Natural Gas Well Owner/Operator Must Indemnify Drilling Services Contractor for Alleged Well Water Contamination Caused by Fracking Based on Contract
An Ohio drilling services company provided services under a drilling contract to a Pennsylvania natural gas production company in areas of the Appalachian Basin. Following the drilling of a natural gas well in Jackson County, West Virginia, a local family sued the production company and the drilling services company alleging that the company discharged hydraulic fracturing (“fracking”) fluid into the ground, which contaminated the family’s well water supply and caused personal injury and property damage.
Relying on the indemnification language in the drilling contract, the drilling services company asserted that the production company had an indemnification obligation for all costs of defending the litigation. The production company did not defend or indemnify the services company, which settled with the plaintiffs for $40,000 and spent approximately $155,000 in alleged defense costs. The production company won on summary judgment against the plaintiffs on the grounds that the plaintiffs’ surface-owner waivers signed at the beginning of the drilling process released the production company from the alleged liability.
The services company then brought suit in Ohio court seeking indemnification for costs of the settlement and its defense. The drilling contract contained several indemnification provisions, but specified that the operator (the production company) had to indemnify the services company for costs associated with contamination or pollution not originating on or above the surface of the land or water, and without regard to the negligence (or willful misconduct) of any party. The family’s well allegedly contaminated by fracking was located 90 feet below the surface of the ground and the family’s expert witness concluded that a subsurface pathway was “the most likely” origin of the contamination. Given that the production company could only point to an expert’s statement that an above-the-surface origin was a theoretic possibility, the U.S. District Court for the Southern District of Ohio concluded that there was not a genuine dispute of fact on this issue, and the production company had to indemnify the services company under the contract. Because the drilling contract specified that the indemnification obligation existed for “any” claim for contamination, the court rejected the production company’s argument that the services company had to demonstrate the validity of the family’s underlying claim before the indemnification/defense obligation applied.
