Any entities running events, from weddings to sports matches, need to check their insurance policies and consider how to mitigate their losses from event cancellations due to social isolation rules.
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.
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.
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.
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:
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.
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.
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.
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.