Liability insurance: who pays when an event is cancelled?
The recent cancellation of the 40th Cape Town Cycle Tour was without a doubt a big disappointment for all involved and with the Absa Cape Epic mountain bike stage race having just kicked off, the spotlight is now focused on the insurance implications involved in the cancellation of large sporting events.
Entries to the Cape Town Cycle Tour, a premier cycling event which costs millions of rands to organise, can cost anything north of R500 and a great number of entrants will have paid for accommodation and flights to participate in the race. But on the day, organisers had to consider the risks posed to the personal safety of the cyclists by the gusting 100km/hour winds and decided to call off the race for the first time in its history.
Denise Hattingh of KEU Underwriting Managers (an underwriting manager that holds a license with Centriq which is owned by Santam) explains that event liability and event cancellation insurance is a specialist type of insurance. This specialist insurance is specifically designed to address liability risks -– and potential financial losses – that could be incurred when an event is cancelled.
“It wouldn’t be the first or the last time a large event such as this is cancelled. In 2015, we dealt with the the prestigious “Eat Out Awards” which had tobe moved to an alternative venue due to a fly infestation and earlier this year, the Eastern Cape Philharmonic Concert was cancelled due to bad weather. Each of these events took months of planning at considerable cost to everyone involved. But who is responsible for the costs incurred in preparing for a large event that is cancelled at the last minute?
“Organisers of public events such as concerts, public rallies and sporting fixtures like the Cape Town Cycle Tour are governed by the Safety at Sports and Recreational Events Act of 2009. The legislation stipulates a legal obligation to ensure the safety and security of those attending such events – as well as proper event liability insurance. Apart from the requirements of the Act, organisers also have to obtain permission from the local authorities to host an event,” says Hattingh.
In the case of the Cape Town Cycle Tour, organisers require permission from the joint operations committee (JOC) of the City Council - this forms part of the overall risk assessment linked to the event. The liability cover can either include or exclude service providers, sub-contractors and vendors. This depends on the agreements between the various parties – and in many instances each party or sub-contractor may be required to have its own cover that will typically include marshals, volunteers and freelancers working for the insured on the day.
Hattingh says sponsors would typically request to be noted as co-insurers in terms of the liability policy as they are known to the public but are not directly involved in the organisation of the event. In addition, event organisers have to meet certain expectations such as putting formal risk management practices in place and hiring professional contractors to complete each aspect of the project.
With regards to event cancellation insurance, such policies would provide cover for cancellation, abandonment and postponement of an event. Policies are usually divided into three sections:
- Cover A is an all-risk cancellation policy but excludes weather and non-appearance;
- Cover B is in respect of non-appearance; and
- Cover C is in respect of weather.
Cover A could be extended to include protest action. “This is not the same type of cover provided by the South African Special Risks Insurance Association (Sasria), but covers the financial effect that protest action could have on the event (i.e. cancellation following protest action). It could also be extended to include contagious diseases and acts of terrorism. Cover C is specific to the type of event – an event like the Cape Town Cycle Tour is not likely to be cancelled due to light rain or light wind, for example.
Hattingh explains that the insurance policy gives the insured the flexibility to be detailed in respect of their specific needs and requirements. “Each insured event is different – and the risks and cover could vary accordingly”, says Hattingh. The extent of cover would depend on the level of weather risk and is usually discussed with the insured and broker before the organisation of an event. In cases like the Cape Town Cycle Tour, the event organisers may also opt for insurance cover that also indemnifies them in the event that any party tries to recover monies as a result of the cancellation.
When it comes to weather events, there are several determinants of what is insurable but the more specific the weather perils, such as rain (i.e. a no rain policy), the more expensive the insurance policy. Says Hattingh: “Weather cover has to be finalised at least 14 days before the first day of the event.
“A loss adjuster is pre-appointed for all weather cancellation policies and the insured may not cancel an event in isolation. The decision to do so must be done in conjunction with both the client and the insurer.”
In South Africa, it is a legal requirement to have event liability insurance in place for any large, organised event (such as the Cape Town Cycle Tour or the Olympics) – and when it comes to liability, there is of course a broad range of external influences and risks that need to be considered.
It is for this reason that event planners and organisers need to take out insurance with a reputable insurer with the relevant experience and who is aware of the pitfalls that can impact the cover. “If the event is international (for example, the Soccer World Cup) and there is a contractual requirement then the organisers will review the need for cancellation cover but in all cases, event planners and organisers need to take out insurance with a reputable insurer to ensure they are properly covered for any event,” concludes Hattting.