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COLUMBUS, Ohio—A leaked memorandum from Nationwide Mutual Insurance Co. that was posted on social media sites has forced the insurer to explain that it will not underwrite hydraulic fracturing exposures, as it is not comfortable with fracking-related risks.
The memo, posted last week on several anti-fracking groups' websites in New York, said that the Columbus, Ohio-based insurer will not cover fracking exposures that may apply to landowners and contractors.
The memo reads: “After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore. Risks involved with hydraulic fracturing are now prohibited for general liability, commercial auto, motor truck cargo, auto physical damage and public auto (insurance) coverage,” Nancy Smeltzer, a spokeswoman for Nationwide in Columbus, confirmed.
The controversial practice of hydraulic fracturing, widely known as fracking, is a process that uses high-pressure water, sand and chemicals to free natural gas from subterranean shale deposits. Nationwide's memo sparked a debate about whether such risks are covered in certain insurance policies.
Nationwide officially responded that it has not changed it policies or guidelines, and that fracking was never a covered loss under personal or commercial policies.
“Risks like natural gas and oil drilling are not part of our contracts, and this is common across the industry,” the insurer said in a statement late last week.
“Our longstanding underwriting guideline is that we do not insure the oil and gas business. Nationwide's personal and commercial lines insurance policies were not designed to provide coverage for any fracking-related risks,” Nationwide said.
The leaked memo was part of an underwriting guideline that got shared on a social media site, Ms. Smeltzer said.
“It was misunderstood. We never covered any type of oil or gas exploration, and communication somehow ended up on a social media site. And once we started getting those calls from folks…we had to determine if indeed this was ours and then responded to those initial sets of inquiries,” she said.
Typically, fracking coverage disputes arise out of pollution exclusions in an insured's policy, said Gregory S. Hoffnagle, an associate at law firm Edwards Wildman Palmer L.L.P. in New York.
The leaked memo may cause a wave in the insurance industry, he said.
“Other underwriters are going to re-evaluate their own positions,” Mr. Hoffnagle said. “Other underwriting companies—I think they're going to take a closer look.”