ALBANY, N.Y., Nov 4 (Reuters) - As New York inches closer to approving the controversial gas-drilling method known as hydro-fracking, environmental groups and some state lawmakers are pushing for legislative changes to traditional tort litigation to assist property owners seeking damages if their water or soil is contaminated.

State lawmakers are mulling two proposals that would give property owners more options and, perhaps, an upper hand in court, including shifting the burden of proof from landowners to gas companies and creating an industry-supported remediation fund.

"The way things are structured right now, the only recourse a landowner has is to sue," said Deborah Goldberg, an attorney with Earthjustice, a non-profit environmental law firm. "And every time there is pollution, the industry claims it's not responsible."

Gas drilling is already common in upstate New York, but a protracted debate over whether to permit fracking, which involves blasting millions of gallons of water and chemicals into wells at high pressure, has brought renewed scrutiny to the industry. Opponents point to the potential for spills to contaminate land surrounding gas wells, and concerns that the intensive industrial process could trigger the migration of natural gases into private water supplies.

But many environmental law experts and industry attorneys say new legislation is unnecessary, and that a combination of proposed drilling regulations and what they say is the industry's clean record will keep accidents to a minimum. Even when accidents occur, they add, the current legal remedies available to landowners are sufficient.

"This whole debate is about what types of risks people are willing to take in order to have low-cost energy and a higher standard of living," said Karen Bulich Moreau, an Albany-area attorney and the president of the Land and Liberty Foundation, a non-profit that advocates against government intrusion on individuals' land-use rights.

"We are a society that depends on certain industrial activities to maintain our quality of life, and there are certainly going to be risks associated, but that's what courts are for," said Moreau, who favors fracking because of the potential economic boon for depressed rural communities.

BURDEN OF PROOF

Some upstate towns aren't waiting for a legislative fix. Residents of Horseheads, a town of about 20,000 in Chemung County, filed a $150 million federal lawsuit last March against Anschutz Exploration Corporation, which operates two gas wells near the town, after the Department of Environmental Conservation investigated complaints about water contamination there.

The DEC issued a memo that said many of the wells were contaminated long before drilling began, but the plaintiffs sought to hold the company strictly liable because, they said, gas drilling is an "ultra-hazardous" activity.

"The risk of (gas drilling) outweighs any associated value," the complaint read.

The plaintiffs also alleged Anschutz was reckless and negligent in causing water contamination.

Anschutz called the suit an "extortion" scheme riddled with factual errors, and said the DEC investigation largely vindicated the company.

The Chemung suit, which is pending in the Western District of New York, is the first in the state in which property owners have sued a drilling company for negligence, according to Napoli Bern Ripka, the law firm representing the plaintiffs.

But it is the suit's strict-liability claim, and its shifting of the burden of proof, that challenges bedrock principles of tort litigation.

When drilling accidents occur, the owners of the contaminated land can bring claims against drilling companies. But in New York, as in most other states, the plaintiff carries the burden of proving not only that the company caused the pollution, but that it did so through negligence. The time and expense required to mount such a claim and see it through the appeals process can be prohibitive to many homeowners.

A bill that stalled in both houses of the legislature this year would impose strict liability on gas companies, essentially stripping away the requirement that plaintiffs prove negligence. But that proposal, industry attorneys said, may be untenable because gas companies could be held responsible when natural phenomena trigger the migration of gas into water supplies.

"Strict liability is not appropriate when you have pre-existing contamination in some of these wells," said Tom West, whose Albany law firm represents oil and gas companies.

INDUSTRY-SUPPORTED FUND

Adding to the complication, natural methane occurs at shallower than normal depths in the state's gas-rich Southern Tier, which covers large swaths of western New York, including Chemung County. As a result, private water supplies are particularly prone to contamination not caused by industry.

Moreau, the president of the Land and Liberty Foundation, said contamination caused by industry is normally distinguishable from that caused by nature because of the presence of traces of "fracking fluid," or chemicals blasted into wells to help release gas.

"If there were a legitimate case where contamination had occurred, a trained expert could easily identify the source," she said.

Another proposal before the legislature is aimed at keeping some cases out of court altogether by creating an industry-supported fund to cover remediation costs when contamination occurs. The measure, which would also increase the amount of the bonds a drilling company is required to post, was first proposed by Comptroller Tom DiNapoli and sponsored in the Assembly this year by Bob Sweeney, a Long Island Democrat and head of the Assembly's Environmental Committee.

West, the industry attorney, said he believes the fund was designed by fracking opponents to make New York uncompetitive with neighboring Pennsylvania and other states. It's also unnecessary, he said, because contamination is rare and when there is an accident, it's in the company's best interest to clean it up quickly.

But Goldberg, the Earthjustice attorney, said contamination is far more common than the industry likes to admit. A recent report by the Denver Post found that in Colorado, there are seven oil and gas spills every five days.

"I would hardly call that a freak occurrence," Goldberg said.

FIRST PERMITS BY SPRING

Lawmakers won't take up the liability question until January at the earliest, when the legislature reconvenes in Albany.

But Steven Russo, general counsel for the DEC, said the issue is "almost academic" because of a proposed regulation that would require gas companies to pay for water-quality tests prior to and during drilling.

"If the well was clean before, and now there's gas in it, there's a clear cause and effect," Russo said last month at a hearing on fracking in Albany.

The proposed regulation would also require four additional water-quality tests in the first year after a well is drilled.

Both state officials and industry attorneys say New York's regulatory scheme for fracking will be the most robust in the nation. The state has proposed banning drilling on state-owned land and in the New York City and Syracuse watersheds, as well as mandated setbacks -- within 500 feet of private water supplies and 2,000 feet of public reservoirs -- that, if adopted, would be the largest in the country.

In August, the DEC released a draft report declaring fracking to be safe, as long as the industry is strictly regulated. A public comment period on the report, as well as a set of proposed regulations, runs until Dec. 12.

State officials have said if fracking is officially sanctioned, the DEC could begin issuing drilling permits as early as next spring, but DEC Commissioner Joe Martens said last month that it could take the agency longer to sift through the thousands of comments.

(Reporting by Dan Wiessner)

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