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Cancellation Insurance Fallout: The Cost of Doing the Right Thing With Your Event

By Victoria Copans

In the age of COVID-19, you're penalized if you cancel preemptively, and you're penalized if you don't act as early as you can to mitigate damages — not to mention the lawsuit potential for putting people at risk. 

 

As the coronavirus rapidly spreads around the world — the total number of confirmed cases as of March 17th is close to 200,000 with the outbreak in the U.S. only beginning — event organizers are experiencing immediate and severe financial impacts from the pandemic. So many major events have been affected that the New York Times is keeping a running list of those that have been cancelled or postponed.

When it comes to event insurance claims and liability as a result of cancellations, planners are being faced with a lose-lose situation: cancelling an event preemptively out of fear of the virus generally will not be covered by insurance, but waiting too long could lead to additional losses where you have an obligation to your insurance claim to mitigate them.

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Navigating Insurance Claims

Every event insurance policy is different, so planners will have different levels of coverage depending on their particular contract. What's certain is that planners would have needed to have specific communicable disease coverage for their events before the outbreak began, which is unlikely in itself.

Most epidemic and disease-related coverage would be included in a "force majeure" clause, but the circumstances under which such a clause applies also depend on the individual agreements between the organizers and their insurance providers. Many insurance companies have also been including specific exclusions for communicable diseases since the SARS outbreak almost two decades ago.

In a recent CNBC segment, anchor Contessa Brewer explained that most event insurance kicks in once state or local officials have given the directive to cancel large events and gatherings, but not before — even though we're now officially facing a pandemic.

She goes on to share tips from Alex Roje, an insurance recovery attorney at Lathrop GPM, who urges organizers to carefully examine their policies and file any applicable claims as soon as possible to mitigate losses.

 

  • Another word of advice from Roje: do the right thing and do not let your insurance coverage dictate how you act.

 

Proceeding with an abundance of caution may be in planners' best interest, even if their insurance doesn't cover cancellation due to the coronavirus or the local government hasn't specifically banned public gatherings. Going forward with an event that could present risks to its attendees — no matter how small — could open organizers up to lawsuits and legal costs if anyone contracts the virus.

This may well be the case with this year's CONEXPO-CON/AGG 2020, North America's largest construction trade show, which decided not to cancel the event of over 100,000 people despite rising concerns over the virus. They had about 2,500 exhibitors participate and weren't forced to cancel as Las Vegas has not yet enacted restrictions on events, but the potential ramifications of the decision remain to be seen.

 

Event Organizers Lose Out Again

The widespread event cancellations so far in 2020 are undoubtedly affecting more than just event organizers. Ticket holders can all but forget about getting refunds for their registration fees — although in some cases their registration may be transferred to next year's edition — and most exhibitors and vendors will also be on the hook for their expenses.

However, there is one significant exception to the financial losses currently being weathered by the events industry, and that's the venues. The venues in these situations are largely protected because they receive nonrefundable deposits, and as Brewer explains, "their cancellation fees usually equal what they expected for profit revenues."

Venues enforcing fees for cancelled events are therefore walking away largely unscathed as the industry crumbles around them. Planners and exhibitors, on the other hand, will have to bear the brunt of the impact.

Hotel venues in particular have a history of disadvantaging event organizers: recent EventMB research into hotel room block pricing and online booking alternatives found that, on average, the same room at the same hotel and during the same days of the event is 1.17% cheaper on booking websites than the negotiated rate that the planners receive. In some cases, the "preferred" hotel rates are over 50% more expensive than publicly available options for similar hotel accommodation.

Ironically, this tends to lead to hotels paying more in commissions to these online sites while receiving fewer services in return. The smaller margins for hotels are due in large part to these sites' flexible cancellation policies, as opposed to the strict cancellation and attrition fees that hotels impose when planners book room blocks. Either way, planners tend to get the short end of the stick from their venue partners, whether it's through stringent cancellation policies or lower commissions.

It's prudent for every party involved in an event to take appropriate measures to protect themselves in the case of an unexpected cancellation. However, it's also important for industry players to work together to mitigate fallout and preserve their relationships and continued ability to produce events. It ultimately doesn't benefit venues if planners and their suppliers can't stay afloat and if relationships are harmed in the process.

 

IN CONCLUSION

It's now clear that the coronavirus outbreak will continue to affect daily life in countries around the world for what could be months. Its lasting effect on the world economy, and on the events industry in particular, is still uncertain, but planners are testing their adaptability and preparedness to recoup losses in the meantime.

Any viable insurance claim for cancelled events should be filed as soon as possible. For planners still weighing the risks of their upcoming event, the most important thing to consider right now is the safety and wellbeing of their attendees, exhibitors, and staff, and to plan accordingly regardless of insurance coverage.

about the author

Victoria Copans
Victoria Copans is a Vermont-based writer, editor, and translator who's been planning events since grade school. She worked at an events agency before transitioning to writing about the industry.
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