Insurance Professionals: Check Your Cancellation Coverage First
11 Mar, 2020By: Mary Helen Sprecher
If you’ve considered cancelling your event, or at least postponing it, you’re hardly alone. Nationwide, event owners are tossing in the (sanitized) towel on competitions.
In Connecticut, all remaining winter high school sports tournaments were cancelled, including boys and girls basketball and ice hockey games and boys swimming meets. (Spring sports have not been affected as yet).Athletic Business reports that the Ohio High School Athletics Association announced that all postseason tournaments will take place as scheduled, but "without most spectators in attendance." (Essential personnel who will be allowed into the indoor events include athletes, parents and other officials; the measure is expected to last at least through the conclusion of the boys' basketball state tournament. Cancellations go all the way to the top of the food chain, with the New York City Half Marathon also being scratched by its event owners, the New York Road Runners. And while the sports tourism industry is reeling from the NCAA’s announcement that it would limit attendance at its championship events, March Madness included, plenty of other event owners are trying to decide what their next steps should be.
Insurance professionals say event owners should be checking their event policies. Not all policies may cover cancellation, according to John Sadler of Sadler & Company.
"Event Cancellation insurance is a stand-alone policy that pays for certain financial loss if an event is cancelled, postponed, curtailed or relocated beyond the control of the policyholder,” he notes. “Covered perils may include, but are not limited to, hurricanes, earthquakes, severe/adverse weather, outbreak of communicable disease, terrorism, labor strikes, non-appearance of key people, and unavailability of the venue due to fires, floods or power outages.”
And, he adds, "Even though outbreaks of communicable disease are commonly covered under Event Cancellation policy forms, the two carriers I have interviewed have recently started to exclude (not cover) coronavirus on newly issued policies. One carrier is issuing a specific coronavirus exclusion whereas the other considers it to be an excluded pre-existing condition. However, Event Cancellation policies issued prior to the addition of the recent coronavirus restrictions may not have an exclusion."
Sadler says for prior policies issues without the coronavirus exclusion, "a claim would only be covered if travel restrictions exist and if the event is not ready to move forward. These factors are beyond the control of the insured. It is not enough that the attendees or event organizers have a fear of traveling or of catching the virus.”
Adding coverage now, says Lorena Hatfield of K&K Insurance, is not going to be easy. “I can tell you that at this point it would be extremely difficult if not impossible to purchase cancellation coverage that would cover coronavirus as it is now a known cause; think of it as trying to purchase flood coverage after a hurricane is forecast to impact a community – no insurance company would sell that. I wish there was a concrete answer, but it depends on what each entity has already purchased.”
And without a valid reason to cancel, such as a more expanded restriction on air travel (the current one is set to expire in 30 days and applies only to certain international, rather than domestic, areas), the event owner may find itself open to lawsuits from cities, vendors, transportation providers and others, including individual participants who have purchased nonrefundable airline tickets or made similar arrangements.
However, if the cancellation is done because a venue no longer becomes available or because the law forbids large gatherings, this may be a different matter entirely. As an example, Events DC, the CVB for the nation's capital, has suspended operations for two weeks (March 13-31) while deep cleaning is done on its indoor venues, including the Walter E. Washington Convention Center. The D.C. Dept. of Health has issued recommendations that non-essential mass gatherings – over 1,000 attendees – be postponed or cancelled.
Some events have found out, to their cost, what happens when they use the coronavirus as an excuse to cancel without checking first. The enormous tech and music festival, South by Southwest (SXSW for short) cancelled, only to find its insurance would not cover cancellation due to a pandemic; as a result, Austin, Texas, will lose millions of dollars in the economy, mainly for tourism, ticket sales, and other revenue streams. Last year, the event made an economic impact of approximately $355.9 million on the city.
Some event owners offer cancellation protection to those who sanction through them; in 2015, USA Cycling announced its event cancellation insurance program; however, there was no immediate word as to whether the organization is providing protection to those who cancel because of coronavirus fears.
Realistically, event owners with indoor sports competitions sometimes consider cancellation coverage to be extraneous since their events are generally not able to be impacted by weather. However, in the past year alone, events have been cancelled by (and occasionally played to empty stadiums because of) civic unrest, proving that weather isn’t the only unexpected factor that can come into play.
Moving forward, it’s safe to say more attention will be paid to policies; however, as Hatfield notes, that should be a part of all planning. Checking carefully to make sure you have a good insurer with experience in sports events is essential, Hatfield notes.
And as far back as 2009, William J. Bannon of BWD Group LLC, in writing about cancellation coverage for SDM, noted the importance of preventive, rather than reactive, planning: “From a practical standpoint, event cancellation coverage should be considered early as an event budget is being developed along with desired policy terms, conditions and limits. It is best to test the insurance marketplace long in advance of an event and to consider binding coverage as far in advance as possible so that the coverage is in place and working on behalf of the event promoter or sponsor at the same premium levels as if it were bound within weeks of a game.
Multi-year policies can sometimes be arranged to take advantage of very favorable pricing and coverage terms. A method of sharing a percentage of a loss for an equivalent percentage premium savings known as coinsurance can be implemented as a means to reduce premiums. In some instances a "No-Claim" Bonus provision can be obtained on larger policies.
Contingency expenditures that might be needed to prevent a cancellation, abandonment, postponement or relocation should be factored in and coverage should be written to apply whether or not such expenditures result in the prevention or reduction of a loss.”