Last month, the Pennsylvania Insurance Department (“PID”) issued a notice to all insurance carriers writing homeowners insurance policies in Pennsylvania prohibiting them from denying coverage under the earthquake endorsements of their polices for damage as a result of fracking.
For those that haven’t seen the very interesting documentaries on fracking entitled “Gasland” and “Gasland 2,” fracking is another term for natural gas drilling or hydraulic fracturing. Without getting too technical, hydraulic fracturing, “is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside. Water, sand and chemicals are injected into the rock at high pressure which allows the gas to flow out to the head of the well.”1 How earthquake endorsements become involved is as follows:
Increases in seismic activity following hydraulic fracturing along dormant or previously unknown faults are sometimes caused by the deep-injection disposal of hydraulic fracturing flowback (a byproduct of hydraulically fractured wells), and produced formation brine (a byproduct of both fractured and nonfractured oil and gas wells).2
The seismic activity can lead to property damage to individuals homes. Once claims are filed the carriers have been denying them citing the earthquake endorsements in their respective policies. The notice from the PID issued on April 11, 2015, stated:
Recently, some insurers have asserted that because of an increase in natural gas extraction in Pennsylvania via a process commonly referred to as “fracking,” endorsements should exclude coverage on homeowners policies for earthquakes that are not “naturally occurring.”
Determining with certainty that human activity caused an earthquake is very difficult, and insurance claims by homeowners should not go unpaid during a long and arduous investigative process that will likely uncover no definitive proof linking the earthquake to human activity.
Insurers and rating organizations are therefore instructed that earthquake endorsements that attach to homeowners insurance policies in Pennsylvania should cover all earthquakes, whether believed to be “naturally occurring” or caused by “human activity.”
Insurers with earthquake endorsements already in the marketplace which exclude coverage for earthquakes that are not naturally occurring should not enforce these exclusions, and new endorsements without the exclusionary language should be filed with the Insurance Department no later than July 1, 2015.3
While it sounds like the situation will ultimately be corrected by the insurance carriers with a new policy exclusion for damage relating to fracking, it is a very new and very interesting topic. I’ll be keeping my ear to the ground on this one and will let you know how things develop.
As always I’ll leave you with a (mildly) related tune, here’s Carole King with I Feel the Earth Move: