Related Practices
The Impact Of The Coronavirus On The Entertainment Insurance Industry—Preliminary Issues To Consider In The Adjustment Of Claims
April 6, 2020By Isabella K. Stankowski-Booker and Jonathan R. MacBride
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The coronavirus pandemic has ravaged the global entertainment and sports industries, with Wimbledon, scheduled for June 29 to July 12, 2020, the 74th annual Tony Awards, scheduled for June 7, 2020 at New York City’s Radio City Music Hall, and the Tokyo 2020 Olympic Summer Games, scheduled from July 24 to August 9, 2020, becoming some of the latest major events being postponed.[1] Insurance carriers who offer event cancellation products and their insureds face uncharted waters when adjusting losses from this novel coronavirus. The modern Olympic Games and Wimbledon, for example, have been cancelled or postponed before, during World Wars I and II,[2] but never in the face of a health crisis, including the 2002-2003 SARS coronavirus epidemic, the 2009 H1N1 (Swine) influenza pandemic or the 2015-2016 Zika virus epidemic. This paper explores some of the issues insurance professionals and practitioners will face as they navigate the myriad of claims arising out of the current coronavirus health crisis.
I. Event Cancellation Policies Vary in Communicable Disease Coverage
At the outset, it is important to note that a “standard” event cancellation policy does not exist. This makes sense because the organizers and promoters of a local festival will have different insurance needs than the organizers and promoters of a world tour or a large-scale event like the Olympics. Accordingly, the event insurance industry offers various types of wordings, differing in coverage to meet the needs of its diverse pool of insureds.
Some wordings expressly afford coverage for communicable or infectious diseases. Other wordings exclude communicable diseases, pursuant to the following or similar language:
This insurance does not cover any loss directly or indirectly arising out of, contributed to, by or resulting from any Communicable Disease or fear or threat thereof (whether actual or perceived).[3]
“Communicable disease” is often defined as “a disease the causative agents of which may pass or be carried from one person or animal to another person or animal directly or indirectly” or as “an illness caused by a pathogen and transmitted from an infected person or animal to another person or animal.” Those policies that contain communicable disease exclusions likely do not afford coverage for losses sustained as a result of the current coronavirus pandemic.
For policies that affirmatively afford coverage for communicable diseases or that are silent on the issue, coverage will depend on whether the insured’s loss is otherwise excluded.
II. The Insured Must Show Proximate Causation Between the Event Cancellation or Postponement and the Coronavirus
For coverage to be afforded, event cancellation wordings commonly require that the cancellation or postponement of the event be “the sole and direct result of a cause not otherwise excluded.” This language typically connotes proximate causation, meaning “[a] cause that directly produces an event and without which the event would not have occurred.”[4] The burden to show that the loss is covered, which necessarily includes the requisite causal link, rests with the insured. In the context of the novel coronavirus—to the extent a policy does not exclude communicable diseases—coverage will depend in part on showing the causal link between the cancellation or postponement of the insured event and the coronavirus.
As the fallout from the pandemic continues, the causation analysis may get murkier in that, over time, multiple causes may combine to bring about an insured’s loss. One can immediately point to the economic downturn that this pandemic has already caused not just in the United States, but worldwide. Lawmakers in the United States passed an unprecedented $2 trillion stimulus package to counteract some of the economic effects of the virus.[5] At the same time, economists cautioned that while “cancellations and postponements of public activities in the U.S.—such as major league baseball, hockey and basketball games, Broadway shows and Austin’s South by Southwest festival—may help slow the spread of the virus, it will inevitably take a toll on consumer spending.”[6]
Where two or more perils lead to an insured’s loss, the causation analysis will vary depending on what law governs the specific insurance contract. Unfortunately, the relevant case law is scarce in the event cancellation space. However, because event cancellation polices, like first party property policies, insure against perils, it is likely that courts throughout the United States will revert to that body of caselaw to resolve any causation issues that arise as the pandemic continues.
Generally, jurisdictions in the United States have adopted one of three causation doctrines to analyze situations where a covered and an uncovered peril combine to cause an insured’s loss: “(1) efficient proximate causation, in which the relevant cause is the one which sets the loss in motion; (2) concurrent causation, in which any loss caused by a combination of covered and excluded perils is covered; and (3) proximate or immediate causation, where the court simply identifies the single proximate or immediate cause of the loss and proceeds from there without looking at any earlier cause which may have set the chain of events in motion.”[7] Because the majority of states follow the efficient proximate causation doctrine, this paper focuses on that doctrine in particular and how it would apply in the event cancellation context. [8]
In applying the efficient proximate causation doctrine, some courts have held that the efficient proximate cause of an insured’s loss, in a sequence of perils, is the initial peril that sets the other events in motion. Hartford Steam Boiler Inspection & Ins. Co. v. Henry Sonneborn & Co., 96 Md. 616, 54 A. 610 (1903). However, courts in other jurisdictions look at “all the circumstances surrounding the loss, including whether a peril insured against came directly or indirectly within such proximity to the property insured that the damage it sustained can be considered ‘within the compass of reasonable probability.’” Montefiore Med. Ctr. v. Am. Prot. Ins. Co., 226 F. Supp. 2d 470, 478 (S.D.N.Y. 2002) (citing Continental Ins. Co. v. Arkwright Mut. Ins. Co., 102 F.3d 30, 36 (1st Cir.1996) (quoting Bird v. St. Paul Fire & Marine Ins. Co., 224 N.Y. 47, 120 N.E. 86 (1918) (Cardozo, J.)); Brunswick-Balke-Collender Co. v. California Ins. Co., 67 Pa. D. & C. 471 (Com. Pl. 1949) (“The proximate cause of an injury is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.”).[9]
Some of the intervening causes that may impact how event insurers and their insureds address coverage going forward are discussed below.
1. Financial Issues
As the coronavirus continues to spread, countries around the globe have imposed drastic measures on their citizens and businesses. In the United States, many states have imposed “shelter-in-place” orders, commanded non-essential businesses, schools, and venues to close, and even imposed restrictions on citizens to move about freely across state lines. All these restrictions have already taken a toll on the economy and their impact will be felt for years to come. The entertainment industry has not been spared financial troubles.
One group that has already felt the brunt of such restrictions are the organizers of festivals and trade shows. For example, organizers of the popular South by Southwest festival, which was scheduled to start on March 13, 2020, took an enormous financial blow after Austin officials decided to cancel the festival amid concerns of the spreading coronavirus.[10] Cognizant of the fact that their “insurance will likely not cover the cancellation … [because it] doesn’t cover disease-related cancellations,” the festival organizers are now contemplating rescheduling the event at a later time.[11] However, the financial repercussions of the cancellation cannot be ignored, with lost funding as a result of the cancellation potentially to “run in the tens of millions of dollars.”[12] These financial straits, in turn, may adversely impact the 2021 South by Southwest festival.[13]
Likewise, many vendors and businesses who rely on festivals, expos, conferences and trade shows to showcase their products have also been hit hard by the financial troubles associated with the coronavirus pandemic. Some industries, including travel and gastronomy, have seen widespread economic decline. While bigger corporations have a better chance of surviving this global economic downturn, small businesses, entrepreneurs and start-ups are certainly going to suffer. Events that cater to these groups to bring their products and ideas to market often offer rental booth space that can cost thousands of dollars. Even with refunds and credits towards future shows, many of these attendees will be unable to recoup their expenses or continue their businesses.[14] This is critical because it will impact future conferences and events in the form of fewer attendees, exhibitors and sponsors.
Finally, a global recession and the associated widespread unemployment usually impact consumer spending, including money spent on leisure activities such as concerts and festivals. This, too, may result in lower attendance further down the road. Stated differently, “an economic recession will leave regular concertgoers short on cash well after quarantines are lifted [and] there is the question of how long it may take for fans to be comfortable joining large crowds again.”[15]
Many event cancellation policies expressly exclude “any loss directly or indirectly arising out of, contributed to by, or resulting from withdrawal, insufficiency or lack of finance; the financial failure of any venture; financial default, insolvency, or failure to pay of any person, corporation or entity; and/or lack of financial or other support or withdrawal of such support.” Insureds seeking coverage for their losses will have to demonstrate that the coronavirus proximately caused the cancellation or postponement of their event. In contrast, the burden to prove that the cancellation was caused by the general economic downturn or other factors unrelated to the coronavirus will likely rest with the carriers.[16] To the extent event cancellation policies afford some form of coverage for communicable disease, the causation analysis will likely become more complex as events are cancelled or postponed because of broader financial impacts. For example, as the widespread economic fallout continues and the spread of the coronavirus slows, it likely will become more difficult for insureds to prove the necessary causal link to the coronavirus as the proximate cause of the cancellation or postponement.
2. Restrictions on Travel
Moreover, event cancellation policies often exclude loss that is directly or indirectly caused by the inability to obtain necessary licenses, visas, permits and approvals. To date, governments worldwide have imposed an unprecedented number of travel restrictions as a result of the coronavirus. The United States, for instance, imposed travel bans on citizens of many countries, including countries in Europe and China. Other nations have imposed mandatory self-quarantining measures.[17] How longs these bans and restrictions ultimately stay in place is difficult to predict and will likely depend on how fast the pandemic can be contained. However, it is not inconceivable that certain restrictions will remain in place for an extended period of time, especially if concerns exist that a similar outbreak could arise again.
Insureds who, after being prevented from entering a particular country, seek coverage under their event cancellation policies, will need to demonstrate that their loss is covered. To the extent the insurer can show that a required visa or permit was denied or was simply not obtainable, there likely is no coverage. Even if the ban or restriction was imposed because of the coronavirus, the ban or restriction should likely be considered an intervening cause.[18]
3. Terrorism/Malicious Use of a Pathogen
Another peril that may come into play and render the causation analysis more complex is terrorism. In the past few days, the media reported a spike in cases involving persons who expose, or threaten to expose, others to the contagious coronavirus that causes Covid-19. In New Jersey, a man who coughed on a grocery store employee, telling the employee he was infected with the novel coronavirus, “was charged with making a terroristic threat in the third degree and fourth-degree of obstructing administration of law.”[19] In Missouri, a man was charged with second-degree terroristic threats after posting a video on social media in which he is seen licking several items at a Walmart store and asking, "Who's scared of coronavirus?"[20] In Pennsylvania, a woman who coughed on $35,000 worth of produce at a grocery store is facing terrorism-related charges.[21] According to a recent United States Department of Justice memo, those “who intentionally spread the novel coronavirus could be charged with terrorism for the purposeful exposure and infection of others."[22]
Event cancellation policies generally exclude terrorism or the threat thereof.[23] In addition, some event cancellation policies exclude “the actual or threatened malicious use of pathogenic or poisonous biological or chemical materials.” Unfortunately, it is not unimaginable that the novel coronavirus—or the threat thereof—could be used to terrorize concert-goers or attendees of an event, causing it to be cancelled or postponed. If an insured were to submit a claim under these circumstances, there likely is no coverage because the act of terrorism or malicious use of the coronavirus pathogen are intervening causes. This is especially true if the exclusions contain strong anti-concurrent causation language.[24]
4. Rebellion/Revolution
To date, there have been very few reports of uprisings or strikes related to the coronavirus and the many orders from governments to stay at home. In the United States, immigrants in federal custody of the Immigration and Customs Enforcement (“ICE”) staged hunger strikes over the spread of the coronavirus in detention facilities after a detainee tested positive for Covid-19.[25] Some Amazon and Instacart Inc. employees staged walk-outs, refused to fulfill orders placed online and stayed home to leverage more pay and better working conditions among fears of the spreading coronavirus impacting those people working at the frontlines. In Colombia, nationwide riots among the country’s prison population erupted “over what they said was the government’s failure to address fears of the spread of the coronavirus in prison.”[26] In Hong Kong, protesters took to the streets in February 2020 to demand that Carrie Lam’s administration close the border with China to stop the spread of the coronavirus.[27] And, in Ukraine, violent protests erupted after a plane carrying evacuees from China landed in that country.[28]
Many event cancellation policies exclude rebellion and revolution. “Rebellion” typically implies an “[o]pen, organized, and armed resistance to an established government or ruler…usually through violence,” but it can also be the “[d]isobedience of a legal command or summons.”[29] “Revolution” means the “overthrow of a government, usually resulting in fundamental political change, [essentially] a successful rebellion.”[30] It is doubtful that the examples listed above meet the criteria of a rebellion or revolution. That said, some governments have expressed concerns that widespread rebellion and protests may ensue if the lockdown of entire citizenries continues for an extended period of time, leading to potential unemployment and poverty for many.[31] If that were to become a reality, event cancellation losses directly related to these occurrences likely would be excluded, as the acts of violence coupled with the intent to overthrow government arguably amount to an intervening cause.
5. Fear of Crowded Venues
Another factor that may come into play as the fallout from the coronavirus pandemic continues, is a broader change in societal behavior. As discussed above, the industry can expect a change in people’s spending on entertainment as unemployment rises and financial worries mount. In addition, people may voluntarily decide to practice some form of social distancing even after the pandemic is stopped and government restrictions on gatherings are eased. The lingering fear of being exposed to the virus may prompt people to stay away from crowded venues, concerts and the like. This, in turn, may negatively impact attendance.
Many event cancellation policies generally exclude any reduction in attendance that is not specifically attributable to the necessary cancellation or postponement of the insured event. Postponed or cancelled events that see reduced attendance when ultimately rescheduled may fall under the exclusion if the reduction in attendance is attributable to something other than the coronavirus. The same may hold true for events that are cancelled by original coronavirus orders but the event organizers decide not to reschedule because the market for it no longer exists. This will likely be easier to demonstrate for events that are cancelled or postponed further down the road, after the pandemic is confined.
III. Conclusion
Event cancellation policies will respond to the current health crisis in different ways, depending on the specific wording. However, unless the underlying policy expressly affords coverage for communicable diseases, the analysis on whether coverage exist for losses associated with the coronavirus will largely depend on what peril proximately caused the event cancellation or postponement. Broader financial and economic issues, travel restrictions, terrorism threats, and societal changes in behavior are already emerging as some of the reasons for event cancellations and postponements that may not trigger coverage. These factors are likely to play a more important role in event cancellations and postponements as the fallout from the pandemic continues. Thus, in addition to a careful analysis of the policy wording, insurance professionals and practitioners are well advised to investigate and understand the proximate cause of the event cancellation or postponement on a case-by-case basis.
Isabella Stankowski-Booker is a partner with Zelle LLP in New York. She can be reached at istankowski@zellelaw.com. Jonathan MacBride is a partner with Zelle LLP in Philadelphia. He can be reached at jmacbride@zellelaw.com.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://tokyo2020.org/en/news/joint-statement-from-international-olympic-committee-and-tokyo2020; https://www.tonyawards.com/news/74th-annual-tony-awards-be-postponed/
https://www.nytimes.com/2020/04/01/sports/tennis/wimbledon-canceled-coronavirus.html
[2] https://www.wsj.com/articles/an-olympic-disappointment-11585178747?emailToken=793ef48b2c34f822dc44c8f2fccee650IpzD4aYyAlsH+8RrJVj1uSP7vjOQ3U3VvWo3oF7i1MEHGJm/IUP7YI3EDtACUKRwGpOIYSBmck6YIPqnkZ97Ag%3D%3D&reflink=article_copyURL_share
[3] Some communicable disease exclusions list specific diseases like Swine Flu A (H1N1 or any mutation or variation thereof), and even coronavirus, and extend to exclude conditions of quarantine and travel advisories and restrictions.
[4] Black's Law Dictionary (11th ed. 2019).
[5] https://www.wsj.com/articles/house-lawmakers-race-to-washington-to-ensure-coronavirus-stimulus-passes-11585318472?emailToken=9d8139a04d952e7c36c772d4f2260835VcN1gGQZLyr1HoPAhYIgyaoKUEEenFAOF13ZpguDY8CtLhYe+x64WRfebo4zrB31fGH9v+Qu54FtmP6dQqbC0M3HKb+SJt73y8xDoW/Evg5j6ScJP2Q0ttrAHqVRZ2cvTPd9S7cc/s0eJ9LWcEW8aA%3D%3D&reflink=article_email_share
[6] https://www.wsj.com/articles/economists-see-rising-risks-of-recession-world-wide-11584037877?emailToken=e70a79544a2ce0f388fadd535ee98dc3lo4xKXzIjhgG6l5xopDsmYg3m+egXLbLK1jk9x8zw73riQe9xGyv4/k/nV7tAQwO+0rPyXacvPhj3Z+Dz5tH4zn7fZyRYbYjRUz43iAZlOY%3D&reflink=article_email_share
[7] Andrew B. Downs & Linda M. Bolduan, Law and Practice of Insurance Coverage Litigation, Summary of coverage issues—Property causation doctrines, 4 Law and Prac. of Ins. Coverage Litig. § 52:5 (June 2019).
[8] Only New Mexico, Florida, Minnesota, Arizona, and North Carolina appear to follow the concurrent causation doctrine. See, e.g., Winters v. Charter Oak Fire Ins. Co., 4 F. Supp. 2d 1288 (D.N.M. 1998); Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. Dist. Ct. App. 3d Dist. 1988); West American Ins. Co. v. Chateau La Mer II Homeowners Ass'n, Inc., 622 So. 2d 1105 (Fla. Dist. Ct. App. 1st Dist. 1993); Henning Nelson Const. Co. v. Fireman's Fund American Life Ins. Co., 383 N.W.2d 645 (Minn. 1986); Koory v. Western Cas. & Sur. Co., 153 Ariz. 412, 737 P.2d 388 (1987); Avis v. Hartford Fire Ins. Co., 283 N.C. 142, 195 S.E.2d 545, 549 (1973).
[9] See also, Julian v. Hartford Underwriters Ins. Co., 35 Cal. 4th 747, 110 P.3d 903 (2005), as modified (May 5, 2005); Findlay v. United Pac. Ins. Co., 129 Wash. 2d 368, 917 P.2d 116 (1996); C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216, 1228 (Alaska 2000) (stating that “the efficient proximate cause doctrine is widely accepted among American jurisdictions.”); cf. State v. Neher, 52 Wash. App. 298, 301, 759 P.2d 475, 476 (1988), aff'd, 112 Wash. 2d 347, 771 P.2d 330 (1989) (the phrase “sole cause” means the only cause which will receive juridical recognition.); Texas Pac. Indem. Co. v. Bldg. Material Distributors, Inc., 508 S.W.2d 488, 489 (Tex. Civ. App. 1974), writ refused NRE (July 17, 1974).
[10] https://www.wsj.com/articles/south-by-southwest-hit-hard-by-coronavirus-cancellation-11583711311?emailToken=dac28dbc85fb64ce8bff09b3863833f7rH0iA4l/3p/3v1cEZULmjn8/9kdvOSrmahs4zsOSsZ5EjblxmUhnRrEsbaopBgLeDStFWmMz2HcL9PtNVEbRSVnffSMI2iFufSS6AEQJqC1e8meS6D/HPEmw+VTkuPyf&reflink=article_email_share
[11] https://www.sxsw.com/2020-event-update/
[12] Supra note 10.
[13] Id.
[14] https://www.wsj.com/articles/coronavirus-closes-trade-show-circuit-11584360001?emailToken=b90f7ba395da2eaf10137e71d1e54e9cHvSPdpNfse7A6SaX/2H6Zwp6swp8iqt8xMVQGu31ZD3nBzVqMJ4/Uv/LnNIA3f8p/avFx2AZi2BHhe4HTtrhXgg5oqfcfd1BuqjJuA74CvA%3D&reflink=article_email_share
[15] https://www.wsj.com/articles/coronavirus-silences-the-concert-industry-11585396801?emailToken=f46d017ea00511f7895150dce51ec2efzMOMcvowCw/fM0T+4L3EABx1jcXyVpBMX+NTn6iNT9DnyLe/oWPbJtyZ6ri7IFBcqG292xr6VtXULZRfCeRowvttEwCWbw1/a31sFeifBPo%3D&reflink=article_email_share
[16] Allan D. Windt, Representation of Insurance Companies & Insureds, Burden of proof, 2 Insurance Claims and Disputes § 9:1 (6th ed.).
[17] https://www.cnn.com/travel/article/coronavirus-travel-bans/index.html
[18] For instance, in its March 11, 2020 Proclamation suspending entry of the citizens of certain countries into the United States, the White House explained that “[s]ustained human-to-human transmission has the potential to cause cascading public health, economic, national security, and societal consequences.”
[19] https://www.nytimes.com/2020/03/25/us/coronavirus-terrorism-nj.html
[20] https://www.nbcnews.com/news/us-news/missouri-man-arrested-licking-items-walmart-mock-coronavirus-fears-n1168901
[21] https://globalnews.ca/news/6736293/coronavirus-cough-on-food-grocery/
[22] https://www.cnn.com/2020/03/25/politics/coronavirus-terrorism-justice-department/index.html
[23] Terrorism is often defined as “an unlawful act, including but not limited to the use of force or violence of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public, in fear.”
[24] Anti-concurrent causation language typically states that the perils is excluded “regardless of any other cause or event contributing concurrently or in any other sequence to the loss.” See, e.g., Cameron Parish School Bd. v. RSUI Indem. Co., 620 F. Supp. 2d 772, 246 Ed. Law Rep. 137 (W.D. La. 2008); Oltz v. Safeco Insurance Company of America, 306 F. Supp. 3d 1243 (D. Mont. 2018); Surabian Realty Co., Inc. v. NGM Ins. Co., 462 Mass. 715, 971 N.E.2d 268 (2012).
[25] https://www.wsj.com/articles/protests-hunger-strikes-erupt-over-coronavirus-in-immigration-detention-11585320903?emailToken=a7ab8b2bd2ce0394dc16d38e5371927eRVzov/BbEaTqCGKKlTHCFQxSObxuCTeuHGjYyD/D8hfQoXRJTpMx+rKKjzbJlh+Eh6m8qEhs820j+W2ddXyadEHCvxjFR/BM9WxC6gwyGEFg3F0JGd2C0k7wicqPD81D/SKSueyGxiedlk5RX5Ok+w%3D%3D&reflink=article_email_share
[26] https://www.wsj.com/articles/prisoners-riot-in-colombia-over-health-conditions-amid-coronavirus-fears-11584909855?emailToken=f4dece61314c0ac00942192b1bbda156rS4AYluiuXHOU1fvzvULJyhTT5rOoExb1kUYLaNadWI4LbQvUHbI/q10uxTSbwnTHowXHmw0LaunTAl6Kd5XmcA/9+p409Hkt54bSj2O5B/1/hFK1DzUVg/9iQgA+cFKdLT1vkztBbEwzZVYP2Zwkg%3D%3D&reflink=article_email_share
[27] https://www.reuters.com/article/us-china-health-hongkong-protests-insigh-idUSKBN20F0E3
[28] https://abcnews.go.com/International/hysteria-coronavirus-sparks-violent-protests-ukraine/story?id=69124337
[29] Black's Law Dictionary (11th ed. 2019)
[30] Id.
[31] https://www.independent.co.uk/news/uk/politics/coronavirus-lockdown-uk-mervyn-king-boris-johnson-bank-england-a9440301.html
