Following up on yesterday’s post, What does a Property Insurance Coverage Policyholder Lawyer Think About the Day After a Def Leppard Concert?, there has been some debate in the insurance press regarding the 2009 Michael Jackson Tour. Phil Gusman has three articles in the National Underwriter Property & Casualty on the topic: Will Insurers Pay For Jackson’s Concerts?; Michael Jackson’s Death Raises Event Cancellation Issues; and Insurers Could Question Jackson Pre-Concert Physical Results. Based on the articles, Jackson would have had a physical examination as a requirement of the insurance.

Brian Kingman, managing director for Gallagher Entertainment, a division of Arthur J. Gallagher & Co., said coverage for Mr. Jackson’s shows may not have been too difficult to secure, as the market is fairly soft for nonappearance contingency risks.

Mr. Kingman has previously served as a broker for Mr. Jackson as well as for Madonna on one of her tours.

In the case of Mr. Jackson’s tour, Mr. Kingman said he believes the risk was placed in London, and depending on how the policy was written will ultimately decide whether loss is covered. Every concert or series of concerts can be structured differently, he noted, and factors such as how much money is at risk, who could be out of money, and who is willing to insure the risk and under what circumstances are just a few considerations for events like Mr. Jackson’s tour.

The health of the performer also comes into play, Mr. Kingman said. It is typical, he explained, for a sickness to be covered only if the performer undergoes a medical examination before a tour. In the May Reuters story, Mr. Phillips said Mr. Jackson passed a physical “with flying colors.”

Mr. Kingman said he is uncertain of the terms of coverage placed for Mr. Jackson’s tour, or how much was, in fact, covered, although he said he has heard placement was somewhere around $20 million.

Outside the jet setting world of celebrity entertainment, many more mundane events are covered by this type of insurance. One such event that ended up in litigation was the annual “Defeat the Beat Battle of the Bands.” See Defeat The Beat, Inc. v. Underwriters At Lloyd’s London, 669 S.E. 2d 48, (N.C. App. 2008). The facts are cited at length from the policyholder’s brief. They show a typical situation where many policyholders are given inaccurate information about the policy by their agents, they do not review the policy before the loss, and claims are delayed far beyond any reasonable time frame:

Defeat the Beat was established by Karen Blackmon…Its purpose was to host an annual “Battle of the Bands” competition that would bring together marching bands from historically black colleges and universities throughout the southeast. In 2003, Defeat the Beat hosted its first competition at Memorial Stadium in Charlotte, North Carolina. The event was a success, with approximately 22,000 people in attendance.

Following this successful debut, Ms. Blackmon …began planning a second competition …Ms. Blackmon contacted Stacy Fields, an insurance agent …about the possibility of obtaining insurance coverage for the 2004 Event. Ms. Blackmon communicated to Mr. Fields that she desired to obtain a policy that would protect her investment and eliminate the possibility of Defeat the Beat losing money on the Event.
…
…Ms. Blackmon…she inquired about the additional premium for the adverse weather coverage. After seeking clarification from Defendant Petersen, Mr. Fields informed her that the only difference between the adverse weather policy and the policy that she was purchasing was one of control. With the adverse weather coverage, Mr. Fields told Ms. Blackmon, she would be the person in charge of deciding if and when to stop the Event due to poor weather; without paying for that extra coverage, that choice would be made by the manager of the stadium where the Event was held. Based upon these representations, Ms. Blackmon elected to pay the Basic Premium of $8,805….

On August 21, 2004, the second “Defeat the Beat: Battle of the Bands” competition took place at Memorial Stadium in Charlotte. The local weather stations were predicting rain for the day, as the Hurricane Ivan storm system was traveling through the area. At 5:30 p.m., half an hour before the start of the Event, the officers of Defeat the Beat (CEO Karen Blackmon, Chief Operations Officer Duncan Gray, and Stadium Operations Director Robbie Nixon) met with Greg Clemmor, the manager of Charlotte Memorial Stadium, to discuss the weather. It was determined that the Event would continue as scheduled despite the forecasted rain.
…
At 6:30 p.m., thunder and lightning began. …At 6:40 p.m., the thunder and lightning became more pronounced, and those in charge became concerned for the safety of the spectators and participants. It was at that time, upon the recommendation of stadium manager Clemmor, that the decision was made to place the Event on hold until the lightning subsided. …At this announcement, many of the spectators returned to their cars, while others took shelter in various corridors and tunnels beneath the concrete steps of the stadium.

After making this announcement, Defeat the Beat’s officers noticed that a number of fans who had departed the stadium were leaving permanently; they also became aware that many of the patrons who were waiting in line to purchase tickets were leaving as a result of those people coming out of the stadium who were saying that the event had been cancelled. Accordingly, at 6:45 p.m., Ms. Blackmon made an announcement over the public address system in which she stated: “The event will resume in a few moments per weather conditions. The event is not cancelled.”

At approximately 7:15 to 7:30 p.m., the lightning subsided and the Event resumed. The competition continued through to completion, ending around 11:00 p.m.

As a result of the bad weather and the interruption of the Event, the 2004 Battle of the Bands competition was considerably less successful than its predecessor in 2003…

Several days after the Event, Ms. Blackmon contacted Stacy Fields to discuss submitting a claim under the Policy. At that point, it was discovered that neither Blackmon nor Fields had a copy of the insurance policy. Accordingly, Stacy Fields contacted Defendant Petersen and received a copy of the Policy, executed September 2, 2004, sometime in early September 2004…

After receiving Plaintiff’s claim, Defendant Underwriters assigned it to Michael Tocicki of Crawford Technical Services to be adjusted. …

On November 21, 2004, Mr. Tocicki came to Charlotte to inspect the stadium…During this meeting, multiple witnesses report that Mr. Tocicki said that the Plaintiff’s claim was a valid one and that he was recommending to Defendant Underwriters that they pay Plaintiff’s claim. In response to a question from Ms. Blackmon regarding how long it would take to receive payment of the claim, Mr. Tocicki stated that he would be submitting a request for payment to Defendant Underwriters following the Thanksgiving holiday, and that Ms. Blackmon would receive payment within two to three weeks following that submission.

On December 8, 2004, Mr. Tocicki submitted a Preliminary Report …Tocicki concluded that although the Plaintiff had elected not to purchase adverse weather coverage, Plaintiff nonetheless had a valid claim for a least a portion of its losses due to an “interruption” pursuant to Clauses 1.1 and 2.8 of the Policy.…Tocicki suggested setting aside a precautionary reserve of up to $124,000 to cover Plaintiff’s loss.

…E-mail records show that Defendant Underwriters decided to deny Plaintiff’s claim as early as December 16, 2004; however, there is no evidence that this decision was ever communicated to the Plaintiff at that time. Instead, still believing that it would receive the full amount of its claim, Plaintiff continued to work with adjuster Tocicki in his efforts to determine the amount of loss caused by the interruption of the event, providing Tocicki with the supporting documentation that he requested as it became available to the Plaintiff.

On February 2, 2005, by letter to Plaintiff’s counsel, Defendants’ counsel advised that Defendant Underwriters had decided to honor the Policy as written and to provide coverage for losses due to the interruption of the Event

On May 3, 2006, Plaintiff’s counsel received a letter from Defendants’ counsel stating that Underwriters had completed its adjustment of Plaintiff’s claim and was prepared to settle the undisputed portion. The letter stated: “Underwriters have determined that the event interruption resulted in a covered loss of $37,135.20.” The letter further stated that “acceptance of this payment will in no way prejudice [Plaintiff’s] right to pursue a claim for the disputed amount of coverage.”

Plaintiff received a check for $37,135.20 on May 30, 2006…Plaintiff instituted this suit for breach of contract, bad faith, and unfair or deceptive trade practices. 

There should be a good basis for a bad faith claim based upon claim delay, if nothing else. However, one never knows for certain how others view a fact pattern. The Appellate Court noted the policy language:

1.1 This insurance is to indemnify the Assured for their Ascertained Net Loss (as defined herein), should the insured Event(s) described in the Schedule, be necessarily Cancelled, Abandoned, Postponed, Interrupted or Relocated, in whole or in part, which necessary Cancellation, Abandonment, Postponement, Interruption or Relocation is the sole and direct result of any cause beyond the control of the Assured and the participants therein (except as hereinafter excluded), subject always to the terms, conditions and exclusions contained herein or endorsed hereon.

* * * *

2.1 Ascertained Net Loss means such sums as represent:-(a) Expenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss, and (b) Profit (where insured and stated in the Schedule) which the Assured can satisfactorily prove would have been earned had the insured Event(s) taken place.

* * * *

2.4 Profit (where insured) means Gross Revenue less Expenses.

(Emphasis added.)

The schedule of benefits attached to the policy provides in part:

Limit of Indemnity Excluding Profit:     US$540,000
Limit of Indemnity Including Profit:
(Profit insured only if this section completed) N/A

* * * *

Exclusion: TERRORISM COVERAGE

The Court found the issue of whether the weather was covered or excluded was moot because the insurer paid for the event being postponed in part by weather:

It is clear from the record that plaintiff purchased the basic coverage, rather than the adverse weather coverage; however, because only terrorism and not adverse weather is listed as an exclusion on the schedule of benefits, it is not clear whether adverse weather was an exclusion under the policy. We resolve this ambiguity in favor of the non-moving party and assume that any ascertained net loss which resulted from the adverse weather is insured under Section 1.1 of the Policy. Nonetheless, plaintiffs have produced no evidence demonstrating that the adverse weather resulted in an ascertained net loss, as defined and insured under the terms of the policy.

This is a key point I raise in many cases involving business interruption and lost revenue. Policyholders must provide evidence of the lost revenues. The best method is through accountants and economists along with testimony from the policyholder about expectations of business operations. In this case, the policyholder was in an impossible situation because the right type and full amount of coverage was not purchased. I do not think accountants could have helped because expenses did not change much with a 35 minute postponement—but the revenues certainly did. Who would pay to watch bands in the rain with a Tropical Storm approaching? As many agents would say, “penny wise and pound foolish” is the policyholder who does not opt for full coverage of likely perils:

[D]efendant produced evidence demonstrating that an essential element of plaintiff’s claims is nonexistent. Specifically, our examination of the record before us reveals that plaintiff has failed to show that the loss complained of is embraced within the insuring language of the policy. First, defendants produced the document entitled “A Proposal for Event Cancellation Insurance” that expressly provides that the coverage is “for Non Refundable costs and expenses only (i.e. no cover for profits).” Likewise, defendants produced a copy of the policy, and under the terms of Section 2.1 of such policy, it is clear that the insured loss or “ascertained net loss” only includes profit “where insured and stated in the Schedule.” Defendants introduced a copy of the schedule of benefits, showing that profit is not stated on such schedule, and therefore, is not insured under the policy. Thus, defendants met their burden in establishing that the lost profit from low ticket sales, low DVD sales, low T-shirt and souvenir sales caused by the 35-minute interruption, which plaintiff asserts as damages under its breach of contract and bad faith claims, are not insured under the terms of the policy.

Given that defendants established that essential elements of the non-moving party’s claims are nonexistent, the burden then shifted to plaintiff, the non-moving party, to forecast evidence or specific facts that demonstrate the existence of some sort of loss, insured under the terms of the policy, which defendants refused to pay. Under Section 2.1 of the policy, this would include “[e]xpenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss[.]” While plaintiff alleged in an interrogatory response that “Plaintiff has received $37,135.20, an amount that is woefully less than Plaintiff should have been paid under the insurance policy in question [,]” plaintiff has failed to set forth specific facts or forecast evidence that it incurred any non-refundable expenses and costs as a result of the 35-minute interruption in excess of the $37,135.20 that defendants have already paid. The only facts set forth by plaintiff demonstrate an uninsured loss consisting of lost revenue. Because plaintiff failed to meet this burden of establishing a net loss that defendant was obligated to pay under the terms of the contract, yet refused to pay, there is no issue of disputed fact with respect to the damages element of the breach of contract claim. Accordingly, the trial court’s grant of summary judgment in defendant’s favor with respect to this claim was proper.

This case did not turn out well for the policyholder. I hope Michael Jackson’s promoters and others who invested in his performance have better luck and much better coverage. This type of coverage is very valuable when you have a lot riding on an event. Death, weather, and all types of risks can happen at the worst possible time. “Safe is better than sorry,” and that is why this coverage exists.
 

I will suggest that the Windstorm Network look into this coverage at our Board Meeting this Wednesday. The Windstorm Conference is being held in Jacksonville, Florida, next January 25 through 28, 2010. Register and book your room early so you do not miss it. It is typically sold out several months in advance.