CANCELED: Guidance for Policyholders on Event Cancellation Insurance in the Wake of COVID-19

Dominique A. Meyer

Across the globe, governments and public health officials are banning large gatherings and imploring citizens to practice “social distancing” in order to slow and prevent the spread of the coronavirus outbreak, or “COVID-19.” As a result, festivals, sporting events, conferences, and community celebrations are being canceled or postponed, leaving event organizers of all sizes—from major production companies, to would-be newly-weds—wondering how to recoup their substantial losses.

The pandemic has led to an unprecedented number of high-profile event cancellations and the potential for billions of dollars in lost income and other damages to the entertainment and sports industries. Just last week, concert giants Live Nation and AEG Presents suspended all tour engagements in North America, and world-famous gatherings like the Coachella Valley Music Festival and Stagecoach Music Festival were postponed until October. The threat of the virus has also taken its toll on professional sports—both the National Basketball Association and the National Hockey League suspended the remainder of their 2019–2020 seasons, and the National Collegiate Athletic Association canceled its March Madness tournament altogether. Not even “America’s favorite pastime” has been immune from the effects of the virus—Major League Baseball postponed the start of its 2020 season indefinitely. The economic cost of these cancellations is certain to be substantial.

Fortunately, event organizers may be able to recover a portion of their loss through event cancellation insurance. Event cancellation insurance is a broad form of insurance designed to insure event-related revenue or expenses against a cancellation caused by circumstances beyond a policyholder’s control. Typically, event cancellation insurance covers a wide variety of perils that can negatively impact live events, including: governmental orders, infectious and communicable diseases, earthquakes, floods, fires, power failure, damage to the event’s venue, denial of access to the venue due to a failure of public transportation, or even the interruption of a live television broadcast for major breaking news. Some event cancellation insurance policies will provide coverage broad enough to cover losses arising from postponement or cancellation because of COVID-19, and thus event organizers who had the foresight to purchase such insurance must carefully review their policies to determine whether their losses are covered.

Assessing Coverage for Damages Flowing from COVID-19-Related Event Cancellations

Whether a particular policy covers loss stemming from a COVID-19-related event cancellation depends on the policy’s language, the specific circumstances of the loss, and the applicable law. An “all-risk” event cancellation policy that provides coverage for cancellations due to an outbreak of infectious or communicable disease may cover loss flowing from the coronavirus. Policyholders who procured event cancellation insurance before January 2020 (when news of the coronavirus first surfaced, and insurers began inserting specific coronavirus exclusions) are most likely to have such coverage.

However, as with all insurance, event cancellation policies often contain a number of exclusions and other policy terms that are designed to limit coverage. For instance, coverage may not be available if an event is canceled or postponed simply because of insufficient financing or marketing efforts. Similarly, under most event cancellation policies, event cancellations or postponements stemming from lack of interest or less-than-projected ticket sales are not likely to be covered.

Some “all-risk” event cancellation policies may also contain a “pandemic” or “government issued quarantine” exclusion, which, depending on the wording, could limit the coverage available for a coronavirus-related cancellation. These exclusions became prevalent following the height of the severe acute respiratory syndrome (“SARS”) outbreak, when insurers began including such exclusions in event cancellation policies. Policyholders who purchased or will be purchasing insurance post-January 2020 may find a similar exclusion specific to the coronavirus in newly issued event cancellation policies.

Likewise, some event cancellation policies may contain limitations on when loss flowing from an outbreak of infectious or communicable disease, such as the coronavirus, will be covered. For example, some policies contain sub-limits on the amount that a policyholder can recover if its event is canceled as a result of an infectious or communicable disease. Additionally, some policies may limit coverage to situations in which the government or a civil authority has specifically ordered the closure of venues, airports, or transit systems, or where it has banned public meetings and/or events. As many state and local governments have begun to issue such restrictions, policyholders should continually assess their ability to seek coverage and be prepared to act quickly should evolving circumstances trigger coverage.

What Loss Is Covered?

The types of financial loss recoverable under an event cancellation policy will depend on the particular terms of the coverage purchased. At a minimum, most event cancellation policies will cover whatever marketing, organization, and other out-of-pocket expenses the policyholder incurred in the months and weeks leading up to the event. Policyholders will also often purchase, for an additional premium, event cancellation policies that cover the profits and revenues lost as a result of the covered event’s cancellation or postponement (i.e., business interruption coverage).

Additionally, many such policies will cover any so-called “additional expenses” that the policyholder incurs to relocate or reschedule the event in order to avoid its cancellation. These covered “additional expenses” could, for instance, include amounts spent to rent an alternative venue and market the rescheduled or relocated event.

Maximizing Coverage and Complying with Policy Conditions

Policyholders facing an event cancellation due to COVID-19 should assess, as quickly as possible, (a) the extent of any anticipated losses and (b) the scope of coverage for those losses. Some insurers will likely request a detailed proof of the loss claimed under the policy and require various forms of corroborating documentation of the expenses incurred in connection with that loss. Policyholders should fully understand the scope of coverage afforded by their policies in order to maximize their potential recovery.

Policyholders must also be wary of their policies’ potential notice traps. For example, a policy may require a policyholder to provide the insurer with notice of a loss “as soon as possible” or “as soon as practicable” after the loss, while other policies require that notice be given within 30 or 60 days after a loss. Depending on which jurisdiction governs the policy, failure to provide prompt notice may impact a policyholder’s claim. Due care is therefore required to ensure that all of the policy’s conditions for recovery are met.

In sum, event organizers who maintain event cancellation policies may be able to recover for loss associated with the economic realities of cancelling an event due to the coronavirus outbreak. Entertainment companies, professional sports teams, and other event organizers facing loss because an event has been canceled or postponed (or those who are currently evaluating how to navigate future event interruptions)—should carefully review their insurance portfolios to determine whether they have event cancellation insurance. If so, policyholders should consult with an experienced insurance recovery attorney to strategically approach their insurance claims, maximize coverage, and avoid pitfalls.

For the latest updates, please visit Blank Rome’s Coronavirus (“COVID-19”) Task Force page.