LITTLE ROCK — Damage to a homeowner’s property because of the gas-extraction process known as hydraulic fracturing is likely not covered by his homeowner’s insurance policy, industry experts say.
The insurance issue became a topic in New York earlier this month when Nationwide Mutual Insurance Co. announced that it won’t cover damage related to fracking. The company made the statement after an internal memorandum detailing its underwriting guidelines concerning the natural-gas extraction process was posted online by someone not officially representing the company.
Damage linked to hydraulic fracturing, such as pollution and earthquakes, has generally been excluded from homeowners’ or farm owners’ insurance policies — no matter how the damage occurs, said Robert Hartwig, president and economist at Insurance Information Institute, an industry trade association.
“There are no new exclusions, and this doesn’t in any way indicate that activity has been discovered to be riskier than it was [previously] thought to be,” he said.
Property damage that is not geological, such as a company knocking down a fence, is also not covered in homeowners’ insurance polices, said Gary Stephenson, spokesmen for State Farm Mutual Insurance Cos. in North Little Rock.
Such a claim would have to be filed as a liability or damage against the company’s insurer, or the company could reimburse the homeowner directly, he said.
Hartwig said if a person’s land is polluted or damaged by a company then he can take the issue to court.
Hydraulic fracturing occurs after a well is drilled. Sand is mixed with thousands of gallons of water and chemicals, and then injected into the wells to separate rock and release natural gas.
Fracking for natural gas began in the Fayetteville Shale formation in north-central Arkansas in 2004. Other states, such as Pennsylvania, New York and Ohio, also have seen fracking increase.
Those in the gas industry say fracking is safe and that the risks are contained, while some environmental and health groups argue that fracking can contaminate water and cause health problems.
Eric Hardgrove, a spokesman for Nationwide, said via e-mail that the company’s personal and commercial insurance polices are not designed to cover any hydraulic fracturing-related risks.
“Fracking-related losses have never been a covered loss under personal or commercial lines polices,” Hardgrove said.
Nationwide claims are reviewed on a case-by-case basis, and the company will investigate damage claims that may be the result of fracking, he said.
Nationwide’s internal memorandum was posted on the websites of New York anti-fracking groups and on those of groups of landowners seeking naturalgas leases, according to a report by The Associated Press. The memorandum states: “After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore. Risks involved with hydraulic fracturing are now prohibited for General Liability, Commercial Auto, Motor Truck Cargo, Auto Physical Damage and Public Auto (insurance) coverage.”
Those are risks faced by landowners who lease property for natural-gas drilling and contract service companies involved in fracking operations, the memorandum says.
State Farm Mutual Insurance Cos. also doesn’t cover fracking damage, Stephenson said.
“Our standard homeowners and business policy does not list damage caused by earth movement as a covered peril,” he said
It is possible for customers to get special policies to cover specific damage, Stephenson said.
For example, if damage was caused by an earthquake and it was linked to fracking procedures, customers with State Farm’s Earthquake Endorsement policy would have coverage, he said.
Even if the earth movement is caused by fracking does not affect the policy, Stephenson said.
Last year, earthquakes in a 1,150-square-mile area north of Conway were linked to naturalgas drilling disposal wells where companies dumped their waste water from fracking. Those wells, which are not involved in the fracking process, were plugged last summer.
Farm Bureau Mutual Insurance Company of Arkansas Inc. also doesn’t cover fracking damage.
“We don’t have any insurance that covers anything like that nor have we had claims filed based on any fracking issues,” said Gregg Patterson, spokesman for the Arkansas Farm Bureau.
Hartwig, the insurance association president, said companies in the natural-gas industry are required to have insurance.
“You cannot poke so much as a straw-size drill in the United States without carrying insurance,” he said.
Business, Pages 29 on 07/27/2012