With COVID-19 declared to be a pandemic, event cancellation has become a hot topic. As a result, event organizers have been reviewing the Force Majeure clauses in their contracts and lawyers are dusting off older legal texts to help with interpretation of this historically common contract clause. Event Cancellation Insurance (ECI) policies also must be reviewed for coverage, but in these unusual circumstances, there may be considerable uncertainty for both insurers and insureds.
ECI is a type of insurance product designed to protect revenues and expenses associated with insured events that must be cancelled or postponed as a direct result of unforeseen circumstances, or an unexpected cause that is beyond the control of the organizer or attendees. The types of events that are often covered include, but are not limited to, meetings, weddings, trade shows, conferences, exhibitions, performances, concert tours and sporting events.
ECI may not cover all unforeseen circumstances that result in event cancellation. If you are contemplating making a claim through your ECI policy or are an insurer facing such a claim, a careful review of the policy wording and all Exclusions must be undertaken. The date of the policy, and the date on which the event occurs or commences may also be relevant, as there often is a 14-day period for the policy to become active. A review of any Non-Appearance Insurance or other insurance policies that may provide relief should also be undertaken, as ECI is not always available depending on the reason for cancellation.
While each policy has to be reviewed individually in the context of the particular facts, ECI policies may limit coverage to one of the following non-exhaustive list of situations:
- Adverse weather;
- Natural disaster, such as earthquake, flood, fire or tornado;
- Labour disputes;
- Non-Appearance of performers or keynote speakers; and
- War, terrorism or riots.
ECI policies that cover "all causes" may cover cancellations due to a communicable disease outbreak, such as COVID-19. Consideration may have to be given to: (i) the timing of the event and its cancellation; (ii) where the event is being held, the situation at the time of cancellation and projected developments; (iii) the size of the event; and (iii) from where the participants are coming, to assess whether event cancellation was necessary, and the situation was beyond the control of the organizers and participants.
If "communicable diseases" are clearly and expressly excluded (and/or pandemic or government-declared quarantines are excluded, which occurs in some ECI policies), such exclusions would appear reasonably clear to apply to a COVID-19 outbreak and obviate coverage. Other exclusions, such as those relating to biological pathogen, would not be expected to apply, since they usually relate to intentional or malicious use (i.e., terrorism).
ECI policy conditions may also require the insured to mitigate the loss, including best efforts to reschedule the cancelled event. If the event cannot be rescheduled and the amount of the loss is increased, the insured should have evidence of steps attempted and a reasonable basis for not being able to reschedule in order to fulfill this policy condition.
As it is unlikely that most policies issued prior to January 2020 contemplated a viral outbreak such as COVID-19, previously issued policies did not cover this potential threat, nor was this risk assessed by insurers when calculating the premiums for such a policy. However, it can be expected that insurers will now be revising their policy exclusions and premium pricings for certain endorsements. Companies and individuals looking to purchase ECI insurance on a go-forward basis should meet and consult with a knowledgeable insurance broker, and carefully review the policies now being offered to ensure the policy covers their needs, or whether additional insurance or added endorsements need to be purchased to manage prospective financial losses resulting from event cancellation. As large-scale events continue to be cancelled around the globe, uncertainty prevails as to when the crisis will be over, and there is the possibility of some regions recovering faster than others, this product becomes more important and potentially complex.
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