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SBJ/April 25 - May 1, 2011/Opinion
Attention to detail, timing critical for event cancellation coverage
Published April 25, 2011, Page 13
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In early November, during routine cleaning of Madison Square Garden’s ceiling, debris fell onto the arena floor. Out of concern that the debris might contain asbestos, Garden officials postponed a game between the NBA’s New York Knicks and Orlando Magic. The Garden reopened a few days later after testing confirmed that there were no traces of asbestos in the arena. The game between the Knicks and Magic was rescheduled for late March.
Another major sporting event was postponed in mid-December after heavy snow in Minneapolis caused the roof of the Hubert H. Humphrey Metrodome to collapse. The resulting damage forced Metrodome officials to reschedule the Sunday afternoon game between the NFL’s Minnesota Vikings and New York Giants for the next evening at Detroit’s Ford Field. Fans attending the game in Detroit were granted free admission, and the Vikings offered refunds to thousands of ticket holders who had purchased Metrodome seats for the postponed game.
The collapse of the Metrodome roof forced the rescheduling of a Minnesota Vikings game.
Event cancellation coverage compensates policyholders for the financial losses that can result from the cancellation, abandonment, postponement, interruption or relocation of a sporting event. Policies are triggered whenever an event is canceled or postponed due to a covered peril. Policyholders can insure against a number of perils, including property damage to the event’s venue, power failure, and natural disasters such as earthquakes, floods and fires.
Event cancellation policies can cover various forms of financial loss. Some policies limit coverage to the policyholder’s out-of-pocket expenses associated with organizing and putting on the canceled or postponed event, whereas other policies also cover the policyholder’s lost profits and revenue. Event cancellation policies may also cover additional costs incurred when the insured event is rescheduled or relocated to another venue. These additional costs could, depending on the nature of the event, include the costs associated with marketing the rescheduled event, issuing new tickets, and transporting equipment to the new venue.
Regardless of the type of event cancellation coverage purchased, policyholders must make sure to satisfy all terms and conditions of their policies. In particular, policyholders should strive to present a timely and well-documented claim in the event of a loss. To that end, policyholders should keep a few tips in mind when making a claim for coverage under an event cancellation policy.
Avoid time traps
In the event of a loss, a policyholder must pay close attention to the policy’s timing requirements. For instance, event cancellation policies will typically set forth a specific time frame (sometimes as short as 30 days or less) in which the policyholder must provide notice of the loss. Therefore, policyholders should promptly notify their insurers of any canceled or postponed event, even if the event’s cancellation or postponement received substantial media coverage. For instance, even though the Knicks-Magic postponement received national television attention and coverage from the various news media outlets, Madison Square Garden officials would still want to formally notify their event cancellation insurer of the postponement — even if only to avoid giving the insurer a basis to contest coverage.
Policies may include other timing requirements, as well. For instance, in the weeks following a loss, a policyholder might be required to submit a “proof of loss” with specific information about the claim. An event cancellation policy might also include a limitations period that sets forth the amount of time that a policyholder has to initiate litigation against an insurer, should such action be necessary.
An event cancellation policy will invariably require that the policyholder take all reasonably practical steps to minimize (or mitigate) the financial loss resulting from a canceled or postponed event. Often, mitigation provisions of this sort will require that the policyholder reschedule the event, even if the rescheduled event is not likely to net the same profits as would otherwise have been the case.
For example, even though most of the spectators at the Vikings-Giants game in Detroit did not pay for their tickets, the rescheduled game did mitigate losses to some extent. Indeed, the rescheduled Vikings-Giants game was broadcast in a handful of television markets, providing at least some revenue to the two teams to offset their respective financial losses.
Because event cancellation policies require policyholders to mitigate their losses, a policyholder can and should include mitigation costs in the claim for coverage. Such expenses should be recoverable, so long as they were reasonable and calculated to avoid even greater financial loss.
Carefully document the claim
When making a claim for coverage under an event cancellation policy, policyholders should document the claim thoroughly and accurately. Some components of loss are relatively straightforward. For instance, policyholders usually have little trouble proving the amount spent on pre-event advertising, and the same is generally true when a canceled or postponed event requires the policyholder to offer refunds to ticket holders. Still, it is important for policyholders to retain canceled checks and invoices so as to simplify the claims adjustment process.
Other aspects of a policyholder’s loss, however, are harder to establish. As noted above, many event cancellation policies insure the policyholder’s anticipated revenue or net profit. These aspects of a policyholder’s loss are, at least to some degree, necessarily speculative.
However, policyholders are far more likely to recover their lost revenue or profits if they can justify their financial projections with historical data. For this reason, and for numerous others, policyholders should endeavor to keep detailed financial records for all of their events. Doing so will help policyholders maximize their recovery and obtain the full benefit of their insurance coverage.
Shaun Crosner (firstname.lastname@example.org) is an associate in Dickstein Shapiro’s insurance coverage practice and co-leader of the law firm’s entertainment and sports insurance initiative. He is also an editor and principal author of the “New Appleman Sports and Entertainment Insurance Law & Practice Guide,” which was recently published by LexisNexis.