https://sites.google.com/site/metropolitanforensics/what-the-recent-2-9-million-jury-award-in-a-fracking-case-is-telling-us-about-the-risks-what-insurance-policies-cover-such-risks
On June 19, 2014, a Texas
state judge in Dallas refused to throw out the April 2014, $2.925 million jury verdict
awarded to a Texas family in one of the first trials involving allegations that
nuisance during hydraulic fracturing caused nearby residents to suffer pain and
suffering, health problems and property damage. The case is Parr, et al. vs. Aruba
Petroleum, Inc., et al.; County Court at Law No. 5, Dallas County, Texas; Case
Number: CC-11-01650-E.
On June 17, Marcus and
Laura Marsden of Aledo were awarded $36,000 in damages by a Parker County jury
that found Titan Operating created a nuisance with its gas wells near the couple’s
home. The Marsdens sued Titan in 2012,
claiming the producer failed to respect prior representations regarding where
its drill pad would be placed on a neighboring property and how the company
would handle traffic and other disruptions. In a 10-2 decision, the jury found that Titan
created a temporary nuisance, limiting the monetary award.
It’s the second successful
nuisance suit in recent weeks. In May, a
Tarrant County jury awarded Sam and Jane Crowder of Fort Worth $20,000 in a
similar suit against Chesapeake Energy.
These verdicts contains an
important lesson that we also learned during the asbestos, MTBE and other toxic
tort litigation: the juries simply want the polluters to clean up the land or
water resources and/or pay for the nuisance they caused regardless of the
scientific support for the alleged dangers or actual impacts associated with
the process. This is the reason that most
of the insurance executives have told us:
“We do not want to go to trial; we
will lose no matter what the science or the risk to human health and the
environment is. We want to settle and
move on”.
Brief
Description of Oil & Gas Production Using Hydraulic Fracking
Hydraulic
fracturing produces fractures in the rock formation through which the natural
gas or oil can flow. Wells may be
drilled vertically thousands of feet below the land surface and may include
horizontal or directional sections extending thousands of feet.
Fractures
are created by pumping large (between 3 and 5 million gallons of water per
production well have been reported) quantities of fluids (water, sand and
chemical additives) at high pressures (10,000 to 11,000 psi pressures have been
reported) down a perforated well casing and into the target rock
formation. Ninety-nine percent (99%) of
the hydraulic fracturing fluid commonly consists of water and sand. The sand helps keep the fractures open for
the oil or gas to freely flow. A number
of chemical additives (about one percent of the volume of the fracking fluid) are
also added to the subsurface to reduce friction, prevent iron, scale and
corrosion and to control bacteria from clogging the formation. There are variations of these processes being
used either on pilot or smaller scale. These
fractures can extend several hundred feet away from the wellbore.
Hydraulic
Fracking Schematic
During the completion phase
of an oil/gas well, fresh water is used to fracture the shale formation. A typical multi-stage fracking process uses
at least 100,000 barrels (3.15 million gallons) of fresh water, although 5
million gallons of water have also been reported. When the pressure is released and this water
“flows back” to the land surface, it is salty and may contain the injected chemicals plus
naturally occurring materials such as brines, metals, radionuclides, and
hydrocarbons. The flowback water must be transported away
from the drilling site and disposed of in a permitted disposal well or treated
or recycled and so on. The need for
disposal of flow-back water occurs only during the drilling of a new well,
however flow-back water disposal is often the second-largest expense of
drilling a new well.
It
should be noted that flowback liquid due to its acidic chemistry and the high
pressure will leach out compounds present in the subsurface formations. A study conducted by researchers at Cornell
University and published in the American Chemical Society’s Environmental
Science & Technology journal concludes that flowback fluid from hydraulic
fracturing of a well could potentially mobilize tiny particles, or colloids, in
soils that may cause heavy metals and other compounds to leach out of the soil and
into the flowback fluids. To date, the researchers have analyzed the effect of
flowback fluid from a Marcellus Shale well on a column of sand with known
deposited colloids, but the researchers reportedly next plan to evaluate the
fluid’s impact on colloid movement in natural soil.
______________________________________________________________________________
Case Study – Water Well Contamination
Metropolitan has worked on many
oil & gas production damage disputes where we were able to demonstrate that
a certain activity was in all probability responsible for the
contamination. In one such case, we took
measurements of inorganic compounds and heavy metals, radioactivity, methane
and radon gases. We also analyzed sources
of dissolved and gaseous methane using stable isotopes.
We showed that the only way the water supply well could have been
contaminated in short period of time was through the movement of the
contaminants by the high pressures of the fracking process. We were able to exclude a surface spill as
the cause of the contamination. The
claim was settled without filing a lawsuit against the gas production company.
______________________________________________________________________________
Water that comes to the
surface during the normal oil or gas production process is naturally occurring
briny water that is generated from deep within the earth along with the oil and
gas. This water is called “produced
water”. The need to dispose of “produced
water” is on-going and continues throughout the life of the oil/gas well.
The flowback
and produced waters are typically stored on site in tanks or pits before
treatment, disposal or recycling. In
many cases, it is injected underground for disposal. In areas where that is not an option, it may
be treated and reused or processed by a wastewater treatment facility and then
discharged to surface water.
Other activities that are
part of the oil and gas production include, but are not limited to: increased
water usage, deforestation, dust, heavy truck traffic, blasting, sights and
heavy flood lights on a 24/7 operation, flaring and venting of the gases,
compressor stations for compression of the natural gas, storm water runoff,
dehydrators, condensate tanks and other storage, erosion of the cleared areas,
high pressure venting noises, loud gas flaring that emits pollutants into the
air, and so on.
Lawsuits
against and between the Oil & Gas Producers and their Subcontractors
There are hundreds of
hydraulic fracking lawsuits that have been filed across the United States and
this verdict (that was decided by the jury on a very specific fact pattern) may
indicate that there may be greater risk of third-party liability associated
with the oil & gas production using fracking than many in the oil & gas
and the insurance industry have expected.
We had advised our clients and friends to properly consider not only the
fracking process risks, but should assess/insure these types of operations by
considering the entire oil & gas exploration process that starts with the
exploratory borings, continues with the leasing of the land and the permitting
and then goes into the actual drilling of the frack wells, the wastewater
generation and handling, the heavy truck transportation, the noise issues, the
air emissions, the odors, the choice of subcontractors, and so on. To the potential risks you should also add
the earthquake risks potentially caused by either the fracking process itself
or by the process of injecting the wastewater into disposal injection wells.
Based on the third party
lawsuits we have seen filed to date, we can list the following alleged claims
and causes of action:
1.
Drilling and other fracking-related activities
constitute a public or private nuisance;
2.
Trespass;
3.
Breach of contract;
4.
Fraud/misrepresentation;
5.
Negligence and negligence per se;
6.
Strict liability;
7.
Unjust enrichment;
8.
Violation of state hazardous site cleanup
acts, violation of the Clean Water Act (violation of effluent limits and discharge
of oil & gas wastewater without authorization), violation of Endangered
Species Act, violation of state’s Clean Stream Act, and so on;
The costs prayed in these lawsuits include,
but are not limited to, the following:
1.
Physical damage to buildings and commercial
real estate;
2.
Soil and groundwater remediation and response
costs for methane migration and control, oil migration and control, illegal wastewater
disposal and contamination from fracking additives and mobilized compounds such
as heavy metals and radioactive compounds; and air contamination;
3.
Losses due to diminution in the fair market
value of the real estate;
4.
Loss of use and enjoyment of land;
5.
Loss of well water or surface water; and
costs for the purchase of alternative source of water;
6.
Economic loss due to temporary stoppage of
business operations;
7.
Emotional distress;
8.
Personal injury;
9.
Loss of quality of life;
10.
Inconvenience and discomfort;
11.
Losses attributable to the purchase of
earthquake insurance;
12.
Past and current medical costs and establishment
of future medical monitoring trust fund;
13.
Punitive damages;
14.
Costs related to testing;
15.
Costs of repair, replacement and restoration;
16.
Consequential damages;
17.
Reasonable attorney’s fees and other
litigation costs;
18.
Injunction against further drilling
activities.
We have also seen cases
where the oil & gas company sues the field service company for damages
resulting from improper well construction or for improper handling of the
wastewater that resulted in either groundwater contamination or re-drilling of
the oil & gas well. See Cabot Oil & Gas Corp. v. Casedhole Solutions
Inc., et al.; Warren Drilling Co., Inc. v. Ace American Ins. Co., No. 1:12-cv-425 (S.D. Ohio,
filed Apr. 13, 2012, decided April 16, 2014).
Due to
lack of pipelines to transfer the produced oil, gas and the needed fracking
chemicals, as well as available capacity for treating the fracking wastewater, on
the rise are also spills and releases of shale oil and chemicals caused by
transportation accidents, either truck or rail, illegal dumping, illegal pit
fires, and so on. Many of these
transportation accidents have been reported from Pennsylvania to North Dakota.
Recently,
an Ohio man fined and sentenced to prison after illegally dumping 20,000
gallons of wastewater from gas drilling operations. Benedict Lupo, the owner of
Hardrock Excavating LLC in Youngstown, OH, was sentenced to more than two years
in prison and fined $25,000 after directing employees to dump storage tanks
containing 20,000 gallons of wastewater flowback from hydraulic fracturing into
a storm drain that leads to the Mahoning River in Youngstown. The U.S. Department of Justice reported that
Lupo instructed employees to dump the wastewater on more than thirty occasions
between November 2012 and January 2013, in violation of the Clean Water Act. The dumped waste contained hazardous
pollutants such as benzene and toluene and contributed to an aquatic dead zone
in a nearby creek.
Typical
Stipulated Case Management Orders Issued by Courts
Based on the cases we have
participated, Plaintiffs (typically third party injured persons or entities) can
request Defendants (typically the oil & gas exploration/production
companies, drillers, trucking companies, waste handling/disposal companies,
etc.) to provide information about
·
the drilling
and construction of the well, including the substances and chemicals used
during all phases of development (drilling, casing, cementing, and fracturing),
·
open hole
logs and seismic data,
·
detailed
geologic maps and the Defendants interpretations on the results of the
exploratory testing,
·
the number
of fracturing stages,
·
the depth of
each fracturing stage,
·
sources of
water,
·
analysis of flowback
water,
·
analysis of
the produced oil,
·
analysis of
the produced methane and natural gas,
·
how and
where production water, including condensate, was handled and stored,
·
how the
venting gas was managed,
·
wells used
for the injection of the flowback wastewater,
·
analyses or
testing results related to subsurface geology and groundwater migration, and
·
the sampling
or testing of produced water, any potable water, and groundwater within a
number of miles of the well.
Defendants can request
·
medical
records,
·
an
independent medical examination,
·
analyses and
testing of water from any well alleged to be contaminated,
·
construction
and maintenance records of the well, and
·
how Defendants’
activities or substances/chemicals caused the injuries alleged.
Given the significant
expense of litigating cases involving complex technical or scientific issues,
courts sometimes have reasoned that, before such a case proceeds, the
plaintiffs should be required to produce certain types of evidence—such as
evidence that should be available to the plaintiffs without formal discovery
(or for which the plaintiffs already have been given a chance to conduct
discovery) and which is essential to some required element of the plaintiff’s case. An order requiring the plaintiffs to produce
such evidence before the case proceeds is sometimes called a Lone
Pine order. Basically the Lone Pine Order is a modified Case Management
Order used in some complex mass tort case.
See Lore v. Lone Pine Corporation, N.J. Superior Court, Law Division, Nov.
18, 1986), where the court entered a case management order that required
Plaintiffs to provide “basic facts” to support their claims of personal injury
and property damage, including exposure to alleged toxic chemicals, medical
records supporting injuries and causation from exposure, real estate
devaluation data. When the Plaintiffs
failed to provide such evidence, the judge dismissed the case with prejudice.
The defendants must
convince the court that the numerocity of plaintiffs and/or defendants, varied
exposures and varied injuries create complexities such that traditional
discovery and case management standards provided under state or federal law
will not suffice. Other factors
influencing the issuance of such orders are:
suit was filed and discovery requests made to pressure the defendants to
settle; other reports contradict Plaintiffs claims; insufficient pleadings/facts;
repetitive suits against the very same defendants.
Who Pays for these Costs? Insurance Coverage for Fracking-Related
Damage Claims
Basically, the oil &
gas producers and their subcontractors (drillers, truckers, waste disposal
companies, and so on) are the parties responsible to pay for the damage claims
that they are either found to be liable for or settle out of court. If the oil & gas companies and their subcontractors
do not want their companies stuck footing the entire bill, they should consider
how their insurance portfolio might address this liability.
As a general rule, the drilling
subcontractor and the oil & gas well operator take out various insurance
policies covering the drilling unit itself, equipment and liabilities, so far
as the subcontractor is concerned, and with respect to liabilities and
equipment, so far the operator is concerned.
The drilling contract obliges the contractor to include certain
insurances, but the operator is not obligated to obtain a specific job-related
insurance, other than its existing CGL policy.
Of course these things can change on a case by case basis depending on
the negotiations between the parties.
Some insurance companies
offer products specifically designed to insure against the risk involved with
the hydraulic fracking activities. These
types of insurance products include, but are not limited to: Environmental
Impairment Liability Coverage (also called pollution liability insurance),
Operators Extra Expense (OEE) coverage (also known as Control of Well),
Environmental Site Liability coverage, combined CGL/EIL coverage, and several
other products.
The OEE is a specialized policy
available to oil or gas well operators that covers the cost of regaining
control of a wild well. Coverage for
pollution, stuck drill stem, evacuation expense, and care, custody, or control
(CCC) exposures can be added by endorsement.
Fracking-related (or oil & gas related) losses may
implicate many coverages, including commercial general liability insurance;
property insurance; business interruption insurance; pollution legal liability
insurance, site or premises pollution liability insurance, contractor’s
pollution liability, contingent business interruption, civil authority, and
ingress/egress coverage; environmental liability policies; director &
officer (D&O) insurance; and errors & omissions (E&O)
insurance. Thus, regardless of the settlement
and subsequent Court decision in Warren
Drilling, coverage disputes relating to the potential application of
various types of insurance policies to fracking claims are likely to continue
to emerge as fracking litigation progresses.
For example, in Star Insurance Co. v. Bear Productions,
43 ELR 20239, No. CIV-12-149-RAW, (E.D. Okla., 10/16/2013)
(White, J.), the district court held that an insurance company need not
indemnify or defend a waste hauler in an underlying class action lawsuit for
contamination stemming from their transport and disposal of "produced
fluid waste" from oil and gas drilling operations into an open, unlined
dump site. The hauler's insurance policy
specifically excludes coverage for allegations of pollution, and "produced
fluid waste," as described in the underlying complaint, qualifies as
"pollution" based on a plain reading of the policy. Nor did the hauler's umbrella policy provide
coverage, as it excludes coverage for actual or threatened pollution. The
court, therefore, granted summary judgment in favor of the insurance company.
Based on the numerous
denials of coverage though, the oil & gas companies must be prepared to vigorously
challenge insurer coverage denials, as the insurance companies have literally
armies of well-experienced lawyers that will use every possible legal argument
to deny coverage, if appropriate. What
we have seen in many coverage dispute cases is the wording of the insurance
policies controls the outcome, as it should be.
As an example, the judge in the Bear case wrote the following in its
ruling in favor of the insurer who had denied coverage:
While not determinative, the court notes that Bear is a
corporate business. It bargained for an exception to the pollution exclusion.
Bear is entitled only to the coverage for which it negotiated and paid. Bear
argues that read literally, the policies provide virtually no coverage for
risks inherent to its business. In fact, the policies do provide coverage for
some risks inherent to Bear’s business. For example, the policies cover
liability as a result of an accidental spill of waste (a “pollution incident”)
or an accidental collision of one of Bear’s trucks with another vehicle, object
or person. Though it is unfortunate that the policies do not cover liability
for pollution as alleged in the Underlying Complaint, the court may not rewrite
the policies.
The key point that needs to
be taken from these cases is that the insureds need to negotiate these
insurance policies using the services of a qualified lawyer who really
understands the business and operational risks.
Many cases have turned on the omission or addition of a single word. All courts will read the policy assuming that
there was a fair negotiation of the contract language and will refuse to
rewrite the insurance policies. Insureds
be aware.
In the
Warren Drilling case, in 2008 a homeowner living close to drilling operations
became aware that his water well had been contaminated by the hazardous
fracking fluid. The homeowner sued
Warren Drilling and the driller eventually settled with the homeowner. Warren Drilling then sued ACE for coverage
under the insured’s energy pollution liability extension endorsement (EPLE)
after the insurer refused to defend the case brought by the homeowner and
indemnify the driller for its losses. One
of the major issues the court would have to decide is whether the incident was
unexpected and unintended, and commenced abruptly and instantaneously. In April 2014, Warren settled with ACE, but
not with EQT, the gas production company that had hired Warren to do the
drilling and fracking. In April 2014, the
Court found as a matter of law that EQT owed a duty under the drilling contract
with Warren to defend and indemnify Warren from and against the homeowners’ litigation
and that EQT had breached that duty. A
summary judgment was entered against EQT and the court ordered Warren to submit
supporting evidentiary materials directed to the issues of reasonableness of
the settlement amount and its litigation expenses in the homeowner’s litigation
that exceeded $200,000.
Another important point to make is that the types of insurance
coverage mentioned earlier are written most of the time on a claims made
basis. For insurance
coverage to apply, the insured must make a claim either during the policy period,
or during any applicable extended reporting period an insured may be able to
purchase. While an average automatic
extended reporting period may run for 60 days, insureds may purchase longer
periods, up to five years in certain instances. Nevertheless, in order for an insured to be
protected for an environmental risk, it should either renew the policy at its
expiration, or purchase coverage for a longer term, such as ten years. The difference between a claims-based and an
occurrence-based coverage is critical depending on when the environmental
liability arose and when the insured discovered the discharge.
The California Bureau of Land Management Commits to Prepare
Fracking Environmental Impact Statement (EIS) for Gas Well Leases
On July 17, 2014, the California Bureau
of Land Management (BLM) agreed to conduct an environmental impact statement
(EIS) that analyzes the potential impacts from hydraulic fracturing at two
disputed oil and gas well leases in California, in a legal settlement with
environmentalists that could set a precedent for when and how BLM crafts such
reviews in other cases. We believe that
this decision will provide another opening for concerned citizens to require
the BLM to consider potential greenhouse gas (GHG) impacts of the lease sale
after a federal court in Colorado suggested that federal agencies must consider
the use of federal social cost of carbon (SCC) estimates when reviewing GHG
impacts of coal extraction leases. The
BLM would "consider geology, well completion techniques and the environmental
hazards of those techniques” in a science review study. This study is expected to lead to a broader
EIS being crafted under NEPA that examines the potential impacts of fracking.
METROPOLITAN’S GAS MIGRATION INVESTIGATION AND REMEDIATION EXPERIENCE
·
Investigated methane impacts at residential water supply wells near a
gas production well in Pennsylvania. The
methane gas was found emitting from a well in the vicinity of a gas well,
posing an explosion and health hazard.
Metropolitan performed a detailed review of the regional and site
specific geology, the construction of the gas well, and performed a detailed
review of the fracking and waste handling operations. The investigation revealed that the well was
located on top of coal seams; the coal seams would emit the coal-bed
methane. Isotopic analyses and detailed
composition analyses of the gases from the water well, the gas production well
and the coal seams indicated that the gas present in the water well was of
similar composition to that from the coal seams and different from the gas
produced at the gas well. The
conclusions were that the gas well was not the source of the methane inside the
water supply well. We also proposed and
implemented a mitigation strategy for the methane in the residential water
supply well.
·
Investigated methane impacts at residential water supply wells near a
gas production well in New York.
Metropolitan performed a detailed review of the regional and site
specific geology, the construction of the gas well, and performed a detailed
review of the fracking and waste handling operations. We also performed a video inspection of the
water supply well and determined that it was installed through coal beds. The coal seams would emit the coal-bed
methane. Isotopic analyses and detailed
composition analyses of the gases from the water well, the gas production well
and the coal seams indicated that the gas present in the water well was of
similar composition to that from the coal seams and different from the gas
produced at the gas well. The
conclusions were that the gas well was not the source of the methane inside the
water supply well.
·
Metropolitan provided litigation support for a large number of
litigation cases involving methane gas migration and intrusion, toxic vapor gas
migration and intrusion and petroleum hydrocarbon contamination involving
refineries, bulk fuel oil terminals, gas service station sites, oil and gas
exploration sites and brownfield sites.
·
Designed, installed and operated hundreds of methane and vapor gas recovery
or remediation systems at landfills, industrial sites and brownfield sites.
·
For a confidential gas company, served as a
testifying expert on issues related to alleged groundwater contamination from
hydraulic fracturing activities. Work
included reconstruction of baseline groundwater condition prior to gas
operations, tracking sources of organic and inorganic compounds in groundwater,
and tracking sources of dissolved and gaseous methane using stable isotopes.
·
For gas production companies, designed and
implemented forensic field programs to differentiate native gas from storage
gas using composition and isotope analysis.
·
For gas companies, investigated sources of
natural gas bubbling in residential water wells. Used chemical fingerprinting including gas
composition and isotope analysis to determine the origin of the gas in the
water wells.
·
For a gas company in California and
Pennsylvania, investigated storage gas migration from a storage field. Using forensic and sampling results, calculated
the percentage of storage gas vs native gas in a number of gas wells located
near the leaking field.
·
Performed numerous field investigations to
determine sources of methane in soil and water wells underneath newly
constructed houses near brownfield sites.
Metropolitan Engineering, Consulting & Forensics (MECF)
Providing Competent, Expert and Objective
Investigative Engineering and Consulting Services
P.O. Box 520
Tenafly, NJ 07670-0520
Tel.: (973) 897-8162
Fax: (973) 810-0440
E-mail: metroforensics@gmail.com
Web
pages: https://sites.google.com/site/metropolitanforensics/
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A crew works Tuesday on a piece
of equipment next to an oil well that had sprayed oil-laden fracking water for
about 30 hours
A worker gets a look at the
bottom of an oil rig spraying oil-laden fracking water