Volcano Affecting Hawaii Island Escrows

When the first signs of lava appeared in Leilani Estates subdivision on May 3rd, it wasn’t just the residents of that area that were affected. Insurance companies that write Homeowner’s policies in Lava Zones 1 & 2 immediately put in place a moratorium on writing any new policies. The moratorium is also in effect for homes nowhere close to Kilauea.

Before you can understand the absurdity of this moratorium on areas such as Ocean View – an area nowhere close to the current activity, let’s take a quick lesson in Hawaii’s geology:

Hawaii Island is categorized into 9 different zones by the US Geological Survey (USGS) to evaluate the risks of future lava flows in a given area. Zone 1 has the highest risk, generally due to being downslope of recent activity, while zone 9 has the lowest risk. As you can see by the map below, the area surrounding the Kohala volcano at the northern tip of the island is categorized as Zone 9, as there has not been any recorded volcanic activity for over 4,500 years. On the other side of the spectrum, we have Zone 1. Zone 1 on the map, represented in red, has the highest probability for future activity. If you’ve followed any of the current activity on the news, you have heard the term “rift zone” used a lot. Lava Zone 1 on the map correlates directly with both Mauna Loa and Kilauea’s rift zones. Rift zones are the unstable areas surrounding our “shield-type” volcanoes here in Hawaii. It is at those rift zones where lava is most likely to breach the surface during a volcanic event.

Now that I have finished the geology lesson for today, and I must thank my old college roommate, Mark Clardy, who earned his geology degree from MIT, for inspiring me to study the geology of our Hawaiian islands.

The problem that is facing many current active real estate transactions on Hawaii Island is this moratorium by insurance companies not writing any new policies in Lava Zones 1 & 2. At first thought you might agree on these two obvious notions: First, anyone wishing to buy a home in an area where lava is actively flowing, may not be making the smartest choice when it comes to location. And second, anyone foolish enough to insure that home is dumber that those buying that home.

A good example of the absurdity and the problems the insurance industry is placing on many people trying to buy their little piece of Hawaii is illustrated on the map below. Areas such as Ocean View are part of Mauna Loa, not Kilauea. I have not heard a single scientist warn that the current activity of Kilauea will trigger anything with Mauna Loa. If anything, the map produced by the USGS is amazingly accurate. The current activity is happening in Lava Zone 1. Ocean View is in Lava Zone 2, and is on the other side of the island!

The only word we’ve received from the insurance companies is that the moratorium will remain in effect until this current eruptive phase ends. If that’s true, and the scientists are right when comparing this eruption to the one in 1955, then there’s going to be some serious impact on those buying or selling a home in in Lava Zones 1 & 2. The 1955 eruption lasted 88 days.

For now, all we can do is wait and see when the insurance companies realize that Mauna Loa is not Kilauea, and Ocean View is not Leilani Estates.