Meeting Contracts: Grey Areas

meeting contractsAs COVID-19 Coronavirus continues to spread, John Foster, Esq., CHME, an attorney in Atlanta that counsels and represents event planners, says there are more contract grey areas than ever related to meeting contracts and cancellations.

Prevue reached out to Foster about issues involving meeting contracts, following the news that more insurance companies are withdrawing travel coverage related to the outbreak of the virus.

As part of that news, Johanna Bonhill-Smith, travel and tourism analyst at GlobalData, a data and analytics company, said, “Travel insurance providers are under colossal pressure, as are all travel-related industries, yet the decision to remove COVID-19 related cancellation policies and cover for future bookings may cause a further downturn. At a time when consumer uncertainty is already rife due to global travel restrictions and social distancing, the prospect of not being covered or failing to find an appropriate travel provider will not aid the tourism industry.”

This brings up the question of whether insurers have COVID-19 covered. “Insurance companies are notorious for excluding coverage if it’s a known peril,” explains Foster. “They will sell you an umbrella only if the sun is shining.”

Foster has been inundated with calls from meeting professionals who want to know if COVID-19 allows them to terminate their contract without liability and, if they have convention cancellation insurance, are they covered for losses. Since the SARS pandemic in 2003, all convention cancellation policies have excluded communicable diseases. Policy purchasers had the option of removing that exclusion by paying an additional premium. That option disappeared in December 2019 / January 2020 when the seriousness of the COVID-19 virus became known, and it became evident that travel was going to be affected on a world-wide basis.  Insurance companies will not sell you coverage for a peril that is known and established when a purchaser applies for a policy.  If you applied and paid for the coverage for communicable diseases before December 2019 / January 2020 period, your coverage should be solid. Today, you can’t buy the coverage at any price.

There is another hurdle that has to be made before a claim will be paid under some of the Convention Cancellation Policies.  Many policies state that “fear of attendance” or “disinclination to travel” is insufficient to support a claim.  Also, while travel restrictions resulting in unavoidable delays are covered, “travel inconvenience” is not covered. Many event planners with claims pending are waiting to find out what all of these exclusions mean.  The likely outcome will depend on whether the event was planned in a location where a travel ban or stay-at-home order has been issued by the state, city, or county where the hotel or other venue is located.  Whether travelers are fearful of traveling becomes irrelevant if the location bans people from traveling there or from gathering in groups over a specific size.

“The CDC put out guidelines, but not regulations,” says Foster who has created a propriety clause that covers everything to do with epidemics and government advisories as well as other calamities that have affected events in the past. “Contracts that include force majeure that wasn’t discussed or where all of the legal standards were not included are most at risk,” he adds. “Most contracts issued by hotels state that performance must be illegal or impossible before the affected party can invoke the force majeure clause. The clauses are very limiting and do not reflect the real world affecting meetings and events today,” says Foster.

Parties negotiating future contracts should specify that all of the legal standards governing force-majeure events be included: Impossibility (or illegality) of Performance when the performance obligations of a party may be terminated without liability if the performance has been made impossible by acts or occurrences outside the control of either party occurring after the contract was made; Impracticability of Performance, terminations of obligations under a contract may be granted when performance has been rendered excessively difficult or harmful by an unforeseen act or occurrence outside the control of either party and Frustration of Purpose, when the party seeking discharge of the duty to perform the terms of the contract is not claiming that (s)he cannot perform, in the sense of inability. Rather (s)he is claiming that it makes no sense to him/her to perform because what (s)he will get in return does not have the value expected at the time (s)he entered into the contract. The purpose that is subject to frustration must be stated in the contract.

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