Insurance Coverage for Nuisance Claims in the Oil Patch This Article Was Originally Published by Texas Lawyer on July 24, 2015

Litigation

Insurance Coverage for Nuisance Claims in the Oil Patch This article was originally published by Texas Lawyer on July 24, 2015. by Vince E. Morgan and Tamara D. Bruno

Texas is one of the oil and gas 1. Nuisance claims under liability producing states where mineral insurance. Depending on the terms interests can be severed from of a particular policy, nuisance the surface estate. As a result, claims can potentially be covered property owners in that situation under various types of liability find themselves with oil and gas insurance. However, coverage for production activities on or near nuisance claims is most likely to be their property without sharing in sought under commercial general Vince E. Morgan the benefits associated with that liability insurance. Litigation production. The mineral estate is +1.713.276.7625 dominant, so the mineral owner has CGL policies generally cover an [email protected] the right to freely use the surface insured’s liability for bodily injury Vince Morgan is a partner in Pillsbury’s estate to the extent reasonably or property damage that is caused Insurance Recovery & Advisory and Litigation necessary for the exploration, by an accident. As defined in CGL practices. He is based in the Houston office. development and production of policies, “accident” often includes oil and gas on the property. That “continuous or repeated exposure includes activities such as building to substantially the same general roads, drilling wells and transporting harmful conditions.” In response to equipment and personnel. oil and gas nuisance lawsuits, some insurance carriers have taken the Frustrated property owners are position that the insureds’ activities increasingly bringing nuisance claims as alleged in the lawsuits are not an based on bright lights, loud noises, accident as defined in CGL policies. traffic, dust, odors, wastewater and While nuisance lawsuits can be based other effects of these activities. A on intentional conduct, such suits can nuisance is a condition that substan- also be based on negligent conduct Tamara D. Bruno tially interferes with the use and or other conduct that is abnormal Litigation enjoyment of land by causing unrea- and out of place in its surroundings. +1.713.276.7608 sonable discomfort or annoyance Further, in order to be an alleged [email protected] to persons of ordinary sensibilities. nuisance, the conduct at issue almost Tamara Bruno is a senior associate in These lawsuits have had varying certainly must expose the plaintiffs Pillsbury’s Insurance Recovery & Advisory rates of success—many settle, some to continuous or repeated exposure and Litigation practices and also is based in result in little or no liability but at to the allegedly harmful conditions. Houston. least one case led to a headline-grab- Depending on the type of nuisance bing multi-million dollar verdict. alleged, these lawsuits may trigger the Regardless of the outcome, these insuring agreements of CGL policies. cases present a question facing the oil and gas industry as to whether the costs of such nuisance claims are covered by insurance.

Pillsbury Winthrop Shaw Pittman LLP www.pillsburylaw.com Litigation Insurance Coverage for Nuisance Claims in the Oil Patch

2. Are the alleged harms from damage.” However, standard CGL Some insurance carriers have taken nuisance “bodily injury” or policies include coverage for loss of the position that alleged injury or “property damage”? Some nuisance use resulting from physical damage damage from dust, odors, wastewater lawsuits allege physical harm, such to property as “property damage” and or similar materials in nuisance as illness, headaches, rashes or even define “property damage” to lawsuits are excluded or limited nosebleeds. However, it is common include any loss of use of property as “pollution.” However, nuisance for plaintiffs to allege damages from that is not physically damaged. lawsuits do not necessarily include mental or emotional harm, such as Further, courts in a number of cases traditional environmental or discomfort, anxiety or “loss of peace nationwide have found that the pollution claims. Further, many of the of mind.” Many CGL policies define kind of non-physical injury alleged conditions often complained of in a “bodily injury” to include non-physical in nuisance claims does constitute nuisance lawsuit—such as excessive harm only if it results from physical “loss of use” as used in CGL policies’ noises, lights and traffic—are not like harm, sickness or disease. Insurance definitions of property damage. the materials listed in the definition of carriers may deny coverage for a “pollutant.” They may be “irritants,” nuisance liability on the basis that 3. Potential exclusions. CGL policies but they are not “solid, liquid, gaseous the only alleged damages are mental often exclude or limit insurance or thermal” irritants. Finally, some or emotional injury. Insureds should coverage for pollution claims. pollution exclusions (as well as other carefully review the facts for claims of Pollution exclusions and coverage exclusions) may also be ambiguous physical harm. can differ from policy to policy, with respect to coverage for these especially in the oil and gas sector, suits, which is another issue to With respect to property damage, where pollution coverage can be more closely examine. some nuisance claims do allege favorable to insureds than it typically physical damage to property caused is in other sectors of the economy. When faced with nuisance lawsuits, by hazards such as water, dust or Generally speaking, “pollution” is insurers and insureds should carefully subsidence. Nuisance lawsuits typically defined to include, for review their policy terms as well as typically claim loss of use and example, “any actual, alleged, or the allegations and evidence in the enjoyment of land. For example, threatened discharge, dispersal, lawsuit for potential coverage. Only plaintiffs often allege that they can escape, migration, release, or seepage a disciplined analysis will lead to the no longer enjoy their outdoor space of any pollutant.” “Pollutant” is also right result on whether a given claim because of noise or dust. Plaintiffs often broadly defined to include “any is covered. may also allege that bright lights or solid, liquid, gaseous or thermal noise interrupt their sleep or conver- irritant or contaminant, including sation. Some insurance carriers have smoke, vapor, soot, fumes, acids, taken the position that loss of use and alkalis, chemicals and waste.” enjoyment is not covered “property

Pillsbury Winthrop Shaw Pittman LLP | 1540 Broadway | New York, NY 10036 | +1.877.323.4171 ATTORNEY ADVERTISING. Results depend on a number of factors unique to each matter. Prior results do not guarantee a similar outcome. © 2015 Pillsbury Winthrop Shaw Pittman LLP. All rights reserved.

Pillsbury Winthrop Shaw Pittman LLP www.pillsburylaw.com