Aon Environmental Services Group
By Jack Willis of Aon Risk Solutions
A recent verdict from Dallas, Texas has reinvigorated the on-going debate around hydraulic fracturing or “fracking”. In this most recent case, a jury awarded $2.9 million dollars to the Parr family after they claimed Aruba Petroleum’s operations near their property caused serious health issues and private nuisance. What’s causing the buzz around this case is the origin of the pollutants and where the decision was made. Groundwater contamination is usually the concern when it comes to fracking claims, but in this instance it was the toxic air emissions, which were a byproduct of the operations. And the fact that this happened in Texas, a state known for its pro-industry regulations, is of particular interest.
The claimants, Bob and Lisa Parr, live north of the city of Fort Worth, which sits directly above the Barnett Shale. Between 2007 and 2009, 70 wells were drilled near their property, 22 of which are operated by Aruba Petroleum. The Parr family experienced deteriorating health during this time period and kept a log of all their sicknesses and discomforts. In 2011, they filed a lawsuit and evidenced their health problems with blood testing that showed increased levels of natural gas compounds that coincided with Aruba Petroleum’s operations. During the same period Aruba Petroleum was fined multiple times by the Texas Commission of Environmental Quality for emissions violations, including the discharge of volatile organic compounds (VOCs). With the evidence in front of them, the jury decided, 5-1, that Aruba Petroleum knew toxic emissions were stemming from their operations and that they had caused a private nuisance to the Parr family.
Lawsuits against oil and gas companies are rarely successful, especially in Texas. What made this suit different than others brought against companies like Aruba Petroleum is that it was a nuisance claim and not a toxic tort claim. Therefore the claimants did not have to prove that Aruba Petroleum’s operations directly caused them bodily injury. Instead, the jury found based upon the evidence that Aruba Petroleum’s conduct caused “unreasonable discomfort or annoyance to a person of ordinary sensibilities attempting to use and enjoy the person’s land.”
From an insurance perspective the major take away is the realization of not only considerable defense costs but indemnity costs as well in nuisance claims. These claims can eat through an insured’s entire limits of insurance before clean-up costs, bodily injury or property damage are even paid, especially if defense costs are first dollar and not subject to the deductible. If stricter regulation is enforced by the federal or state government this may entail larger civil fines and penalties being issued, might not be insurable under applicable law. Some in the industry speculate that this could lead to higher minimum retentions for oil and gas related risks. It would be wise for risk managers to scrutinize future due diligence on oil and gas infrastructure and to make sure mitigation measures, like vapor recovery units, are implemented as necessary.
It is too early to tell if this will be used as precedence in future cases or embolden other claimants to bring similar suits. In addition, there is no clear indication whether there will be increased emissions regulations around fracking operations. Aruba Petroleum has appealed the decision and will be back in court within the next month. Whatever the outcome, this case has piqued the interest of both the oil and gas and insurance industries and continues to generate meaningful discussion around managing the risks associated with oil and gas related operations.