Seismic Surveillance for Lawsuit
Oil Explorations that Caused Man-Made Earthquake
In recent years, the use of hydraulic fracturing technology has increased, leading to the extraction of more oil and gas from places deep under the ground where hydrocarbons were previously unrecoverable. This has led to a boom in drilling resulting in thousands of fracking wells throughout the U.S. The increase in fracking has led to significant exposures, such as groundwater contamination, explosions and earthquakes, on the part of energy companies, drillers and others involved in fracking. As of Spring 2013, nearly 30 fracking-related lawsuits had been filed across the United States. We expect more filings in the near term as fracking becomes even more prevalent. Within these 30 lawsuits, cases have been brought against:
- Manufacturers of well equipment
- Well operators and contractors (oil and gas drillers)
- Waste handlers and haulers
Landowners, including municipalities, where fracking activities takes place. A typical fracking case may allege bodily injury or property damage arising out of contaminated groundwater (methane or other pollutants such as fracking fluid). However, there have also been cases involving air-pollution, nuisance and trespass, well blowouts, disposal of fracking fluids, earthquakes, and corporate malfeasances by directors and officers.
“USGS’s studies suggest that the actual hydraulic fracturing process is only occasionally the direct cause of felt earthquakes.” Further, the USGS found that there has been an observed increase in seismic activity in 17 identifiable areas in eight Central states since 2000, and a substantial increase in earthquakes in those areas since 2009.
The USGS study builds on its earlier findings, which appeared to link wastewater disposal with a magnitude 5.3 earthquake in August 2011, near Trinidad, Colo. The Trinidad earthquake was reportedly the largest recorded seismic event along the Rocky Mountain Front Range since 1967 (when another magnitude 5.3 earthquake hit outside Denver, which was also believed to be attributable to wastewater disposal). The USGS’s study of the Trinidad quake concluded that, “the M5.3 earthquake likely occurred on a pre-existing, naturally stressed fault, but that the fault was triggered to slip by wastewater injection.”
For its part, the government of Oklahoma has now also acknowledged a link between earthquakes and the disposal of “billions of barrels of wastewater from oil and gas well” underground. The Oklahoma Geological Survey, as reported by The New York Times, said that it is “very likely” that wastewater wells are causing the majority of the state’s increasing earthquakes. In fact, before the 2000s when oil and gas exploration increased significantly, Oklahoma experienced an average of under two earthquakes a year exceeding the magnitude of 3.0. By contrast, in 2014 Oklahoma experienced 585 earthquakes with a magnitude of over 3.0, including some earthquakes well in excess of that magnitude that have caused significant damage.
Additionally, the Oklahoma Office of the Secretary of Energy and Environment has now started the website www.earthquakes.ok.gov as part of its efforts to develop solutions and coordinate efforts to address the phenomenon of increasing seismic activity.
The journal Geology also released a peer-reviewed paper concluding that injection wells used to store wastewater from fracking activities were related to certain earthquakes. But even with these findings, it is a wholly different thing to establish a sufficient nexus between wastewater disposal and seismic activity in order to create legal liability in court.
Depending on the nature of the underlying claim, certain insurance policies may respond to these claims to pay for both the defense costs that a policyholder incurs as well as any settlement or judgment reached in that action. In order to help you and your company navigate the challenges associated with fracking, we have highlighted a series of specific corporate insurance policies that could protect your company.
EIL policies provide coverage for bodily injury and property damage as well as governmentally mandated investigation and cleanup costs arising out of pollution claims. EIL coverage is written on a claims-made basis, meaning that the claim must take place and be reported to the insurer during the policy period. The claims-made nature of the coverage is essentially comparable to the sudden and accidental coverage of a CGL policy. Thus as with CGL coverage, EIL policies also do not provide coverage for long-term gradual pollution claims.
While Property policies are typically written to provide coverage for physical damage or loss to the policyholder’s own property, they also cover economic losses that a policyholder suffers on account of an interruption of its business due to the property damage, for example, a well blowout or an earthquake caused by vibrations and pressures associated with fracking activities. The business interruption (BI) coverage of Property policies may prove invaluable because it reimburses the policyholder for lost profits resulting from actual damage to its property. Property policies may also contain contingent business interruption (CBI) coverage, which provides insurance protection for lost profits resulting from damage to the policyholder’s supply chain, as the damage is of a type that would be covered under the policyholder’s own insurance policy.
D&O policies protect a company and its senior management against claims by shareholders and certain other third parties that allege corporate negligence or some other malfeasance. Fracking activities could lead to claims alleging a failure to exercise due care to prevent underlying fracking-related liabilities. Companies may also face securities litigation and investigations arising out of their failure to disclose the hazards associated with fracking in their public filings. In each of these cases, the company and its directors and officers may look to their D&O policies for both defense and indemnity coverage. While fracking is still relatively new, it pays for companies to spend time reviewing their current policies and addressing known risks. Perkins Coie’s Insurance Recovery lawyers are well recognized for their work on behalf of their policyholder clients, and counsel them on the types of coverage available. Together with the firm’s Energy, Environment and Resources lawyers, Perkins Coie presents companies with a well-rounded approach to assess risk from all fronts. Not only do we understand the environmental concerns, we know how to prepare for them.