In an earlier article (Successful Meetings, November 2005), we examined the importance of having a good force majeure clause. But that clause only allows you to escape liability for hotel attrition or cancellation penalties. What about meeting losses such as lost revenue from registration fees, nonrefundable deposits paid to vendors, refunds to exhibitors, and similar losses? Insurance companies would say that meeting cancellation insurance is the answer. But is it?
What's Coveredand What Isn't
The key to any insurance policy lies in reading the fine print, which few people ever do. But if you are demanding enough to get your hands on a complete policy and diligent enough to read it cover to cover, you're likely to find that for every page that lists what is covered by the policy, there are five pages that list what is not covered.
These policies typically cover only provable losses arising from the unavoidable cancellation of the meeting and certain other specified events, and only if such losses arise from an "unexpected cause beyond the control of the insured party." This means that if there is any way that the insurance company can show that you knew before you purchased the insurance that a so-called "loss event" was fairly certain to occur or that you voluntarily chose to cancel or move your event to another site for reasons arguably within your control, you won't be covered.
Many things that you might consider an "unexpected cause" that should have been covered by the policy are excluded from coverage. I recently reviewed a typical policy that had nearly 20 exclusions spread throughout a dozen pages, including:
Financial failure of the meeting, including inadequate sales or profits (i.e., losses because the meeting was generally unsuccessful for reasons other than an unexpected catastrophic event).
Lack or withdrawal of adequate support from sponsors or financial supporters.
Lack of adequate attendance (other than that caused by some unexpected catastrophic event).
Failure of the insured party to have made all necessary arrangements essential to ensure a satisfactory event.
Circumstances existing or threatened at inception which were known to the insured party prior to purchasing the insurance (e.g., trying to buy cancellation insurance shortly before a forecasted major storm).
Any communicable diseases which lead to quarantine or travel advisories. (So SARS and avian flu would not be covered events).
Terrorist acts (unless a special rider is purchased at a very high cost, in which case terrorism will only be covered if it is within 25 miles of the event, within 30 days of the event, and your losses are capped at $250,000).
In most earthquake-prone states, losses from earthquakes are also excluded.
In other words, if your meeting losses are due to poor planning, poor execution, a voluntary decision to move the meeting to a safer site, epidemics, fear of terrorism, or risks that you knew were highly likely to occur, you are probably out of luck. Problem is, those are often the same reasons why organizations buy cancellation insurance in the first place.
Costs and Benefits
Many organizations can safely "self-insure"or avoid significant meeting losses through careful planning and the payment of minimal up-front deposits. But, some planners argue that if the profit from a meeting comprises 50 percent or more of your organization's annual operating income, it's worthwhile to insure.
If you decide to buy insurance, understand that cost varies widely depending on many factors, including expected gross receipts of the meeting, location and time of year of the meeting, amount of optional coverage you purchase, and how far in advance you buy. But in general, expect to pay about 45-85 cents for every $100 of basic coverage. And be forewarned that insurance policy language is not uniform from company to company, or even from year to year within the same insurance company. Therefore, it's critical to get more than one price quote and read the policies carefully every time.
Ben Tesdahl, Esq., is an attorney concentrating in non- profit, corporate, tax, and contract law, including meeting and convention law. He is with the law firm of Powers, Pyles, Sutter & Verville, P.C. in Washington, D.C. He can be reached at 202-466-6550 or at [email protected]
Originally published July 01, 2007
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