As COVID-19 leads to event cancellations worldwide, the insurance market is scrambling to minimize its financial exposure to event cancellation claims. Although we have seen event policies with COVID-19 exclusions and others with contamination exclusions that insurers will cite to deny coverage, many event cancellation policies lack these problematic exclusions. But insurers are turning to another defense by contending that cancellation based on attendees’ fear of COVID-19 does not trigger coverage and are doing so by relying on a line of property damage cases. Insureds should not be fooled by this strategy. Event cancellation policies do not require property damage to trigger coverage and thus do not raise the question of whether fear suffices for that coverage.
Insurers are racing towards a line of cases interpreting United Air Lines, Inc. v. Insurance Co. of State of Pennsylvania. These cases do not support the insurers’ position. In United, the airline sought coverage under its property policy for losses related to the government shutdown of air travel due to the terrorist attacks on 9/11. The court said the shutdown was based on fears of future attacks, not on actual property damage, as required under the policy. Similarly, in S. Texas Medical Clinics, P.A. v. CNA Financial Corp., in which the plaintiff sought coverage for losses caused by a hurricane evacuation order, the threat of damage was not enough: “[b]ecause the mandatory evacuation order for Wharton County was issued due to the anticipated threat of damage to the county and not due to property damage that had occurred in Florida and the Gulf of Mexico, [plaintiff’s] business interruption losses are not covered by its policy with Valley Forge.”
For events cancelled before governmental orders precluding gatherings, insurers may cite this line of cases to deny coverage. But these cases are irrelevant to event cancellation policies. Not surprisingly, almost no published cases interpret event cancellation policies. And none address the issues raised by the COVID-19 pandemic. This is novel ground, and insureds should not accept coverage denials without close examination of their policies.
Bottom line: Don’t be fooled by insurers importing property damage cases into your organization’s event cancellation claim. Review the policy’s terms and insist on the coverage that you purchased.