Summary: Hydrologic fracturing, also known as fracking, has become an issue to many due to concerns that it contaminates ground water and causes earthquakes. While fracking has received a lot of attention, wastewater disposal is equally at fault. Since earthquakes are excluded from homeowners coverage unless the policy is endorsed, this becomes an issue for many in areas that until recently were unknown for having earthquakes but now find them to be more common.

Topics covered:
Introduction
Earthquakes
Coverages
Regulations
Summary

Introduction

Fracking is conducted by drilling down into a rock formation several thousand feet and injecting water and chemicals into the rocks; this splits the rocks apart, releasing the natural gas, which is then captured and used for energy production. It has been used for over half a century to improve the flow of oil and gas from conventional reservoirs. In the late 1980s the practice of horizontal drilling combined with multiple applications of fracking in a single well was developed.

One of the main concerns is the wastewater and its disposal. It can be injected into the ground or put into a lined pond and allowed to evaporate; there is generally too much water for treatment to remove the chemicals to be a viable option. The injecting into the ground has caused controversy as some people claim that it contaminates the groundwater from which they drink, although the water is injected far below groundwater levels.

Studies have shown that if the casings used to protect groundwater from contamination are not inserted or cemented correctly, that contamination can occur. Contaminated drinking water has been found near injection sites in Pennsylvania and Texas. A report showed that in New Mexico chemicals from waste pits containing wastewater from fracking contaminated water sources 421 times. This could lead to residents discovering contaminated water in their wells or groundwater and then having to deal with cleanup, something not covered under the homeowners policy.

Other concerns are that the chemicals used are carcinogenic. Testing, monitoring, and cleanup of pollutants in the ground or water are not covered under the homeowners form.

Methane buildup, which could cause an explosion, is another concern. Any pollution found on a homeowner's property is not covered for cleanup under the homeowners policy form. However, an explosion from a methane buildup would be covered.

Earthquakes

Earthquakes are another issue. The injecting of the water into the ground can lubricate faults and cause earthquakes. For a while this was under dispute, however the United States Geological Service (USGS) has stated that the injection of wastewater from fracking can cause small quakes; between 1975 and 2008, one to three magnitude 3.0 earthquakes or larger occurred in Oklahoma annually; from 2009 to mid-2013 that number rose to forty earthquakes per year, and the cause was attributed to fracking. The largest earthquake caused by fluid injection was November 6, 2011, with a magnitude of 5.6 in central Oklahoma. An earlier earthquake in Colorado that year was 5.3.

Oklahoma is hundreds of times more likely to sustain earthquakes than it was a few years ago because of increases in fracking and wastewater disposal; Oklahoma now has more earthquakes of magnitude 3 or greater than California. Arkansas, Colorado, Kansas, Oklahoma, and Texas have all recorded earthquakes between magnitude 4.5 and 5 due to fracking.

The earthquakes are not always near the point of injection; they can be as many as several miles away from the injection point and two miles or more deeper. The USGS is developing methods to assess earthquakes associated with fracking and wastewater disposal and has placed seismometers at sites of known or possible injection-induced earthquakes in Arkansas, Colorado, Kansas, Oklahoma, Ohio, and Texas. Temporary set-ups have been placed in Ohio, Illinois, Kansas, Oklahoma, and Texas to look at other regions.

In places where the injection of fracking wastewater has stopped, earthquakes have dropped down to near zero.

Of concern is that construction in the mid portion of the country, where fracking has been occurring, does not have earthquake safe construction standards; homes are quite vulnerable to being damaged due to quakes.

The National Seismic Hazard Model from the USGS forecasts the strength and frequency of ground shaking in future earthquakes. Because of the increase in earthquakes due to human activity, the addition of such quakes to the hazard model is seriously being considered. In March, the USGS warned that seven million Americans were at risk of induced seismicity, raising concerns within the insurance and reinsurance industry.

Coverages

Most homeowners policies do not provide coverage for earthquakes, including earth sinking, shifting, rising, or other movement, regardless of how the movement was caused. So an earthquake does not necessarily have to be caused by the shifting of tectonic plates; shifting of ground due to manmade endeavors is also excluded. However, if the earthquake causes a fire, say by rupturing a gas line, then there is coverage for damage caused by that fire.

Coverage can be purchased by the use of an endorsement, HO 05 54, Earthquake. Included in this form is coverage for land shock waves before, during, or after a volcanic eruption, and one or more shocks occurring within a seventy-two-hour period is considered one earthquake event. Exclusions are for damage to masonry veneer, damage caused by flood, tidal waves or tsunami that are caused by, result from, contributed to, or aggravated by an earthquake. Filling land is also not covered—if the earthquake leaves a crack or hole in the ground, fill dirt is not covered. The earth movement exclusion naturally does not apply when the endorsement is added to the policy. However most homeowners are not aware of this and may not purchase the coverage thinking that they are not in a seismically active area.

Some carriers in Oklahoma have increased rates substantially and others have increased deductibles, while some have stopped writing earthquake coverage entirely. Carriers have stated that they would consider suing oil and gas companies for payment made to homeowners by the carriers due to induced earthquakes.

Insureds can always file claims with the oil or gas company for damage to their residences. The commercial general liability policy does provide coverage arising from bodily damage or injury arising from the exposure to the same generally harmful conditions; fracking could be one of those conditions. An issue that might arise is whether the damage was expected or intended. Intended certainly not, but a carrier might try to say the damage to a dwelling could be expected, especially in light of the recent studies showing that fracking is causing minor quakes. This would lead to a denial of coverage for a homeowner for damages to his home or water quality.

Regulations

Twenty states have enacted legislation concerning fracking and its byproducts. Some states have gone so far as to prohibit or ban fracking altogether. The Environmental Protection Agency (EPA) released a draft assessment of potential impacts from fracking and wastewater disposal in June 2015 for comment. A progress report was released in 2012 that highlighted the studies that were under way, what were the primary research questions involved, and where the studies were in progress. The projects were focused on five different types of research activities: analysis of existing data, scenario evaluations, laboratory studies, toxicity assessments, and case studies. Results are pending. Data from twenty states is being reviewed for the contents of the water and chemicals used in fracking.

Summary

While fracking is a good way to obtain natural gas from the ground, it has its risks to people and property. While many look to their insurance policies to protect them from some of these hazards, many are not covered depending on the nature of the loss. Some states are requiring seismic monitors around fracking sites to monitor seismic activity. Ohio is one state that has done so, and if the monitors show a quake over magnitude 1.0, it leads to a well shutdown and inspection. It will be interesting to see how this progresses, and what states and oil companies do from here; the final results from the EPA study are due in 2016.