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Man-Made Earthquakes: Managing Risk and Liability – A Pittsburgh Case Study

In the previous post, I discussed the possible causes of man-made earthquakes, the geopolitical and technical factors that likely mean that they will continue, and some potential sites for further incidents. Here, in the last post of this series, I’ll focus a bit more on the risk-management and insurance concerns.

I previously mentioned how the risk factors for man-made earthquakes still aren’t entirely clear. This can significantly complicate risk management; if we don’t know what variables link injection technology to earthquakes, we have no way of knowing where to drill and where not to, or when to take expensive measures to prepare for the risk and when not to. In the absence of an outright ban on injection technology, a certain risk may always be present. Likewise, while very strong regulations might help in offsetting some of the risk, they may also hamper the development of these technologies.

The Pittsburgh area is of particular concern in this regard, and serves as an excellent case study. The entire region is located on top of the Marcellus Shale; this is one of the most promising long-term sources of shale gas and will generate a large amount of wastewater. This region typically has very few earthquakes, with the exception of one moderate one in 1998. While this might suggest that it would be less susceptible to all kinds of earthquakes, even man-made ones, this is far from a guarantee; indeed, there were reports of a small earthquake near a fracking well in western Pennsylvania just a few days ago, prompting investigations into any possible connections. More importantly, unlike earthquake-prone regions like California, Pittsburgh has had no reason to integrate any kind of earthquake protection into building design. This is further complicated by the geography of the city (it has a record number of bridges) and the fact that effectively all of its infrastructure is in various states of disrepair.

How can Pittsburgh homeowners and businesses protect themselves from the possibility of earthquakes? Should they consider earthquake insurance? In my opinion, all real estate owners with significant real property exposures should purchase at least some form of insurance coverage for earthquake or earth movement; the latter includes both earthquake and coverage against several other risks, including landslide and mine subsidence. This last risk is actually a serious concern in Pittsburgh, given its history of coal mining.

That being said, given that the risk isn’t fully understood, the total extent of protection that might be necessary isn’t clear. This doesn’t even take into account the fact that some earthquake insurance providers have refused coverage for presumed man-made earthquakes in the past (on a side note, if you are concerned about man-made earthquakes, you should verify that your policy does not contain an exclusion for man-made activity). On the other hand, could a claimant without earthquake insurance argue that the cause of their property damage was an injection well that caused an earthquake, rather than the earthquake itself, thereby entitling them to coverage? It’s an interesting argument, and again, as before, the answer is not entirely clear, though there are several cases where such arguments have been successful in court.

Besides, the effects of a major earthquake in a city are far more profound than just the loss of personal property; on an individual basis, would your earthquake insurance extend coverage to the projected loss of income that you might suffer if a major earthquake leveled many of the city’s buildings and most of its transportation infrastructure? What if your business is affected by such an event? In this case, it might depend on the kind of insurance you have. For example, Contingent Property and Business Income coverage protects insureds from loss of income resulting from damage to a property owned by someone else, such as a major supplier or customer.

Even if the causes of man-made earthquakes are not entirely consistent with popular perception, their simple existence, no matter how limited, poses interesting and difficult questions. Different regions and businesses have developed risk management and insurance programs over time to contend with the various hazards and disruptions that they typically encountered. As such, the introduction of an entirely new risk, even on a limited basis, might in some cases be disruptive enough to warrant significant changes in what is already a very complex and intricate system.