Eyjafjallajokull Iceland – Volcanic Disruption
On 14 April 2010 Eyjafjallajokull in Iceland erupted for the second time since December 2009. On this occasion the eruption occurred beneath glacial ice. Melted cold water chilled the lava causing it to fragment into glass producing an ash plume laden with glass particles particularly hazardous to aircraft. The plume gained altitude and spread over north Western Europe. Not only did the eruption cause the evacuation of nearby villages but, significantly, several European Governments closed their airspace resulting in a flight ban unprecedented since WWII. Airspace progressively re-opened as the plume dissipated. Most flights had resumed by 22 April 2010.
Impact
- Millions of passengers were stranded in destinations around the globe. Airlines reimbursed millions of dollars in accommodation and food charges.
- An enormous backlog of passengers had to be moved once air space re-opened.
- Airlines & airports sustained a significant loss of income and reduction in share price.
- Some airlines questioned the necessity for the flight ban and called on governments to compensate the financial loss. The International Air Transport Association estimates the crisis cost $A432m a day.
- Claims, for trip cancellation, interruption and delay, on travel insurers increased.
- Businesses dependent on both passenger and cargo air travel were adversely affected e.g. tourism, freight forwarders, mail services, fresh produce exporters (e.g. flowers & food), etc .
- Businesses dependent on land based travel such as railways, sea travel, car hire, accommodation, etc were positively affected.
Does insurance respond to the Economic Loss sustained by businesses due to the “Volcanic Disruption”?
An Industrial Special Risks Policy responds to Consequential Loss provided certain criteria are satisfied: -
- Building or property used by the Insured must be physically lost, destroyed or damaged.
- The damage must occur at the insured Premises.
- The property must be used for the purpose of the Business.
- The Business must be interrupted as a result of the property damage.
These criteria have not been satisfied by the eruption. Unless located at the base of the volcano, property at the “Insured Premises” belonging to businesses which have sustained economic loss are unlikely to have been damaged.
Many Consequential Loss policies contain additional clauses which extend the cover. One of these is the Supplier’s Premises Extension. This generally provides cover for Consequential Loss as a result of damage to property at a supplier’s premises.
There are at least three criteria in this extension which must be met for a claim to succeed: -
- There must be damage to property. Has this occurred? The air space above the affected countries has been damaged by volcanic ash. Does the air space constitute “property”? It is unlikely, but insurance policies vary and affected businesses should check their cover.
- The damage must be sustained by the Insured’s supplier. Perhaps the various European Governments may be considered to be a supplier of the air space to airlines.
- The extension usually requires the damage to occur at the suppliers premises. The damaged air space is unlikely to be considered to be located at the supplier’s premises suggesting any economic loss is not covered. Again, businesses should check their own insurance cover.
Other extensions such as Prevention of Access may also need to be considered along with those wordings and endorsements particular to the aviation industry.
CONCLUSION
It is unlikely an Industrial Special Risks Policy responds to the Consequential Loss sustained by the airline or other downstream industries as a result of the “Volcanic Disruption”. This is not because it is an “Act of God”. It is because the policy may never have been intended to respond to such risks.
Author
Claim Solutions Pty Ltd
Insurance Policy
Country: - Various
Policy Description: - Travel & Industrial Special Risks
Insurer: - Various
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