<i><b>When the Show Can't Go On</i></b> Seeking Insurance Recovery for Concert Cancellations

Concert tours can generate significant income for an artist. Yet every concert tour carries a risk that some event outside of the artist's control ' health issues, physical injuries, adverse weather or safety concerns, to name a few ' could force the cancellation of a single show or even an entire tour, thereby resulting in lost revenue to the artist and unrecoverable costs. To protect against this risk, many performance artists elect to obtain event cancellation and/or non-appearance insurance (which may be covered under the same or separate policies) prior to going on tour. This insurance coverage often covers financial losses, including lost guaranteed income, that result from cancellation of the event.

When a show or tour is cancelled because the artist is not able to perform, however, insurers may claim that the cancellation is not covered under the insurance policy for any number of reasons. Thus, holders of event cancellation policies should be aware of some basic tenets of insurance law to be better prepared to respond to an insurer's denial of coverage.

In recent years, the press has reported that numerous artists have been forced to take their insurance companies to court due to the insurers' unwillingness to pay after concerts were cancelled due to an artist's injury or illness. Many other instances exist, which do not get publicly reported, where insurers dispute an artist's claim for payment. Indeed, a performer can be sure that when a show is cancelled because the artist falls ill or suffers an injury, the insurers will make more than a cursory analysis of whether or not to pay the artist's claim or adjust it downward for a variety of reasons. Therefore, policyholders should be prepared to deal with a number of arguments from their insurers as to why the cancellation is not covered under the policy.

Alleged Fraud, Misrepresentations or Concealment

One of the most common arguments proffered by insurers for their refusal to pay when a concert is cancelled due to injury or illness is that the artist failed
to disclose a pre-existing medical condition as part of the insurance application process, which includes the submission of responses to a medical questionnaire in affidavit form. By failing to disclose all pre-existing conditions that could arguably have led to the cancellation, or not fully disclosing all the details about the condition, insurers argue they are entitled to deny coverage ' or even rescind the entire policy ' based on the policyholder's supposed “fraud,” “misrepresentation” or “concealment.”

In 2005, for example, the media reported on Britney Spears' suit against her insurers after they refused to indemnify her for losses resulting from the cancellation of her Onyx Hotel Tour when she injured her knee and was required to undergo surgery. In 2009, Toni Braxton sued her insurance company after it refused to indemnify her for the cancellation of a show at the Flamingo Hotel in Las Vegas when she was hospitalized for a heart condition. In 2010, rock group Linkin Park brought suit against its insurer for failing to indemnify the group after it was forced to cancel six shows because one of its band members suffered a back injury. In all three cases, the insurers disclaimed coverage based on their assertion that the illness or injury causing the cancellation stemmed from a pre-existing condition that should have been disclosed on the medical affidavit as part of the insurance application process.

Typically, event cancellation and non-appearance policies contain an express exclusion for known, pre-existing medical conditions. This exclusion is usually removed from the policy or modified, however, when the artist submits a satisfactory medical affidavit or physician's report that explains any positive responses or disclosures on the medical affidavit. If there is no express exclusion for these pre-existing medical conditions, insurers may claim that the artist's failure to disclose the pre-existing condition constitutes fraud or misrepresentation, and that the insurer is, therefore, entitled to deny coverage or rescind the policy. This coverage defense, however, is frequently factually flawed and should never be taken at face value.

First, it is important to review the policy, insurance application and medical affidavit to ascertain exactly what information was ' and was not ' requested by the insurer. Absent a specific intent to deceive the insurer, an insurance applicant generally has no affirmative duty to disclose information that is not expressly requested. (See, Aetna Cas. and Sur. Co. v. Retail Local 906 of AFL-CIO Welfare Fund, 921 F. Supp. 122 (E.D.N.Y. 1996)). Further, to the extent the artist's pre-existing condition has received publicity, or has been previously disclosed on a prior insurance application, there may be no further duty to report the condition to the insurer. Under New York law, for example, a policyholder has no duty to disclose information that its insurer ought to know. (See, Wolcott B. Dunham Jr. et al., New Appleman New York Insurance Law '6.04(1)(e) (2d ed. 2010)). Toni Braxton alleged in her 2009 complaint against Lloyd's of London that she had disclosed her heart condition to Lloyd's on a 2006 insurance application and spoken publicly about her condition for many years ' and that therefore Lloyd's could not claim that her condition was “unknown” to it.

Second, even if the artist neglected to include a pre-existing condition on the medical affidavit, the law weighs strongly in favor of policyholders when insurers attempt to deny coverage based on fraud or misrepresentation on an insurance application. Under the law of most states, insurers cannot rescind an insurance contract based on the misrepresentation defense unless the alleged misrepresentation is material. (See, e.g., New York Insurance Law '3105(b), Illinois Insurance Code '154. Florida Statutes '627.01081 and California Insurance Code '359). A few states go even further, refusing to rescind an insurance contract unless the misrepresentation is also fraudulent (i.e., made with the intent of deceiving the insurer). For example, in Parsaie v. United Olympic Life Ins. Co., 29 F.3d 219 (5th Cir. 1994), the Fifth Circuit, applying Texas law, held that the insurer could not rescind the plaintiff's health insurance policy ' despite the fact that her insurance application “falsely indicated that she had not been diagnosed or treated for disease of or injury to her reproductive system within the last five years and that she was not taking any medication for a medical condition” ' because the insurer had not shown that these misrepresentations (while material), were made intentionally.

To prove materiality, insurers generally must show that they would not have issued the policy if they had known of the pre-existing condition. Their burden of proof on this point is a heavy one. In Parmar v. Hermitage Ins. Co., 21 A.D.3d 538 (N.Y. App. Div. 2005), the conclusory statement of an insurance company underwriter claiming that the insurer would not have issued the policy if it had known of the facts concealed by the plaintiff in its insurance application was insufficient to establish materiality. Rather, the New York Appellate Division noted that “the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application.” This burden on the insurer puts the policyholder in a strong position when coverage is denied based on an alleged misrepresentation. Moreover, in the case of performance artists, the prospect of requiring insurers to disclose their actual underwriting practices with specific examples can provide the insured with significant leverage in the face of an unjustified refusal to pay on a valid claim.

Policy Exclusions

Insurers may argue, outside of the fraud or misrepresentation defense, that an event or concert cancellation was actually caused by factors covered by one or more policy exclusions. Event cancellation policies may contain exclusions for cancellations when “directly or indirectly” caused by: the artist's drug or alcohol use; exhaustion or fatigue; mental or emotional disorders; activities which increase the risk of loss; or even pandemics such as Severe Acute Respiratory Syndrome (S.A.R.S.) or avian flu. In the complaint that Britney Spears filed against her insurers in 2005, for example, she alleged that the insurers removed a policy exclusion for “any known pre-existing, physical, psychological or medical condition” after she submitted a medical affidavit that disclosed a 1999 knee surgery. When she injured her knee shooting a music video and was subsequently forced to cancel the remainder of her concert tour, the insurers alleged (among other things) that filming the music video fell within policy exclusions for engaging in imprudent behavior.

Regardless of which exclusion(s) insurers rely upon to deny coverage, it is always the insurer's burden to prove the applicability of a policy exclusion. (See, e.g., Technicon Electronics Corp. v. American Home Assurance Co., 74 N.Y.2d 66 (N.Y. Ct. Apps. 1989), and Clemmer v. Hartford Insurance Co., 587 P.2d 1098 (Cal. Sup. Ct. 1978)). Again, this is a heavy burden for insurers because a basic tenant of insurance law holds that policy exclusions are to be construed narrowly against the insurer and in favor of coverage. (See, e.g., National Union Fire Insurance Co. of Pittsburgh v. Glenview Park District, 632 N.E.2d 1039 (Ill. Sup. Ct. 1994), and Quincy Mutual Fire Insurance Co. v. Abernathy, 469 N.E.2d 797 (Mass. Sup. Ct. 1984)).

Further, even where a policy exclusion may be applicable, it cannot be used to bar coverage unless the excluded condition actually caused the cancellation. Where a loss is caused by both a covered condition and an excluded condition, courts may apply one of two tests to determine whether coverage exists.

The first ' the “concurrent causation” test ' asks whether a covered condition was at least a contributing cause of the loss. If so, the fact that excluded conditions may have also contributed to the loss generally does not bar coverage. (See, e.g., Paulucci v. Liberty Mutual Fire Insurance Co., 190 F.Supp.2d 1312 (M.D. Fla. 2002)). Insurers may contract around the concurrent causation test, however, by including policy language that expressly precludes coverage where an excluded condition is at least one cause of the loss.

The second test ' the “efficient proximate cause” test ' asks whether a covered condition was the predominant cause of the loss, in which case the existence of an excluded condition will not bar coverage. (See, e.g., Julian v. Hartford Underwriters Insurance Co., 110 P.3d 903 (Cal. Sup. Ct. 2005)). In California, the “efficient proximate cause” test will prevail even when policy language attempts to circumvent it by excluding loss remotely caused by excluded conditions. Accordingly, even where a potentially excluded condition ' such as exhaustion or an emotional disorder ' may have contributed in part to a concert cancellation, this does not necessarily mean that the insurer can avoid liability under an event cancellation or non-appearance policy.

Lost Revenue Claims

In addition to these defenses, policyholders should be aware of exactly which expenses will be reimbursed when a concert or tour is cancelled. In Small v. King, 915 P.2d 1192 (Wyo. Sup. Ct. 1996), promoters of a Tanya Tucker concert requested a “full coverage” policy from their insurance broker, intending to procure a policy that would cover all financial losses resulting from an occurrence at the concert. The promoters ultimately purchased a general liability policy that excluded weather-related damage, however, and were left without coverage when wind-related equipment damage forced a cancellation of the concert. The court found that the policyholders were responsible for reading their policy and that the broker could not be held liable because “an agent's duty to provide correct coverage cannot be triggered by a client's request for 'full coverage' because the request is not a specific inquiry about a specific type of coverage.”

Familiarity with policy terms is especially important with regard to the definition of “lost revenue.” Event cancellation policies may insure only the costs of organizing the event (i.e., out-of-pocket expenses, including non-refundable deposits) or they may insure against the loss of potential income from the event (including the cost of reimbursement to ticket holders). In Defeat The Beat Inc. v. Underwriters At Lloyd's London, 669 S.E.2d 48 (N.C. Ct. Apps. 2008), the organizer of a marching band competition attempted to procure an event cancellation policy “to protect ' the moneys that [she] had put into the event ' [and to insure] that [she] wouldn't take a loss whatsoever.” The policy that was ultimately purchased, however, did not include lost profits under the definition of “net loss” covered under the policy, and the organizer was unable to obtain reimbursement for lost profits when the event suffered decreased attendance due to a rain delay. While familiarity with the policy provisions may seem like common sense, insurance coverage disputes often arise because the policyholder did not fully read or understand the policy's coverage provisions.

Conclusion

Performance artists and concert promoters can incur significant losses when unforeseen circumstances prevent an artist from appearing at a concert or show. Event cancellation and non-appearance insurance holders should become familiar with the terms of their policies to understand what may or may not be covered in such an event. But when insurers deny coverage based on a policy exclusion, or by arguing fraud or misrepresentation, policyholders should not accept the insurer's position without exploring the range of arguments in favor of coverage that are available under the laws of most states ' a little push-back can go a long way in recouping some or all of the losses associated with a concert or tour cancellation.

Concert tours can generate significant income for an artist. Yet every concert tour carries a risk that some event outside of the artist's control ' health issues, physical injuries, adverse weather or safety concerns, to name a few ' could force the cancellation of a single show or even an entire tour, thereby resulting in lost revenue to the artist and unrecoverable costs. To protect against this risk, many performance artists elect to obtain event cancellation and/or non-appearance insurance (which may be covered under the same or separate policies) prior to going on tour. This insurance coverage often covers financial losses, including lost guaranteed income, that result from cancellation of the event.

When a show or tour is cancelled because the artist is not able to perform, however, insurers may claim that the cancellation is not covered under the insurance policy for any number of reasons. Thus, holders of event cancellation policies should be aware of some basic tenets of insurance law to be better prepared to respond to an insurer's denial of coverage.

In recent years, the press has reported that numerous artists have been forced to take their insurance companies to court due to the insurers' unwillingness to pay after concerts were cancelled due to an artist's injury or illness. Many other instances exist, which do not get publicly reported, where insurers dispute an artist's claim for payment. Indeed, a performer can be sure that when a show is cancelled because the artist falls ill or suffers an injury, the insurers will make more than a cursory analysis of whether or not to pay the artist's claim or adjust it downward for a variety of reasons. Therefore, policyholders should be prepared to deal with a number of arguments from their insurers as to why the cancellation is not covered under the policy.

Alleged Fraud, Misrepresentations or Concealment

One of the most common arguments proffered by insurers for their refusal to pay when a concert is cancelled due to injury or illness is that the artist failed
to disclose a pre-existing medical condition as part of the insurance application process, which includes the submission of responses to a medical questionnaire in affidavit form. By failing to disclose all pre-existing conditions that could arguably have led to the cancellation, or not fully disclosing all the details about the condition, insurers argue they are entitled to deny coverage ' or even rescind the entire policy ' based on the policyholder's supposed “fraud,” “misrepresentation” or “concealment.”

In 2005, for example, the media reported on Britney Spears' suit against her insurers after they refused to indemnify her for losses resulting from the cancellation of her Onyx Hotel Tour when she injured her knee and was required to undergo surgery. In 2009, Toni Braxton sued her insurance company after it refused to indemnify her for the cancellation of a show at the Flamingo Hotel in Las Vegas when she was hospitalized for a heart condition. In 2010, rock group Linkin Park brought suit against its insurer for failing to indemnify the group after it was forced to cancel six shows because one of its band members suffered a back injury. In all three cases, the insurers disclaimed coverage based on their assertion that the illness or injury causing the cancellation stemmed from a pre-existing condition that should have been disclosed on the medical affidavit as part of the insurance application process.

Typically, event cancellation and non-appearance policies contain an express exclusion for known, pre-existing medical conditions. This exclusion is usually removed from the policy or modified, however, when the artist submits a satisfactory medical affidavit or physician's report that explains any positive responses or disclosures on the medical affidavit. If there is no express exclusion for these pre-existing medical conditions, insurers may claim that the artist's failure to disclose the pre-existing condition constitutes fraud or misrepresentation, and that the insurer is, therefore, entitled to deny coverage or rescind the policy. This coverage defense, however, is frequently factually flawed and should never be taken at face value.

First, it is important to review the policy, insurance application and medical affidavit to ascertain exactly what information was ' and was not ' requested by the insurer. Absent a specific intent to deceive the insurer, an insurance applicant generally has no affirmative duty to disclose information that is not expressly requested. ( See , Aetna Cas. and Sur. Co. v. Retail Local 906 of AFL-CIO Welfare Fund , 921 F. Supp. 122 (E.D.N.Y. 1996)). Further, to the extent the artist's pre-existing condition has received publicity, or has been previously disclosed on a prior insurance application, there may be no further duty to report the condition to the insurer. Under New York law, for example, a policyholder has no duty to disclose information that its insurer ought to know. (See, Wolcott B. Dunham Jr. et al., New Appleman New York Insurance Law '6.04(1)(e) (2d ed. 2010)). Toni Braxton alleged in her 2009 complaint against Lloyd's of London that she had disclosed her heart condition to Lloyd's on a 2006 insurance application and spoken publicly about her condition for many years ' and that therefore Lloyd's could not claim that her condition was “unknown” to it.

Second, even if the artist neglected to include a pre-existing condition on the medical affidavit, the law weighs strongly in favor of policyholders when insurers attempt to deny coverage based on fraud or misrepresentation on an insurance application. Under the law of most states, insurers cannot rescind an insurance contract based on the misrepresentation defense unless the alleged misrepresentation is material. (See, e.g., New York Insurance Law '3105(b), Illinois Insurance Code '154. Florida Statutes '627.01081 and California Insurance Code '359). A few states go even further, refusing to rescind an insurance contract unless the misrepresentation is also fraudulent (i.e., made with the intent of deceiving the insurer). For example, in Parsaie v. United Olympic Life Ins. Co. , 29 F.3d 219 (5th Cir. 1994), the Fifth Circuit, applying Texas law, held that the insurer could not rescind the plaintiff's health insurance policy ' despite the fact that her insurance application “falsely indicated that she had not been diagnosed or treated for disease of or injury to her reproductive system within the last five years and that she was not taking any medication for a medical condition” ' because the insurer had not shown that these misrepresentations (while material), were made intentionally.

To prove materiality, insurers generally must show that they would not have issued the policy if they had known of the pre-existing condition. Their burden of proof on this point is a heavy one. In Parmar v. Hermitage Ins. Co. , 21 A.D.3d 538 (N.Y. App. Div. 2005), the conclusory statement of an insurance company underwriter claiming that the insurer would not have issued the policy if it had known of the facts concealed by the plaintiff in its insurance application was insufficient to establish materiality. Rather, the New York Appellate Division noted that “the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application.” This burden on the insurer puts the policyholder in a strong position when coverage is denied based on an alleged misrepresentation. Moreover, in the case of performance artists, the prospect of requiring insurers to disclose their actual underwriting practices with specific examples can provide the insured with significant leverage in the face of an unjustified refusal to pay on a valid claim.

Policy Exclusions

Insurers may argue, outside of the fraud or misrepresentation defense, that an event or concert cancellation was actually caused by factors covered by one or more policy exclusions. Event cancellation policies may contain exclusions for cancellations when “directly or indirectly” caused by: the artist's drug or alcohol use; exhaustion or fatigue; mental or emotional disorders; activities which increase the risk of loss; or even pandemics such as Severe Acute Respiratory Syndrome (S.A.R.S.) or avian flu. In the complaint that Britney Spears filed against her insurers in 2005, for example, she alleged that the insurers removed a policy exclusion for “any known pre-existing, physical, psychological or medical condition” after she submitted a medical affidavit that disclosed a 1999 knee surgery. When she injured her knee shooting a music video and was subsequently forced to cancel the remainder of her concert tour, the insurers alleged (among other things) that filming the music video fell within policy exclusions for engaging in imprudent behavior.

Regardless of which exclusion(s) insurers rely upon to deny coverage, it is always the insurer's burden to prove the applicability of a policy exclusion. ( See , e.g. , Technicon Electronics Corp. v. American Home Assurance Co. , 74 N.Y.2d 66 (N.Y. Ct. Apps. 1989), and Clemmer v. Hartford Insurance Co. , 587 P.2d 1098 (Cal. Sup. Ct. 1978)). Again, this is a heavy burden for insurers because a basic tenant of insurance law holds that policy exclusions are to be construed narrowly against the insurer and in favor of coverage. ( See , e.g. , National Union Fire Insurance Co. of Pittsburgh v. Glenview Park District , 632 N.E.2d 1039 (Ill. Sup. Ct. 1994), and Quincy Mutual Fire Insurance Co. v. Abernathy , 469 N.E.2d 797 (Mass. Sup. Ct. 1984)).

Further, even where a policy exclusion may be applicable, it cannot be used to bar coverage unless the excluded condition actually caused the cancellation. Where a loss is caused by both a covered condition and an excluded condition, courts may apply one of two tests to determine whether coverage exists.

The first ' the “concurrent causation” test ' asks whether a covered condition was at least a contributing cause of the loss. If so, the fact that excluded conditions may have also contributed to the loss generally does not bar coverage. ( See , e.g. , Paulucci v. Liberty Mutual Fire Insurance Co. , 190 F.Supp.2d 1312 (M.D. Fla. 2002)). Insurers may contract around the concurrent causation test, however, by including policy language that expressly precludes coverage where an excluded condition is at least one cause of the loss.

The second test ' the “efficient proximate cause” test ' asks whether a covered condition was the predominant cause of the loss, in which case the existence of an excluded condition will not bar coverage. ( See , e.g. , Julian v. Hartford Underwriters Insurance Co. , 110 P.3d 903 (Cal. Sup. Ct. 2005)). In California, the “efficient proximate cause” test will prevail even when policy language attempts to circumvent it by excluding loss remotely caused by excluded conditions. Accordingly, even where a potentially excluded condition ' such as exhaustion or an emotional disorder ' may have contributed in part to a concert cancellation, this does not necessarily mean that the insurer can avoid liability under an event cancellation or non-appearance policy.

Lost Revenue Claims

In addition to these defenses, policyholders should be aware of exactly which expenses will be reimbursed when a concert or tour is cancelled. In Small v. King , 915 P.2d 1192 (Wyo. Sup. Ct. 1996), promoters of a Tanya Tucker concert requested a “full coverage” policy from their insurance broker, intending to procure a policy that would cover all financial losses resulting from an occurrence at the concert. The promoters ultimately purchased a general liability policy that excluded weather-related damage, however, and were left without coverage when wind-related equipment damage forced a cancellation of the concert. The court found that the policyholders were responsible for reading their policy and that the broker could not be held liable because “an agent's duty to provide correct coverage cannot be triggered by a client's request for 'full coverage' because the request is not a specific inquiry about a specific type of coverage.”

Familiarity with policy terms is especially important with regard to the definition of “lost revenue.” Event cancellation policies may insure only the costs of organizing the event (i.e., out-of-pocket expenses, including non-refundable deposits) or they may insure against the loss of potential income from the event (including the cost of reimbursement to ticket holders). In Defeat The Beat Inc. v. Underwriters At Lloyd's London , 669 S.E.2d 48 (N.C. Ct. Apps. 2008), the organizer of a marching band competition attempted to procure an event cancellation policy “to protect ' the moneys that [she] had put into the event ' [and to insure] that [she] wouldn't take a loss whatsoever.” The policy that was ultimately purchased, however, did not include lost profits under the definition of “net loss” covered under the policy, and the organizer was unable to obtain reimbursement for lost profits when the event suffered decreased attendance due to a rain delay. While familiarity with the policy provisions may seem like common sense, insurance coverage disputes often arise because the policyholder did not fully read or understand the policy's coverage provisions.

Conclusion

Performance artists and concert promoters can incur significant losses when unforeseen circumstances prevent an artist from appearing at a concert or show. Event cancellation and non-appearance insurance holders should become familiar with the terms of their policies to understand what may or may not be covered in such an event. But when insurers deny coverage based on a policy exclusion, or by arguing fraud or misrepresentation, policyholders should not accept the insurer's position without exploring the range of arguments in favor of coverage that are available under the laws of most states ' a little push-back can go a long way in recouping some or all of the losses associated with a concert or tour cancellation.