What You Need to Know About OK Earthquake Insurance

There has been no shortage of controversy over the recent spike in earthquake activity in Oklahoma. Oklahoma had more earthquakes on record in 2014 than California and Oklahoma earthquake activity has been trending dramatically higher in the last three years.

To give you an idea of how impressive this increase in activity is, Oklahoma experienced 567 earthquakes of magnitude 3.0 or greater in 2014, up from 209 in 2013. Prior to 2013, Oklahoma averaged about 40 a year for the previous five years and less than five a year before that.

This recent flurry of seismic activity has seen a large debate on whether the oil and gas industry is to blame for its use of “fracking.” A very brief and simple explanation of fracking follows.

In the process of extracting oil, a great deal of waste in the form of salt water (and other materials) comes to the surface. As a matter of fact, much more waste water is produced than actual oil. In some applications, that salt water waste is essentially pumped back into the ground at high pressure at various depths to help loosen oil or natural gas deposits in formations. The practice still occurs but there has been some increased oversight by the Oklahoma Corporation Commission regarding how water disposal wells are operated.

What does fracking have to do with earthquakes or, more to the point, earthquake insurance?

There is much debate as to whether the recent uptick in seismic activity is due directly or indirectly to fracking. What is not in dispute is that once people all over Oklahoma started feeling tremors, the interest in earthquake insurance spiked as rapidly as the number of earthquakes.

According to the Oklahoma Insurance Department, the number of Oklahoma residents with earthquake insurance is approximately 15%. That is a substantial number, and a higher percentage than even California residents (of which approximately 10% have earthquake insurance).

What becomes problematic is when a person signs up for earthquake insurance without knowing the full limitations of that policy. While the average consumer may be generally familiar with their homeowner’s insurance policy and automobile insurance policy, earthquake insurance policies may be unfamiliar territory and include provisions and exclusions which could severely impact that insured’s ability to make a claim.

Even as the debate continues, there appears to be enough traction in the scientific community for arguing that these earthquakes are not naturally occurring.

The United States Geological Survey provided a release on February 19, 2015, which included that, “This rise in seismic activity, especially in the central United States, is not the result of natural processes.” That would appear to provide insurance companies more than a foothold in denying coverage for non-naturally occurring seismic events. However, even with this release of the USGS, the Oklahoma Insurance Department still has concerns about policy exclusions.

In response to some serious concerns that insurance companies may need additional transparency and to address consumer concerns regarding earthquake insurance, Oklahoma Insurance Commissioner John Doak provided a bulletin to all Property and Casualty Insurers licensed in the state.

This bulletin, Earthquake Insurance Bulletin No. PC 2015-02, was released on March 3, 2015, and in it Doak provides , “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 further included that he is “considering market conduct examinations to ascertain the facts surrounding the extraordinary denial rate of earthquake claims that the preliminary data seems to indicate.”

Doak outlined that “approximately one hundred Oklahoma earthquake claims were filed in 2014 with only eight having been paid.” His bulletin further provided that if insurers are improperly denying claims, the OID will take appropriate action to enforce the law.

So what does this mean? The USGS is saying it is not a naturally occurring event which provides cover to insurers relying on a policy exclusion for man-made events such as construction, mining or oil and gas exploration. On the other hand, you have the Oklahoma Insurance Department releasing a bulletin after the USGS’s release stating that it is unsettled and that the insurance commissioner will be investigating the pervasive denial of earthquake insurance claims.

Another issue insureds should be mindful of is to make certain that the insurer has every opportunity to inspect the property to help insulate the policy holder from any pre-existing condition policy exclusion.

Property damage that occurs prior to the effective date of the policy and after its termination is excluded in earthquake policies, according to the March 3, 2015 bulletin. While that might make sense, it could also raise a red flag if an insurer offers to write a policy of insurance without inspecting or viewing the property. While an insurer is free to write such a policy without an inspection, a denial by that insurer for a pre-existing condition could open the insurer to a potential bad faith claim by the policy holder.

New measures are being taken to provide and require additional training and education to insurance professionals starting in 2015. But will that be enough?

Earthquake bad faith has not seen much in the way of litigation in Oklahoma yet. However, the Oklahoma Supreme Court is currently set to hear a claim from a local Oklahoma woman suing several oil and gas defendants for causing personal injuries from oil exploration. Sandra Ladra of Prague, OK filed a lawsuit alleging that New Dominion and Spess operated wastewater disposal wells that triggered a Nov. 5, 2011, earthquake – a 5.6 magnitude quake that was the largest in state history.

However, it appears that as the tremors continue, the potential for litigation on the denial of insurance claims could increase and rumble as well.

Does your earthquake policy include  an exclusion for man-made events? Do you know one way or the other?  Have you been denied a claim for earthquake damage based upon a man-made occurrence?

To review your potential claim and to discuss the matter with an experienced attorney, please contact Bryan & Terrill Law at 918-935-2777.