Insurance Coverage for Event Cancellation and Postponement
Sporting events, concerts, and other live events can generate millions of dollars for event organizers and promoters, venue owners, teams, athletes, and performers. However, the success of such events is by no means a foregone conclusion. A variety of risks and perils can derail a live event, causing considerable loss for the individuals and entities with a financial stake. Those individuals and entities must be aware of the types of insurance coverage that may come into play when live events do not go precisely as planned. In this article, we provide tips for presenting claims to insurers and flag potential traps that the savvy insured should be aware of.
Any number of perils—including natural disasters, inclement weather, a performer's illness or death, and damage to the venue—can significantly impact the success of live events such as concerts, theatrical productions, and sporting events. When an event is cancelled, postponed, or curtailed, the financial fallout can be astronomical. Fortunately for those in the entertainment and sports industries, specific types of insurance are available to cover at least some of these losses.
Financial losses stemming from an event cancellation or postponement can be covered under a variety of insurance policies, several of which are discussed below.
Event Cancellation Coverage
Event cancellation coverage is a specialized form of insurance aimed at providing protection for a wide range of individuals and entities involved in the planning of almost any kind of event. Thus, broadcasters, promoters, sports teams, stadium and venue owners and advertisers should all consider purchasing this type of coverage.
Although policy terms can vary, event cancellation policies typically cover the financial losses associated with the interruption, postponement, cancellation, relocation, or abandonment of, as well as reduced attendance at, an event. For coverage to be triggered, the cancellation or postponement must result from a peril beyond the insured's control (for example, natural disasters, power failure, damage to the event's venue, and denial of access to the venue due to a failure of public transportation). Many policies insure against a specific list of perils, though some may cover all perils not specifically excluded under the policy.
Depending on the particular terms of an insured's policy, event cancellation insurance can cover various types of financial loss. For instance, event cancellation policies will frequently cover whatever marketing, organization, and other out-of-pocket expenses the insured incurred prior to the event's cancellation or postponement. Many insureds also purchase event cancellation policies covering lost profits. Additionally, a number of event cancellation policies include coverage for additional expenses incurred by the insured in connection with the planning and promotion of a rescheduled event. Careful attention must be paid to the components of covered loss when procuring event cancellation insurance. For example, unless lost profits are a specified component of coverage, they will not necessarily be covered. Thus, if insuring lost revenue is important, the insured should review the policy carefully during underwriting to be sure this type of financial loss is specifically covered.
As with all insurance policies, event cancellation policies contain various exclusions and policy terms designed to limit coverage. For example, coverage under an event cancellation policy may not be available if insufficient financing or marketing efforts caused the loss. Similarly, under most event cancellation policies, cancellations or postponements stemming from lack of attendance caused by competing events or declining interest in the event, performer, or team are not likely to be covered. Additionally, cancellations or curtailments due to labor-related strikes and an artists' failure to appear due to substance abuse or insanity are generally not covered. Some policies also exclude coverage for losses resulting from various forms of extreme weather.
Many events hinge on the appearance of a specific artist, musician, speaker, athlete, or group, and if that key individual or group is unable to appear, the event may need to be cancelled or postponed. This can result in severe losses to those involved in the event. Non-appearance coverage, as the name suggests, is designed to insure against this risk and can often be purchased as an add-on to a broader event cancellation policy. However, it is also available as a stand-alone policy.
Non-appearance policies can cover a wide variety of financial loss, including lost advertising or broadcasting revenue, lost ticket sales, sunk advertising and promotional costs, and costs associated with the planning and promotion of a rescheduled event.
A performer or athlete may fail to appear at a live event for any number of reasons, some of which are often covered under non-appearance policies and some of which are not. For instance, when a performer or athlete cannot appear because of illness, death, injury, or unavoidable delay, the resulting postponement or cancellation is typically covered. Conversely, non-appearances stemming from the use of alcohol or drugs, exhaustion, or a female performer's pregnancy will often be excluded from coverage. However, some of these exclusions may be subject to negotiation.
Anyone with a financial stake in a performer's or athlete's appearance at an event may wish to purchase non-appearance coverage. This would commonly include organizers, promoters, and sponsors of the event. Additionally, anyone entitled to a percentage of the performer's or athlete's appearance fee (such as a business manager or agent) should consider purchasing non-appearance coverage.
A number of sporting events and performances, especially those taking place outdoors, can be negatively impacted by inclement weather. Rain and snow insurance is designed to cover some of the losses resulting from the negative effects of inclement weather. A rain or snow insurance policy will typically require a specified amount of rainfall or snowfall (usually within a certain amount of hours) at or near the venue before policy benefits are owed.
Unlike event cancellation insurance, which may require cancellation or postponement of an event for coverage to attach, rain and snow insurance may be triggered when inclement weather results in a reduction in attendance at, or curtailment of, a sporting event or performance. Thus, coverage may be available for lost profits, sales, or advertising costs, even if the event is not altogether cancelled or postponed.
Event cancellation, non-appearance, and weather insurance policies typically include a provision obligating the insured to take all reasonably practicable steps to minimize or "mitigate" losses resulting from the event's cancellation, postponement, or interruption. In some cases, this obligation may require the insured to cancel or reschedule the event. In other circumstances, the insured may need to go forward with the scheduled event using a substitute performer or athlete to minimize losses. Of course, the mitigation requirement does not obligate an insured to take any of these steps if doing so would result in even greater loss.
Because the mitigation requirement is intended to minimize an insured's loss (as well as the amounts paid by the insurer), reasonable mitigation costs should also be included in an insured's claim for coverage. These expenses may include the cost of planning, promoting, and organizing the rescheduled event, as well as the cost of bringing in a substitute performer or athlete.
As soon as it becomes clear that a scheduled event may be cancelled, postponed, or otherwise interrupted, an insured should carefully review all of its potentially applicable insurance policies to be sure to satisfy all terms and conditions. In particular, the insured should strive to present a timely and well-documented claim in the event of a loss. Additionally, most event cancellation, non-appearance, and weather policies give the insurer the right to conduct an examination under oath as often as required. Insureds should therefore be prepared to submit to such examinations regarding any matter relating to the insurance or the loss and, if requested, to produce relevant books and records for the examination.
Carefully Document the Claim
When making a claim for insurance coverage, an insured will need to thoroughly and accurately document all aspects of the loss. For this reason, even before any loss occurs, the insured should keep meticulous financial records for all of its events and retain cancelled checks and invoices to simplify the claims adjustment process. Additionally, the insured should maintain detailed records of expenses and revenues associated with prior events so as to have an accurate historical perspective on which to base any claim for lost profits. This will help insureds maximize recovery and obtain the full benefit of insurance.
Avoid Time Traps
Following the loss, an insured should pay close attention to all timing-related policy terms. Typically, insureds have a stated amount of time to perform certain tasks under policies, such as providing notice, filing a proof of loss, or filing suit against the insurer. For example, many policies require the insured to submit notice of a loss within a specific number of days—often as few as 30 days following the decision to cancel or postpone an event. Failure to comply with these notice requirements can negatively impact coverage. Thus, insureds should make every effort to provide formal notice within the stated time.
The insured will also often be required to submit a detailed "proof of loss" within a specific timeframe. The proof of loss requirement gives the insured the opportunity to document its claim and describe with particularity the nature and extent of the losses suffered.
The insured should be especially mindful of timing-related limitations on the right to initiate litigation or alternative dispute resolution proceedings against an insurer. In some instances, this timeframe is dictated by the express terms of the policy and, in others, it is set by statute or regulation. Indeed, every jurisdiction will have specific rules regarding how such contractual and statutory limitations periods are to be applied, and the insured must be sure to navigate these rules with care.
As is evident from the discussion above, a number of considerations must be taken into account both when purchasing a policy and when submitting an insurance claim following cancellation or postponement of a live event. Because many types of coverage are available in the marketplace, insureds should carefully consider their specific needs when purchasing coverage. Then, in the event of a cancellation or postponement, the insured must once again carefully review all applicable policy terms and conditions so that the value of their insurance assets can be maximized.
Published on June 1, 2012
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