Outdoor Music Festival.

The modern-day music festival is a complex, entertainment extravaganza of elaborate stage productions and coordinated multi-day sets with numerous performers at exotic locations across the globe. Music festivals are no longer solely about the music, but a wide variety of neighboring entertainment such as art shows, athletic competitions, health and beauty demonstrations, virtual reality, and stand-alone night clubs. From a risk management perspective, festivals now run the gamut on potential liabilities that include collapsed stages, cancelled performances, severe weather, terrorism, alcohol liability, patron bodily harm and death, product liability and breach of contract claims. In essence, music festivals have become a microcosm of live entertainment-related liability exposures.

To combat these potential liabilities, festival owners, promoters, coordinators, and those even tangentially involved in the music festival business are purchasing a variety of insurance policies. These types of insurance policies often include, among others: cancellation insurance, terrorism, general liability, directors and officers, workers' compensation, spectator liability coverage, umbrella policies, commercial automobile, and crime coverage. Individuals in the music festival business should take note of the following considerations, both when purchasing any of these policies and in their pursuit of coverage.

Work With an Experienced Broker That Understands Your Business and Potential Liabilities. Most insurance policies are purchased through insurance brokers that negotiate coverage and rates with the insurers on behalf of their insureds. The insurance broker's task is to canvas the marketplace and then provide the insured with information regarding which insurers provide the requested coverage, the premium rates that the insurers charge for the requested coverage, how the terms and exclusions of the insurers' policies compare with one another, whether they could procure the requested coverage and, if so, whether there are any gaps. Brokers also often provide their recommendation regarding which policy is best. Since music festivals are complex businesses with many potential liabilities, it is important that the broker understand the scope and types of risks, appreciates what kind of insurance would cover those risks, and is familiar with the insurance marketplace and the policies available in the insurance market.

Know Who Is an 'Insured' Under Your Insurance Policies. An “insured” is a person or entity that the insurer agrees to indemnify (and in liability policies, defend or pay the costs of defense against claims and/or suits) pursuant to the terms of the insurer's policy. Commonly, two types of insureds are identified in policies: named insureds and insureds. When a corporate entity is the named insured, the policy may not clearly state whether subsidiaries and other affiliated corporate entities, as well as their employers, are insureds. Insureds and their brokers should be careful during the underwriting process to ensure that the identity of all covered entities is unambiguous and readily ascertainable from the insurance policies. This is especially important in the music festival business where alter egos, portfolio companies, and subsidiary/parent corporate entities are involved in different aspects of the funding and management of the music festival but often aren't recognized as insureds.

For example, in Gemini Insurance Co. v. S&J Diving, a 12-year-old girl was abducted and sexually assaulted while attending a three-day music festival called the “Texas Tea Party.” Gemini Ins. Co. v. S&J Diving, 464 F. Supp. 2d 641, 644 (S.D. Tex. 2006). Following the assault, the young girl's grandmother, Barbara Hauenstein, filed a lawsuit against the owner of the music festival grounds, Pajama Productions (the production company that produced the festival), Stanley Jones (the principal shareholder in Pajama Productions), Mr. Jones' wife, Patricia Jones, and a corporate entity named S&J Diving (and its subsidiaries) (the Hauenstein lawsuit). Id. Mr. Jones was the sole shareholder, president and a director of S&J Diving and Ms. Jones served as its secretary-treasurer. Id. Ms. Hauenstein alleged that S&J Diving and its subsidiaries were merely alter egos of Mr. Jones and Pajama Productions, that each of these entities was created as a shell company to avoid liabilities at the music festival, and these companies should be treated as one entity. Id. at 645.

Mr. Jones and Pajama Productions were named insureds on an event-specific liability policy issued by Scottsdale Insurance Company. Scottsdale provided a defense to Mr. Jones and Pajama Productions, but not to Ms. Jones or S&J Diving because they were not named insureds or additional insureds under the Scottsdale Policy. Id. at 644.

However, Ms. Jones and S&J Diving were named insureds under a general liability policy issued by Gemini Insurance Company. Id. at 649. The Gemini policy listed its “insureds” as the corporate entity, S&J Diving, and its “'executive officers and directors,' to the extent of their duties as officers and directors; and its 'employees,' to the extent they may be liable for acts 'within the scope of their employment.'” Id. The Declarations page of the Gemini policy described S&J Diving as a “diving contractor/inspections/sunvoy [sic] & repair docks & vessels.” Id. In the coverage action, Gemini alleged that it had no duty to defend or indemnify because coverage under the Gemini policy was limited to liability that arises out of actions related to a marine surveying company, nothing related to music festival liabilities. Id. Ms. Jones and S&J argued that because there were allegations in the complaint that S&J and the Joneses were entwined and alter-egos of Pajama Productions, Gemini's broad duty to defend was triggered and there were no applicable policy exclusions precluding coverage. Id.

The court agreed with Gemini and held that it has no duty to defend or indemnify because “the language of the policies and intent of the parties was to provide coverage for liabilities arising from the business of a marine operation's typical undertakings and cannot be interpreted to cover any and all activity, not specifically excluded, when the insured negotiated as, and described itself to be, a marine operation.” Id. at 650.

This case should serve as a reminder to those in the music festival business that if there are any individuals, organizations, entities, or alter egos that could potentially face liability, those individuals and entities should be listed as insureds or additional insureds.

Understand the Terms of Your Policy and Know What Is Excluded. Virtually all policies contain certain basic parts: (1) the definitions; (2) the insuring agreement; (3) the conditions; (4) the exclusions; and (5) the endorsements. Before there is an insurance claim to make, an insured should read and understand these parts so that the insured knows what is and is not covered under the policy. As noted above, insureds in the music festival business purchase a variety of insurance policies that cover different risks. However almost all corporate insureds will purchase a commercial general liability (CGL) policy. A CGL policy is designed to provide the broadest coverage available to insureds for bodily injury, property damage, personal injury and advertising injury. CGL policies also exclude certain risks that are especially important to those in the music festival business. These exclusions include the following: the assault and battery exclusion; the liquor liability exclusion; expected or intended exclusion; and the participants in athletic or entertainment events exclusion. See, e.g., Face, Festivals and Concert Events v. Scottsdale Ins. Co., 632 F.3d 417 (8th Cir. 2011) (the “assault and battery” exclusion precluded coverage for bodily injury when a music festival promoter was sued for the negligent hiring of an employee who committed sexual assault). An insured in the music festival business should review these exclusions and understand their potential limitations on coverage.

Examine All Policies for Potential Coverage. Coverage for claims and suits may be found in more than one insurance policy or even within the coverages of a single policy. For example, a lawsuit may involve a claim for bodily injury and property damage (both typically covered under a general liability policy). When making a claim for coverage, insureds should carefully review all policy terms and conditions to maximize potential coverage and insureds should never make any assumptions about what is covered under their policies. Accordingly, it is important that insureds in the music festival business examine all possible avenues of coverage and consult an insurance specialist or attorney if coverage is unclear.

Making a Coverage Claim. Following a loss, an insured should pay close attention to all timing-related policy terms. Typically, insureds have a stated amount of time to perform certain tasks under policies, such as providing notice, filing a proof of loss, or filing suit against the insurer. For example, many policies require the insured to submit notice of a loss as soon as practicable or within a specific number of days. Failure to comply with these notice requirements can negatively impact coverage. Thus, insureds should make every effort to provide formal notice within the stated time.

First-party policies, such as event cancellation policies, will likely also require insurers to provide a detailed proof of loss within a specific time frame. The proof of loss is the documentation and description of the nature of the loss and extent of losses suffered. Insurers should gather and copies of all canceled checks, relevant contracts and invoices and receipts pertaining to amounts paid in connection with the planning and organizing of the canceled or postponed event.

Insureds should also be aware of any timing-related limitations on when to file suit against an insurer. In some cases, the timeframe is dictated by the insurance policy and in others, a statute or regulation will provide the applicable time period.

Mikaela Whitman is a partner in Pasich LLP's New York office and a member of the firm's insurance recovery practice.