A not-so-new fracking nightmare has been exposed. A new curse has arrived to torment home and property owners who allow fracking on their properties. The curse even extends to those who live near fracking operations. Insurance companies refuse insurance and lenders turn down property loans when fracking is involved with a property. According to an Aug. 26 Enviro Reporter article, major insurance companies are refusing to renew insurance on properties that have had fracking operations on them. The curse applies even when a non-fracking property lies near fracking operations. Because of the potential for disastrous problems “The land becomes uninsurable and unsellable, making it worthless.”
In other words, while most states, including California have been in a headlong dive into fracking, property lenders and insurance companies have backed out. Those agencies caught on to the destructive nature of fracking. In other words, the insurance industry caught on early while state and local governments have not. Since most homeowner’s policies cover direct damage to the property or physical loss, the property owner’s policies do not include damages related to fracking. This includes water contamination, settling, cracking and any other problem that can be blamed on oil and gas industry operations in the area.
Nationwide Mutual Insurance Company is an example. That insurance giant pulled the plug on fracking area personal and property insurance in 2012.
An internal memo was leaked from Nationwide Mutual. The memo revealed the company’s reasoning,
“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.”
The so-called “prohibitive risks” have been expanded to include land leases for shale oil extraction. Worse, when the fracking goes on nearby, but not on the owner’s property, that property cannot get insurance or loans. Property owners ultimately will not be able to sell, insure or use their land while others will collect the gas royalties.
The FHA will not finance properties that are within 100 yards of drilling or mining. Fannie Mae says “forget it” if their property owners want to sign a fracking lease.
Guess who is in a prime position to step in and buy all that worthless property? The fracking companies, leaseholders and others who can get the land dirt cheap.
It is not so clear whether or how the fracking companies are covered for the damage they cause. According to a July 22 article by the Association for Corporate Counsel, the following types of insurance could apply to fracking operations: Commercial general liability, Environmental Liability, Contractor’s pollution liability, Pollution Legal Liability, Operator’s Extra Expense, Commercial Property, Worker’s Compensation and Directors and Officer’s Liability.
Are state and local governments mandating insurance coverage before they allow fracking companies to operate? Is the insurance evaluated to ensure sufficient coverage, especially when the “little guy” pay for liability, bad health, lost life or worthless property?
Those questions are for another time. The current crisis is about fracking operations that turn privately owned property into worthless land, even when the property owner does not allow fracking on their land.