Volcano fallout: property coverage potentially available
Virtually no airline is insured against business interruptions as a result of the volcanic ash that has grounded aircrafts throughout Europe causing huge financial losses this past week. But there could be some insurance coverage available for other businesses if the volcano eruption somehow adversely effecting your revenue stream. Do you have a plant or supplier in Europe that had to shut down and cease shipping product to you due to the ash cloud? The ash cloud could be considered volcanic action which is a covered peril on many property policies. If you incur a direct business interruption or contingent business interruption and you or the supplier can prove it was due to the ash, you may have some insurance coverage. An example is if you depend on electronic components that are made in a clean room environment in North Europe. The ash from the volcano has over taxed the suppliers air filtration systems forced them to shut down. As a result in this scenario, you have lost sales and revenues. If you have contingent business interruption and contingent extra expense coverage, you might be eligible to make a claim.
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It is important to note that for a property loss to be covered, there needs to be direct physical loss or damage to covered property within the coverage territory resulting from a covered peril. Volcanic action is considered a basic form cause of loss, so the covered peril question should be satisfied under most policies.
Many forms do not define volcanic action, but ISO-based forms do. Under ISO, volcanic action is defined as “direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by: a) airborne volcanic blast or airborne shock waves; b) ash, dust or particulate matter; and c) lava flow”. The policy may or may not cover costs to remove volcanic debris that does not cause physical loss or damage.
In ISO-based forms, the earth movement exclusion often excludes volcanic eruption, which includes “volcanic eruption, explosion or effusion”. Resulting damage is often considered volcanic action and therefore not subject to the exclusion.
More reports are coming out on the difficulty policyholders are having when trying to recover any losses under business interruption coverage on their property policies. The key for insured is to prove that direct physical damage caused by the ash, directly caused the interruption. Without this link, there would be no coverage. Others are looking to event cancellation coverage, supply chain disruption insurance and travel policies to see if they could provide payments for losses caused by the ash cloud.