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Over the last several months, we are hearing more and more about salt water disposal operations in the oil patch causing earthquakes. Unlike the alleged dangers of fracking, the induced seismicity caused by reinjecting fluids into the earth, which lubricates fault lines, has been scientifically linked to earthquakes in Colorado, Oklahoma, Texas and Ohio.

To date, the quakes have been considered “light”, with magnitudes not exceeding 5.0, yet they have been growing in strength and frequency. Some have even caused damage to surface property, including cracked building foundations and walls.

Fortunately we have not seen any claims of significance hit the insurance market, which appears to be a good thing; however, the problem is that we do not know how insurers will react if and when quake-related bodily injury and property damage claims are filed, which we feel is only a matter of time. Most General Liability and Umbrella policies do not contain exclusions for earth movement, and do cover third party bodily injury and property damage for which the insured is legally liable; however, it is important to note that most property policies covering first party damage do exclude earth movement.

Even without specific exclusions for earth movement, there are places in most liability policies where unscrupulous insurers could find a way to try to deny earthquake claims:

Pollution Exclusions–
Most policies provide limited sudden & accidental pollution coverage. An insurer could deny the claim, asserting that the proximate cause was disposing of a pollutant over a period of time, which is neither sudden nor accidental.

Intentional Acts Exclusions –
All policies contain exclusions for intentional acts. Insurers could deny a claim, asserting that with all of the evidence of quakes caused by disposal activities, the insured should have known this would result.

The most likely scenario, however, is that once more claims hit the market, we would expect to see more insurers adding exclusions to their policies precluding coverage for quakes, or completely excluding salt water disposal operations.

As with all insurance, understanding your policies is extremely important. Equally important is utilizing a broker who not only understands insurance, but also the unique risks associated with your industry.

For more information, please feel free to contact me.

Adam Sack
Director of Energy Services
Thomas J. Sisk & Co.