https://sites.google.com/site/metropolitanforensics/what-the-recent-2-9-million-jury-award-in-a-fracking-case-is-telling-us-about-the-risks-what-insurance-policies-cover-such-risks
On June 19, 2014, a Texas state judge in Dallas refused to throw out the April 2014, $2.925 million jury verdict awarded to a Texas family in one of the first trials involving allegations that nuisance during hydraulic fracturing caused nearby residents to suffer pain and suffering, health problems and property damage. The case is Parr, et al. vs. Aruba Petroleum, Inc., et al.; County Court at Law No. 5, Dallas County, Texas; Case Number: CC-11-01650-E.
On June 17, Marcus and Laura Marsden of Aledo were awarded $36,000 in damages by a Parker County jury that found Titan Operating created a nuisance with its gas wells near the couple’s home. The Marsdens sued Titan in 2012, claiming the producer failed to respect prior representations regarding where its drill pad would be placed on a neighboring property and how the company would handle traffic and other disruptions. In a 10-2 decision, the jury found that Titan created a temporary nuisance, limiting the monetary award.
It’s the second successful nuisance suit in recent weeks. In May, a Tarrant County jury awarded Sam and Jane Crowder of Fort Worth $20,000 in a similar suit against Chesapeake Energy.
These verdicts contains an important lesson that we also learned during the asbestos, MTBE and other toxic tort litigation: the juries simply want the polluters to clean up the land or water resources and/or pay for the nuisance they caused regardless of the scientific support for the alleged dangers or actual impacts associated with the process. This is the reason that most of the insurance executives have told us: “We do not want to go to trial; we will lose no matter what the science or the risk to human health and the environment is. We want to settle and move on”.
Brief Description of Oil & Gas Production Using Hydraulic Fracking
Hydraulic fracturing produces fractures in the rock formation through which the natural gas or oil can flow. Wells may be drilled vertically thousands of feet below the land surface and may include horizontal or directional sections extending thousands of feet.
Fractures are created by pumping large (between 3 and 5 million gallons of water per production well have been reported) quantities of fluids (water, sand and chemical additives) at high pressures (10,000 to 11,000 psi pressures have been reported) down a perforated well casing and into the target rock formation. Ninety-nine percent (99%) of the hydraulic fracturing fluid commonly consists of water and sand. The sand helps keep the fractures open for the oil or gas to freely flow. A number of chemical additives (about one percent of the volume of the fracking fluid) are also added to the subsurface to reduce friction, prevent iron, scale and corrosion and to control bacteria from clogging the formation. There are variations of these processes being used either on pilot or smaller scale. These fractures can extend several hundred feet away from the wellbore.
Hydraulic Fracking Schematic
During the completion phase of an oil/gas well, fresh water is used to fracture the shale formation. A typical multi-stage fracking process uses at least 100,000 barrels (3.15 million gallons) of fresh water, although 5 million gallons of water have also been reported. When the pressure is released and this water “flows back” to the land surface, it is salty and may contain the injected chemicals plus naturally occurring materials such as brines, metals, radionuclides, and hydrocarbons. The flowback water must be transported away from the drilling site and disposed of in a permitted disposal well or treated or recycled and so on. The need for disposal of flow-back water occurs only during the drilling of a new well, however flow-back water disposal is often the second-largest expense of drilling a new well.
It should be noted that flowback liquid due to its acidic chemistry and the high pressure will leach out compounds present in the subsurface formations. A study conducted by researchers at Cornell University and published in the American Chemical Society’s Environmental Science & Technology journal concludes that flowback fluid from hydraulic fracturing of a well could potentially mobilize tiny particles, or colloids, in soils that may cause heavy metals and other compounds to leach out of the soil and into the flowback fluids. To date, the researchers have analyzed the effect of flowback fluid from a Marcellus Shale well on a column of sand with known deposited colloids, but the researchers reportedly next plan to evaluate the fluid’s impact on colloid movement in natural soil.
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Case Study – Water Well Contamination
Metropolitan has worked on many oil & gas production damage disputes where we were able to demonstrate that a certain activity was in all probability responsible for the contamination. In one such case, we took measurements of inorganic compounds and heavy metals, radioactivity, methane and radon gases. We also analyzed sources of dissolved and gaseous methane using stable isotopes. We showed that the only way the water supply well could have been contaminated in short period of time was through the movement of the contaminants by the high pressures of the fracking process. We were able to exclude a surface spill as the cause of the contamination. The claim was settled without filing a lawsuit against the gas production company.
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Water that comes to the surface during the normal oil or gas production process is naturally occurring briny water that is generated from deep within the earth along with the oil and gas. This water is called “produced water”. The need to dispose of “produced water” is on-going and continues throughout the life of the oil/gas well.
The flowback and produced waters are typically stored on site in tanks or pits before treatment, disposal or recycling. In many cases, it is injected underground for disposal. In areas where that is not an option, it may be treated and reused or processed by a wastewater treatment facility and then discharged to surface water.
Other activities that are part of the oil and gas production include, but are not limited to: increased water usage, deforestation, dust, heavy truck traffic, blasting, sights and heavy flood lights on a 24/7 operation, flaring and venting of the gases, compressor stations for compression of the natural gas, storm water runoff, dehydrators, condensate tanks and other storage, erosion of the cleared areas, high pressure venting noises, loud gas flaring that emits pollutants into the air, and so on.
Lawsuits against and between the Oil & Gas Producers and their Subcontractors
There are hundreds of hydraulic fracking lawsuits that have been filed across the United States and this verdict (that was decided by the jury on a very specific fact pattern) may indicate that there may be greater risk of third-party liability associated with the oil & gas production using fracking than many in the oil & gas and the insurance industry have expected. We had advised our clients and friends to properly consider not only the fracking process risks, but should assess/insure these types of operations by considering the entire oil & gas exploration process that starts with the exploratory borings, continues with the leasing of the land and the permitting and then goes into the actual drilling of the frack wells, the wastewater generation and handling, the heavy truck transportation, the noise issues, the air emissions, the odors, the choice of subcontractors, and so on. To the potential risks you should also add the earthquake risks potentially caused by either the fracking process itself or by the process of injecting the wastewater into disposal injection wells.
Based on the third party lawsuits we have seen filed to date, we can list the following alleged claims and causes of action:
1. Drilling and other fracking-related activities constitute a public or private nuisance;
2. Trespass;
3. Breach of contract;
4. Fraud/misrepresentation;
5. Negligence and negligence per se;
6. Strict liability;
7. Unjust enrichment;
8. Violation of state hazardous site cleanup acts, violation of the Clean Water Act (violation of effluent limits and discharge of oil & gas wastewater without authorization), violation of Endangered Species Act, violation of state’s Clean Stream Act, and so on;
The costs prayed in these lawsuits include, but are not limited to, the following:
1. Physical damage to buildings and commercial real estate;
2. Soil and groundwater remediation and response costs for methane migration and control, oil migration and control, illegal wastewater disposal and contamination from fracking additives and mobilized compounds such as heavy metals and radioactive compounds; and air contamination;
3. Losses due to diminution in the fair market value of the real estate;
4. Loss of use and enjoyment of land;
5. Loss of well water or surface water; and costs for the purchase of alternative source of water;
6. Economic loss due to temporary stoppage of business operations;
7. Emotional distress;
8. Personal injury;
9. Loss of quality of life;
10. Inconvenience and discomfort;
11. Losses attributable to the purchase of earthquake insurance;
12. Past and current medical costs and establishment of future medical monitoring trust fund;
13. Punitive damages;
14. Costs related to testing;
15. Costs of repair, replacement and restoration;
16. Consequential damages;
17. Reasonable attorney’s fees and other litigation costs;
18. Injunction against further drilling activities.
We have also seen cases where the oil & gas company sues the field service company for damages resulting from improper well construction or for improper handling of the wastewater that resulted in either groundwater contamination or re-drilling of the oil & gas well. See Cabot Oil & Gas Corp. v. Casedhole Solutions Inc., et al.; Warren Drilling Co., Inc. v. Ace American Ins. Co., No. 1:12-cv-425 (S.D. Ohio, filed Apr. 13, 2012, decided April 16, 2014). Due to lack of pipelines to transfer the produced oil, gas and the needed fracking chemicals, as well as available capacity for treating the fracking wastewater, on the rise are also spills and releases of shale oil and chemicals caused by transportation accidents, either truck or rail, illegal dumping, illegal pit fires, and so on. Many of these transportation accidents have been reported from Pennsylvania to North Dakota.
Recently, an Ohio man fined and sentenced to prison after illegally dumping 20,000 gallons of wastewater from gas drilling operations. Benedict Lupo, the owner of Hardrock Excavating LLC in Youngstown, OH, was sentenced to more than two years in prison and fined $25,000 after directing employees to dump storage tanks containing 20,000 gallons of wastewater flowback from hydraulic fracturing into a storm drain that leads to the Mahoning River in Youngstown. The U.S. Department of Justice reported that Lupo instructed employees to dump the wastewater on more than thirty occasions between November 2012 and January 2013, in violation of the Clean Water Act. The dumped waste contained hazardous pollutants such as benzene and toluene and contributed to an aquatic dead zone in a nearby creek.
Typical Stipulated Case Management Orders Issued by Courts
Based on the cases we have participated, Plaintiffs (typically third party injured persons or entities) can request Defendants (typically the oil & gas exploration/production companies, drillers, trucking companies, waste handling/disposal companies, etc.) to provide information about
· the drilling and construction of the well, including the substances and chemicals used during all phases of development (drilling, casing, cementing, and fracturing),
· open hole logs and seismic data,
· detailed geologic maps and the Defendants interpretations on the results of the exploratory testing,
· the number of fracturing stages,
· the depth of each fracturing stage,
· sources of water,
· analysis of flowback water,
· analysis of the produced oil,
· analysis of the produced methane and natural gas,
· how and where production water, including condensate, was handled and stored,
· how the venting gas was managed,
· wells used for the injection of the flowback wastewater,
· analyses or testing results related to subsurface geology and groundwater migration, and
· the sampling or testing of produced water, any potable water, and groundwater within a number of miles of the well.
Defendants can request
· medical records,
· an independent medical examination,
· analyses and testing of water from any well alleged to be contaminated,
· construction and maintenance records of the well, and
· how Defendants’ activities or substances/chemicals caused the injuries alleged.
Given the significant expense of litigating cases involving complex technical or scientific issues, courts sometimes have reasoned that, before such a case proceeds, the plaintiffs should be required to produce certain types of evidence—such as evidence that should be available to the plaintiffs without formal discovery (or for which the plaintiffs already have been given a chance to conduct discovery) and which is essential to some required element of the plaintiff’s case. An order requiring the plaintiffs to produce such evidence before the case proceeds is sometimes called a Lone Pine order. Basically the Lone Pine Order is a modified Case Management Order used in some complex mass tort case. See Lore v. Lone Pine Corporation, N.J. Superior Court, Law Division, Nov. 18, 1986), where the court entered a case management order that required Plaintiffs to provide “basic facts” to support their claims of personal injury and property damage, including exposure to alleged toxic chemicals, medical records supporting injuries and causation from exposure, real estate devaluation data. When the Plaintiffs failed to provide such evidence, the judge dismissed the case with prejudice.
The defendants must convince the court that the numerocity of plaintiffs and/or defendants, varied exposures and varied injuries create complexities such that traditional discovery and case management standards provided under state or federal law will not suffice. Other factors influencing the issuance of such orders are: suit was filed and discovery requests made to pressure the defendants to settle; other reports contradict Plaintiffs claims; insufficient pleadings/facts; repetitive suits against the very same defendants.
Who Pays for these Costs? Insurance Coverage for Fracking-Related Damage Claims
Basically, the oil & gas producers and their subcontractors (drillers, truckers, waste disposal companies, and so on) are the parties responsible to pay for the damage claims that they are either found to be liable for or settle out of court. If the oil & gas companies and their subcontractors do not want their companies stuck footing the entire bill, they should consider how their insurance portfolio might address this liability.
As a general rule, the drilling subcontractor and the oil & gas well operator take out various insurance policies covering the drilling unit itself, equipment and liabilities, so far as the subcontractor is concerned, and with respect to liabilities and equipment, so far the operator is concerned. The drilling contract obliges the contractor to include certain insurances, but the operator is not obligated to obtain a specific job-related insurance, other than its existing CGL policy. Of course these things can change on a case by case basis depending on the negotiations between the parties.
Some insurance companies offer products specifically designed to insure against the risk involved with the hydraulic fracking activities. These types of insurance products include, but are not limited to: Environmental Impairment Liability Coverage (also called pollution liability insurance), Operators Extra Expense (OEE) coverage (also known as Control of Well), Environmental Site Liability coverage, combined CGL/EIL coverage, and several other products.
The OEE is a specialized policy available to oil or gas well operators that covers the cost of regaining control of a wild well. Coverage for pollution, stuck drill stem, evacuation expense, and care, custody, or control (CCC) exposures can be added by endorsement.
Fracking-related (or oil & gas related) losses may implicate many coverages, including commercial general liability insurance; property insurance; business interruption insurance; pollution legal liability insurance, site or premises pollution liability insurance, contractor’s pollution liability, contingent business interruption, civil authority, and ingress/egress coverage; environmental liability policies; director & officer (D&O) insurance; and errors & omissions (E&O) insurance. Thus, regardless of the settlement and subsequent Court decision in Warren Drilling, coverage disputes relating to the potential application of various types of insurance policies to fracking claims are likely to continue to emerge as fracking litigation progresses.
For example, in Star Insurance Co. v. Bear Productions, 43 ELR 20239, No. CIV-12-149-RAW, (E.D. Okla., 10/16/2013) (White, J.), the district court held that an insurance company need not indemnify or defend a waste hauler in an underlying class action lawsuit for contamination stemming from their transport and disposal of "produced fluid waste" from oil and gas drilling operations into an open, unlined dump site. The hauler's insurance policy specifically excludes coverage for allegations of pollution, and "produced fluid waste," as described in the underlying complaint, qualifies as "pollution" based on a plain reading of the policy. Nor did the hauler's umbrella policy provide coverage, as it excludes coverage for actual or threatened pollution. The court, therefore, granted summary judgment in favor of the insurance company.
Based on the numerous denials of coverage though, the oil & gas companies must be prepared to vigorously challenge insurer coverage denials, as the insurance companies have literally armies of well-experienced lawyers that will use every possible legal argument to deny coverage, if appropriate. What we have seen in many coverage dispute cases is the wording of the insurance policies controls the outcome, as it should be. As an example, the judge in the Bear case wrote the following in its ruling in favor of the insurer who had denied coverage:
While not determinative, the court notes that Bear is a corporate business. It bargained for an exception to the pollution exclusion. Bear is entitled only to the coverage for which it negotiated and paid. Bear argues that read literally, the policies provide virtually no coverage for risks inherent to its business. In fact, the policies do provide coverage for some risks inherent to Bear’s business. For example, the policies cover liability as a result of an accidental spill of waste (a “pollution incident”) or an accidental collision of one of Bear’s trucks with another vehicle, object or person. Though it is unfortunate that the policies do not cover liability for pollution as alleged in the Underlying Complaint, the court may not rewrite the policies.
The key point that needs to be taken from these cases is that the insureds need to negotiate these insurance policies using the services of a qualified lawyer who really understands the business and operational risks. Many cases have turned on the omission or addition of a single word. All courts will read the policy assuming that there was a fair negotiation of the contract language and will refuse to rewrite the insurance policies. Insureds be aware.
In the Warren Drilling case, in 2008 a homeowner living close to drilling operations became aware that his water well had been contaminated by the hazardous fracking fluid. The homeowner sued Warren Drilling and the driller eventually settled with the homeowner. Warren Drilling then sued ACE for coverage under the insured’s energy pollution liability extension endorsement (EPLE) after the insurer refused to defend the case brought by the homeowner and indemnify the driller for its losses. One of the major issues the court would have to decide is whether the incident was unexpected and unintended, and commenced abruptly and instantaneously. In April 2014, Warren settled with ACE, but not with EQT, the gas production company that had hired Warren to do the drilling and fracking. In April 2014, the Court found as a matter of law that EQT owed a duty under the drilling contract with Warren to defend and indemnify Warren from and against the homeowners’ litigation and that EQT had breached that duty. A summary judgment was entered against EQT and the court ordered Warren to submit supporting evidentiary materials directed to the issues of reasonableness of the settlement amount and its litigation expenses in the homeowner’s litigation that exceeded $200,000. 
Another important point to make is that the types of insurance coverage mentioned earlier are written most of the time on a claims made basis. For insurance coverage to apply, the insured must make a claim either during the policy period, or during any applicable extended reporting period an insured may be able to purchase. While an average automatic extended reporting period may run for 60 days, insureds may purchase longer periods, up to five years in certain instances. Nevertheless, in order for an insured to be protected for an environmental risk, it should either renew the policy at its expiration, or purchase coverage for a longer term, such as ten years. The difference between a claims-based and an occurrence-based coverage is critical depending on when the environmental liability arose and when the insured discovered the discharge.
The California Bureau of Land Management Commits to Prepare Fracking Environmental Impact Statement (EIS) for Gas Well Leases
On July 17, 2014, the California Bureau of Land Management (BLM) agreed to conduct an environmental impact statement (EIS) that analyzes the potential impacts from hydraulic fracturing at two disputed oil and gas well leases in California, in a legal settlement with environmentalists that could set a precedent for when and how BLM crafts such reviews in other cases. We believe that this decision will provide another opening for concerned citizens to require the BLM to consider potential greenhouse gas (GHG) impacts of the lease sale after a federal court in Colorado suggested that federal agencies must consider the use of federal social cost of carbon (SCC) estimates when reviewing GHG impacts of coal extraction leases. The BLM would "consider geology, well completion techniques and the environmental hazards of those techniques” in a science review study. This study is expected to lead to a broader EIS being crafted under NEPA that examines the potential impacts of fracking.
METROPOLITAN’S GAS MIGRATION INVESTIGATION AND REMEDIATION EXPERIENCE
· Investigated methane impacts at residential water supply wells near a gas production well in Pennsylvania. The methane gas was found emitting from a well in the vicinity of a gas well, posing an explosion and health hazard. Metropolitan performed a detailed review of the regional and site specific geology, the construction of the gas well, and performed a detailed review of the fracking and waste handling operations. The investigation revealed that the well was located on top of coal seams; the coal seams would emit the coal-bed methane. Isotopic analyses and detailed composition analyses of the gases from the water well, the gas production well and the coal seams indicated that the gas present in the water well was of similar composition to that from the coal seams and different from the gas produced at the gas well. The conclusions were that the gas well was not the source of the methane inside the water supply well. We also proposed and implemented a mitigation strategy for the methane in the residential water supply well.
· Investigated methane impacts at residential water supply wells near a gas production well in New York. Metropolitan performed a detailed review of the regional and site specific geology, the construction of the gas well, and performed a detailed review of the fracking and waste handling operations. We also performed a video inspection of the water supply well and determined that it was installed through coal beds. The coal seams would emit the coal-bed methane. Isotopic analyses and detailed composition analyses of the gases from the water well, the gas production well and the coal seams indicated that the gas present in the water well was of similar composition to that from the coal seams and different from the gas produced at the gas well. The conclusions were that the gas well was not the source of the methane inside the water supply well.
· Metropolitan provided litigation support for a large number of litigation cases involving methane gas migration and intrusion, toxic vapor gas migration and intrusion and petroleum hydrocarbon contamination involving refineries, bulk fuel oil terminals, gas service station sites, oil and gas exploration sites and brownfield sites.
· Designed, installed and operated hundreds of methane and vapor gas recovery or remediation systems at landfills, industrial sites and brownfield sites.
· For a confidential gas company, served as a testifying expert on issues related to alleged groundwater contamination from hydraulic fracturing activities. Work included reconstruction of baseline groundwater condition prior to gas operations, tracking sources of organic and inorganic compounds in groundwater, and tracking sources of dissolved and gaseous methane using stable isotopes.
· For gas production companies, designed and implemented forensic field programs to differentiate native gas from storage gas using composition and isotope analysis.
· For gas companies, investigated sources of natural gas bubbling in residential water wells. Used chemical fingerprinting including gas composition and isotope analysis to determine the origin of the gas in the water wells.
· For a gas company in California and Pennsylvania, investigated storage gas migration from a storage field. Using forensic and sampling results, calculated the percentage of storage gas vs native gas in a number of gas wells located near the leaking field.
· Performed numerous field investigations to determine sources of methane in soil and water wells underneath newly constructed houses near brownfield sites.
Metropolitan Engineering, Consulting & Forensics (MECF)
Providing Competent, Expert and Objective Investigative Engineering and Consulting Services
P.O. Box 520
Tenafly, NJ 07670-0520
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A crew works Tuesday on a piece of equipment next to an oil well that had sprayed oil-laden fracking water for about 30 hours
A worker gets a look at the bottom of an oil rig spraying oil-laden fracking water
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