With new social distancing guidelines in place as a result of the COVID-19 pandemic, many organisations have been forced to cancel events. Event cancellation insurance may help to cover costs, but in some cases, it does not apply.
What is event cancellation insurance?
Event cancellation policies generally provide cover for loss of revenue or expenses incurred by an organisation from the cancellation, interruption, postponement or abandonment of an event due to a sudden occurrence that is beyond the organisation's control.
Policies may also cover loss specifically arising from registered attendees (other than performers or presenters) being unable to travel to attend an event as a result of the same sudden and accidental occurrence. Some policies may also extend to cover compensation paid by the organisation to attendees for a reduction in event quality, or financial obligations the organisation has contractually agreed to bear for others.
Event cancellation insurance policies often provide specific cover for designated events. They are ordinarily acquired on a one-off basis but some management liability insurance provides extensions for cancellation of certain events – depending on the policy and business type.
The usual insurance policy coverages provide insurance for:
- 'Net loss resulting from cancellation or interruption;
- Additional expenses resulting from postponement; and
- Additional expenses incurred to mitigate any loss that would otherwise be covered as a result of cancellation, interruption or postponement.'
Be aware that those policies, like most financial products, adopt their own definition of 'cancellation', 'interruption' and 'postponement'. The definitions change from case to case but often include an element of necessity. Necessity itself is not usually defined, but it would seem that cancellation, postponement or interruption due to COVID-19 would quite likely meet the element of necessity required.
What is excluded?
While cover will be available under certain policies in the market, there are various exclusions that may apply to exclude cover. These exclusions may differ due to the broad range of events typically contemplated by these policies.
- Generally, event cancellation policies do not provide insurance cover for loss that is caused by, or results from, any of the following:
- Communicable or infectious disease, which is discussed in further detail below.
- Circumstances in existence prior to the policy period or renewal, which threatened to result in the loss, which the organisation knew or ought to have known about and which it failed to make known to the insurer.
- The non-appearance of any person or group of persons scheduled to perform, present or appear at an event.
- Lack of audience or public support, including decreased attendance or loss of public image.
- Contract disputes, including any claims, demands or allegations relating to a contract dispute or breach of contract.
- Non-compliance with the requirements of any law, regulatory instrument, order, court or regulatory body. This may include the failure to adhere to any directions made under the Biosecurity Act 2015 (Cth) in response to COVID-19.
It is prudent for companies to carefully consider their insurance coverage, including under any management liability and directors and officers insurance policies. They might, from time to time, also provide companies some protection from the effects of event cancellation up to certain limit. Be mindful that those policies may also contain their own exclusions relating to declared diseases such as COVID-19.
The types of exclusions often found in most policies relate to infectious disease. Event cancellation insurance is no different. Those policies often contain an exclusion for any cancellation, interruption or postponement that arises either directly or indirectly from an infectious or communicable disease or the threat or fear (whether actual or perceived) of such a disease.
The effect of this is that events cancelled as a result of the government's March directives will most likely not be covered by the standard form of event cancellation insurance. Furthermore, events cancelled or postponed prior to then due to 'threat' or 'fear' of a pandemic or restrictions on movement would also likely be excluded.
This makes it more imperative that companies implement appropriate risk mitigation measures to avoid further financial loss but also to ensure compliance with the statutory directives given by federal and state authorities to prevent the spread of COVID-19.
Event cancellation policies often require the organisation to give immediate notice to the insurer when cancellation or postponement occurs or appears likely to occur. Policies will also require that all reasonable endeavours and measures be undertaken by the organisation to avoid or mitigate loss in relation to the cancellation.
More generally, we recommend that an organisation act as a prudent uninsured when approaching the decision to cancel or postpone an event in response to COVID-19. This involves taking steps in accordance with public expectations, any directions from the Government under the Act, and otherwise taking the ordinary steps that a reasonable person would take to prevent the spread of COVID-19.
Next steps now that events have been cancelled
Organisations should review the policy wordings of their event cancellation insurance to consider what circumstances and losses will be covered. As mentioned in our recent articles, it is critical for any entities running events, from weddings to sports matches, to check their insurance policies to consider how to mitigate their losses.
If you are looking for advice or support with insurance issues arising from COVID-19 or public health emergencies, we can assist you with understanding and responding to these risks.