At present, not many insurers cover the risks associated with hydraulic fracturing or “fracking.” This is not surprising, as fracking has been linked to a range of risks including groundwater pollution and increased seismic activity. It is difficult for insurers to model risks when the parameters of those risks are not yet established. The release in April 2015 of a U.S. Geological Survey report posing possible links between fracking and new seismic activity in states including Oklahoma and Texas has created additional concerns.
Despite legitimate concerns about the risks associated with fracking, however, fracking activities are heavily regulated – particularly at the state level – and the industry’s safety record to date has been good. Fracking has been chiefly responsible for the dramatic rise in North American oil and gas production in recent years and it is not likely to go away soon, barring unforeseen events.
The National Association of Insurance Commissioners (NAIC) is urging fracking operators to obtain insurance coverage over and above commercial general liability insurance, with particular attention to environmental impact liability (EIL) coverage. Commercial insurers willing to do the hard work of analyzing the scientific and legal issues related to fracking — and then to develop appropriate models and coverage — may find it well worth their while, especially if and when oil and gas prices trend upward again and activity in North American shale fields increases.