Does Fracking Pose a Risk to Your Insurance Coverage?
This
week's big news that challenged the gas drilling industry's ongoing
claim that fracking is perfectly safe, was the surprise announcement
by Nationwide Insurance on July 12th. According to a news release by
the Associated Press...."Nationwide
Mutual Insurance Co. has become the first major insurance company to
say it won't cover damage related to a gas drilling process that
blasts chemical-laden water deep into the ground."
See
article link:
http://abcnews.go.com/US/wireStory/us-insurer-cover-gas-drill-fracking-exposure-16766989
Wow!
Needless to say the anti-fracking activists jumped all over this
press release as both verification and justification of what they've
been claiming all along: that the process of injecting toxic
chemicals into the ground (the process known as hydraulic fracturing)
is risky business and likely to cause damage to health, environment,
property, etc.. No doubt that famous little musical jingle from the
insurance industry giant's TV commercials: "Nationwide is on
your side" rang true for those opposed to fracking! And of
course, the oil and gas industry P.R. people jumped right on the
insurance carrier's announcement to try to put their spin on it as
well calling Nationwide’s announcement reckless. .
The
public announcement by Nationwide Insurance was actually their
response to an internal corporate memo they had issued for
distribution throughout their underwriting department. The memo was
not for public disclosure. But it leaked out into the public and
fell into the hands of many environmental groups.
Found in the internal
company memo which was leaked, were the following statements:
"After months of
research and discussion, we have determined that the exposures
presented by hydraulic fracturing are too great to ignore,” the
memo states. “Risks involved with hydraulic fracturing are now
prohibited for General Liability, Commercial Auto, Motor Truck Cargo,
Auto Physical Damage and Public Auto coverage.”
See article link:
It
seems that fracking trucks aren't going to be covered by an auto
insurance policy issued by Nationwide, nor are any Oil and Gas
Drilling Companies going to be given any insurance coverage by the
company. According to Nationwide spokesperson, Nancy Smeltzer, the
company's personal and commercial policies "were not designed to
cover" risk from hydraulic fracturing, or fracking. Nationwide
never did cover damages from activities related to the "extractive"
industries, such as coal, oil and gas, in their insurance policies.
So, nothing new here, EXCEPT for the realization that, with the
current drilling frenzy that is impacting many homeowners, it brings
to light their position statement saying they acknowledge that such
practices are "too risky" for them to consider insuring.
And it leads one to ponder where that leaves the insured homeowner
who lives with a well site on or near their property!
See
Nationwide's official press release titled: "Nationwide
Statement Regarding Concerns About Hydraulic Fracturing" which
was issued July 13th, following the news of the internal memo
leaking. Nationwide’s official press release on the matter can be
found on the following internet link:
Now, where
will this leave the homeowner whose land is being drilled, should
they experience fracking-related damage? Ever try to sue a big
corporation to recover losses that you feel they are responsible for,
if your insurance company says it's not in your insurance policy to
cover these losses?
Of course
the oil and gas industry quickly weighed in on the surprise public
announcement by Nationwide with the following quote from their
lobbyist, Simon Lomax of the Energy In Depth industry lobbying group
stating that Nationwide was reckless and he for one won’t be buying
his homeowners and auto insurance from them as result of their public
statement.
You don't
have to be a rocket scientist to see where all this might be going.
After all, getting out of paying for something is the name of the
game in the insurance business. For example, we pay for our auto
insurance for the peace of mind in knowing that the all the auto
insurance companies belonging to drivers involved in an accident will
"hash it out" with one another to see which driver's
insurance policy has to pay for the damages related to a car wreck.
Homeowners’
insurance companies use the same strategy. When you file an
insurance claim if a pipe burst in your house and floods your
basement, aren't they quick to want to determine if the water damage
was from a flooded stream and not a bad pipe in the house? (Flood
insurance being something not covered in their standard policies.)
Don't
medical insurance companies often give their client a call shortly
after the client has had an x-ray or an ER visit, even for
something as simple as a sprain? They question if it might be a
work-related injury or result of someone else's liability such as
Workman’s Comp insurance instead of your personal health insurance.
Passing the buck whenever possible. Looking for an out, so as to
not have to pay the medical bill and hopefully pass it on to the
responsible party for the damage. That's how the insurance business
operates in order to keep claim costs down and remain profitable.
Referring
back to the web link above containing Nationwide's official public
statement (which they released immediately after the accidental
internal corporate memo leak fell into the wrong hands and was made
public) these are Nationwide's statements below:
"Insurance is a
contract and it is designed to cover certain risks. Risks like
natural gas and oil drilling are not part of our contracts, and this
is common across the industry.
Our longstanding underwriting guideline is that we do not insure the oil and gas business.
We encourage consumers to be knowledgeable about any risks to their property and assets. "
Our longstanding underwriting guideline is that we do not insure the oil and gas business.
We encourage consumers to be knowledgeable about any risks to their property and assets. "
So where
will that leave us in incidents having drilling and fracking-related
damage? Example given: Recently the 12 earthquakes experienced in
the Youngstown, Ohio area were confirmed to be related to fracking
activities. See link:
Suppose
homeowners near the drill location suffered earthquake damages to
their personal property and/or their homes as result of some
confirmed fracking related earthquake? Will their own insurance
policy pay up or blame it on the fracking which, being oil and gas
related activity, is not underwritten as part of their homeowners’
policy coverage?
Or what
about loss of livestock which turns out to be attributed to fracking
fluid exposure or toxic chemicals in the air from evaporating
fracking ponds in the cattle field? Will Farmers Insurance cover
that?
What if
there is an explosion on a well site and your home happens to be
close enough to be damaged in some way? Will your local friendly
insurance agent come around to your house and tell you it's no
problem; they'll take care of it? Or, will they tell you that you
are going to have to go up against the gas company lawyers to try to
get your losses covered? How long will THAT take? And can you
afford an attorney to represent you?
Many huge
corporations are "self-insured" rather than have commercial
carriers for liability policies. How responsive will they be to
injury and damage claims by people when their entire P.R. campaign is
founded on how safe fracking is? Countless lawsuits in PA alleging
drinking water contamination, livestock losses, and health issues are
already being settled out of court with "gag orders" placed
on the claimants. How long did those cases take to get to the point
of settlement? And why does the industry have to insist on "gag
orders" to silence these victims?
Think about
these implications when you ponder this new method of drilling and
fracking ..... "unconventional drilling" that comes with
the current Marcellus shale drilling play. Slick water, high
volume, high pressurized hydraulic fracturing using more toxic
chemicals and going way, way deeper into the earth than was ever done
with conventional wells on peoples’ farms.
This leaves
open a lot of issues that could arise. Policy underwriters have
stated they will not include coverage related to drilling industry
activities in their commercial AND residential policies. Now, if you
are both the surface owner and mineral lease owner on your property,
you've made a choice to drill. But for those surface owners who are
drilled on or those living close by drill sites, (neither of which of
these are situations these surface owners initiated themselves,
therefore, NOT making the choice to expose themselves to drilling
risks) --will these people find themselves compromised because their
insurance policy won't cover incidents related to fracking damage?
Will it
open the door for the "sue everybody" mentality that many
attorneys take when their client comes to them with a damage claim
and a liability issue involving the deep pockets of a corporation and
a lessor who got big bucks for allowing the drilling? Will this mean
they would include the person responsible for leasing the minerals
located under your property or near your property in addition to
suing the corporations themselves? A lot to ponder! All this is
uncharted waters and result of an industry that is unregulated and
bringing us a drilling frenzy like never seen before. And, these are
all legitimate considerations to include when assessing the impact of
shale drilling to the people, their health, property, and
environment.
Nationwide
is based out of Columbus Ohio. And, like most who are stakeholders
in the rush to drill natural gas deep in the shale thousands of feet
below, they have been watching what has already happened in Texas,
Wyoming, and Colorado. Adverse impacts. And now with Ohio, PA, WV,
and NY being right in the heart of the Marcellus shale and Utica
shale play they are thinking about the possible consequences. And
with the push for more drilling, it is a prudent thing for any
insurance company to do in order to see how it might infringe on
their policy interpretation.
Next week,
the column will look at the situation involving homeowner mortgages
and the impact that drilling has on them. There are plenty more web
links to share that indicate that banks (in similar manner as
Nationwide has done with their insurance) are stating publically that
they will NOT issue mortgages on properties that are leased. Where
does that leave the homeowner who wants to buy or sell a property
with leased minerals under it? And like with the insurance policy
issues, will it open a can of worms for the person leasing the
minerals to be sued because their decision to do so has impacted a
landowner's ability to market their own property successfully?
Stay tuned.
There is so much more to explore that will enlighten those who still
think this is just another typical benign drilling boom for Doddridge
County.
Now
of course, the oil and gas industry quickly weighed in on the
surprise announcement by Nationwide.
