How Midstream Contractors Should be Addressing Pollution Liability
In this month’s blog, we will discuss another critical issue for Midstream Contractors: Pollution Liability. All oil & gas service contractors (consultants, pipeline & well servicing contractors, etc.) have some degree of pollution liability exposure. Issues we see include auto accidents, broken pumps, pipeline seepage, and even catastrophic blowouts that can create a pollution condition.
Many of the better general liability insurance policies written for upstream and midstream service companies include what is known as time element pollution coverage. This coverage applies to pollution incidences that occur suddenly and are discovered and reported in a limited time frame. A common time frame is 30-day discovery and 90 days to report. This create a huge pollution exposure for most midstream contractors as there could be a seepage underground that isn’t discovered until well after 30 days. Most Auto policies will only cover pollutants that are necessary for operating the vehicle. In this case, an oil leak from the vehicle would be covered, but a tank spill or fuel leak from a piece of equipment being hauled would not be covered.
Pollution liability raises two major risk management concerns:
1. Does the service company have the correct coverage in place to adequately protect it from pollution losses?
2. Does that coverage meet the requirements of your customer’s Gas Contract or MSA?
Given that the pollution coverage is limited to the specifics mentioned earlier, a midstream contractor will want to limit the contractual obligations to what fits the scope of its coverage. Ideally, the service contractor can accomplish that by providing a provision in the MSA that limits its responsibility to pollution that arises above ground (which is more likely to be discovered in time to be covered by insurance) and arises from equipment in its direct control. Alternatively, you would need to specifically tailor your pollution coverage to go beyond what is offered in most standard oil & gas general liability policies to fit your pollution needs. Ross & Yerger addresses these contractual concerns and others for clients in an effort to reduce the potential of an uninsured loss.
Jacob Haralson, AAI
Shareholder
Office: 601.944.0961