Hydraulic fracturing involves injection of large volumes of fluids at high pressure into a well to create fractures in the source rock formation. This technique was designed to improve oil and gas production. Hydraulic fluids that are used in this technique are a mixture of water, chemical additives and proppants (small spheroids of solid material).
On December 9, 2013, the Occupational Safety and Health Administration (“OSHA”) requested comments concerning potential changes to its Process Safety Management (“PSM”) program that could have a significant impact on oil field operations. See 78 Fed. Reg. 73756 (Dec. 9, 2013). Among the many “modernizations” of the PSM standard, OSHA is seeking comment on the elimination of exemptions that directly affect oil field operations. Current exemptions of concern include:
- atmospheric storage tanks;
- oil-and-gas production facilities; and
- oil-and-gas well drilling and servicing.
PSM applies to “a process which involves a Category 1 flammable gas (as defined in 1910.1200(c)) or a flammable liquid with a flashpoint below 100 °F (37.8 °C) on site in one location, in a quantity of 10,000 pounds (4535.9 kg).” 29 CFR 1910.119(a)(ii). The addition of atmospheric storage tanks is significant as a tank as small as 35 Barrels of crude oil will cause the “process” to exceed the 10,000 pound threshold. As a consequence, other process equipment that contains less than 10,000 pounds of flammable materials that is connected to the tank (via piping) may also become subject to PSM requirements.
The Occupational Safety and Health Administration (OSHA) is seeking public comments regarding a proposal for a new online whistleblower complaint form. The form, which would allow whistleblowers to electronically submit whistleblower complaints directly to OSHA, is part of OSHA’s proposal to revise the information collection requirements for handling retaliation complaints filed with OSHA under various…
After the 2003 Corbello decision, the Louisiana legislature attempted to enact a workable procedure for recovering environmental damages arising from oil and gas operations known as Act 312. The main goal of Act 312 was to ensure that property contaminated by oilfield operations would be cleaned up to applicable regulatory standards. Since the enactment of Act 312, very few cases have made it through the Act 312 process. Thus, in an attempt to expedite the identification and remediation of contaminated property, the Louisiana legislature recently passed two new measures revising the Act 312 procedure.
Summary of the New Legislation
The first measure (a House bill enacted as Act 754) amends the Louisiana Code of Civil Procedure to provide for:
- The issuance of an environmental management order (EMO) to expedite site inspections and sampling, and
- A limited admission of environmental liability that allows defendants to begin to remediate property before trial (limited to the most feasible plan to remediate the property).
The second measure (a Senate bill enacted as Act 779) provides for a number of amendments to Act 312:
- Allows a plaintiff to provide a notice of intent to investigate potential environmental damage that suspends prescription of the claim for one year upon the notice being provided to LDNR,
- Requires the plaintiff to identify the alleged environmental damage and the results of any environmental testing if a lawsuit is filed after a notice of intent to investigate is filed,
- Permits a defendant to request an early preliminary hearing to determine whether there is good cause for it to remain a defendant in the case,
- Grants subpoena power over agency personnel involved in developing the feasible plan and allows for discovery regarding the development of the plan after a final plan has been submitted,
- Prohibits ex parte communications with agencies, officials, and contractors who are involved in formulating the feasible plan,
- Requires the Departments of Agriculture, Forestry, and Natural Resources, along with the Department of Environmental Quality (DEQ), to comment if LDNR approves or structures a preliminary plan that applies regulations other than those of LDNR, and
- Provides for a waiver of indemnity rights against punitive damages caused by a party who admits limited liability.
The purpose of this post is to provide insureds with general information that will assist them in recognizing important facts and issues related to insurance coverage of environmental disasters. The primary areas addressed include (1) understanding the general types of potential insurance coverage; (2) recognizing environmental disasters; (3) deciding what to do once an environmental disaster is discovered to improve the possibility of insurance coverage and finally, (4) long term plans to improve coverage of potential future environmental disaster claims.
Insurance Coverage for Environmental Disaster Coverage is a complicated subject that must consider many different issues over many different timelines and many different jurisdictions with many different types of hazards. Understanding what an environmental disaster is and recognizing that one has occurred is the first thing an insured must do. Until the insured has recognized that an environmental disaster has occurred, it cannot ask the insurer for coverage and it cannot provide notice and coverage cannot be triggered. There are many different types of environmental disasters, a brief review of the history of the pollution exclusion in general liability policies provides some prospective as to how insurers look at environmental disasters and coverage.
Early standard general liability policies issues prior to 1966 contained insuring agreements that provided coverage for injury (caused by accident). The standard insurance service organization (ISO form) which is a general liability form used by most insurers was revised in 1966 to provide coverage for an “occurrence” with neither “expected” nor “intended” by the insured and specifically included continuous or repeated exposure to substantially the same conditions in its coverage. As a result of these changes, claims related to environmental damages increase dramatically. Insurers using the standard form added a mandatory endorsement in 1970 (ISO Form 00020173 1973) that excluded coverage using the following language:
“Bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water.”
The referenced ISO form was often used in conjunction with a carve-back in of coverage which provided: “this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.”
As you might expect, and as many of you may know, the 1970’s and 1980’s were a turbulent period for insureds and insurers who were engaged in coverage disputes under CGL policies for pollution related claims. Courts in the various jurisdictions reached different conclusions and were often at odds which made predicting coverage difficult.
The insurers, through the insurance service organization, created an absolute pollution exclusion in 1985 (See ISO form CG0021207), which excluded coverage for the following:
“Bodily injury” or property damage” arising out of the actual, alleged, or threatened discharge, dispersal, release or escape of pollutants:
At or from any premises, site or location which is or was at any time owned, occupied, or rented or loaned to, an insured[.]
“Pollutants” means solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
The absolute pollution exclusion lacked an exception for coverage for sudden or accidental problems and it did not provide coverage for allegations or threats of a polluting event and it also eliminated the requirement for a discharge into a foreign land, the atmosphere or water course or a body of water.
Not surprisingly, the absolute pollution exclusion was a source of significant litigation between insureds and insurers and lead to various interpretations by courts across the country. Some courts fell into a camp which accepted the insurance industry’s broad interpretation of the exclusion. Another group affords limited exclusion to damages when an undefined claim involved harm to the broader environment. Another group of courts found that the exclusion was ambiguous or required to be interpreted based on history of the exclusion and looked at the presentations of the insurance industry to the various insurance commissioners in the various states “Doer v. Mobil Oil Corporation,” 774 So.2d 119, 2000-0947, (La. 12/19/00). Knowing which state an environmental disaster is in and more importantly, what state law is going to apply to coverage, becomes very important and can be important in planning litigation as will be discussed below in some detail.
There are many types of insurance products today providing various types of coverage for environmental disasters. A review of all of the different products available is beyond the scope of this paper. Coverage ranges from limited coverage provided via endorsements to CGL policies to stand alone policy forms. Over the years, insureds have sought an expansion of coverage to avoid the gaps created by the pollution exclusions in CGL policies. In recent years there has been a significant increase in the number of carriers providing environmental coverage products compared to the limited market of even five or six years ago. Based on work with brokers over the last year or so, it appears that there are around 30 different insurers now offering some form of environmental coverage. Coverage available for environmental claims is more readily available currently on a claims made basis; although occurrence based insurance is also sometimes available.
Each pipeline has a regulatory maximum operating pressure: Maximum Allowable Operating Pressure (“MAOP”) for gas pipelines and Maximum Operating Pressure (“MOP”) for hazardous liquids pipelines. See 49 C.F.R. 192.619(a) and 49 C.F.R. 195.406(a). The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) recently issued an Advisory Bulletin requiring that owners and operators “assure that all MAOP…
Kean Miller LLP is pleased to announce the release of the ninth edition of the Practical Digest of Louisiana Class Action Decisions. The digest is produced by Charles S. McCowan, Jr., Bradley C. Myers, Gerald E. Meunier (Gainsburgh, Benjamin, David, Meunier & Warshauer), and Thomas F. Daley (District Attorney of the 40th Judicial…
The Internal Revenue Code restricts the amount of private business use that can occur in facilities financed with tax-exempt bond proceeds, but there are a number of exceptions to this general rule. Certain facilities (“exempt facilities”) that are privately used are eligible for tax-exempt bond financing if they benefit the general public or implement specific Congressional policies. In August, the IRS issued final regulations for determining whether a facility is a “solid waste disposal facility” that qualifies for tax-exempt bond financing.
Continue Reading Final Regulations Issued for Financing Solid Waste Disposal Facilities
The Subsequent Purchaser Doctrine is a judicially created limitation on the rights of a current landowner to sue for pre-acquisition damages. For over 160 years, Louisiana courts have held that a current landowner has no right of action to sue for damages to his/her property occurring prior to the date of sale in the absence…
On October 15, 2010, the former Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”) issued new regulations, incorporating in its entirety and making mandatory the implementation of the American Petroleum Institute’s Recommended Practice 75 (API RP 75). The rule requires development of Safety and Environmental Management Systems (SEMS) plans by “a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a state lessee granted a right-of-use and easement.” 30 C.F.R § 250.105. According to BOEMRE, “the purpose of SEMS is to enhance the safety and cleanliness of operations by reducing the frequency and severity of accidents.” This final rule applies to all Outer Continental Shelf oil and gas and sulphur operations and the facilities under BOEMRE jurisdiction including drilling, production, construction, well workover, well completion, well servicing, and DOI pipeline activities.
Responsibility for developing and implementing a SEMS program lies with the lessee (or owner or holder of an operating right), unless it delegates the responsibility to another (likely the operator). Contractors are not responsible for developing the plan; however if compliant, contractor procedures may be incorporated into the lessee’s/operator’s SEMS plan.
Continue Reading Outer Continental Shelf Safety and Environmental Management Systems: Imminent Deadlines, New Guidance and Proposed Rules