Farmers Insurance Settles for $25 Million with Oklahoma Attorney General Over ‘Faulty’ Earthquake Coverage

Farmers Insurance is on the hook for $25 million after the Oklahoma Attorney General alleged the insurer's earthquake policy violates the Oklahoma Consumer Protection Act.
By: | May 3, 2021
San Andreas fault rupture

Farmers Insurance, in an effort to extend its insurance reach, offered residents of the state of Oklahoma property insurance with an endorsement coverage for property damage caused by earthquakes. Between January 1, 2001 and March 1, 2021, thousands of Oklahomans purchased this cover as a means to protect themselves from the growing seismic activity the state faced.

As part of a bulletin issued by the state’s Insurance Commissioner, insurers providing such coverage were expected to 1) conduct prior inspection of properties insured under such coverage and maintain a current record of property conditions pre-earthquake, and 2) train adjusters accordingly.

These expectations were in-line with Farmers’ own policies.

However, as damages from earthquakes grew, so too did the number of claims Farmers denied. Among the reasons for denial, Farmers alleged the residents’ damages were not sustained by earthquakes and instead happened before the events occurred.

However, policyholders countered that Farmers never conducted inspections of their properties prior to an earthquake event as the insurer was expected to do.

Oklahoma Attorney General Mike Hunter then stepped in, saying Farmers violated the Oklahoma Consumer Protection Act (OCPA).

Among Hunter’s arguments, Farmers “utilized inadequately trained claims adjusters to assess the damage to insureds’ property,” “utilized hand-picked engineers to generate engineering reports that attributed the damage to the insureds’ property to non-seismic causes,” and “had not conducted inspections prior to issuing the earthquake policy.”

Under the OCPA, Hunter argued that the sale of insurance for property damage is a consumer transaction. “Farmers knowingly advertised its earthquake endorsements to Oklahoma residents with the intent not to sell such policies as advertised,” read his complaint filed April 1, 2021.

In response, Farmers announced it would reopen the claims process and evaluate the denied claims using an independent administrator.

Additionally, Farmers agreed to a $25 million settlement in the lawsuit issued by Hunter and the state’s Insurance Commissioner.

Scorecard: Farmers is on the hook for at least $25 million for its alleged role in inadequately assessing damages made by earthquake events in Oklahoma. It could owe more if reopened claims prove to be legitimate.

Takeaway: The best practice — and really the only practice — is to provide services in accordance with the policies and coverages as written. &

Autumn Demberger is the content strategist at Risk & Insurance®. She can be reached at [email protected]

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