Mathew P. Ross | Wilson Elser
Given the risk to life and the economic impact of coronavirus, policyholders and the insurance industry alike are watching and considering whether business interruption or event cancellation insurance benefits may be available while similarly assessing liability risks. This three-part series will cover specific aspects of insurance that all stakeholders – insured, insurers and brokers – should consider. Part 1 can be accessed here.
Coronavirus: Status and Impact
Since its discovery in late December 2019, the coronavirus has swept the globe with nearly 60 nations reporting infections. According to the World Health Organization (WHO), more than 75,000 people have been infected with the virus with nearly 3,000 resulting deaths. WHO has declared coronavirus a global health emergency and last week raised the global risk assessment to High − its second-highest risk level.
The spread of the virus has caused global markets to tumble to record lows. U.S. stocks closed lower for the sixth straight day on February 27, ending the week at its lowest since 2008. In Europe last week, the FTSE 100 in Britain fell more than 3 percent and the DAX in Germany fell more than 4 percent. In Asia, the Nikkei 225 in Japan closed down 3.7 percent, the KOSPI in South Korea dropped 3.3 percent and the Shanghai Composite in China dropped 3.7 percent.
Major events and industry conferences have been cancelled due to fears of spreading the virus. The Geneva International Motor Show was effectively cancelled when Switzerland banned all gatherings of more than 1,000 people until mid-March. Facebook cancelled one of its most anticipated annual events, the annual F8 conference in California, and in Barcelona the Mobile World Congress, the world’s biggest mobile phone trade show, also was cancelled. Earlier this week, the International Olympic Committee suggested the Tokyo Olympic Games, scheduled for July, may be cancelled if the virus is not contained by the spring.
In this second part of the three-part series, we will review Event Cancellation and Contingency Nonappearance factors that insurance stakeholders should consider when claims under these policies are brought forward.
Event Cancellation/Contingency and Nonappearance Insurance
Not surprisingly, coronavirus is already impacting scheduled events. For example, the Dalai Lama cancelled all current public engagements; some ports have rejected cruise ships altogether; some airlines have stopped flights to parts or all of China; and 50 countries have imposed travel restrictions and visa requirements primarily on those who recently visited China or are Chinese nationals. Major events such as the Shanghai Grand Prix, the annual Goldman Sachs partners’ meeting in New York and the Mobile World Congress in Barcelona also were cancelled or curtailed.
Insurance products specific to event cancellations or nonappearance of a key person generally provide coverage due to perils beyond the control of the insured, the organizer of an event and the attendees when such perils result in cancellation, abandonment, postponement or enforced reduced attendance. Insureds, insurers and brokers now may find themselves evaluating such products to determine whether coverage under such policies may have been triggered. Under most policies, an insured has an obligation to mitigate its losses by reasonably seeking to postpone and/or reschedule an event to a different time or location. Terms and conditions of each policy may vary. An event cancellation policy can protect an insured from financial losses such as lost ticket sales, out-of-pocket expenses, contractual guarantees to others and sometimes even reimbursement to attendees for their purchased tickets.
Covered Perils & Losses
Covered perils in a typical Event Cancellation policy may include death, accident or illness; unavoidable travel delay; venue damage; and inclement weather. A covered claim may appear to be a claim for unavoidable travel delay in which event attendees could not make it to their destination due to travel arrangements that were delayed or cancelled, making it impossible to reach the event. A common misconception made by insureds, however, would be submitting a claim for an event cancellation due to the attendees’ or event organizers’ fear of traveling or spreading or catching the coronavirus, even though travel restrictions do not exist and the event is ready to go forward. The cancellation of an event while possibly in the best interest of the business may not necessarily be covered under such policies because the cancelation was not beyond the control of the event organizers or attendees.
Exclusions
A typical Event Cancellation policy may contain exclusions for lack of interest or support for an event, a preexisting condition, terrorism, breach of contract, financial failure of a venture and even communicable diseases. One issue to be aware of is the Communicable Disease exclusion that excludes coverage where a loss arises out of fear of any world epidemic determined by the World Health Organization. While this exclusion may exist in some Event Cancellation policies, coverage still may be provided in some circumstances, such as if the venue where the event was to take place were closed under the order of a government or public or local authority due solely to a communicable disease that manifested within the venue.
Conclusion
To prepare for the potentially catastrophic impact of a global pandemic or similar health crisis, policyholders and insurers should review Event Cancellation/Contingency and Nonappearance Insurance policies to determine:
- What new exposures and risks are present given the unique nature of the coronavirus?
- Given the global scale, what are the events that are being cancelled?
- Which current policyholders are likely impacted most?
- Are there early inquiries and claims, and what do they indicate?
- Do we have a process to triage claims to ensure they are handled in the best interest of all stakeholders?
The risk of a global pandemic with catastrophic consequences seems to grow more prevalent every few years. To prepare for the catastrophic impact of a global pandemic, insureds, insurers and brokers must understand what is and is not covered under such policies, and should work together to minimize potential losses by evaluating potential claims as early as possible.