The insurance landscape for Event Cancellation coverage is dynamic and ever-changing with underwriters keeping a watchful eye on potential new perils. Careful negotiations with market sources are imperative in an effort to close critical gaps in basic policy offerings. By its very nature, the coverage is not standardized, thereby allowing for both the imposition of added restrictions and exclusions, as well as for enhancements based upon prevailing market conditions. For example, the availability of terrorism coverage for major sporting events became scarce and pricing skyrocketed after 9/11/01. However, in the past few years with thankfully no additional terrorist strikes on U.S. soil, pricing has become much more favorable and additional terrorism enhancements more readily available.
After the SARS outbreak of 2003, most insurers added a 'Communicable Disease' exclusion to their cancellation policy forms. Limited coverage has been made available at additional premiums. The current outbreaks of Swine Flu have again caused a contraction in availability of this coverage and have dramatically increased pricing as a percentage of the covered limit. However, sports event planners need to consider the financial impact of a cancellation, or relocation of an event, if there is a quarantine or restriction of movement affecting the use of a particular venue. This aspect of event cancellation coverage is currently, and for the foreseeable future, the "hot-button" item of concern to underwriters.
Examples of Coverage
Beyond the direct physical perils that might render a sports facility unusable such as fire, flood or earthquake there are often overlooked and more esoteric or indirect exposures that may prevent the ability to hold the event. Some examples for which coverage can be obtained by endorsement or manuscript policy revision include:
Civil commotion, popular uprising, riot, martial law or the acts of lawfully constituted authorities in the maintenance of public order.
National mourning following the death of the President of the U.S. (or other head of state if a foreign event).
Imposition of a Federal Aviation Administration or foreign equivalent closing of airspace due to emergency.
The non-appearance of a particular percentage of or the entire participating team or teams due to common accident, illness or travel delay.
Pre-emption of televised sporting events due to a national emergency or newsworthy item of catastrophic proportions that pre-empts regular programming on all of the major networks for a continuous period of time.
War Risk (a standard exclusion) may be modified to provide certain elements of coverage except for war between any of the five major world powers.
Various levels of terrorism coverage can be purchased (depending on prevailing market conditions) from the mandatory offering of Terrorism Risk Insurance Act (TRIA) partially backed by the U.S. for "certified acts of terrorism" as defined by the Act to additional enhanced terrorism add-ons with increasing premium costs including:
Limited terrorism subject to time and distance parameters;
Full non-certified acts of terrorism (i.e., "domestic terrorism");
Fear or threat of a potential terror attack if confirmed in writing by government authorities as posing or appearing to pose a credible risk of physical loss or bodily injury or death if the event had proceeded, whether or not such risk is subsequently real or a hoax; and
Buy-back of nuclear, chemical or biological agents exclusions.
Weather insurance for certain types of outdoor sports events can be a critical factor with regard to stadium preparation and game execution. Outdoor hockey and basketball games, for instance, may face unusual challenges from temperature factors, snowfall, rain and wind. Adverse conditions can prevent or delay game execution. Manuscript wording to address particular conditions can be added to an event cancellation policy or separate weather insurance can be obtained. As an adjunct to an event cancellation policy, it is possible to obtain coverage for extreme weather conditions that occur on game day and are determined by the event organizer or sports league officials or referees to pose a serious threat to the safety of the participating players and officials. In addition, the coverage can also be enhanced to provide coverage during the policy period during which local authorities consider the weather conditions as dangerous to spectators. Hurricane threats, blizzard conditions and perhaps lightning storms would fall within this realm.
Poor weather conditions may also prevent or delay the necessary construction or set-up of playing surfaces including fields due to physical impossibility or dangerous conditions to the construction and set-up crews. As is the case with all other potential losses under an event cancellation, the burden of proving a loss rests with the insured. It is therefore commonplace that an insured obtain the services of an independent weather observer to monitor various weather conditions at the event site during the term of coverage. As an alternative to the "adverse weather" provisions of an event cancellation policy, separate specific Weather Insurance can be obtained. The big difference is that the selected policy limit is paid regardless of whether or not there is a cancellation of the event as long as the "trigger" conditions specified in each custom tailored policy are met. For rainfall or snowfall, for example, the "trigger" would be a certain amount of precipitation falling within the covered time period (i.e., 1/4 inch or more of rainfall between 11 am and 5 pm).
Policies can cover lightning, wind, temperature, fog or rain-free hours. In certain situations, it may be beneficial to have a combination of event cancellation for perils other than weather and a separate specific weather policy.
Plan the Budget
From a practical standpoint, event cancellation coverage should be considered early as an event budget is being developed along with desired policy terms, conditions and limits. It is best to test the insurance marketplace long in advance of an event and to consider binding coverage as far in advance as possible so that the coverage is in place and working on behalf of the event promoter or sponsor at the same premium levels as if it were bound within weeks of a game. Multi-year policies can sometimes be arranged to take advantage of very favorable pricing and coverage terms. A method of sharing a percentage of a loss for an equivalent percentage premium savings known as coinsurance can be implemented as a means to reduce premiums. In some instances a "No-Claim" Bonus provision can be obtained on larger policies.
Contingency expenditures that might be needed to prevent a cancellation, abandonment, postponement or relocation should be factored in and coverage should be written to apply whether or not such expenditures result in the prevention or reduction of a loss.
Financial Consequences
The serious financial consequences involved as a result of the unavoidable cancellation, postponement or relocation of a sporting event can be challenging. Ticket refunds, sponsorship revenue refunds, advertising costs and extra expenses are no doubt detrimental to the event holders' bottom line. The careful coordination of appropriate insurance to protect against disaster should be an important aspect in the overall risk assessment and management process.
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