Can fracking affect your homeowners insurance policy?

Can fracking affect your homeowners insurance policy?

Can fracking affect your homeowners insurance policy? Nationwide Insurance came into public scrutiny in a big way in 2012, when an internal company memo was leaked stating the insurer’s homeowners policies do not cover damage from fracking. While public response was decidedly negative, however, standard industry operating procedure is in agreement with Nationwide—homeowners and commercial general liability insurance policies specifically exclude damage caused by environmental contamination.

Pollution is hardly the only risk associated with the fracking practice, however. The process of drilling down and injecting fluids at high pressures has also been linked to seismic activity, and fires and explosions certainly aren’t out of the realm of possibility.

So how does a homeowners policy respond to such threats? According to research done by NerdWallet.com, a policy will generally cover damage from a fire or an explosion, and a policy with an earthquake endorsement can get coverage for quake damage—even if triggered by fracking activity. Without the endorsement, however, a producer’s homeowners clients may be out of luck.

This isn’t to say a resident with legitimate grievances can’t find financial restitution, however.

Richard Kern, manager of the energy and environmental divisions of James River Insurance Company, told Insurance Business America geologic studies and seismic work have caused insurers losses in the past through legal action.

He recalls one incident in which a subcontractor on a project used a “thumper truck”—which creates sound waves deep in the earth to locate and measure oil and gas deposits—near a neighborhood in south Texas.

“Because of a poorly worded contract, we ended up with 300 claims due to cracks in the walls and ceilings of homes,” he said.

Nevertheless, producers in areas with newly expanding fracking operations may be wise to start pitching extra endorsements to homeowners clients. Earthquake policies or environmental endorsements are a good idea, especially as fracking is still a relatively unregulated industry.

“There is a lot of variation from state to state, in terms of how vigorously regulators seek to prevent damage in the first place, whether homeowners have administrative remedies and what burden of proof a homeowner must carry in court if initiating a damages claim,” Lloyd Burton, a professor at the University of Colorado Denver School of Public Affairs, told NerdWallet.