By Shaun Crosner
In the big-money business of live sporting events, a canceled or postponed event can result in multi-million dollar losses for various individuals and entities. For example, in December 2010, heavy snow in the Minneapolis area caused the roof of the Hubert H. Humphrey Metrodome, home of the NFL’s Minnesota Vikings, to collapse. The resulting damage led Metrodome officials to postpone a primetime Sunday night game between the Vikings and the New York Giants. The game was quickly rescheduled for the next night at Detroit’s Ford Field, where fans in attendance were granted free admission. The Vikings offered refunds to thousands of ticket holders who had purchased seats for the scheduled game against the Giants at the Metrodome. Many season ticket holders also received refunds for the team’s remaining home games, all of which were played at alternate sites while Metrodome officials worked to repair the damaged roof.
As this example illustrates, live sporting events pose significant economic risks for those individuals and entities with a financial stake in a scheduled sporting event. To combat against these risks, many insureds—including venues, teams, leagues, concessionaires, broadcasting organizations, promoters, and advertisers—rely on event cancellation insurance.
Because this important risk management tool can protect an insured’s bottom line against the financial losses that accompany event cancellations and postponements, insureds should take steps to familiarize themselves with the scope of coverage provided by their event cancellation policies. And, in the event of a loss, insureds should strive to satisfy all policy terms and conditions. Doing so will minimize coverage disputes and allow insureds to maximize the value of their event cancellation coverage.
The Coverage Provided by Event Cancellation Policies
Event cancellation coverage insures against loss arising out of the cancellation, interruption, or postponement of a covered sporting event, as long as the source of the cancellation or postponement is covered under the insured’s policy. Coverage is potentially available for cancellations and postponements stemming from a wide variety of perils: including earthquakes, floods, fires, power failure, damage to the leased or rented venue, and problems associated with public transportation or roads leading to the venue. It is worth noting, however, that event cancellation policies are generally “non-standard,” meaning that terms and conditions vary widely from policy to policy. An insured must therefore carefully review its policy to determine the scope of coverage provided.
The forms of financial loss covered under an event cancellation policy will likewise depend on the particular terms of the insured’s policy. Policies will frequently cover the out-of-pocket costs incurred by the insured prior to the cancellation, interruption, or postponement of the event. Coverage might also be available to cover any contractual guarantees that the insured is obligated to pay.
Lost profits and revenues may also be covered under an event cancellation policy, provided that the insured can establish with reasonable certainty the amount of the loss. This coverage could apply to, among other things, lost advertising or broadcasting revenue, lost ticket sales, or amounts paid to reimburse individuals who had already purchased tickets.
Finally, depending on the particular terms of the event cancellation policy at issue, the costs associated with rescheduling a postponed or interrupted sporting event could potentially be covered. For instance, coverage might be available for the costs of organizing and marketing the rescheduled event, and the same is potentially true of costs incurred to transfer equipment and supplies to a new venue. An insured may also be able to recover the cost of renting or leasing a new venue for the rescheduled event.
Commonly Excluded Perils
Like all forms of insurance, event cancellation policies will typically contain a number of exclusions designed to limit coverage. For instance, event cancellations or postponements stemming from weak ticket sales or lack of advertising interest are generally not covered under event cancellation policies, unless the lack of sales or advertising interest can be attributed to an otherwise covered cause. The same is generally true of cancelled or postponed events resulting from a lack of funding.
Furthermore, many event cancellation policies have exclusions from coverage for cancellations and postponements resulting from labor strikes or lockouts. This type of exclusion would, depending on the precise policy language at issue, potentially bar coverage for the 43 pre-season games that the NBA recently cancelled because of the ongoing player lockout.
Because event cancellation policies are often “manuscripted” (that is, not simply form policies), many common exclusions can be re-worded or eliminated, with or without an additional premium. For instance, some event cancellation form policies will exclude coverage for cancellations or postponements stemming from an athlete’s failure to appear at the scheduled event. Such exclusions can be, and commonly are, negotiated out of event cancellation policies through an endorsement. It is especially wise for insureds to purchase non-appearance coverage for boxing matches, tennis exhibitions, and other live sporting events that hinge on the participation of a particular athlete.
Similarly, although event cancellation policies often contain exclusions for weather-related cancellations and postponements, such exclusions can often be narrowed or limited through negotiation. For this reason, insureds with a financial stake in an outdoor sporting event might, depending on the location and time of year of the scheduled event, consider purchasing an endorsement or separate policy that provides coverage for cancellations and postponements stemming from heavy rain or snow on the day of the scheduled event.
In sum, before purchasing an event cancellation policy, an insured should carefully examine the scope of coverage provided and, if necessary, explore the possibility of negotiating for more favorable terms or purchasing supplemental coverages.
The Mitigation Requirement
Event cancellation policies typically include a provision obligating the insured to take all reasonably practical steps to minimize (or “mitigate”) financial losses resulting from the cancellation, postponement, or interruption of a covered sporting event. In many cases, this mitigation requirement will lead an insured to reschedule a postponed or interrupted sporting event rather than canceling it altogether. From a practical standpoint, contractual obligations may effectively require an insured to reschedule a postponed or interrupted sporting event. Even absent such obligations, however, it may still make financial sense to reschedule an event, even if the rescheduled event is not likely to net the insured substantial profits.
Since the mitigation requirement is meant to minimize an insured’s losses (as well as the amounts paid out by the event cancellation insurer), an insured should therefore be able to recover reasonable mitigation costs incurred in connection with a rescheduled event. For example, expenses associated with the planning, marketing, and organization of the rescheduled event might be viewed as covered costs of mitigation. An insured should therefore include these mitigation costs in its claim for coverage under an event cancellation policy.
Making a Claim for Coverage
As soon as it becomes clear that a scheduled sporting event might be canceled, postponed, or otherwise interrupted, an insured should carefully review its event cancellation policy and strive to satisfy all policy terms and conditions.
In particular, insureds should pay close attention to timing-related policy terms. Most event cancellation policies will require that the insured provide notice of a loss within a specified timeframe—sometimes as little as 30 days (or even less) following the loss. Because failure to comply with these notice requirements can complicate the pursuit of coverage, insureds should make every effort to provide formal notice within the required timeframe. This is true even if a particular cancellation or postponement receives significant media attention, as was certainly the case with the postponements resulting from the Metrodome’s December 2010 roof collapse.
Many event cancellation policies will also require that the insured submit a detailed “proof of loss” within some specified timeframe following the loss. The proof of loss requirement gives the insured the opportunity to document its claim and describe the losses that it suffered from the covered event’s cancellation, postponement, or interruption. This process could, among other things, entail providing the event cancellation insurer with copies of canceled checks, relevant contracts, and invoices and receipts pertaining to amounts paid in connection with the planning and organization of the canceled or postponed event. Additionally, because an insured’s claimed lost profits are generally judged against profits earned for prior events, an insured may need to turn over historical financial records to an event cancellation insurer to support its claim. It is therefore important for insureds to maintain detailed and comprehensive records for all of their events.
The insured should also be aware of timing-related limitations concerning the right to initiate litigation against an insurer, should the insured deem such action to be necessary. In some instances, the timeframe in which an insured can file suit is dictated by the express terms of the event cancellation policy; in others, statute or regulation will provide the relevant limitations period. Either way, an insured should be mindful of the timeframe in which it can initiate coverage litigation against their insurer, as an insured must preserve its right to pursue coverage in order to obtain the full benefits of its event cancellation policy.
Shaun Crosner, a Los Angeles-based attorney in Dickstein Shapiro LLP’s Insurance Coverage Practice, is the co-leader of the Firm’s Entertainment and Sports Insurance Coverage Initiative. His practice focuses on the representation of policyholders in disputes with their insurers. Mr. Crosner has written and spoken on a variety of topics related to sports and entertainment insurance and he is an editor and primary author of LexisNexis’s New Appleman Sports and Entertainment Insurance Law & Practice Guide (2010).
