The issue of whether hydraulic fracturing or “fracking” causes earthquakes has first-party insurance implications because policies typically exclude damage from tremors attributable to man-made causes as opposed to purely unnatural ones.  We’ve discussed the issue in two recent posts after Insurance Commissioners in Oklahoma and Pennsylvania publicly warned carriers against denying earthquake claims on the basis that they were attributable to oil and gas drilling.  The jury is still out on the issue, but scientific evidence linking fracking to the tremors is accumulating rapidly.

At the present time, Oklahoma is at the “sharp end of the spear” with respect to this issue because the state experienced fully 567 quakes of Magnitude 3.0 or greater in 2014.  That is the more than in the proceeding 30 years combined, and Oklahoma is on track to see fully 1100 such earthquakes n 2015!  When he released his bulletin in March, the state’s Insurance Commissioner stated that his office would assume that the state’s quakes were not man-made “[u]ntil a legal ruling is made.”  It now appears that just such a ruling may well be coming in the Sooner State.

Two days ago in Ladra v. The New Dominion, LLC, 2015 OK 53, 2015 WL 3982748, 2015 Okla. LEXIS 71 (Okla., Jun. 30, 2015), a unanimous state Supreme Court cleared the way for a lawsuit over causation to go forward.  The plaintiff contends that disposal of the massive amounts of wastewater from fracking by injection into deep wells caused a serious 2011 earthquake.  That matter, as well as other litigation that the decision will inevitably spawn, will be closely followed by both the energy industry and by fracking opponents, and it should be monitored by insurers as well given what the court called the “dramatic increase in the frequency and severity of earthquakes” in Oklahoma and other frack-high jurisdictions and the consequent ramping-up of resulting insurance claims.

Plaintiff Sandra Ladra was watching the end of a football game in the living room of her Prague, Oklahoma residence on the evening of November 5, 2011 when a serious (Magnitude 5.0 or greater) earthquake struck the town.  Her knee was badly injured when the tremor brought down the house’s 28' stone chimney.  In August of 2014, she brought suit in state court against two companies that operated nearby wastewater disposal facilities, contending that the earthquake was not “naturally occurring seismicity” but rather the result of pumping wastewater into the defendants’ injection wells.

The two companies responded with a motion to dismiss, arguing that the Oklahoma Corporation Commission (OCC) was vested with exclusive jurisdiction over oil and gas drilling activities in the state and therefore had sole jurisdiction over the claims.  The trial court agreed, and it dismissed the case on October 16th.  Ms. Ladra promptly appealed to the Oklahoma Supreme Court.

On December 2nd, the state’s high court announced that it would take up the appeal instead of exercising its right to refer the matter to the Oklahoma Civil Appeals Court first. That is frequently a sign that the justices believe that an appeal raises a significant issue for the state and want an early opportunity to weigh in on it.  On Tuesday, the court did just that, reversing and remanding in a 7-0 decision.

Justice James Winchester’s opinion began by noting that while Oklahoma law vests exclusive jurisdiction over drilling activities in the OCC, that jurisdiction is “limited solely to the resolution of public rights” and doesn’t extend to “disputes between two or more private persons or entities in which the public interest is not involved.”  The latter include “a suit for damages” and “[p]rivate tort actions.”  As the decision explained, Ms. Ladra’s suit is “a private cause of action” and “[w]hether [the defendants] are negligent or absolutely liable is a matter to be determined by the district court.”  The state Supreme Court therefore held that jurisdiction lay in the state court system rather than with the OCC.