Potential Recovery Opportunities Arising From Pollution Claims

by Cozen O'Connor

Energy production in the United States is at an all-time high. In 2013, an average of 7.5 million barrels of oil were pumped every day, which bested the previous production record (2012) by one million barrels. Domestic oil production has increased every year from 2011 to 2013. By comparison, between 1971 and 2011, oil production in the United States decreased 29 of the 40 years. Regardless of whether this level of domestic production can be sustained for the long term, elevated domestic oil production is a reality for the near future. Unfortunately, more oil production (and the by-products that are created as a result of that production) increases the chances that a spill or release resulting in damage to property will occur and give rise to an insurance claim.

Drilling, pumping and refining oil and other energy resources is a complicated process that requires a tremendous amount of human labor and mechanical equipment. Because of energy production’s heavy reliance on human labor and equipment, there is a potential for breakdowns and failures in the process that can cause an unexpected release of product into the environment. Further, harmful and dangerous compounds (brine, heavy metals, NORM) are also brought to the surface as byproducts. These byproducts must be transported and disposed, which increases the chances of an unforeseen release into the environment.

Depending on the composition of the pollution that was released into the environment and the size of the release, the costs associated with remediating the effected land can be astronomical. For example, in a matter handled by this firm, where a fracture along a PVC pipeline caused a small amount of saltwater brine to spill into two tracts of land, the remediation costs were in excess of $1 million. Further, the effected land can also be permanently damaged or altered. For example, a 8.5 acre sinkhole suddenly opened up in Ascension Parish, La., after an underground salt cavern that was being used to store natural gas collapsed. The costs associated with the Ascension Parish sinkhole are expected to exceed $100 million. Therefore, it is important for the claims handler and attorney to examine pollution-related claims to determine if there is potential for subrogation.

When presented with a claim involving pollution-related property damage, the first step in a recovery analysis should be to determine whether the claim falls under a property policy or a liability policy. If the claim is covered by a property policy, it is important to engage the proper expert because most states do not recognize strict liability for pollution release. Therefore, it is necessary to retain an expert to prove negligence on the part of the alleged responsible third party. Alternatively, if your insured is the alleged polluter/tortfeasor and the subrogation rights arise out of settling third-party claims, state law may bar recovery and/or contribution actions after a third-party settlement. Therefore, it is important to identify the type of policy involved in the claim and the applicable state and/or federal law.

All the contracts executed amongst all the parties involved in the operation that created the pollution should be closely examined. Generally, these contracts are very sophisticated and contain broad indemnity language, waivers and limitations on damages. A lease agreement or right-of-way agreement will govern liability between the mineral-rights owner and the energy production company. Amongst drillers (and their subcontractors) and well-owners, a Joint Operating Agreement (JOA) is the common instrument that defines the parties’ rights and responsibilities. Because JOAs can be very old and have several amendments, it is important to obtain the entire JOA; including the master agreement and all amendments.

Lastly, it is important to determine whether the third-party tortfeasor has liability insurance coverage for your claim. Most standard CGL policies contain language that excludes coverage for pollution claims, and many small and mid-size production companies do not have the resources to satisfy a multi-million dollar judgment or provide meaningful funding to a pre-suit settlement. Also, “Completed Operations,” and “Your-Work,” exclusions can limit the available insurance coverage. It is deflating to work extremely hard on complicated pollution case, only to discover that the defendant(s) do not have the ability to pay for the damages caused by their negligence.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cozen O'Connor | Attorney Advertising

Written by:

Cozen O'Connor

Cozen O'Connor on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.