Oil and Gas Leases May Void Home Insurance

Homeowners across the nation- Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee– have recently become interested in oil and gas leases for drilling under their property. Many homeowners view this as a possible source of income in difficult economic times. Unfortunately, average individuals are not equipped to deal with the complexities of such leases on their own and should seek expert legal advice. At the same time, there are some significant insurance risks to consider when exploring the opportunity of entering into such a venture because drilling is a dangerous business and is not something normally contemplated under a home insurance policy.

Missouri’s New Tribune recently published an article outlining some of the dangers of oil and gas leases. According to the article, more than 100 organizations have sent letters to the Consumer Financial Protection Bureau to address the issue of deceptive practices in enticing homeowners to sign leases. In short, homeowners have signed leases based on the promise of easy money, without fully understanding the risks involved. For example, one of the newest methods of extracting oil is known as “fracking,” which has been controversial for its potential environmental effects. Homeowners should be concerned about the potential property damage effects of fracking and other drilling techniques.

If you are considering an oil or gas lease, review your home insurance policy in light of the proposed operations to determine if you will be covered in the event of damage. For example, home insurance policies are very clear to exclude collapse of your home, except due to specific perils. If the collapse is the result of a commercial operation under your home, it’s likely that your home insurance policy will not provide coverage. Also, consider that damage to your home as a result of earth movement or settlement is not covered by home insurance policies, and drilling and extraction activities can have a great effect on the ground underneath your home. If these activities cause settlement of your foundation and subsequent cracking or shifting of your house, your home insurance policy will likely not cover the damages.

In addition to property damage, drilling and extraction is a potentially hazardous activity. You should also consider the potential for injury to yourself, your family, and invited guests on your property. If anyone is injured as the result of a permitted activity on your property, you may be held personally liable. The home insurance policy’s personal liability coverage generally excludes claims arising out of business pursuits, which an oil and gas lease could fall under. You will need to review your policy to determine if the drilling constitutes a business pursuit as defined by the policy. There may also be long-term environmental effects from drilling that will not covered by the home insurance policy. Environmental issues with your land, such as groundwater contamination, can be a very costly problem to deal with.

Certainly, the potential rewards of oil and gas leases can be quite great for homeowners. If you understand the risks involved, you can consider negotiating insurance and hold harmless agreements with the operator to protect your property and liability in lieu of your home insurance. In any case, do your due diligence before agreeing to any operation and you can potentially enjoy a mutually beneficial operation by making your property work for you. However, if you don’t consider all the insured and potentially uninsured risks, you may be in for a costly mistake.

Facebook Comments