Volcanoes – a rare peril raises coverage questions

Mt. Kilauea has been erupting more vigorously than normal for the past month. It is the most active volcano on the planet, erupting almost continuously since 1983. However, this eruption is larger than most, affecting residential areas, and emitting ash, lava and noxious gasses such as sulfur dioxide.

Coverage questions have presented themselves since volcanoes are such a rare peril. Unlike hurricanes, tornadoes and wildfires, which can be counted on to occur annually with the only variations being number and severity, volcanoes, while appearing in standard policy language, hardly ever appear as an actual threat to physical property.

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While Kilauea erupts regularly, normally it does not affect inhabited areas. This time is different. Kilauea began erupting early May and at the time of this writing predictions indicate that a large eruption that could throw boulders as large as refrigerators out of the caldera is possible.

A geothermal plant had to cap all of its wells and remove 66,000 thousand gallons of flammable liquid, and evacuation routes are being cut off by lava day by day. More than 20 fissures have broken through the ground, giving gas and lava ways to escape and cause damage and injury.

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What is lava?

So let’s look at the standard ISO HO 00 03 homeowners policy. Fire is pretty much the universally covered peril, so fire that results from lava flowing, spewing or otherwise coming forth from the volcano is covered. However, what about damage from the lava itself? Is lava the same thing as earth, since earthquake and land shock waves before, during or after a volcanic eruption are excluded, or is lava something different? Merriam Webster defines lava as “molten rock that issues from a volcano or a fissure in the surface of the planet,” or such rock that has cooled and hardened.

Earth is defined as the “fragmental material composing part of the surface of the globe, especially cultivable soil.” Also the “solid footing formed of soil,” and soil is defined as “firm land; the upper layer of earth that may be dug or plowed and in which plants grow.” While volcanic soil is known for being very good for plants, volcanic soil is a result of volcanic ash, and not lava. Since lava is molten rock, an argument could be made that flowing lava is not earth, and any damage from the lava itself that was not fire would be covered.

Volcanoes cause fissures in the ground as the magma moves underneath, and this movement can cause land shocks and earthquakes. Like any other earth movement, these movements are excluded. The result is the same in that the ground moves, potentially damaging buildings, roadways and other property.

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Determining coverage

Volcanic eruption is the last peril under Coverage C, personal property. The only exclusion to coverage here is again for land shock waves, tremors or earthquakes. There is no exclusion for damage caused by ash, smoke or other volcanic activity other than the earth movement. However, under debris removal, ash, dust or particles from a volcanic eruption are not covered unless there is direct loss to a building or property contained therein.

Dirt is not damage; the fact that ash needs to be removed from the roof and windows is not direct damage. If the roof collapses due to weight of ash or particles then there is coverage for a debris removal, as there is if snow would cause the roof to collapse.

The earth movement exclusion for Coverages A and B is similar, although it also includes landslide, mudslide or mudflow, subsidence or sinkhole, or any other movement including earth sinking, risking or shifting. With volcanoes, earth movement is possible.

Civil authority comes into play as people are often evacuated in order to get them safely out of harm’s way. Their property is not damaged, but there may be direct damage to neighboring premises. Note that an evacuation to move people out of the way of flowing lava is not covered if there is no damage.

Evacuating a neighborhood because of lava moving towards an area does not trigger coverage for ALE or Fair Rental value. Officials are preparing to make last minute evacuations by air if lava cuts off all roads to certain areas.

However, this discussion pertains to the ISO HO 00 03; not everyone in Hawaii is covered by the HO 00 03 or a similar standard form, and may be covered by a surplus policy or one through the Hawaii Property Insurance Association, which is the state market of last resort. Two standard carriers must have turned down an insured in order for the insured to be eligible for coverage through the Association. The surplus lines and Association policies may require larger deductibles for property in lava hazard zones or may exclude damage by lava entirely.

Lava hazard zones are mapped by the U.S. Geological Survey and similar to flood zones, map areas at risk of damage by lava. While the maps are not as specific as flood maps and are intended for general planning purposes, the maps are based on probable eruptions based on past eruptions, likely lava paths, and frequency of flows over time. There are nine lava-flow hazard zones. Surplus lines carriers may refer to these areas in rating policies in lava zones.

The Earth is an active planet; weather fronts cross continents and oceans, and earthquakes remind us that the continental plates shift. Volcanoes remind us how many islands were created, and that nature does what it wants when it wants.

Christine G. Barlow, CPCU, (cbarlow@alm.com) is an editor with FC&S Online, the authority on insurance coverage interpretation and analysis for the P&C industry. It’s the resource agents, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues.