Volcano Claims Success Unlikely For Business Interruption, Aviation

But that opinion was not unanimous. Magnus Allan, a representative for Aon Aviation, said that "this is such a rare event, it is unlikely to have been covered under business interruption policies. Even if specific coverage was offered by the insurance markets, it is likely to have been prohibitively expensive."

He added that "successful claims against standard airline liability insurance policies due to delays as a result of the volcanic eruption in Iceland are unlikely. This is a natural event and there has not been any actual damage to aircraft or property at this stage."

Loretta Worters, vice president of communications at the Insurance Information Institute, said that "in terms of business interruption for the airports, there would be none because there is no physical damage to the airport or planes."

For individual travel insurance, coverage would depend on the policy, according to Ms. Worters. "There is no standard set of conditions which applies to a situation of this kind," she said. "Therefore customers should check their travel insurance policy and speak to their travel insurer to understand what their individual policy covers them for in this situation."

Volcanic eruptions, she said, are not always covered by travel insurance for cancellation or delay, but some policies will kick in, Ms. Worters added. She said that if a flight is cancelled, most airlines will offer either a full refund or an alternate flight, and if the flight is cancelled and the insured does not travel, most travel insurers will refund the premium if it is a single trip policy.

Travel insurers also will usually amend a policy to cover new travel arrangements and dates, Ms. Worters said.

While travel delays and cancellations stemming from the Icelandic volcano are expected to cause some losses for travel insurers, an exact estimate is not possible at this early stage, noted Jim Grace, president of the U.S. Travel Insurance Association.

"This is a major event, for sure," he said, but he refused to endorse a report that industry losses could exceed $10 million, explaining that it is "really too early to tell."

The last major event to disrupt air travel so widely, he noted, was 9/11, but while cancellations went on for two-to-three days, the time frame for disruptions caused by the volcanic ash cloud was much longer.

He said USTIA is talking to companies to get a sense of what losses might ultimately be.

Speaking to the market penetration of travel insurance, Mr. Grace said about 30 percent of travelers carry such coverage.

William Beardsley, senior vice president in the Travel and Accident Division at Arch Insurance Group, said take-up may be higher for Americans traveling overseas. For Europeans, he said, take-up is much higher–at approximately 95 percent.

One reason for the higher take-up among Europeans, according to Mr. Beardsley, is that they often do not have medical coverage when they travel abroad. For Americans, he said, their health insurance often covers them outside the United States.

Mr. Beardsley mentioned a segment that appeared on a national network where it was erroneously reported that there is no coverage for flights delayed or cancelled because of the volcanic eruption, and that travel policies do not cover "acts of God"–although he said that may be true for "loss of income" insurance for airlines.

Mr. Beardsley said this is also not the case for travel insurance purchased by individuals. He said coverage for Europeans may be different, but for Americans, trip cancellation and trip interruption coverages could be triggered by the ash cloud.

For cancellation coverage, Mr. Beardsley said any non-refundable deposits for airfare, hotel and other travel expenses could be covered. Cancellation, he said, is a predeparture coverage.

For trip interruption, Mr. Beardsley said travel insurance will also pay for such things as extra meals and hotel accommodations while the traveler is waiting to come back to the United States.

John W. Cook, president of QuoteWright.com–a Web site that allows consumers to compare travel insurance plans–said the ash cloud could be classified by insurers as either a "natural disaster" or an "adverse weather" event, and how it is classified could affect trip cancellation and interruption coverages.

"Under those coverages, some but not all companies include 'natural disasters' which cause your airline to cease operations to be a covered event," said Mr. Cook. But coverage may be limited, he said, if the event is interpreted as a natural disaster.

Adverse weather, he said, is a more commonly covered event when it causes an airline to cease operations for a specific time period–usually 24 hours.

"Coverage for travel delay and missed connection [two additional forms of travel insurance] is clearer," said Mr. Cook. "These coverages are also 'named peril' benefits. However, the majority of plans include 'natural disaster' as a covered event."

Mr. Beardsley said the natural disaster trigger for cancellation coverage would kick in if accommodations at the travel destination are uninhabitable, which did not happen in this case. But he said most policies in the United States are written in a way that would define the ash cloud–not the volcanic eruption itself–as adverse weather.

Not only is coverage and the severity of claims unclear at this point, but the event may be far from over, warned Bill McGuire, director of the Aon Benfield UCL Hazard Research Centre in London. He said the last eruption from this volcano lasted more than 12 months, so if this eruption has a similar duration, the ash could periodically present a problem to U.K. air space.

The Willis Research Network, which is funded by Willis Group Holdings, said the industry currently has no detailed insurance risk models for volcanoes in Europe and various European overseas territories.