APRIL 3, 2015
The jury is still out on whether hydraulic fracturing or
“fracking” causes earthquakes, but carriers whose policies afford coverage for
quakes have recently been denying such claims, asserting that they are excluded
because they are attributable to a man-made cause – oil and gas production –
rather than to a purely natural one. Early last month, Oklahoma Insurance
Commissioner John Doak cautioned against that, issuing a Bulletin warning earthquake insurers that his office would
be forced “to take appropriate action to enforce the law” if they continued to
deny quake claims on the basis of what he called “unsettled science.”
Oklahoma has experienced a remarkable rise in earthquake
activity in recent years. According to the Oklahoma Geological Survey,
the state had 567 quakes of Magnitude 3.0 or greater in 2014. That was a
five-fold increase over 2013, a 14-fold increase over the 2008-2012 average,
and a 100-fold increase over earlier years. The 2014 number exceeded the
total number of earthquakes in Oklahoma during the preceding 30 years combined;
no state in the lower 48 states, including California, saw more quakes last
year.
The culprit is believed by many to be the disposal process
associated with fracking. Fracking itself involves injecting a slurry of
water, sand, and chemicals into wells to fracture oil- and gas-bearing rock
strata and thereby permit the oil and gas to escape to the surface. The
suspicion is not that fracking itself is the malefactor but rather the
subsequent disposal of its principal byproduct – millions and millions of gallons
of toxic fluid that travels back to the surface with the extracted oil and gas
and is then injected deep underground.
The dramatic rise in earthquakes led many Oklahomans to
purchase earthquake insurance. The take-up rate on such coverage was only
2% in 2011, but it is 15% today, which is a higher percentage than even
California. As the Insurance Commissioner’s recent Bulletin explained,
however, earthquake insurance covers only quakes from natural causes; to quote
from the notice, “ ‘Man-Made’ earthquakes are excluded” by such policies.
The bulletin was issued on Tuesday, March 3rd, and its
principal purpose was to caution carriers against denying coverage for
earthquake claims by alleging that they were caused by fracking. As the
Bulletin explained:
Lately there has been heated debate as to whether
earthquakes can be caused by water disposal injection wells or hydraulic
fracturing (“fracking”). At present, there is no agreement at a
scientific or governmental level concerning any connection between injection
wells or fracking and “earthquakes.”
Recent information, collected by my office from the larger
earthquake insurance companies, indicates that approximately one hundred
Oklahoma earthquake claims were filed in 2014 with only eight having been paid.
In light of the unsettled science, I am concerned that
insurers could be denying claims based on the unsupported belief that these
earthquakes were the result of fracking or injection well activity. If
that were the case, companies could expect the Department to take appropriate
action to enforce the law.
The Commissioner also cautioned insurers: (1) that if they
intended to “deny a claim asserting ‘pre-existing’ damage, I expect that the
insurer has inspected the property prior to inception of the coverage and
maintained reasonably current information as to the condition of the insured
property prior to loss;” and (2) that “I expect the addressees of this bulletin
to take steps to insure that claims adjusters receive training as necessary to
address the concerns” specific to earthquake insurance. With regard to
the latter, the state mandated an hour of continuing legal education on the
topic of earthquake coverage for all adjusters every two years last fall.
In a press conference held at the time, Commissioner Doak
stated that “[u]ntil a legal ruling is made, it is generally assumed that the
earthquakes are not man-made” and that while “[t]his has to be resolved at some
point, . . . we did not want insurers not paying claims until something like
that is settled with a court decision.” Reputable authorities seem to be
moving towards the conclusion that fracking is the culprit here, however.
Thus a February report by the United States Geological Survey stated as
follows:
This rise in seismic activity, especially in the central
United States, is not the result of natural processes. . . . Deep injection of
wastewater is the primary cause of the dramatic rise in detected earthquakes
and the corresponding increase in seismic hazard in the central U.S.
In addition, the issue of causation is already wending its
way through the legal system, though it is unlikely that the question will be
definitively disposed of any time soon. In 2011, one Sandra Ladra
sustained injuries when her chimney collapsed in a Magnitude 5.6 quake – the
strongest ever in Oklahoma – and she sued two energy companies, alleging that
the earthquake was caused by fracking. The trial court granted the
defendants’ motion to dismiss, but she took an appeal, and the case is
presently before the Oklahoma Supreme Court.
Source: http://www.jdsupra.com