Travel restrictions and prohibitions on gatherings of 10 or more are forcing people in most of the U.S., and around the world to shelter in place as part of the effort to limit the spread of COVID-19.
This means meeting professionals face the difficult choices of canceling or postponing events and, in some cases, switching to virtual meetings. While the main concern is keeping attendees and suppliers safe, economic setbacks are also a serious issue, placing a spotlight on whether event insurance and contract termination clauses will help planners avoid financial damages.
John Foster, CHME, is an attorney, speaker, author, and legal counsel whose Atlanta-based firm Foster, Jensen & Gulley specializes in the legal aspects of meetings, conventions, trade shows, events, and association management.
Foster told ConventionSouth this is a huge area of concern for his clients.
“There is a great deal of confusion because there are so many gray areas,” he said. “Much of the confusion centers around travel bans and local or state orders that non-essential businesses stay closed.”
Foster pointed out as of early April, many of the current bans were set for two weeks or 30 days.
“If meetings are scheduled 60 to 90 days out, then contracts and insurance policies which protect against financial damages for canceled meetings might not cover those meetings,” he said. “At the same time, many associations I work with are polling their members and their members are telling them no, they do not plan on traveling and attending meetings 60 or 90 days out because they are concerned the coronavirus will continue to be a problem.”
While some organizations are adjusting to these circumstances by switching to virtual meetings, planners could still be liable for hotel and venue contracts if the bans have ended but people are still nervous about traveling, Foster said.
There is also widespread uncertainty on whether event cancelation insurance policies and/or termination clauses even include coverage for meetings and events canceled because of COVID-19.
Jerald Jacobs, a partner at Pillsbury Winthrop Shaw Pittman LLP, a Washington, D.C. law firm which specializes in crisis management, has been closely monitoring the impact of COVID-19 on nonprofit organizations.
Jacobs said event planners should look carefully at their existing policies and seek advice from insurance and legal professionals if they are concerned about their liability.
“Nonprofit organizations should carefully review their event contracts before deciding whether to cancel due to COVID-19, in order to ascertain potential penalties and determine options for canceling without penalty,” he advised. “Regardless of the contract terms, nonprofit organizations may still be relieved of obligations and penalties due to the circumstances; or they may be able to negotiate with event venues and vendors for postponements, credits, or other mutually agreeable solutions.”
Types of available event industry insurance
Lorena Hatfield, marketing manager with K & K Insurance, a Fort Wayne, Ind.-based company which specializes in event insurance for planners, concessionaires, and venues, said there is confusion about what is covered and what is not when it comes to insurance policies related to meetings and events.
“The best thing a planner can do now and going forward is work with an agent who is knowledgeable about the types of coverage available and what they cover,” she advised.
Hatfield said event planners often need more than one type of coverage but most should at least carry an annual liability policy which covers the events they plan throughout the year, similar to a business liability policy. This type of policy typically covers bodily injury and property damage, personal and advertising injury, damage to premises rented, and medical expense to the planner.
“These policies cover problems which can arise in the course of planning an event, such as when the name of the event infringes on a trademarked name,” she explained. “Another example is if a facility has a food safety issue and people get sick from eating food at the event, and then someone sues the planner for choosing the facility. Liability policies would likely cover this type of situation.”
Depending on the type and size of the event, planners might need additional types of coverage for the participants, concessionaires, or speakers, Hatfield added.
Cancelation insurance is the big issue for planners right now, she said. These policies provide protection for the loss of revenue or the commitment of expenses due to cancelation, abandonment, curtailment, or rescheduling of an event.
However, planners who carry this type of insurance may still not be covered for damages related to a health pandemic such as COVID-19, which is why it is important to seek professional advice, Hatfield said.
It is certain planners who did not have coverage pertaining to COVID-19 will not be able to get it now or in the future.
For example, Showstoppers Event Cancellation Insurance, which is endorsed by the American Society of Association Executives (ASAE) and is offered through Washington, D.C.-based Affinity Nonprofits, prominently states on its website, “Please note that if you are seeking event cancelation coverage pertaining to coronavirus COVID-19, this is not available as it is deemed a pre-existing condition and it is specifically excluded from all event cancelation policies issued through our program from January 2020 forward.”
Force majeure And how it applies to COVID-19
Discussions about event insurance nearly always bring up the term “force majeure,” which is French for “superior force.” While the term is open to interpretation, it generally refers to unforeseeable circumstances beyond the control of parties which prevent fulfilment of their contractual obligations.
It is usually used only for situations where it impossible to fulfill a contract. In these situations, both parties of a contract usually agree to bear their own losses.
According to Foster, who has helped meeting industry clients deal with “force majeure” issues such as 9/11, the SARS pandemic in 2003, and Hurricane Katrina in 2005, the meaning of the term has not changed, but the way it is written into some event contracts has changed as unprecedented situations have arisen.
He explained the legal standards governing “force majeure” events include impossibility, impracticality, and frustration. (See sidebar for more detailed information.) However, whether or not “force majeure” applies to events affected by COVID-19 depends on how contracts are worded.
Foster pointed out two specific ways meeting planners could be impacted when events are called off or postponed due to COVID-19. One is through termination of contracts with hotels.
“A ‘force majeure’ clause which covers pandemics would allow the planner to terminate without being charged for the rooms that had been booked,” he explained. “The point of the clause is both parties essentially go back to zero—neither has to pay for the other’s losses. In these situations, the planner is taking a loss of income from not having the event while the hotel is suffering the loss of income from not getting paid for the rooms.”
The second type of impact is convention, meeting, or event cancelation insurance.
By definition, a contract is canceled when one party decides not to perform duties or services for reasons other than a “force majeure” event, Foster explained.
“When cancelation occurs, the canceling party may owe damages to the other party to give them the benefit of the bargain, which is generally defined as the lost profits suffered by the other party (i.e., injured party), if any,” he said. “The injured party must first show it took affirmative steps to mitigate its damages by offering to resell the canceled product or service to other parties in order to reduce or eliminate the potential damages the canceling party must pay. Whether a contract is validly terminated or is canceled has legal consequences important to both sides, because of the potential of monetary damages.
“Planners who have this type of policy may still be out of luck as far as recouping their losses beyond the hotel and meeting space unless their policy specifically covers losses due to pandemics,” he added.
According to Foster, before 2001, questions about “force majeure” clauses did not often arise. But after the 9/11 terrorist attack and the 2002-2003 SARS outbreak, insurance companies began carefully writing pandemics out of their coverage, even as applied to “force majeure” clauses.
In recent years, planners who seek to include coverage for pandemics have to buy higher-priced cancelation insurance policies which explicitly list pandemics and/or communicable diseases as qualifying force “majeure” circumstances.
Finding mutually agreeable solutions
Amy Brown, director of events and education for Trade Press Media Group, had to postpone a large conference scheduled for March 17 to 19.
While her contracts with the facility and hotels had “force majeure” clauses for termination of the event, she said her organization did not have an event cancelation insurance policy. She credits her 20-year relationship with the Baltimore Convention Center as a significant factor in being able to reschedule the National Facilities Management and Technology (NFMT) Conference & Exposition, which involves about 4,500 attendees and 1,000 exhibitors, for August 11 to 13.
Even with the cooperation of the facility, Brown said the situation was quite challenging because businesses and governments did not begin responding to the COVID-19 pandemic with great urgency until March.
Her organization made the decision to postpone the annual conference on March 11, less than a week before it was scheduled to take place. Additionally, there were very few dates available at the venue for the third and fourth quarters of this year.
Brown also had to renegotiate with six individual hotel properties for room blocks. She said state-of-emergency restrictions ordered by Maryland Gov. Larry Hogan at the end of March, which prohibited gatherings of more than 10 people and stated planned large gatherings and events must be canceled or postponed, were helpful in the process.
Brown has had to postpone events in the past. One of those experiences involved a 2012 meeting in New York, when area airports were closed due to Hurricane Sandy.
“I have found properties are usually willing to work with you on postponing an event if you can keep it within a calendar year and make an effort to work with them and be flexible about certain details,” she said.
Communication with event attendees is also critical, Brown asserted.
She took several steps to inform participants about the rescheduling of the NFMT conference and trade show. She emailed all attendees about the change in schedule, but took the extra step of having 16 staff members call every attendee who did not open the email to ensure everyone knew about the postponed event.
Additionally, a pop-up message about the postponement was posted on the event’s website and shared multiple times across social media to spread the news.
As of early April, Brown was optimistic the COVID-19 pandemic would be under control by August and restrictions on travel and public events would be lifted. However, she and her staff are preparing themselves in case the NFMT show or other events have to be rescheduled again.
Looking ahead, Foster suggested event planners take several steps to see if they need more coverage for potential health pandemics or other types of crises.
“The first thing to do is meeting with an insurance broker who offers coverage specifically for meetings and events, including for potential cancelations of events,” he said. “Then involve legal counsel to explain the details of the coverage. The next thing to do is to consult with someone who is knowledgeable about and has experience with writing contracts with vendors and suppliers.”
Foster further recommended planners undergo a cost-benefit analysis when determining what types of event coverage they need.
“Event cancelation coverage is usually used only for larger meetings and events. If you can afford to absorb a potential loss from canceling a meeting you probably don’t need a cancelation policy,” he said. “But for a large event where an organization stands to lose millions of dollars due to canceling, it makes sense to spend the money on a policy which protects against that loss.”