Professor Paul Traynor is quoted: Insurance questions, existing pipelines further debate amid CO2 fight in Burleigh County

Summit and pipeline advocates point to the area’s existing pipelines as assurance that Midwest Carbon Express will not present major threats to development, insurance or safety.

Bismarck has pipeline systems which run through city limits and its extraterritorial area carrying natural gas and other hazardous materials, according to the National Pipeline Mapping System Public Viewer. One natural gas pipeline system is in north Bismarck near Costco, Bismarck Motor Co., Heritage Reserve and other properties. The system also travels north to south on the western side of the city. Another carrying hazardous liquids such as gasoline and diesel fuel crosses the city closer to its center.

Summit’s lawyers have submitted to the PSC a document containing research by Boulder Appraisal on the marketability of homes near pipelines in the Bismarck area. The document argues that the existence of pipelines near a number of Bismarck-area properties “exhibit little to no” influence on homebuyers’ choices.

Joe Hillerson, president of the Bismarck-Mandan Home Builders Association, told the Tribune that while the document is likely accurate regarding the area’s current pipelines, he believes it does not take into account the potential differences that a CO2 pipeline may pose.

He said if the public views CO2 pipelines as dangerous, they will be reluctant to buy houses close to it.

“Our lenders are not going to be very happy with us if we’re building in those areas and we’re not able to sell the product,” Hillerson said.

Chad Moldenhauer is developing the Heritage Reserve housing development near a gas transmission pipeline system north of the city. Moldenhauer said he has been able to build near the pipeline system safely, but he believes that not enough is known about CO2 pipelines to ensure they too will be safe to develop near.

“Down the road if I propose another addition to Heritage Reserve and the county isn’t certain or has concerns that growing closer to the pipeline would potentially put people in that subdivision at risk, it puts my investment and that development at risk,” he said.

Bismarck-area environmental attorney Derrick Braaten showed the Tribune an appraisal which indicates that pipeline leaks on a client’s land in Montana have caused hundreds of thousands of dollars in stigma damages to the property. These are in part, but not limited to, leaks from a CO2 pipeline system.

“The concerns he’s got with the CO2 lines are similar to the concerns you’ve got with the other pipelines on the ranch,” Braaten said.

He also noted that the CO2 pipeline system on his client’s property uses material which he considers to be outdated and potentially contributing to the ruptures.

But whether or not a pipeline simply residing on a property stigmatizes the land can be dependent on the appraiser looking at it, he said.

Braaten relies on data from appraisers to determine land values in cases of eminent domain, in which a company goes to court against a reluctant landowner to obtain forced use of private property, with compensation. Pipeline companies do as well. Appraisers utilize market data but often can come to different conclusions, according to Braaten.

“In most eminent domain cases and property valuation fights, basically we’re the two sides arguing with each other to the jury and we let the jury decide who they agree with,” he said.

Numerous studies have been conducted to determine a relationship between pipelines and land value. Many studies cited in an analysis by the Federal Energy Regulatory Commission indicate there is no relationship. Another report conducted by the Pipeline Safety Trust also finds no relationship but cautions against generalizing the data.

Since CO2 pipelines cover such a small amount of property, it is unclear whether they will have a different effect on property values, Braaten said. A better understanding will be available after likely eminent domain proceedings have concluded.

Landowners and developers also worry about insurance issues. Letters from State Farm, Farmers Union and Northern States Insurance Services agents that were submitted to the PSC all point to potential coverage and liability issues for property owners near CO2 pipelines.

None of the letters’ authors responded to Tribune requests for comments.

Harris, the spokesman for Summit, said insurance should not be a cause for concern to landowners or residents of Bismarck.

“Landowners who currently hold property where existing pipelines are operating have always been able to get insurance and that will continue to be the case here,” he said.

The letters all state that pollutants are excluded from the coverage for the policies in question. If a pollutant were to be released and cause damages, the companies likely would not cover it. The letter from Northern States Insurance Services and one from State Farm refer to CO2 as a pollutant. The initial Farmers Union letter as well as a separate State Farm letter do not directly indicate whether they share this definition. The latter State Farm letter explains that “pollutants include but are not limited to any solid, liquid, gaseous, or thermal irritant.” The letter classifies fuel oil as a pollutant, among a broader list of substances. None of the letters directly addresses if the policies consider natural gas a pollutant.

A follow-up letter submitted by Farmers Union to the PSC says that the company has not yet determined if it considers CO2 a pollutant. It also specifies that the company would generally cover damage to the pipeline itself resulting from negligence of the landowner, just not the damages caused by a release of pollutants. Farmers Union intends to treat CO2 pipelines like any other pipeline, according to the letter.

These types of exclusions are typical for homeowners’ policies as well as for farm and ranch policies, according to Paul Traynor, a law professor at the University of North Dakota who specializes in insurance law.

“These insurance companies are not designed, nor do they have coverage that would extend to this type of risk,” he said.

But this does not mean that there is no insurance for pollutants that pipelines carry. This type of risk is covered by insurance companies that specialize in it. Most large companies have this type of coverage, Traynor said.

If there were to be some sort of damage caused by pipeline dysfunction, landowners would be able to make a claim against the company that it is responsible for the damage caused. A small claim would likely be covered by the company itself, but a large one would be covered by an insurance company that covers pollutants. This likely would end up in court, according to Traynor.

“They would have to deal with the pipeline company and perhaps even the pipeline company’s liability insurer in order to collect for any kind of damage,” he said.

Harris did not directly address Tribune questions of whether Summit has an insurance policy, who might insure the pipeline or what the policy would cover.

The initial Farmers Union letter advised the letter’s recipient to make sure that a third party seeking an easement on the recipient’s property presents “contractual language which specifically holds you harmless.” This would be a guarantee that the company would claim responsibility for any damage that was caused as a result of the use of the landowner’s property.

Harris said the company works hold-harmless clauses into easement agreements with landowners. He added that Summit would also cover landowners for any loss, damage, claim or action against them that they may incur resulting from the project.

Easement agreements submitted to the PSC show that this clause is present.

“The only exception to that is gross negligence or willful misconduct,” Harris said. “So if you are intending to hit and breach the pipeline that would be an exception.”

These exceptions are what is causing some to be concerned.

One of the State Farm letters states that even with hold-harmless agreements, there are still risks of landowners not being covered in the event of damages if it could be argued that they bear some responsibility.

“For example, if you or your tenants or even someone without permission attempts to dig, plow, trench and pierces the pipeline causing a leak, the resulting damage may be argued to be your responsibility,” the letter reads.

Harris said in the event that someone who was not the landowner caused damage, Summit would indemnify the landowner and hold the party that did the damage responsible.

If a landowner’s action on their land caused pollutants from the pipeline to be released, it may leave them legally liable and uninsured. Federal and state regulations are in place to avoid situations in which a landowner would unknowingly breach a pipeline, however, according to Traynor.

“The risk, I guess, is always there,” he said.