(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the part of a series she is writing on business interruption claims).
On April 14, 2010, a volcano that was silent for almost 200 years spewed a massive plume of ash thousands of feet into the Icelandic sky. The volcanic ash quickly spread throughout Europe’s atmosphere, forcing the cancellation of 81,000 flights and the closure of airports in U.K., France, Germany and Scandinavia. Millions of passengers were stranded and flights did not resume until almost a week after. The International Air Transport Association and the Centre for Asia Pacific Aviation estimated that the disruption may cost the airline industry in excess of $2 billion.
Will the airlines be able to recover the lost revenue during the suspension of operations? Not this time. On April 21, 2001, Bloomberg reported that analysts do not believe that the European airlines will be able to recover business interruption benefits unless the volcanic ash caused direct or physical damage to any airport buildings or airplanes, which none have been reported thus far.
Loretta Worters, spokesperson for the Insurance Information Institute (I.I.I.), noted that “in terms of business interruption for airports, there would be none because there is no physical damage to the airport or planes. So certainly this will be a financial set back for the airlines.” Lloyd’s of London, which received almost $1 billion in premiums from airlines in 2009 alone, must feel relieved.
However, it has been reported that volcanic ash is extremely fine and, if aspirated, it could damage airplane engines and affect the navigation gear. P&C National Underwriter reported that the last eruption from this volcano lasted more than 12 months. It is possible that, with time, some jet planes will be damaged, but it is hard to predict how insurance carriers will deal with this type of loss.