Author: Lou Novick
The information below is intended to provide general information about event cancellation, specifically for meetings. This generalized information does not take into account all of the unique and specific issues that may be involved with your business, your specific event or insurance policy. If you have questions about this information or your particular insurance coverages, please contact your Gallagher representative.
1. What does ‘cancellation’ mean in an Event Cancellation Insurance (ECI) policy?
The definition varies from one policy to the next, but generally cancellation means that the insured is unable to host a meeting. This could describe physical inability (e.g., the convention center experienced a fire); or it could describe legal or regulatory inability (e.g., an ordinance that restricts movement or access to needed facilities). Note, however that not only does the definition of cancellation vary from policy to policy, the scope and duration of such ordinances (whether state or local and whether designated as a stay-at-home order, shelter in place or some other term) vary as well. As this is an evolving risk, you should consult with your broker and carrier about your ECI policy and specific terms while considering cancelling your meeting.
2. When can we cancel our event if it looks like we will be unable to have a meeting?
While the decision whether and when to cancel is always reserved to the insured, the decision as to whether insurance coverage applies is not within the insured’s discretion. If possible, the insured should secure assurance from the carrier that its ECI policy is triggered before the insured cancels a meeting. Unfortunately, this isn’t always possible. Typical event cancellation claims include a covered peril that will trigger a claim that is close in time to the decision to cancel. Current COVID-19 pandemic-related claims may allow the insured to be prepared months prior to cancellation, and advance notice will permit discussion with the carrier regarding the insureds inability to host the meeting. Many organizations that already know their events will be cancelled have notified their insurance carrier and are awaiting a coverage decision.
3. How do we submit an insurance claim under an ECI policy?
Contact your Gallagher service representative and you will be provided a template document. Once completed and returned, it will be entered into the Gallagher claims tracking system, and forwarded to your carrier as notice of your actual or potential claim. A representative from Gallagher’s team of Claim Advocates trained in assisting with ECI claims will contact you. A number of documents will be required by the carrier in order to consider your claim. A checklist of most of the required items will be provided by the Claim Advocate.
4. When will the insurance carrier respond to a notice of claim?
Although it seems that the decisions are not made quickly, most states require that insurance carriers respond with a coverage assessment within 30 days of notice. In some situations, insurance carriers are unwilling to commit to a claim because circumstances may change once the event date arrives. Factors that could affect coverage of the insurance claim can include meeting planner’s decisions regarding the entire scope of activities to assure a successful event, and whether members, attendees, exhibitors are able to reach the venue. While the carrier perspective captures some of these factors, their concerns tend to be more narrowly focused on the circumstances a few days before the scheduled event.
5. How do force majeure clauses interact with an ECI claim?
A force majeure clause in an event contract can be an effective risk transfer technique for event planners that will eliminate certain claim expense that would be included in an ECI claim. It may be relied upon as a means of avoiding prospective costs such as food and beverage, labor, travel, allocated salary, attrition penalty, etc. However, even if a force majeure clause is triggered, the event planner may still be responsible for costs incurred (e.g., pre-meeting travel, printing and mailing), non-refundable deposits (e.g., speaker fees) and minimum earned amounts, which are typical in meeting service agreements. Additionally, the organization will still need to ensure that it is in a position to refund attendee and exhibitor registration fees in the event of a cancellation or curtailment of the event. And, of course, the net revenue of an event is better protected by ECI.
6. Are staff and legal expenses incurred from putting claim information together covered by ECI?
Generally not. The only circumstance where these costs may be covered is with the advance written approval of the insurance carrier and when the expense is incurred to further reduce the total loss.
7. What happens if the actual (or trending) gross revenue at the time of event cancellation is greater than the budget estimate on the ECI application?
Under most policies, the insured has an opportunity to request an increase in coverage limits (either due to higher projected revenue or expense) two or more weeks prior to the event date. If the insurance carrier agree, the rates and coverages are typically subject to underwriting rules at that time. Otherwise, an insured should not expect recovery of loss in excess of the amounts stated on the application and in the policy.
8. Does coverage for communicable disease constitute a loss if our event is cancelled or our attendees and exhibitors cancel and seek a refund?
Typically, insurance coverage applies only if the enforced reduced attendance is the direct and sole result of the COVID-19 virus. Attendees or exhibitors unable to participate either due to a general concern about the disease, instructions from their employer not to attend or even the financial failure of the organization may not trigger coverage.
9. What does ‘postponement’ mean?
Whether or not defined by an insurance policy, a postponement describes an insured’s event being cancelled and rescheduled at a later date. From the carrier’s perspective, the purpose served by postponement is mitigation of the loss that results from cancellation of the event. Since the insurance carrier is typically obligated to pay the net revenue of the original event, the net proceeds of the postponed event reduce the carrier’s ultimate loss. A final claim settlement is usually made at the conclusion of the postponed and rescheduled meeting.
10. What does ‘mitigation’ mean and is it required for coverage of loss?
Although the term is not typically defined in an ECI policy, the calculation of loss for an ECI claim will include consideration of the insured’s conduct in reasonably avoiding or diminishing the total claim loss including, but not limited to, rescheduling the cancelled event. Exercising force majeure clauses or cancelling contracts in order to avoid greater expense or penalty are both good examples of this requirement.
While generally not required to mitigate claim loss, the insured should attempt to reschedule a cancelled event. If it could be shown that, based on reasonable criteria, the postponement and rescheduling of an event is not in the insured’s best interest, then such mitigation efforts may not be required. You should check with your insurance carrier on its interpretation of the mitigation requirement before making a final decision on whether to reschedule your event.