The All-England Lawn Tennis and Croquet Club's decision to cancel Wimbledon in April due to the COVID-19 pandemic made headlines — not just because it became yet another high-profile sports event to pull the plug, but because doing so allowed the event organizers to collect a massive insurance payout of $141 million.
Wimbledon organizers reportedly paid a $2 million annual premium for pandemic insurance over the previous 17 years, meaning the club netted more than $100 million when it decided to cancel its signature event for the first time since World War II.
"Obviously it worked out in Wimbledon's favor that they were so on top of this type of insurance," says Anamay Carmel, a partner at legal firm Pasich LLP's Los Angeles office. "I also read that they paid quite a high premium for it, but that obviously paid off."
While the hefty claim figure surprised some, Carmel, whose firm specializes in insurance recovery for policyholders, notes that it could be in an insurer's interest to help a client to mitigate loss.
"The insurance company is going to look for the policyholder to do what it can to reduce the amount of loss," she says, noting that she hasn't read Wimbledon's policy. "If it were to say, require Wimbledon to keep going, to keep incurring expenses without really knowing whether or not it would be able to go on this summer, that would only increase the insurance company's payout. So it's kind of in the insurance company's interest to say, 'Hey, it's commercially reasonable to cancel the event at this point.' "
The Wimbledon case provides a valuable insight for sports organizations looking to protect themselves and their events in the future — not just from pandemics, but from other risks as well.
According to Carmel, when determining whether a claim is covered, insurance companies follow a two-step process. "What the insurance company needs to look at is whether or not there's coverage in the first place, and also whether or not any exclusions might apply," she says, adding that policies may also have built-in triggers for when coverage applies, and policy language may vary to the extent where there's room for argument. "That's definitely where we come in and we can be of best value."
Sports event organizers don't have to look to pandemic-specific coverage for their insurance needs, as Carmel notes that there are other policy types that could trigger a payout in the event of a major cancellation.
The NCAA, for example, had a business-interruption insurance policy connected to its canceled basketball tournament, which according to USA Today was worth between $250 million and $275 million. (How much the association receives, however, could depend on how disputes are resolved.) That figure is also just a fraction of the association's reported annual revenues of $1.1 billion, much of which is generated by the tournament itself.
"The basic type of insurance for this would be called event cancellation insurance, and typically sporting events do buy that type of coverage, but the coverage underneath an event cancellation policy can vary widely," Carmel says. "Some might just cover weather or some might just cover certain different aspects of the risk. And then others would be all-risk event cancellation policies."
All-risk policies, according to Carmel, would not generally exclude something such as a pandemic that would necessitate the cancellation of an event, but those policies, as well as specific pandemic protections, come with price tags that could make them cost-prohibitive.
The unprecedented nature of the coronavirus crisis and its far-reaching effects could set up legal battlegrounds in courts across the country. "We are fully expecting there to be — and there already have been — a number of brawls between policyholders and insurance companies," Carmel says, adding that those disputes are often resolved through litigation.
The pandemic's impact can be felt throughout a wide range of industries, including the insurance industry. Many companies could find themselves having to pay out claims across multiple industries, which could put them on defensive footing.
"Everyone's just kind of reeling from this. This is a really big deal," Carmel says. "So, I think that people are hopeful that the insurance policies will pay out, but obviously we'll need to get a little further down in the process to really figure out what position the insurance companies are taking and whether or not litigation is going to be necessary."
Sports organizations can make sure they're prepared for any eventuality and avoid litigation altogether by taking care to ensure they're properly covered ahead of time. Consulting with a lawyer who can suggest new policy language or point out coverage gaps is an early step that can prove worthwhile.
While many people throughout the sports world are shaken by the pandemic, it may be prudent for professionals — particularly those who host events — to consider their own coverage. Wimbledon's hosts exercised such due diligence, ultimately easing the emotional and financial sting of the event's first cancelation in 75 years.
This article originally appeared in the June 2020 issue of Athletic Business with the title "Understanding Wimbledon's $141 million pandemic insurance claim." Athletic Business is a free magazine for professionals in the athletic, fitness and recreation industry. Click here to subscribe.