example, if a property was worth $100,000, the deductible would be $5,000 or $10,000 on that scale. Amini said earthquake insurance is designed to pay for the total loss of a home.

But again, Amini said, it all depends on the policy.

To buy an earthquake endorsement, consumers have to wait anywhere from 72 hours to 90 days.

According to the Insurance Department, most companies will not sell new earthquake insurance policies for up to 60 days after a quake because of possible aftershocks.

“The moratorium is still intact because generally with an earthquake, if natural, there are always aftershocks,” Amini said. “This is a situation to where you can’t have an accident in your car and buy collision damage to cover the accident that already occurred.”

Amini said most companies have a 72-hour waiting period between an earthquake and a possible aftershock to see if damage should be deemed as one incident.

State Farm’s policy, Camoriano said, is that if the state experiences an earthquake with a 5.0 magnitude or greater, there is a minimum 30-day moratorium on selling insurance in the state.

‘Insurance that really is no good’

In his March bulletin, Doak said he would consider market examinations to find the facts surrounding the extraordinary denial rate.

“We want to make sure everyone is clear on earthquake insurance,” Doak said in a statement coinciding with the bulletin. “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.”

Rep. Cory Williams, D-Stillwater, had an earthquake damage year-old tile in his house. The mortar is now loose and the flooring will need to be fixed, but Williams said he will replace it himself because his claim was not covered by the insurance company.

“They (insurance companies) specifically exempt it (man-made earthquakes) long before the governor admitted it,” he said. “You have the risk management industry saying this is happening, there is a correlation and we (insurance companies) don’t want to be on the hook, but we can’t get our state officials to say it to protect our citizens and resources.

“Now there are people with earthquake insurance that really is no good because any earthquake we have is likely going to be caused by oil and gas, so people have been paying this premium and it won’t do any good. People have to pick up the pieces and put their lives together long before the litigation settles out.”

Amini said when the OGS eventually issued its statement, it wasn’t a revelation to the insurance industry.

“There was no surprise,” he said.

As a safeguard, Camoriano suggested homeowners videotape their dwellings.

“We encourage people to go room-by-room with a smartphone or video camera taking home inventory of possessions and the house condition,” he said. “It’s one more way that you have the documentation that may lend itself and could be some information the claim representative would find very helpful.”

But, as Amini said, causation is always an issue.

“There are a lot of factors — drought, sinkhole, house location, what’s happening in the ground, the structure of your house — we look at all sorts of things,” Camoriano said. “ … There is a lot of confusion, but we’re here to clear it up and give options.”



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