Insurance Companies Start to Decline Fracking Coverage

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Nationwide Mutual has become the first insurance company to decline coverage for claims related to hydraulic fracturing, a controversial energy production known as “fracking.”

In a press statement “FOR IMMEDIATE RELEASE” posted on its website on July 13, the Columbus, Ohio firm laid out in detail the reasons for its decision. “Gas and oil drilling has been going on in this country for many years in the west and southwest. Fracking is another variation of the gas and oil business. In recent years, oil and gas exploration has come to New York, Pennsylvania and Ohio.”

Seeking to downgrade the possible  impression that the statement represents a radical change of direction, the press release continued, “Nationwide has not changed our policies or guidelines, nor are we cancelling policies. Fracking-related losses  have never been a covered loss under personal or commercial lines policies. Nationwide’s personal and commercial lines insurance policies  were not designed to provide coverage for any fracking-related risks.”

Then Nationwide give the rationale behind its pronouncement, a direct slap at fracking companies’ insistence that the procedure is perfectly safe. The statement speaks for itself – “Insurance works when a carrier can accurately price the coverage to match the risks. When information and  claims experience are not available to fully understand the scope of a  given risk, carriers aren’t able to price protection that would be fair  to both the customer and the company… From an underwriting standpoint,  we do not have a comfort level with the unique risks associated with the fracking process to provide coverage at a reasonable price. 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.”

Seeking to soothe the potential impact of the statement on owners of Mutual Nationwide policies the document continues, “However, Nationwide will investigate all claims submitted by our  customers that they believe are the result of damage from fracking.  Every Nationwide claim is reviewed on a case-by-case basis… We encourage consumers to be knowledgeable about any risks to their property and  assets. For advice, seek the help of financial and legal specialists who can discuss the unique nature of the risks associated with oil and gas  exploration. We also advise consumers to talk to their insurance agent  to understand what coverage is provided in their personal or commercial  lines policies.”

Shorn of its carefully crafted legalese, the Nationwide Mutual statement is hugely significant for two reasons.

First, it is serving notice on current policy holders that even though the  company will investigate fracking claims for indemnity on a “case-by-case basis,” they are unlikely to succeed.

But, more  importantly, in its comments about “When information and claims  experience are not available to fully understand the scope of a given risk, carriers aren’t able to price protection that would be fair to both the customer and the company,” Nationwide Mutual has discreetly but directly challenged fracking industry claims that the procedure  produces undue risk, a major blow on the companies’ relentless and ongoing PR campaigns to convince people about the process being benign.

For “When information and claims experience are not available to fully  understand the scope of a given risk,” read that Mutual Nationwide, like local and state governments, cannot get fracking operators to divulge  the nature of the chemicals they use in the process, claiming that its  proprietary business information. While the fracking mix is about 99 percent water, the remaining 1 percent includes highly toxic chemicals,  including methanol, hydrofluoric acid, sulphuric acid and formaldehyde,  which have been analyzed from water samples taken at fracking sites. Not surprisingly, local and environmental groups, fearing contamination and pointing to several legal cases already underway, maintain that  fracking represents a serious threat to drinking water.

But sharpening Nationwide Mutual’s concerns are undoubtedly the mounting  studies postulating a link between fracking and earthquakes and the  pollution of subterranean aquifers.

Why not make your position  explicit when both earthquakes and aquifer pollution can have broad consequences? Accordingly, the Nationwide Mutual statement is a  clarification of its existing procedures, but the implications are  immense.

For those landowners who have Nationwide Mutual  insurance policies and have leased their land to fracking companies  along with their neighbours, even though “the company will investigate  fracking claims for indemnity on a ‘case-by-case basis,’” Nationwide  Mutual makes clear that “Fracking-related losses have never been a  covered loss under personal or commercial lines policies.”

So,  unless you get a sympathetic claims adjuster, the message seems to be  that you’re on your own, a not insignificant consideration in New York,  Pennsylvania and Ohio, currently the epicenters of Marcellus shale fracking operations.

Equally important is the fact that many of these producing wells are “mom and pop” operations on small parcels of  land. According to the natural gas advocacy group America’s Natural Gas  Alliance, “A natural gas drilling site typically covers 6 square acres  of land. Drilling down to the gas-rich shale generally takes a couple of weeks, hydraulic fracturing itself about two to three days per well.”

Not surprisingly, fracking advocates have pushed back, hard. Simon Lomax, a spokesman for the Independent Petroleum Association of America stated in an email that the memo was “reckless” and “it tells me that I won’t be buying home and car insurance from this company.”

There is an easy way to solve the debate – let the energy companies release the full list of chemicals used in their procedures, and let the Environmental Protection Agency and other federal agencies do their oversight jobs.

But wait! Fracking has academic supporters, too!

In May a university-funded study released by the Shale Resources and Society Institute at the University of Buffalo asserted that fracking is getting safer and should present no major environmental problems in New York when the state allows drilling to commence.

A report that underwriters at Nationwide Mutual obviously overlooked.

By. John C.K. Daly of