California Earthquake Authority Responds to Wilk's DWI Questions

SACRAMENTO –Assemblyman Wilk, R-Santa Clarita, recently sent a letter to the California Earthquake Authority asking them to address questions he received from constituents regarding implications of the Santa Clarita Valley Sanitation District’s decision to use the deep well injection (DWI) method might have on earthquake insurance.

Below is the response in its entirety:

“April 6, 2015

Dear Assemblyman Wilk:

Thank you for your letter of March 23, 2015, and for your questions concerning the interaction of human activities that may be associated with ground movement or ground shaking, and the potential response of CEA earthquake insurance policies.

The California Earthquake Authority (“CEA”) writes almost 8o% of the residential earthquake insurance in California, insuring renters and owners of houses, mobilehomes, and condominium units. Operating solely in California, which has approximately 2/3 of the nation's earthquake risk, our mission is to educate, mitigate, and insure.

We should be clear, however, that in addressing your questions we do not speak for the other earthquake-insurance writers in California, all private companies, and each of which would have its own policy forms and underwriting standards, as well as its own thoughts and views on the matters you raise.

I'll restate your questions and answer each:

1. Considering the “tectonic processes only” definition regarding coverage of damages, what constitutes “human activity” and how do insurers determine “whole or in any part”?

CEA response:

The CEA evaluates every claim made on any CEA earthquake policy on its own merits, based on the specific facts presented by that individual claim and the coverages purchased. All CEA policy wording is publicly available and may be found on the CEA website.

To date, no CEA policyholder has presented an earthquake claim in which the facts suggested that the ground-shaking that produced damage was caused in whole or in part by any “human activity,” rather than by purely natural tectonic processes. Evaluating a prospective claim would be hypothetical at this point.

The CEA is unable to speculate on the various hypothetical scenarios of “human activities” that could present themselves in the future, any one or more of which could theoretically result in ground-shaking. Those activities would not be limited to the human activity of deep-well injection (“DWI”). They could include, among other things, extracting oil by the process called hydraulic fracturing (“fracking”), drilling or making use of geothermal wells, drilling or blasting tunnels or mine shafts, accidental explosions, or the intentional use of explosives in excavation, industrial applications, war, or even terrorism.

In a case of damage to a CEA-insured home that, the facts suggest, may have resulted in some way from human activity (such as deep-well injection), the CEA will rely on the best available scientific evidence (especially including, we anticipate, experts from the U.S. Geological Survey and the California Geological Survey) to determine whether the damaging ground movement (1) resulted from human activity and would not have occurred without human activity, or (2), was the result of natural tectonic processes and would have occurred even in the absence of human activity.

This structure of risk management is consistent with the concept of a natural disaster (catastrophic risk) policy, such as the CEA's earthquake policies: • For wholly natural disasters, which result in no way from human activity—for example, a typical earthquake or hurricane—no humans bear responsibility for losses. in those cases, a homeowner whose home is damaged has no legal recourse against a person or entity for the loss—the only feasible protection method is insurance. • But when a loss is caused by human activity, the injured party can seek legal recourse against the person or entity that caused that loss.

2. Is the presence of deep well injection activities in a seismic event's area currently considered to constitute an exclusion from coverage based on the definition of “Tectonic processes”. If so, at what distance from any seismic event is DWI no longer considered to have initiated “in any part”?

CEA response:

The presence of deep-well injection activities would not affect whether a property can be insured with a CEA policy; a CEA insurance policy can be purchased in an area where deep-well injection is occurring. As a related matter, the presence of deep-well injection activities would not result in exclusion from coverage under a CEA policy of losses that are caused by an “earthquake,” as “earthquake” is defined in the CEA policy. If any human activity (including DWI) triggers damaging ground motion that the scientific evidence suggests would not have occurred in the absence of that human activity, that loss would not be one that resulted from an “earthquake” (as earthquake is defined in the CEA policy) and thus would not be covered under a CEA earthquake insurance policy.

That decision will be made based on the scientific evidence specific to that particular loss, and that loss would not be covered if, and only if, the scientific evidence leads to the conclusion that the ground shaking that caused the loss resulted from human activity rather than from natural tectonic forces.

There is no geographical or distance limit or component to this determination.

3. If the CEA is aware of a deep well injection site near a homeowner who is applying for earthquake insurance, does that fact either defeat issuance of the policy or change the premium charged?

CEA response:

The presence of a deep-well-injection site near a property does not affect the property's eligibility to or insurability under a CEA earthquake policy. In addition, the presence or absence of DWI sites is not a factor in determining the premium rate for a CEA policy.

Because human-activity-caused ground movement is not an insured peril under a CEA earthquake insurance policy, DWI activities do not affect the risk of loss for the sole peril that is insured against under a CEA policy and hence do not affect eligibility or price.

4. Does the CEA have specific experience that they can cite relative to the questions above with other California communities where DWI is taking place?

CEA response:

No, we are not aware of any claims having been submitted to the CEA, to date, in which human activity (including, but not limited to, DWI) are thought to have caused or to have contributed to damaging ground movement. The CEA cannot cite any other experience that would provide information on DWI occurring in or near any California community.

The California Geological Survey may be able to provide information that is responsive to the non-insurance aspects of your questions. We would be happy to facilitate your contact with CGS.


Glenn A. Pomeroy

Chief Executive Officer

California Earthquake Authority”