July 10, 2014

In a recent post, we discussed the issue of insurance to protect your home in the event of a mudslide.  The post noted that mudslides—along with other natural catastrophes are commonly excluded from homeowner’s insurance coverage.

Earthquakes are another common exclusion from coverage.  Many of us tend to think that earthquakes are a localized hazard.  Indeed, according to the United States Geological Survey, the areas of the highest earthquake hazards are a relatively narrow strip along the Pacific coast, the Big Island of Hawaii, and southern Alaska.  There are also high risk areas in South Carolina, and in the area at or near the confluence of the Ohio and Mississippi Rivers (Arkansas, Missouri, Tennessee, Kentucky, and Illinois).  The Geological Survey map showing the risks of earthquake is based on past experience.  Earthquakes have been reported in every state.  The devastating 1994 Northridge earthquake in southern California occurred along a previously undiscovered fault line.

FrackingThe risk of destructive earthquakes may be magnified by oil and gas drilling.  As unconventional methods of resource extraction, such as hydraulic fracturing, or “fracking,” become more widespread, seismologists have said that the practice puts more areas at risk of earthquakes.  Hydraulic fracturing is a process for extracting underground resources that involves injecting large quantities of fluids (between 3 and 5 million gallons per site) at very high pressure into a geologic formation.  The fluids open or enlarge fractures that allow the easier extraction of resources.  The wastewater from the injection of fluids is then disposed of by injecting it into disposal wells.

The link between fracking and earthquakes has only recently been studied.  The Ohio State Geologist has mentioned a “probable connection” between hydraulic fracturing and seismic events.  The Geologist noted that, since 1999, there have been 109 “seismic events” in Ohio with a magnitude greater than 2.0 (magnitude is a measurement of the energy released by a seismic event.  Seismologists say that there is an “imperfect correlation” between the magnitude of an earthquake and the damage caused by that earthquake).   Most seismologists believe that it is the disposal of the wastewater that causes the seismic activity rather than the fracking itself.  A paper published recently in Science magazine (subscription required) links an increase in seismic activity in Oklahoma to the massive injections of the wastewater that is a byproduct of hydraulic fracturing.  In May of 2014, the U.S. Geological Survey and the Oklahoma Geological Survey issued a joint statement in which wastewater injection was said to be a contributing factor to a recent increase in earthquakes in Oklahoma.

Fracking equipmentThe assessment of earthquake risk is based on past activity, but this risk assessment may not continue to be valid.  For example, the USGS rates North Dakota as having a low risk of seismic activity.  The first earthquake in the state that was able to be measured by instruments occurred in 1968, and caused no more damage than rattling dishes in some houses.  More recently, North Dakota has experienced a boom in oil production.  Oil has been extracted from North Dakota since the early 1950s, but fracking has made it easier, as well as economically feasible, to extract large quantities of oil.  Since 2005, the Bakken oil field in North Dakota has produced over 852 million barrels of crude oil.  Although state experts have ruled out a link between oil production and recent seismic activity in the state, that is not to say that there is no risk of such activity in the future.  At least one North Dakota insurance broker is offering earthquake insurance, even though it does not make an explicit link between wastewater injections and earthquakes.

If you are in an area that is at risk for seismic activity from oil production, remember that most homeowner’s insurance does not cover damage caused by earthquakes.  Review your policy to make sure you are covered.