Insurance Coverage Uncertain for Hawaii Homeowners After Volcanic Eruption

Hawaii homeowners who incurred damage or lost their homes entirely now face uncertainty over whether their insurance will cover the damage.  The Seattle Times recently interviewed several Hawaii residents who expressed concern over whether they will have any coverage.  The eruption has so far destroyed about two dozen homes on Hawaii’s Big Island.  Authorities reported about 20 cracks in the ground spewing toxic gas and lava as of Tuesday.

Sea-stacks on Cape Alava, near Ozette, Washington.

Few insurers write policies covering structures in the area because the U.S. Geological Survey classifies it as a high lava risk.  Homeowners may have been able to obtain coverage through the Hawaii Property Insurance Association, a nonprofit insurance group created by the state government to fill the gap in coverage for people living in lava risk areas.

Even people living outside the affected areas are questioning whether their policy covers lava damage.  While fire insurance policies may cover lava, homeowner’s policies often have explicit exclusions for lava damage.

This can lead to complex coverage questions: if lava causes a forest fire and the fire, not the lava, burns your house down, can the insurer deny payment based on a lava exclusion?  In Washington, the answer’s probably not.  Washington applies the “efficient proximate cause” rule that can ultimately require the company to cover a loss if the causal chain of events includes a covered loss, despite the involvement of an excluded cause.

Ultimately, insurance coverage issues will cause at-risk homeowners to suffer significant uncertainty in addition to existing concerns about natural disasters.

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