Volcanic Eruption – Are You Covered?
I saw first-hand the volcano caldera in Hawaii Volcano National Park in in the early 1990s when I received the CPCU (Chartered Property Casualty Underwriter) designation as a member of the very, very large Class of Hawaii. This was a popular conferment ceremony due to the exotic location; rumor has it that one large insurance company sent so many designees it added a point to their combined ratio. It was my first trip to Hawaii, and I was fortunate to be able to visit the Park and walk across the volcano caldera as well as see the road and area that had been destroyed by the lava flow occurring at the time.
Lava is again flowing from the Kilauea Volcano on the Big Island in Hawaii. Since June, lava has been continuously erupting at a very slow pace from the summit. At a temperature of 1,650 Fahrenheit, the lava will incinerate anything it contacts. Fortunately, few structures have been destroyed and the leading edge of the lava flow was moving very slowly. Five schools were closed in late October and one home recently burned on November 10. The lava flow now is slow enough that it has attracted sightseers, including a couple who were arrested for trespassing as they were discovered taking pictures and prodding the lava with golf clubs while standing within five feet of the flow. This eruption is very different than the one in Iceland in 2010 at the Eyjafjallajokull Volcano.
The Iceland volcano was glacier covered and the eruption melted portions of the glacier causing a couple of different things to happen. Rivers of melted glacier water ran in torrents down the mountain towards farms and other occupied areas. What people are more likely to recall, though, is the huge ash plume that was caused as the glacier water exploded when it began to evaporate. The local damage was limited. Issues farther away were much more significant. Due to the way the winds blew, there was a nearly complete shutdown of air traffic that affected much of northern Europe amid concerns that the very fine volcanic ash could damage airplane engines and make them unsafe to fly. The ash plume reached 35,000 feet. The shutdown lasted from April 15-23, 2010 and then continued intermittently after that for a few more weeks. It has been estimated that more than 100,000 flights were canceled during that initial shutdown period. Massive flight disruptions were a headache for passengers as well as cargo planes and result in a loss of income for many different types of commercial businesses, hotels and others in the tourism industry and, of course, lost income for the airlines.
Where might insurance coverage be found for losses due to volcanic action, and what falls under the banner of volcanic action? The ISO Cause of Loss Special does not provide volcanic activity coverage but it can be added via their Earth Movement Endorsement. Many (but not all!) standard forms in the U.S. are similar to ISO in this regard. Where policies may differ a bit is in how they define volcanic activity, though they seem to generally intend to mean the same things.
Common definitions could read similarly to the following two examples:
- Airborne volcanic blast or shockwave; ash dust or particulate matter; or lava flow.
- Eruption, explosion or effusion of a volcano.
However, it is standard within the policy language that the cost to remove ash, dust or particulate matter that does not cause direct damage to covered property is not covered. There will not be coverage for loss of business income due to the airline interruptions if there is no direct physical loss or damage to covered property. Of course, manuscripted forms could be an entirely different story. So, as always, it is critical to read the form. Call your Gen Re representative if you would like to get a second opinion in reviewing policy language or if you want to discuss facultative options for transferring exposure.