Fracking in N.Y.? Fugetaboutit!

Hydrofracking has become a hot-button issue in New York State. Government agencies have been researching for the past four years the potential environmental impact of permitting hydrofracking in Marcellus Shale, which is spread across the Southern Tier and Finger Lakes regions of New York. The debate over this controversial drilling process has sparked a great deal of public interest — the N.Y. Department of Environmental Conservation estimates it received some 80,000 public comments on hydrofracking.

In September, the Department of Environmental Conservation asked the state health commissioner to further review potential public health effects from hydrofracking, which involves pumping large amounts of water and highly pressurized fracking fluid into underground shale formations. In the neighboring Pennsylvania, fracking got underway in earnest in 2008. But in the Empire State, it still could be a while before regulations are hammered out and the drilling is finally allowed.

Local insurance industry leaders have also begun evaluating fracking risks. Independent Insurance Agents & Brokers of N.Y. Inc. recently launched a hydrofracking task force to examine insurance coverage issues and to assist New York region’s agents and brokers. The committee held its first meeting on Oct. 3.

Going forward, the new task force will provide recommendations to the board of directors in at least two areas, Kathleen Weinheimer, IIABNY’s senior vice president of industry relations, told Insurance Journal. The group will offer recommendations on coverage issues for both PL & CL to help agents and brokers provide proper coverage and advice to customers, she said. It will also provide public policy recommendations to address insurance issues raised by the practice of hydrofracking.

Meanwhile, Professional Insurance Agents of New York State Inc. published in September a consumer’s guide to the basics of fracking. The association observed that oil and gas companies often try to obtain underground mineral rights from homeowners and landowners. But if the drilling operation ends up causing bodily injury, or property or environmental damage, the landowner could become partly liable. The homeowner’s own property might also suffer physical damage. Further, the home’s value could fall because of the industrial activities. Local media have already been reporting on declining home values in some towns that are marked as potential drilling sites.

Could homeowners policies cover any such liabilities? In most cases, no, PIANY says. The association points out there would be no liability coverage for the homeowner under a typical homeowners policy. That’s because a homeowners policy typically excludes most business-related activities. The homeowners policy also would not cover home property damages caused by ground movement or erosion, or pollution.

PIANY recommends that homeowners and landowners “weigh the risks against the rewards” and get oil companies to agree to take on full liability for potential damages before signing any contract.