Volcanic Activity May Be Covered Under a Property Policy–But What Does That Include and How Does it Work?

Many property insurance policies cover "Volcanic Action." In Volcano Fiasco – Understanding Business Interruption Claims, Part 17 and Possible Coverage to Obtain Recovery from Volcanic Activity – Understanding Business Interruption Claims, Part 18, Michelle Claverol wrote regarding the possibility of collecting for business loss caused by volcanic ash. My friend, Mark Nation, wrote about travel coverage in Travel Insurance Claims Expected As a Result of Volcano Eruption.

So, how about a review of that exciting "Volcanic Activity" provision in the basic, broad, and special CP forms? If the recent Hard Rock Casino advertisement series about "you know who you are" has any truth, those still reading this post know they are the true insurance coverage nerds everybody in the office consults when a hard coverage issue arises.

The basic and broad "causes of loss" form covers "volcanic activity" with the following language:

11.Volcanic Action, meaning 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; or
c. Lava flow.

All volcanic eruptions that occur within any 168-hour period will constitute a single occurrence.

This cause of loss does not include the cost to remove ash, dust or particulate matter that does not cause direct physical loss or damage to the described property.

The FC&S notes that: 

Volcanic action coverage also was previously available only on an optional basis by endorsement. As a basic cause of loss under the ISO commercial property program, it covers damage from the above-ground effects of a volcanic eruption—airborne blast and shock waves, ash, dust, particulate matter, and lava flow. It does not include, as detailed in the earth movement exclusion, the removal cost of volcanic ash or dust that has not physically damaged insured property, nor the seismic effects of a volcanic eruption.

Coverage under this cause of loss applies to any volcanic eruptions occurring within a seven day period (168 hours). Under the original versions of the form (prior to the 1988 revisions), this period was three days.

The special form policy covers all the "risks" of direct physical loss unless excluded. While it then excludes volcanic eruption, the form then excepts the exclusion for "volcanic activity" to provide this coverage:

(5) Volcanic eruption, explosion or effusion. But if volcanic eruption, explosion or effusion results in fire or Volcanic Action, we will pay for the loss or damage caused by that fire or Volcanic Action.

The bottom line is that many ash claims will likely be denied because insurers claim that the volcanic activity or ash did not result in any "physical damage." If you happen to have that problem, "you know who you are" and who you need to call.

Have a great day!!