21 April 2020

Contingency/Event Cancellation COVID-19 FAQs

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Contingency/ Event Cancellation

The COVID-19 outbreak and the social distancing rules introduced to reduce the spread of the virus have led to a wave of event cancellations. Here are the answers for some of the questions that may help event organisers in this challenging situation.

 
Q: As an event organiser, how can I reduce the financial impact of cancelling an event? 

A: Organisers may want to check if there are “force majeure” (circumstances beyond their control) provisions in any contracts that would be affected by a cancellation or postponement. Such a provision could allow the company to suspend or terminate the performance of their obligations. In such cases, the terminating party would still need to prove that COVID-19 falls within the force majeure provisions list and that COVID-19 impacted performance in the way required in the provision. If the company can prove both elements the cancellation may be possible without honouring any cancellation fees. Companies should seek legal advice.


Q: How do event cancellation policies respond to the COVID-19 crisis? 

A: Event cancellation insurance policies can cover the cost of cancelling or postponing an event due to COVID-19 if the policy includes communicable diseases. Applicable policy triggers typically mention “local government closing the venue” or “local government banning public events”. Many governments have banned public gatherings temporarily due to the virus outbreak.


Q: How is the insurance market reacting to the high volumes of claims on event cancellation policies? 

A: The contingency insurance market has learned its lessons from previous virus outbreaks such as SARS or Zika and has since improved its ability to manage risk aggregation. Nevertheless, the COVID-19 outbreak does have the potential to change market dynamics significantly.

The insured contingency insurance losses accumulated in the London market due to COVID-19 have been estimated at between $3bn but this depends on how long the social distancing rules will remain in place.

Underwriters are reacting to surging claims in different ways. While some are excluding COVID-19 or communicable diseases coverage or both in new and renewing event cancellation insurance policies, others have taken a softer approach. They are keeping communicable diseases included in the cover but increasing the price, deductibles and/or trigger levels to limit their risk exposure.

 

Q: What do you recommend to companies that need to take a decision of whether to cancel an event or not? 

A: Any company that has an event coming up which may be at risk of cancellation should discuss the issue with their insurance broker and underwriters as soon as possible. Such conversations should help create an action plan to mitigate the impact including renegotiating contracts with venues and other service providers while also clarifying the options. Even if the company plans to go ahead with the event this may generate additional cost which could be absorbed by the insurer. 

Generally, costs incurred by the cancellation should not be the primary driver of the decision. There is, for example, a serious risk of holding the event without attendees after many companies introduced travel bans for employees. Also, going ahead with the event could damage the reputation of the event organiser and its sponsors if it is impacted by the virus outbreak. While it is certainly a difficult decision to take, the best way to get it right is focusing on what is best for stakeholders, employees and the company as a whole. 
 

For any questions that aren't covered in the FAQs above please contact covid-19-questions@uk.lockton.com.