Law360 Guest Article: Do Fracking Bans Trigger Civil Authority Coverage?

12/12/2014

On Dec. 2, Denton’s controversial ban on hydraulic fracturing became effective, making it the first city in Texas to prohibit fracking within city limits. For landowners and energy companies, the ordinance has the potential to jeopardize significant production and revenues from the gasrich Barnett Shale, which overlaps Denton’s borders. Denton is home to more than 270 gas wells. Already, two lawsuits have been filed — one by the Texas General Land Office and the other by the Texas Oil & Gas Association — both challenging the constitutionality of the initiative and its impairment of valuable mineral and royalty interests. Beyond Denton, voters in Ohio and California approved similar local measures banning fracking and other energy extraction techniques. In California, San Benito County's “Measure J” has been challenged with a lawsuit seeking over a billion dollars in damages.

While the debate over local measures like Denton’s fracking ban is likely to continue in the courts for years to come, companies with interests affected by the ban may find some alternative relief through insurance. Most commercial property policies contain some form of civil authority coverage, which generally insures against the loss of business income sustained by an insured when, as a result of covered physical loss or damage to other property, access to the insured’s real or personal property is prohibited by order of civil or military authority. Depending on the specific terms of the policy, given the stated purpose of the ballot measure — to prevent damage to local roads and natural resources — Denton’s fracking ban may trigger the civil authority coverage in the commercial property policies of affected lessees.

Excerpted from Law360, December 12, 2014. To view full article, click here (subscription required).

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