TEXAS COVERAGE
News & Markets Lack of Uptake Creates O&G Pollution Coverage Gap By Stephanie K. Jones
leakage and that has gotten into the groundwater table,” he said. hile stand-alone pollution insur As a result, “the enviance coverage for energy risks is ronmental insurance maravailable in the marketplace, more often ketplace a few years ago than not those who need it the most may saw the potential opporbe unaware it is available or decide not to tunity to fill that coverage purchase it. gap … and provide cover That creates a coverage gap for many oil age for the gradual polluand gas production-related operations for tion incidents, as kind of risks like seepage and pollution migration a dovetail to the current that aren’t covered in energy general liabilenergy casualty products ity and control of well policies, according that are available,” Heft to John Heft, senior vice president and said. director of the Real Estate Practice at New When oil was at its Jersey-based New Day Underwriters. peak and revenues were Energy GL and control of well policies substantially higher, enertypically cover pollution caused by sudden gy industry businesses and accidental events like tank ruptures, may have been able absorb pipeline breaks and explosions. But operthe costs related to a site ators and non-operators of wells, pipeline companies, waste material collection and pollution incident. With storage systems providers, support contracthe decrease in oil prices, tors and many more may be at risk for the some operators and othkind of pollution exposures that would not ers in the business may be considered sudden and accidental, said not be looking to add Heft. business expenses, but The oil and gas area is seeing insurance now is the right time “to claims related to gradual pollution, such as take a hard look at enviseepage and migration from leaking equipronmental insurance for ment, pipelines and tanks. Also from waste your operation, whether you’re an owner, containment areas that may have had a operator, non-operator of wells, if you breach, he said. have a portfolio of wells, either production With the expanded use of extraction wells or disposal wells, or you’re in the methods such as hydraulic fracturing, or construction side, now you really need to fracking, which produces large amounts think about it. Because if you had a gradual of wastewater mixed with chemicals and pollution issue, can you really afford to sludge, there is greater take that type of hit?” Heft public awareness of ‘The claim is the wells said. hazards that may result As claims go, it’s in weren’t constructed severity, from the disposal of not frequency, properly and sealed.’ where the risk lies. “It’s those waste materials. a severity based product, And with greater public meaning that when a claim does happen awareness comes an increase in allegations — it’s not going to happen often — but of pollution, especially related to the wells when a claim does happen it’s typically into which fracking wastewater is injected going to be large,” he said. under high pressure, Heft said. Energy related companies may feel like “The claim is the wells weren’t conthey have some environmental coverage in structed properly and sealed, there was
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6 | INSURANCE JOURNAL-TEXAS June 1, 2015
the GL policy, and that’s where the counsel needs to be improved from agent to client, he said. Still, Heft thinks the brokers out there in the industry are having those conversations with their customers. “It’s still overall a very small penetration in the energy space that purchases the gradual pollution coverage, but I think it’s growing now that there’s an awareness of it,” he said. Thomas Blanquez, an oil and gas specialist at San Antonio-based insurance wholesaler Quirk & Co., is not so sure. He said his brokers are talking to clients about pollution coverage. But, Blanquez said, the classes of business “that have the most exposure for site pollution probably buy the least.” www.insurancejournal.com