Eyjafjallajokull, Deepwater Horizon, and Property Insurance

Eyjafjallajokull, Deepwater Horizon, and Property Insurance

   By Eugene Wollan, Senior Counsel, Mound, Cotton, Wollan and Greengrass

On March 20, 2010, and again on April 14, 2010, Iceland's Eyjafjallajokull volcano erupted, creating a plume of ash and sediment so massive that air travel across Europe and the Atlantic Ocean was affected for weeks. On April 20, 2010, an explosion occurred on the Deepwater Horizon oil platform in the Gulf of Mexico, leading to the rupture of an oil well deep below the water's surface.  Containment of the leaking oil well at the ocean's bottom proved so difficult that oil leaked into the Gulf of Mexico for weeks, dispersing oil throughout the Gulf and into the Atlantic Ocean.  These events will undoubtedly give rise to myriad insurance claims.

The eruptions of the Eyjafjallajokull volcano resulted in the cancellation of thousands of flights both throughout Europe and from Europe to destinations across the Atlantic.  Cancellation of flights during the eruption affected not only airlines themselves, but also many businesses that rely on the international transportation of goods.  The estimated cost as a result of these cancellations has varied widely, with some reports indicating that it's well over a billion dollars.  The effects of the Gulf oil leak are less certain.  Certainly, the owners of the oil platform itself and other interested entities will suffer severe losses as a result of the event. Likewise, businesses that rely on the Gulf waters, the fishing industry, for example, will also suffer severe losses. 

Both the eruption and the oil leak will likely result in claims by affected entities for lost profits or costs incurred to prevent or mitigate damages. For example, first party property insurance policies frequently include business interruption, contingent business interruption, civil authority, and sue and labor provisions.  Inasmuch as each of these provisions normally requires some actual or threatened property damage, the claims may be less successful in the context of the volcanic eruption because there was no actual property damage to any of the affected entities from the eruption itself.  The explosion and ensuing oil leak in the Gulf, however, certainly caused property damage to the oil platform itself (it is now 5000 feet below the surface of the Gulf), and the oil that was spread throughout the waters of the Gulf and Atlantic Ocean may cause damage to other property in the region. 

In the forthcoming Property Insurance chapter in New Appleman New York Insurance Law, Second Edition, we address many of the issues that will arise in the claims made by entities affected by the volcanic eruption and the oil leak. The chapter discusses the law related to property damage provisions, as well as the law related to business interruption provisions.  With the extensive number of claims that will inevitably arise from these events, understanding the law that has been developed by courts when interpreting these provisions is an absolute necessity.

Eugene Wollan is senior counsel at Mound, Cotton, Wollan and Greengrass. He has practiced for over fifty years in the areas of property insurance and reinsurance.