Ryding Out The Risk - Cancellation Insurance

Article by James Whittaker and Nick Rudgard

The recent postponement of the Ryder Cup due to the tragic events in New York and Washington has focused attention on the risks faced by major entertainment events. Considerable costs can arise due to cancellation or postponement. What are these risks and can they be managed through insurance cover?

Risks

A typical assessment of risks that could lead to the cancellation, abandonment, interruption or postponement of an event would include the following:

boycotts - e.g. the 1980 Moscow Olympic Games

terrorist threat - e.g. the pipe bomb in Atlanta

health epidemic - e.g. the foot and mouth outbreak

national tragedy - e.g. the death of Princess Diana

weather - e.g. flooding

transport breakdown - e.g. fuel protest/strikes

An event organiser is not the only party to be affected by such risks. Broadcasters, sponsors and providers of services such as caterers and merchandisers would all have their own potential loss and damage arising from such risks, due to their investment in the preparation for the event. Who bears such losses will depend upon the contractual arrangements between the parties, and who has agreed to indemnify whom.

Management Through Insurance

Insurance against these kinds of risks is available in the market and is often summarised as "cancellation cover". The primary insuring clauses will typically cover any cause occurring during the period of insurance which is beyond the reasonable control of the insured party, and which causes the event to be reasonably cancelled, abandoned, postponed, interrupted or relocated ("the trigger words"), thereby causing an ascertainable loss.

The trigger words will often address different consequences at different chronological points, and are usually carefully defined. The purpose of this is to establish the degree of proximity necessary between the occurrence of the risk and the relevant trigger word.

For example, is there an actual or legal reason why an event cannot take place, or is it in reality a matter of moral or ethical sensitivity? There could for instance be a difference between a Government initiative preventing or inhibiting the movement of people, such as in the case of the Cheltenham Festival or Six Nations Rugby Championship, and a decision not to travel to the UK and play golf as a result of the terrorist bombing in the USA, such as in the case of the Ryder Cup.

In these examples, is the external event which has occurred a...