New Research Links Fracking to Seismic Events 

The rapid growth of hydrofracturing (i.e. “fracking”) in Ohio has produced aftershocks throughout numerous industries and communities—some more literal than others.  Recent studies indicate that use of injection wells, the underground wells used to dispose of wastewater produced in the fracking process, is connected to the occurrence of earthquakes in areas that had not previously experienced any seismic activity. For example, the city of Youngstown, which had not experienced an earthquake since record-keeping began in 1776, experienced more than 100 seismic events in the year following the opening of the nearby Northstar 1 injection well in December 2010. These events culminated in a magnitude 4.0 earthquake on December 31, 2011.

While the New Year’s Eve earthquake produced only a few reports of minor property damage, property owners may not be so lucky in the future. In Oklahoma, on November 5, 2011, a magnitude 5.7 injection-well earthquake injured two people, destroyed 14 homes, and was felt in 17 states. If a major injection-well earthquake struck Ohio, would your insurance cover the damage?

                                      Potentially Applicable Policy Language

Most first-party insurance policies, such as a typical homeowner’s policy, include an “earth movement” exclusion, which provides that the insurer is not liable for damage caused by or attributable to earthquakes, landslides, mud flows, or other forms of earth shifting, sinking, or rising. As at least one federal district court opinion explains, earth movement exclusions are designed to protect the insurer from major, unpredictable disasters that cannot be insured against without specialty coverage.

Policyholders have had success defeating earth movement exclusions by arguing that the language of the exclusion is ambiguous. State courts in Pennsylvania, Alaska, West Virginia, Florida, and various federal courts have held that where an earth movement exclusion could reasonably be read to apply to only “natural” earth movements, rather than to any earth movements, the exclusion must be narrowly interpreted in favor of the insured. These cases involved fact patterns relating to subsiding mines, burst pipes leading to mudslides or erosion of a building’s foundation, nearby excavations leading to earth shifting, and other activities where the causation of the earth movement was clearly “man-made.” The evidence surrounding injection-well earthquakes suggests that they should likewise be considered “man-made” and, accordingly, losses arising from these events would not be barred by the earth movement exclusion.

It does not appear any Ohio courts have yet analyzed the ambiguity, or lack thereof, of an earth movement exclusion. However, in the context of analogous water damage exclusions, the First, Fourth, and Twelfth Appellate Districts have refused to find any ambiguities regarding natural or man-made causation.

In one 2005 case, the Eighth Appellate District found in favor of the policyholder, denying application of an earth movement exclusion where the damage was caused by “lateral earth [and] hydrostatic pressure” which caused a wall to collapse. The court held that the policyholder was entitled to coverage because none of the eight specifically listed types of “earth movement” were lateral earth or hydrostatic pressure. In an injection-well earthquake case, a policyholder could likewise argue that an injection-well earthquake is not really an “earthquake” at all, and thus is not covered by the specifically enumerated types of earth movement.

In the absence of guidance from Ohio courts, policyholders are advised to carefully read their insurance policies’ earth movement exclusions. For those policyholders who wish to avoid the uncertainty, the Mayor of Youngstown, the Honorable Charles P. Sammarone, may have other advice: two days after the New Year’s Eve earthquake in his city, he purchased earthquake insurance.