In order for the airlines to collect, they would need very broad business interruption policies, with wording that did not require physical damage to aircraft as a pre-requisite to cover being triggered. Therefore, while the proactive cancelation of the flights has prevented any material damage to the planes, it has also served to preclude recovery under most airlines’ business interruption policies. Similarly, claims arising from the non-delivery of air-freight shipments generally require some form of “material damage” in order for there to be coverage.
As often happens in the wake of catastrophes and disasters, the insurance industry is considering new insurance products that would provide coverage for the cancelation of flights because of future volcanic eruptions. Volcanic eruptions necessitate the cancelation of flights because of the danger of flying through a volcanic ash or dust cloud. According to JLT Aerospace, three events involving flights through volcanic ash clouds in 1982 and 1989 resulted in the failure/shutdown in the four engines of each plane, resulting in descents to lower flight levels and severe abrasion damage to the fuselage and flying surfaces. Although all three planes made safe emergency landings, their engines were beyond economic repair and/or required lengthy repairs. Although volcanic activity in Europe is not a regular event, the Eyjafjallajökull volcano is reportedly not among the ten most dangerous volcanoes in Europe.
We will continue to provide updates on this and other aviation insurance issues on www.InsureReinsure.com.
