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Q: I received this question below from an Ohio agent. His concern is natural gas fracking and trying to find out where this would be covered. He endorses mine subsidence to the Ohio policies, where applicable, and this is administered by the Ohio Mine Subsidence Insurance Underwriting Association. He is also trying to determine whether there is any coverage under either the base HO0003 policy or if there is coverage if the earthquake endorsement is added to the policy. I would appreciate your thoughts on the matter.

Illinois Subscriber 

A: Let’s walk through this. Fracking involves the pumping of water and chemicals underground at high pressure to shatter rock formations and release gas; the practice generates a considerable amount of waste liquid, which is often disposed of by injecting it into deep rock formations where it can lubricate faults. This may make it easier for stressed faults to shift and cause an earthquake.

See also: The Insurance Implications of Increased, Possibly Fracking-Related Quakes in Okla.

Under the statute used by the Ohio Mine Subsidence Insurance Underwriters, mine subsidence is defined as “loss caused by the collapse or lateral or vertical movement of structures resulting from the caving in of underground mines, including coal mines, clay mines, limestone mines, and salt mines. “Mine subsidence” does not include loss caused by earthquake, landslide, volcanic eruption, or collapse of strip mines, storm and sewer drains, or rapid transit tunnels”. The structure must be in an eligible county in order to be eligible for the coverage. This does not seem to happen with fracking; therefore I would not see fracking as being covered under mine subsidence.

The HO 00 03 excludes earthquake, but does not define it beyond stating that it is excluded as well as subsidence and any other earth movement including earth sinking, rising, or shifting. These causes are excluded whether caused by an act of nature or any other cause. Merriam Webster online defines earthquake as “a shaking or trembling of the earth that is volcanic or tectonic in origin.”

The earthquake endorsement HO 04 54 provides coverage for earthquake, but not for any other earth movement. Since a distinction is made in the main policy, any movement other than earthquake such as sinking, rising or shifting would be excluded.

Since fracking can lubricate faults and cause them to slip easier causing an earthquake, then the endorsement provides coverage. There is no specification as to how the earthquake must be caused, whether by natural fault slippages or slippages that have been helped along by man. This is still tectonic movement, the movement of plates of the earth’s crust. As long as the movement caused by fracking is an earthquake and not other sinking, rising or shifting, there is coverage.

Towed Vehicle Causes Damage—Which Policy Provides Coverage?

Q: Our insured is a towing company. It has a standard business auto policy with a garagekeepers endorsement and the covered auto symbols are 7, 8, and 9 for liability coverage. Out insured was hired to tow a vehicle and in the process of towing the vehicle, the vehicle being towed struck a parked car.

Would the liability coverage be provided by our insured’s policy? Or, would primary coverage come from the policy for the vehicle being towed?

Ohio Subscriber

A: Through the use of symbol 9, the business auto policy provides liability coverage for autos not owned by the named insured that are used in connection with the named insured’s business. We would see the towed vehicle as being used in connection with the business of the named insured, which is towing. So, that makes the towed vehicle a covered auto under your insured’s policy.

Now, since the towed vehicle is a covered auto that is not owned by the named insured, the coverage is excess over any other collectible insurance. (This presumes that the towed vehicle is not a trailer.)

Thermal Shock Covered by Commercial Property Form?

Q: Our insured has a commercial building and its business contents covered under an ISO CP 00 10 04 02 with causes of loss special form CP 10 30 04 02 attached. Last winter the insured sustained a substantial building and contents loss from what the local roofer described as “thermal shock.” This is a term I had never heard of before. It refers to rapid changes in temperature that caused the flat built-up roof of the building to split, allowing rain and melted snow to enter the building and damage the building interior and contents.

We had a long spell of subzero weather, then a sudden rise one day to 48 degrees followed that night by a drop to three degrees. The next week the temperature again rose sharply with thunder showers and it was then that our insured, along with a number of other owners of buildings with similar roof design, discovered these roof cracks, usually about one-quarter inch wide parallel to one of the roof trusses and running, sometimes, almost the length of the roof.

The adjuster has told us this is not a covered loss because of exclusion 2.d.(4), settling, cracking, shrinking or expansion, and pointed out further that the contents loss was also subject to exclusion 2.d.(7)(b), changes in or extremes of temperature. Do you agree, and if so, how could the insured have been provided coverage for such a loss?

Illinois Subscriber

A: It seems the adjuster is taking a harsh position in interpreting either of these exclusions as applying to this loss. The settling and cracking exclusion appears in the same context with exclusions such as wear and tear, rust, corrosion, etc.; things that are gradual over time and are more or less inevitable, and pollution and animal damage, items that in general can be avoided with reasonably good operating methods. It is possible that the language of this exclusion, taken outside the context of the intent of the coverage to pay for all manner of losses caused by sudden, accidental, and unforeseeable events, can be read as applying to this loss. But the same could be said if the building walls were cracked by the force of a nearby explosion.

To determine whether a particular loss is covered or subject to one of the exclusions, it is necessary to look at the cause of the loss, not at its consequence. In this case, the cause of the loss—an abnormal temperature pattern of sudden changes from bitter cold to warm to bitter cold to warm, producing unusual stress of sudden expansion and contraction of the roof already made quite brittle by the prolonged cold—is not excluded. So the resulting damage to the roof should be considered as covered.

Likewise, the interior building damage and damage to contents can be seen as caused by water damage of a kind that is not within the scope of water exclusion 1.g, “water…seeping through doors, windows or other openings.”  Further, the personal property temperature exclusion is aimed at property subject to spoilage or deterioration if exposed to adverse temperature. It is not intended to apply to override what is a simple and straightforward claim for insured water damage.