Since 1939, Division I men’s basketball teams have competed in March Madness, a single-elimination tournament that culminates in the crowning of a national championship team. The spectacle of March Madness generates significant revenue for event organizers, promoters, venue owners, teams and athletes. For example, in 2019, the NCAA made approximately $933 million in revenue from media rights fees, ticket sales, corporate sponsorships and television advertisements.
There is, however, always the risk that unforeseen circumstances will force cancellation, postponement, or relocation of a large sporting event such as March Madness. Indeed, according to Peter Williams, global product leader for Live Entertainment at Allianz, one of the insurers for the Final Four of March Madness, the “big ticket” item that insurers are most concerned about during March Madness — the cancellation or postponement of one of the games. The reasons for cancellation of large scale sporting events can vary but insurers are particularly concerned about terrorism and security related issues, weather-related threats and damage, and resulting affects to power.
If March Madness was cancelled or postponed, its event organizers and promoters, venue owners, advertisers, broadcasting organizations, teams, leagues and concessionaries, could suffer considerable loss. These individuals, entities and anyone else with a financial stake in March Madness should consider if they have event cancellation insurance in place and if so, conduct a thorough review of their event cancellation policies. This is also a reminder for anyone that has a financial stake in March Madness or other large-scale sporting events, that they should consider purchasing event cancellation insurance as terrorism and weather-related losses become more commonplace.
The Coverage Provided by Event Cancellation Insurance
Event cancellation coverage is a specialized form of insurance aimed at providing protection for a wide range of individuals and entities involved in almost any kind of event. Although policy terms can vary, event cancellation policies typically cover the financial losses associated with the interruption, postponement, cancellation, relocation, or abandonment of, as well as reduced attendance, at an event. Coverage is potentially available for cancellations and postponements stemming from a wide variety of perils, including natural disasters, power failure, damage to the leased or rented venue, and denial of access to the venue due to a failure of public transportation.
For coverage to attach, the event must be cancelled because of a peril that is beyond the insured’s control—i.e., fortuitous. Examples of the types of fortuitous perils for which event cancellation policies may provide coverage include, among others;
• natural catastrophes such as earthquakes, floods, and fire;
• power failure;
• interruption of a live broadcast for major breaking news;
• damage to the leased or rented venues;
• damage to surrounding venues or infrastructure impeding access;
• public transportation failure or denial of access;
• strike risks;
• terrorism or threat of terrorism; and
• inability of any person (including performers, speakers, and players) to appear at an event.
Event cancellation policies are generally non-standard—terms and conditions very widely from policy to policy—and while many policies insure against a specific list of perils, some may cover all perils not specifically excluded under the policy. Likewise, the types of financial loss covered under an event cancellation policy will depend on the particular terms of the policy.
Event cancellation insurance can cover various types of financial loss. For instance, event cancellation policies will frequently cover whatever marketing, organization, and other out-of-pocket expenses the insured incurred prior to the event's cancellation or postponement. Lost profits and revenues may also be covered under an event cancellation policy. This coverage could apply to, among other things, lost advertising or broadcast revenue, lost ticket sales, or amounts paid to reimburse individuals who had already purchased tickets. In addition, event cancellation policies can also include coverage for additional expenses incurred by the insured in connection with the planning and promotion to reschedule an event.
Common Exclusions That May Limit Coverage
Event cancellation policies contain various exclusions that may preclude coverage in certain circumstances. For example, these policies often exclude coverage for loss that arises out of or otherwise results from:
1) the financial failure of an event, including reduced attendance caused by competing events, poor ticket sales, lack of withdrawal of funds, or insufficient financing
2) lack of audience or public support; a breach of contract by any promoter, sponsor, or organizer
3) war, including undeclared war, civil war, insurrection, rebellion, revolution, and war-like acts by military force
4) the insured’s failure to make all the necessary preliminary arrangements to ensure that the event can be held as scheduled, including all necessary licenses, visas, permits, and authorizations, and ensuring that all contractual arrangements have been confirmed in writing
5) labor strikes or player lockouts.
In addition, some event cancellation policies include an exclusion for various forms of weather. Some policies simply preclude coverage for “adverse weather,” while others specify rain, sleet, and/or snow as excluded from coverage for the cancellation, interruption, or postponement of outdoor events. Still others contain a modified exclusion, precluding coverage for “adverse weather” unless physical damage occurs to the property and facilities to be used for the event.
Further, many event cancellation policies no longer provide terrorism coverage as part of their standard coverage. This is largely because of the cancellation of thousands of events, including theatrical productions, concerts, trade shows, and sporting events, after the September 11, 2001, terrorist attacks. However, coverage for terrorism is still available in the marketplace and insureds would be well-advised to consider if coverage is warranted. However, the threat of terrorism or sabotage could likewise necessitate the cancellation or postponement of a scheduled event. Consequently, insureds should make sure that their policies cover losses stemming from acts of terrorism and sabotage, as well as threatened acts of terrorism and sabotage.
Insureds Must Mitigate Losses
Event cancellation policies typically include a provision requiring the insured to take all reasonably practical steps to minimize (or mitigate) financial losses resulting from the cancellation, postponement, or interruption of a covered event. In many cases, this mitigation requirement will lead an insured to reschedule a postponed or interrupted event rather than cancel it altogether.
However, the mitigation requirement is not intended to force an insured to reschedule an event where doing so will add to the insured’s loss, nor obligate insureds to reschedule an event where doing so is not practical.
Because the mitigation requirement is intended to minimize an insured's loss (as well as the amounts paid by the insurer), reasonable mitigation costs should also be included in an insured's claim for coverage. These expenses may include the cost of planning, promoting, and organizing the rescheduled event, as well as the cost of bringing in a substitute performer or athlete.
Making a Coverage Claim
Following a loss, an insured should pay close attention to all timing-related policy terms. Typically, insureds have a stated amount of time to perform certain tasks under policies, such as providing notice, filing a proof of loss, or filing suit against the insurer. For example, many policies require the insured to submit notice of a loss within a specific number of days—often as few as 30 days following the decision to cancel or postpone an event. Failure to comply with these notice requirements can negatively impact coverage. Thus, insureds should make every effort to provide formal notice within the stated time. This is true even if a cancellation received significant media attention—as would be expected if March Madness was cancelled.
Event cancellation policies will likely also require insureds to provide a detailed proof of loss within a specific time frame. The proof of loss is the documentation and description of the nature of the loss and extent of losses suffered. Insureds should gather copies of all canceled checks, relevant contracts, invoices and receipts pertaining to amounts paid in connection with the planning and organizing of the canceled or postponed event.
Insureds should also be aware of any timing-related limitations on when to file suit against an insurer. In some cases, the timeframe is dictated by the insurance policy and in others, statute or regulation provide the applicable time period.
When making a claim for coverage, insureds should carefully review all policy terms and conditions to maximize potential coverage and insureds should never make any assumptions about what is covered under their policies.
Pasich LLP Partner Mikaela Whitman, a founding member of the firm's insurance recovery team, regularly counsels clients on coverage issues arising out of event cancellation. Pasich LLP Associate Vincent Xu is a member of the firm's insurance recovery team.