Insurance Companies Apprehensive About Coverage for Fracking Areas

Two new articles give more insight into the recent discussion about insurance companies not protecting landowners who enter into leasing agreements with companies who will engage in fracking activities, which kicked into another gear when Nationwide Insurance made it clear that they would not cover fracking-related claims recently.  Oil and gas development can have serious implications for individuals who don't lease land, too.

First, from 24/7 Wall Street:

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.

Read more: Insurance Companies Start to Decline Fracking Coverage - 24/7 Wall St. http://247wallst.com/2012/07/24/insurance-companies-start-to-decline-fracking-coverage/#ixzz21YjhpsqQ

Then, from the Huffington Post:

The leaked internal memo, indicating that Nationwide Mutual Insurance Co. had determined risks from the controversial process of hydraulic fracturing were too great to provide coverage for, was interpreted by some as vindication of their concerns and by others as ill-informed betrayal.

But the ensuing brouhaha overshadowed the asymmetric nature of the energy development insurance market -- where lessors and lessees have damage coverage options unavailable to others.

When I recently spoke with Dr. Robert Hartwig, President of the Insurance Information Institute, about why that is, he explained that insurers have no way to control and underwrite actions of a third party. In other words, if you're someone concerned about potential impacts from energy development occurring around you, but aren't in a development contract with an energy company, your only option to receive compensation for something like contamination of your drinking water, is to hire an attorney to pursue your claim through the vagaries (and expense) of the court system -- a poor substitute for the assurance of damage recovery through the force of contract with an insurance provider. Landowners who lease have the opportunity to hitch their horse to a company's insurance wagon.

Hartwig also points out there's nothing new in principle here, because many risks aren't mitigated through typical homeowner policies and therefore require similar legal action on the part of those affected by them. So in that sense, the avenue for pursuing compensation for certain kinds of fracking-related damage is no different.

Read the rest of that article here. 

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