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Here’s an interesting side story that emerged from Sandy, and illustrates some of the creative ways insurance can be used.
The New York Marathon was scheduled to be run on November 4, six days after Sandy struck New York. This, the major annual event of the NY Road Runners Club, is billed as the world’s largest marathon, and represents from one third to one half of their annual income, some $23 million annually. Registration and membership fees average $250 each for the 60,000 runners who register for the race, with ticket sales, licensing fees, broadcast rights, sponsorship fees and such making up the rest.
Organizers planned to run the race, but the public outcry was so great (millions were still without power, thousands were displaced and public services were already strained coping with Sandy’s aftermath) they yielded and cancelled two days before the race, even though runners had gathered, resources and plans were in place and the race could have been run.
There was an event cancellation insurance policy in place, written through Lloyds of London (an E&S market). These policies typically cover out-of-pocket costs incurred by the insured prior to cancellation, interruption, or postponement of an event. Lost profits and revenues may also be covered under an event cancellation policy, including such things as lost advertising or broadcasting revenue, lost ticket sales, or amounts paid to reimburse individuals who had already purchased tickets.
There are complicated issues in this case. The event could have been held, even though it might have been a public relations disaster. Money had already been spent to run the race and revenues had mostly all already been received, so the financial loss could have been avoided. Runners entry fees are clearly described as non refundable, so there is no obligation to return them. And event cancellation policies typically include a mitigation clause, a provision obligating the insured to take all reasonably practical steps to minimize (or mitigate) financial losses resulting from a cancellation of a covered event.
These policies are all nonstandard policies so there is no way to know what this policy says and all parties involved are keeping mum while claim negotiations are going on. Lloyds has already reportedly authorized a sizeable payment, so there is apparently some acknowledgment of liability. How much they will pay of their limit, or whether the limit the Club bought is enough, are not known. Nevertheless, this remains a good example of how a nonstandard, excess or surplus lines policy can be used to fill an important insurance need. It’s no overstatement to say that the continued existence of the NY Road Runners Club, and the future of the New York Marathon, could well rest on the fact that someone was wise enough to buy this type of insurance.