24,700+ The number of earthquakes logged by the Oklahoma Geological Survey in 2013 through 2017.
OKLAHOMA CITY – Farmers Insurance agreed Monday to a $25 million settlement with the Oklahoma Attorney General in regards to the company’s handling of earthquake claims.
The agreement resolved a petition filed April 1 in Pottawatomie County District Court alleging “unjust enrichment” by Farmers for denying or failing to pay approximately 1,000 earthquake claims submitted by Oklahomans who purchased coverage to protect their property.
As a consequence, the home insurance company will reopen the claims process and re-evaluate the claims using an independent administrator. Claims approved by the independent administrator will be paid pursuant to an individual insured’s policy.
“This is a great win for Oklahomans who paid premiums for a Farmers earthquake insurance policy,” Attorney General Mike Hunter said. Farmers Insurance agreed to the settlement “after negotiations,” he said. “We will ensure each Oklahoman who sustained legitimate damage from an earthquake and submitted a claim to Farmers will have an opportunity for their claim to be independently reviewed and the damage to their property repaired.”
Farmers Insurance agreed to place $20 million in escrow to compensate customers who submitted eligible earthquake damage claims, and to pay $5 million to the AG’s state treasury account “for costs associated with the investigation” and for court fees associated with the complaint and settlement.
The agreement provides that Farmers will make additional payments if property damages exceed the $20 million agreed upon to pay eligible earthquake claims. If the claims total less than that, the balance of the $20 million will be refunded.
“This latest settlement serves as another example that the attorney general and I are committed to protecting all Oklahoma consumers,” Insurance Commissioner Glen Mulready said.
INSURANCE CO. ACCUSED OF BAD BEHAVIOR
In a state Insurance Department bulletin issued in 2015, the insurance commissioner related that insurers providing coverage for earthquake damage in Oklahoma are expected to “inspect the property prior to inception of the coverage and maintain reasonably current information as to the condition of the insured property, prior to loss.’”
Between Jan. 1, 2010, and March 1, 2021, thousands of Oklahomans “purchased insurance coverage from Farmers to protect their property from loss resulting from earthquakes,” the complaint filed by Hunter alleged.
Oklahoma has experienced “increased seismic activity” since 2013, “leading approximately 1,000 of [Farmers’] insureds to submit claims” for property damage from the tremors.
“Farmers has overwhelmingly denied these claims,” and “in most instances” did not conduct inspections of the property prior to issuing the earthquake policy to support the company’s denial of coverage,” the AG alleged. In other cases, Farmers assigned “inadequately trained claims adjusters to assess the damage…”
And in still other cases, Farmers “utilized hand-picked engineers to generate engineering reports that attributed” the claimants’ property damage to “non-seismic causes.”
As a result, Oklahomans who bought Farmers earthquake endorsements “paid years’ worth of earthquake premiums to purchase what amounted to insufficient insurance coverage for damage to their homes and property.”
Hunter accused Farmers Insurance of violating Oklahoma’s Consumer Protection Act, its Unfair Claims Settlement Practices Act, and of “unjust enrichment.”
SHAKE, RATTLE AND ROLL
As hydraulic fracturing in the Oklahoma oil patch increased, and natural saltwater from fracked wells was pumped into deep waste disposal wells, seismic activity soared.
The Oklahoma Geological Survey logged a little over 24,700 earthquakes in Oklahoma in 2013-17. Of those temblors, almost 90% ranged in magnitude from an imperceptible 0.1 to 2.9. But during that same five-year period, 2,498 other earthquakes were more intense.
• 107 earthquakes in 2013 ranged from magnitude 3.0 to 4.8, OGS records reflect.
• 575 ’quakes in 2014 ranged from 3.0 to 4.6.
• 898 temblors in 2015 ranged in magnitude from 3.0 to 5.3.
• 618 ’quakes in 2016 ranged in intensity from 3.0 to 5.6.
• 300 tremors in 2017 ranged in intensity from 3.0 to 4.7.
When asked Tuesday whether any other insurance carriers are in similar crosshairs of Hunter or Mulready, the Attorney General’s communications director, Alex Gerszewski, said, “Not to my knowledge.”
“This settlement was reached in the spirit of resolving these issues fairly and efficiently, and because we did not believe that a drawn-out legal process was in the best interest of anyone involved – including our policyholders in Oklahoma,” Farmers said in an email message Monday afternoon.
It added, “Farmers stands by the work of its claims adjusters in the state, whose work has been reviewed by independent experts. Additionally, all engineers utilized by Farmers have been licensed in Oklahoma and have produced detailed reports evaluating if the damages claimed were proper and consistent based on the location and intensity of earthquake.”
TERMS OUTLINED
An earthquake claims review process will be formed to re-examine every eligible earthquake claim. Farmers will send each eligible Oklahoman a written notice that their claim has been reopened for review and describe the earthquake claims review process.
If an eligible individual has more than one eligible earthquake claim, all eligible earthquake claims will be re-examined.
The state and Farmers will mutually agree upon an independent, third-party claim administrator with substantial experience in the handling, or reviewing, of property damage claims in Oklahoma. Farmers will have no prior or existing relationship with the claim administrator.
Farmers Insurance also pledged that for the next five years it will use only engineers who are licensed and in good standing with the State of Oklahoma “in connection with Farmers insurance policies covering property in Oklahoma.”
In a related matter, Farmers vowed that it will not “engage in internal or external evaluation or consideration” of which engineering firms have historically favored Farmers “in making a decision of which engineer to retain.”
Farmers also will not favor engineers who issue reports “supportive of claims denial” over engineers who issue reports “supportive of claim payment.”
The company also will provide policyholders with “any and all engineering reports provided to Farmers in connections with the evaluation of any claim.”