The U.S. Department of Energy (DOE) reports that geothermal energy production is a $1.5 billion a year industry. By 2015, DOE plans to show that enhanced geothermal systems technologies are feasible and can effectively contribute to the U.S. energy supply. Efforts to harness geothermal energy raise a number of industry specific considerations and have led to a number of lawsuits and related insurance claims over the years.

What Sets Geothermal Power Apart from Other Renewable Energy Sources?

While renewable energy technologies including solar, wind and geothermal energy face common challenges such as the potential for project delays and equipment breakdowns, geothermal energy presents additional industry specific considerations.

  • Many geothermal energy sources in the U.S. are located on federal lands and therefore raise unique permitting, licensing and regulatory issues.
  • Geothermal projects require advance subsurface exploration to confirm the availability of geothermal power in a given area. Geothermal projects, therefore, carry greater upfront risks than wind and solar projects that do not require advance exploration to determine power availability.
  • Geothermal plants produce sludge and emit hydrogen sulfide which has a sulfurous odor, thereby raising specific pollution abatement and waste disposal issues.
  • Construction of geothermal plants can involve installation of cooling towers, drilling rigs, geothermal pipelines and re-injection systems. Cooling tower fans and drilling rigs can emit noise during day-to- day operations, raising the possibility of noise pollution or nuisance complaints from neighboring landowners.

Geothermal exploration and development activities have been the subject of various lawsuits over the years. Some of these suits have involved insurance coverage issues. The discussion below is not intended to be exhaustive, and does not address coverage under policies that may have been written specifically to insure geothermal risks. However, it is intended to briefly highlight certain coverage issues that may arise with respect to geothermal energy technologies.

Bodily Injury or Wrongful Death

Geothermal plants can be the subject of bodily injury claims from employees, contractors and sub-contractors. For example, some asbestos plaintiffs groups have alleged that geothermal plants may have used asbestos for heat insulation in the 1950s, and that therefore, the plants face liability for their employees’ exposure to asbestos.

Claims by neighboring residents are also not uncommon. In Gap v. Puna Geothermal Venture, 104 P.3d 912 (Haw. 2004), a property owner sued a geothermal well operator alleging that the geothermal facility emitted odors, fumes and noxious gases that exacerbated her asthma and affected her health. It became apparent during discovery that the plaintiff’s experts would be unable to provide sufficient evidence that the geothermal emissions had caused the plaintiffs’ health problems. The lower court granted the defendant’s motion for summary judgment finding that the plaintiff had failed to prove causation. Thereafter, it awarded sanctions against the plaintiff’s attorney. The plaintiff appealed the sanctions issue only. The Hawaii Supreme Court vacated the sanctions award and remanded the case to the lower court for further determinations as to sanctions.

Coverage for emotional distress or health problems alleged to arise out of the operation of geothermal plants may depend on the policy’s definition of bodily injury and applicable case law. A number of courts have declined to find coverage for emotional distress at all, reasoning that policies defining bodily injury as “bodily injury, sickness or disease,” require actual physical injury. See, e.g.,Allstate Ins. Co. v. Diamant, 518 N.E.2d 1154, 1157 (Mass. 1988) (“Bodily injury imports harm arising from corporeal contact. In this connection ‘bodily’ refers to an organism of flesh and blood. It is not satisfied by anything short of physical, and is confined to that kind of injury.”) (citation omitted); Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 629 (Cal. 1995) (“It would expand coverage of these policies far beyond any reasonable expectation of the parties to sweep within their potential coverage any alleged emotional or physical distress that might result from economic loss that is itself clearly outside the scope of the policy.”) (citation omitted). Other courts have found coverage for emotional distress based on the belief that “emotional trauma may be as disabling as physical injury.” See, e.g., Lavanant v. Gen. Accident Ins. Co. of Am., 595 N.E.2d 819, 822 (N.Y. 1992). Even those courts that subscribe to this view, however, have declined to find coverage for emotional distress in all situations. See, e.g., First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162 (2d Cir. 1998) (declining to broaden Lavanant to extend coverage to emotional distress arising from economic losses sustained by the underlying claimants).

Wrongful death suits may also arise. In Calpine Corp. v. ACE American Insurance Co., No. C 05-00984 SI., 2007 WL 3010570 (N.D. Cal. Oct. 12, 2007), a cooling tower employee was killed at a geothermal plant in California. The employee had been hired by a sub-contractor the plant had retained to rebuild the cooling towers. The decedent’s successor filed a wrongful death suit against Calpine. Calpine tendered the defense to the sub-contractor and to the sub-contractor’s insurer. The insurer denied coverage, asserting that the policy only provided coverage for claims in which Calpine was vicariously liable for its sub-contractor’s negligence, and not in situations where the underlying claim alleged only Calpine’s own negligence. The policy provided in pertinent part that it applied only to “vicarious liability which occurs as a result of your performance of a scheduled written contract.” Construing the plain language of the policy, the court agreed with the insurer that the policy coverage was limited to vicarious liability.

Nuisance and Injunctive Relief

Because geothermal plants produce sludge, release hydrogen sulfide into the air and can emit noise during day-to-day operations, plant operations can lead to nuisance complaints and requests for injunctive relief. Layton v. Yankee Caithness Joint Venture, L.P., 774 F. Supp. 576 (D. Nev. 1991) involved an action in which homeowners claimed that noise and hydrogen sulfide and other chemicals or gases emanating from a geothermal plant constituted a nuisance and caused health problems (such as headaches, bloody noses, dizziness, sore throats, coughing and nausea), polluted drinking water, and caused property values to diminish. The homeowners sought damages and injunctive relief. The court dismissed the plaintiffs’ pollution claim finding that the plaintiffs had been unable to show that water re-injected into the ground by the plant had contaminated their wells. The court granted summary judgment to the plant with respect to hydrogen sulfide emissions, finding that while the plant emitted some hydrogen sulfide, hydrogen sulfide was also naturally occurring in the area, and therefore, the plaintiffs had failed to show a causal link between the hydrogen sulfide around their homes and the emissions from the plant. The court also denied the plaintiffs’ nuisance and diminution in value claims.

In Yankee Caithness Joint Venture, L.P. v. Planet Insurance Co., No. 94 Civ. 8939 (KMW), 1996 WL 197705 (S.D.N.Y. Apr. 24, 1996), the underlying claim involved a suit by property owners against a geothermal power plant alleging that the plant emitted noxious odors, toxic chemicals and generated excessive noise that caused bodily injury and property damage. The plant tendered defense of the action to its insurer. The insurer declined a defense, asserting that the plant had received notice of a claim by the property owners prior to the inception of the policy at issue, and that therefore, no coverage existed for the lawsuit that later arose from that claim. The plant initiated a coverage action. The court denied competing motions for summary judgment, finding that issues of material fact existed.

Insurance coverage for nuisance claims frequently turns on whether the definition of “personal injury” in the policy includes wrongful entry or invasion of the right of private occupancy. See, e.g.,Gen. Accident Ins. Co. v. W. Am. Ins. Co., 49 Cal. Rptr. 2d 603, 607-08 (1996) (including trespass and nuisance as examples of torts encompassed by policy definition of “personal injury”). Thus, coverage may be available for some nuisance claims depending on the policy language at issue. Claims for purely injunctive relief on the other hand, are less likely to be covered by insurance. See, e.g.,116 Commonwealth Condo. Trust v. Aetna Cas. & Sur. Co., 742 N.E.2d 76, 79 (Mass. 2001) (“the trust could not reasonably expect that the policy would cover an action for injunctive relief that did not seek money damages”); Jones v. Farm Bureau Mut. Ins. Co., 431 N.W.2d 242 (Mich. Ct. App. 1988) (“damages” does not encompass strictly injunctive relief). But see AIU Ins. Co. v. Super. Ct.,799 P.2d 1253 (Cal. 1990) (CGL policies which provided coverage for all sums that insured became legally obligated to pay as “damages” or “ultimate net loss” because of property damage, covered costs of reimbursing government agencies and complying with injunctions ordering cleanup under Comprehensive Environmental Response Compensation and Liability Act and similar statutes).

Economic Loss

Claims for purely economic loss, including claims involving diminution in property value generally will not be covered under commercial general liability policies. See, e.g., F & H Constr. v. ITT Hartford Ins. Co., 12 Cal. Rptr. 3d 896, 903 (2004) (“Giving [the definition of property damage] its plain and ordinary meaning, the majority of courts hold that it does not cover economic damages.”); Giddings v. Indus. Indem. Co., 169 Cal. Rptr. 278, 281 (1980) (“[S]trictly economic losses like lost profits . . . do not constitute damage or injury to tangible property covered by a comprehensive general liability policy.”).

Earthquake Damage

Geothermal plants may also face earthquake damage claims. Over the years, earthquake tremors have been linked to at least two geothermal projects. In July 2009, the DOE and the Department of the Interior halted a geothermal fracturing project in California citing concerns about the possibility of increased seismic activity that could result when bedrock is fractured to extract heat and generate electricity. A similar project in Basel, Switzerland was halted three years earlier after it was suggested that the project had caused 100 tremors, including five with magnitudes between 2.0 and 3.0 on the Richter scale. The earthquakes caused minor damage to local buildings. The DOE is expected to issue a report in August or September of this year comparing the California and Basel projects to determine if the California project can proceed.

Conclusion

As geothermal exploration and development continues, lawsuits and related insurance claims are not unlikely, and insurers can expect to face traditional coverage questions such as whether the lawsuit’s allegations fall within the policy’s terms and conditions, or if coverage is barred by an exclusion.