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Wyoming Landowners Face Condemnation or Loss of Homeowners' Insurance

Under the current laws of the State of Wyoming, landowners who own their surface but not the minerals lying underneath (commonly referred to as split estate) face a desperate decision:

Either agree to allow a seismic company to place explosives on your property and detonate them, or be condemned under eminent domain.

But wait, there's more…Should the landowner agree to allow the explosive seismic testing to take place in order to avoid condemnation, they may lose their homeowners' insurance. So, what do you do? You call the Governor, right?

In June 2004 the residents of Clark, WY, a small community on the outskirts of Yellowstone Park, received notification of a pending 3-D seismic testing project in a 47 square mile area that encompassed much of the Clark community. Quantum Geophysical, Inc., based in Houston, TX, was contracted to perform the 3-D seismic testing and proposed 3,420 seismic shotholes in and around Clark. This proposed activity is unusual in that Clark is a residential community encompassing approximately 350 private landowners and this activity will take place in their front yards!

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In addition to the seismic testing, Windsor Wyoming LLC, an oil and gas developer based in Oklahoma City, applied to the BLM and the State of Wyoming for permits to install approximately 20 miles of pipeline across public and private lands, as well as the Clarks Fork River, and construct a gas separation plant in Clark. Again, this exploration and development activity, will take place in the front yards of Clark's residents.

Such activity is not unknown in the area – Windsor has taken over the operation of an abandoned well site that sits just one-quarter mile of 5 homes. But residents in the area had not realized until recently that all of this activity, particularly explosive seismic testing, placed them in jeopardy when it came to homeowners' insurance.

Much of the private land in the Clark area overlies minerals owned and leased by the federal government. Under Wyoming law, the mineral owner (or the mineral lessee) holds a superior position to that of the surface owner. Surface owners in Wyoming are required by law to allow open access to their lands by the oil and gas industry for the purposes of exploration and development. Attempts to block or inhibit that access will result in condemnation procedures against the surface owner.

In January 2005 Quantum Geophysical began to contact, via telephone and mail, residents in the Clark area regarding the not yet permitted seismic testing they had been hired to conduct. One of the residents, Dan Renner, questioned Quantum's representative (Bruce Fulker) regarding the possibility of unexploded ordnance remaining on his property following the testing and who is liable should that ordnance explode at a later date. He also requested information regarding the type of explosive to be used, how often misfires occur and how long it would take any unexploded ordnance to deteriorate. The representative could not readily answer the questions, but assured Mr. Renner he would obtain the answers.

The events that have taken place subsequent to Quantum's phone call have made it abundantly clear that Mr. Renner and other surface owners in his situation are caught in an untenable position: If they allow seismic testing to place and permit explosives on their property, they risk losing their homeowner's insurance; If they oppose the testing in order to maintain adequate insurance coverage, they risk condemnation by the seismic testing company via the eminent domain laws in the State of Wyoming. A full explanation of the events follows:

Mr. Fulker replied, in writing, to Mr. Renner that the explosive his company would be using is Seis-gel, that approximately 1% of the charges would misfire and that the sleep time for Seis-gel is two years (after which it would begin to deteriorate until it eventually became completely inert). Mr. Fulker did not address the liability issues.

However, Mr. Renner had begun to conduct some research on his own. He phoned his insurance company, advised them of the proposed explosives and seismic exploratory operations and asked about his liability coverage. He was promptly advised that should such activity take place on his property, his homeowner's insurance would either be cancelled or would not be renewed on the next renewal date.

Mr. Renner's next call was to the Wyoming Insurance Commissioner's office. He posed the same questions and was told that the commissioner's office would have to investigate the matter and would get back to him in about a week. Approximately an hour later, Mr. Renner received a call from the Insurance Commissioner's office advising that they could not be of any assistance to him. He was referred to Eric Nelson, an attorney with the Wyoming Oil and Gas Conservation Commission (WOGCC).

A message was left for Mr. Nelson which resulted in a phone call from Mr. Don Likwartz, State Oil and Gas Supervisor with the WOGCC. Mr. Renner was advised that the issue of homeowner's liability coverage during and after seismic testing had never come up before and questioned Mr. Renner as to why he had contacted his insurance company. Mr. Likwartz said he did not have any answers at that moment but would look into the matter. The last contact from Mr. Likwartz was approximately a week later. He advised that the WOGCC still didn't have any answers.

Mr. Renner contacted a local insurance agency and asked that they attempt to find an insurer who would be willing to cover him under the seismic testing circumstances. The insurance agent responded about a week later advising Mr. Renner that he had contacted four companies (that would insure ranch property of his type) and was told that “with the possibility of undetonated explosives on his property, they would not be willing to write a policy which would include liability.”

Further research led Mr. Renner to Mr. Bob Hartwig, Senior Vice President & Chief Economist with the Insurance Information Institute (NY). Mr. Hartwig stated that he knew of no underwriter who would write a policy for liability insurance under the proposed circumstances. He further advised that if a landowner signed the seismic agreement to allow testing involving explosives to take place without notifying his insurance provider, he had significantly changed the conditions of his coverage; his insurance provider could potentially deny any claim based on that change in conditions. On the other hand, if the homeowner notified his insurance carrier of the seismic activities, he would most likely be cancelled, or at the very least, not renewed on the next renewal date. Mr. Hartwig went on to say, however, that the issue could certainly be resolved, although not quickly. He offered a series of solutions, including legislative changes that would be required, which are attached. Mr. Renner forwarded Mr. Hartwig's email response to Ryan Lance, Office of the Governor, State Planning Office, Cheyenne, WY.

Governor Freudenthal's office, through Mr. Lance, has been supportive to the surface owners in Clark who find themselves faced with a no-win situation and has tried to come up with a quick and adequate solution for all involved. The WOGCC, on the other hand, has taken the approach of “they will sign on the dotted line, or they will be condemned.” The BLM has maintained that the issue of insurability on private lands does not fall under their purview and that the issue of insurability on public lands “should not be problem.”

The Governor's office issued a final statement to the residents of Clark during a community meeting on February 16: The issue is a private party issue that has to be resolved between the two parties. His office offered to assist in finding a solution, but advised that the surface owner and Quantum would have to resolve the issue on their own. “We can't have the heavy hand of the State involved in a private property issue,” said Mr. Lance. (Billings Gazette, February 22, 2005)

The problem with that solution is that it isn't a “private party” issue. If the parties fail to come to an agreement it becomes a State issue with the seismic company using State eminent domain laws to condemn private property and permit seismic testing to go forward. At that point the landowner is right back where he started with the risk of becoming uninsurable.

Furthermore, the issue is much more far-reaching than an agreement between a landowner and a seismic company in Clark, Wyoming. It affects similarly situated landowners throughout the State and possibly throughout the U.S. It affects lenders who hold the mortgages on such property and have insurance requirements that must be met by the borrower. It affects the ability of insurers to write insurance in Wyoming and other states where explosive seismic activity is involved.

One has to ask has this administration become so unconscionable when it comes to oil and gas development that they would not only allow, but support development in subdivisions, next to schools, alongside churches, and in people's front yards? Better yet, has the quest for development become so outrageous that the State would allow people's land to be condemned if they do not agree to allow seismic activity in order to maintain their homeowners insurance?

NOTE: this post was written by the the Renners.

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