A Primer on Insurance for Music Festivals

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 insurance 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, 464 F.Supp. 2d 641 (S.D.Tex. 2006), a 12-year-old girl was abducted and sexually assaulted while attending a three-day music festival called the Texas Tea Party. 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), Jones' wife, Patricia Jones, and a corporate entity named S&J Diving (and its subsidiaries) (the Hauenstein lawsuit). Jones was the sole shareholder, president and a director of S&J Diving and his wife served as its secretary-treasurer. Hauenstein alleged that S&J Diving and its subsidiaries were merely alter egos of Jones and his 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.

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

However, Patricia Jones and S&J Diving were named insureds under a general liability policy issued by Gemini Insurance. The 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.'” The declarations page of the Gemini policy described S&J Diving as a “diving contractor/inspections/sunvoy [sic] & repair docks & vessels.” 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 but nothing related to music festival liabilities. Patricia 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.

The district court agreed with Gemini and held that it had 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.”

The case is 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.

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 Insurance Co., 632 F.3d 417 (8^th 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).

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). Insureds should never make any assumptions about what is covered under their policies.

When making a claim following a loss, an insured must 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. Many policies require the insured to submit notice of a loss as soon as practicable or within a specific number of days.

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

In some cases, the timeframe for insureds is dictated by the insurance policy and in others, a statute or regulation will provide the applicable time period.

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