London Riots And Sports Contingency Insurance: Provisions Event Organisers Should Consider
Published 25 August 2011 By: Andrew Nixon
The cancellation of the England v Holland match at Wembley following the wave of rioting that took place across London and other parts of the UK, brings into focus the of importance of governing bodies having contingency insurance in place.
It is understood that the FA was not covered against event cancellation of this type, and therefore is likely to have incurred significant losses.
The reality is that sports events are exposed to a varied range of risks, and those risks need to be managed. Everything from the weather through to this type of civil unrest (or terrorism) can threaten a sporting fixture. The lead up to an event must therefore involve a thorough risk assessment procedure which should cover all potential event stakeholders, including sponsors, commercial broadcasters, spectators, employees, media and the athletes.
Event Risk Management
A full sports event risk management procedure will identify and grade the risks and the potential consequences of those risks. The grading mechanism tends to work as follows:
- Highly unlikely;
- Almost certain.
Read alongside this grading mechanism is what is called the severity of consequence, which would place risks into the following categories:
The risk of rioting causing a cancellation of an England international might be graded as unlikely, but the severity of consequence would be major.
Clearly not all event organisers or sports governing bodies will have the resources (or often the need) to undertake the same level of risk assessment as required by a high profile international sporting event. Indeed, it was no surprise to learn that neither West Ham nor Crystal Palace had event cover in place for their midweek Carling Cup games because those matches, as spectacles, did not warrant it. Furthermore, as with the postponed Premier League game, sponsors, broadcasters and spectators can relax in the knowledge that the games will be reorganised at a later date. Whilst there will be an element of inconvenience and disruption, the events will still go ahead, therefore limiting any potential exposure caused by the postponement. However, where the cancellation of an event, for whatever reason, will lead to significant financial loss to stakeholders, contingency insurance should be purchased. For example, this type of cover is particularly important in the music industry, and last month the Kings of Leon cancelled their US tour which left Lloyd's Insurer Cathedral as the lead under-writer on a £15m exposure. However the band was insured against vast numbers of ticket refunds, although the cancellation will vastly increase their insurance premiums in the future should they choose to tour again.
There is plenty of precedent for sporting (and other major events) being cancelled following civil unrest and flare ups. In 2007, the Italian Football Association cancelled all league matches for a week and subsequent games were played in closed stadiums following the death of a policeman during football related violence. The cancellation and closed door policy was to allow all clubs to reconsider and develop detailed risk assessment strategies (and put in place appropriate insurance) before allowing the games to be re-opened to the public. The decision of the LPGA, who cancelled the prestigious $1.3 million Tres Marias Championship earlier this year in Mexico, over fears that drug violence had rendered the area too dangerous is another example, and although the decision was commended its effect on the local economy was considerable.*
Logic dictates that the potential exposure to insurers is measured by the amount of money invested by sponsors and advertisers, as well as ticket sale costs. The Indian Premier League announced earlier this year that the premiums for event cancellation insurance were higher than that of the Cricket World Cup, also held in India. This was reportedly due to the huge sponsorship and advertising revenue generated by the IPL. It is also worth noting that ‘developing nations’ (such as India) are increasingly keen to show themselves on the international stage. For example, following the Cricket World Cup and the Commonwealth Games, this year India will play host to its first Formula 1 Grand Prix. The insurance requirement for those events, principally because they are high profile, and being held in India, will be wide ranging, and contingency insurance will be at the centre of risk assessment.
The Middle East is another location keen to bid for and successfully host major sporting events, but given the often unstable political environment of these nations (and often more importantly surrounding nations) event risk assessments need to be carefully structured. The Bahrain Grand Prix was, for example, cancelled due to the civil unrest and political instability in the region. Dubai also hosts many high profile events in golf, horseracing, tennis, rugby and cricket and event organisers in this country will constantly need to monitor the risks to these events, and the need for insurance cover. Of course, most high profile of all, the World Cup is destined for the Gulf state of Qatar in 2022, which will carry a risk profile only topped by the Olympic Games.
In conclusion, it is always worth bearing in mind the key insurance requirements for any sporting event. They will centre on employers' liability insurance, public liability insurance and, of course, contingency insurance which this article focuses on:
- Employers' liability insurance is compulsory under the Employer's Liability Act 1969 and best practice states that this should be extended to cover volunteers. Unlike ‘normal' commercial industries, sports events tend to attract voluntary staff (the Olympics being a good example).
- Public liability insurance is obviously essential as sports events tend to require interaction with members of the public. It will be for the broker and the event organisers to assess the level and extent of public liability insurance and the layers will inevitably depend on the identified risks. It is always worth keeping in mind that when it comes to events played out in public areas (such as the London Marathon or the Boat Race), and not within the confines of a stadium or grounds, event organisers will need to liaise with local government authorities to ensure all insurance requirements are met.
- Contingency insurance is the most difficult to assess. The knock on effect of an event being cancelled due to a unique set of circumstances (or ‘force majeure') can be considerable, particularly from a financial perspective. The number of stakeholders involved in the Bahrain Grand Prix cancellation, or the England v Holland match would have been significant: the event organiser will need to ensure that sponsors, competing teams (and their stakeholders) and broadcasters are adequately compensated. It is vitally important that organisers (and their legal advisors) read the small print of any insurance policy as it has been shown that standard forms of contingency event cancellation insurance typically exclude cover for political risks such as terrorism or civil unrest. Some insurers, such as Lloyds will include this cover, but only after a rigorous risk assessment. Insurers advise that ensuring your event has full terrorism, political violence and civil war cover is now essential particularly in emerging nations in the sporting arena.
There are clearly a huge number of risk eventualities for a governing body or an event organiser to consider and the postponement of the England v Holland fixture is another example of a 'flash' incident leading to the cancellation of a sporting event. The London riots have also shown that it is not just the ‘developing’ sporting nations, which are perhaps more used to political and civil unrest, who need to consider the level of the event contingency insurance. Indeed, the reported cost of insurance for London 2012 may well increase following the recent trouble.
Ultimately, these issues can covered off provided risk is properly assessed. It is therefore essential that the broker works closely with the organiser (and if necessary the organiser's legal team) during the risk assessment process. The starting point should always be a review of various duties of care the event organiser might owe, and to whom they are owed. Once that information has been gathered, the event organiser, the broker, the lawyers and the underwriters will be in a position to ensure those risks are covered.
* Whilst the governing body or event organiser is unlikely to owe a duty of care to local businesses who generate income from a sporting event (and therefore lose income as a result of a cancellation), it is not unheard of for businesses to purchase their own contingency or business interruption policies to guard against this potential loss.
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- Tags: Employment Law | Football Association | Indian Premier League | Insurance | Public liability insurance | Qatar | Risk Management
Andrew Nixon is a Partner in the Sport Group at Sheridans. Referred to in this year's Legal 500 as a “very bright and talented sports lawyer” Andrew's practice focuses principally on regulatory, governance, disciplinary, arbitration and dispute resolution within the sport sector. Andrew's clients include governing bodies, sports clubs, sports agencies and individual athletes.