Many arts organisations are all about risk and risk-taking; however, some risks necessitate some form of insurance. Sean Egan looks at the tricky areas of cancellation, force majeure and insurance.
In all agreements relating to performances, there should be some thought given to the impact of performances being cancelled or affected and whether those risks are adequately covered, particularly since the events of 7/7. The issues tend to arise in agreements between venues and performing companies in the sections dealing with force majeure, cancellation and insurance.
Contracts
Before you can assess whether the clauses are acceptable from a commercial point of view you need to run the legal analysis, as there are three different situations to distinguish:
The contract is rendered impossible or illegal to perform: a ?Frustrated Contract?. This is where an unforeseen event intervenes. The classic ?frustration case? related to a music hall that burnt down so that performances could not take place. A finding that an agreement is frustrated is unusual nowadays because either the event is dealt with in a force majeure clause (see below) or the courts treat the event as foreseeable ? expecting that the parties will have thought about most risks.
Force majeure and cancellation clauses
Force majeure clauses are express clauses in agreements dealing with events beyond the parties? control. Usually they refer to Acts of God, strikes, flooding, interruption of services (e.g. electricity) and royal demise. They are an effort by the parties to allocate risk and do not apply to events that are within the control of the parties ? such as insufficient finance or failure by a third party to fulfil a contract. So that if an orchestra agrees to provide a specific soloist and that soloist chooses to do another show instead the orchestra will be in breach and the force majeure clause will not apply. If you specify in your agreement ?the usual force majeure clauses shall apply? that is likely to be void for uncertainty unless there are specific clauses in past agreements that make the meaning clear. Cancellation clauses are different as they deal with the consequences of one party choosing to cancel and they set agreed levels of compensation.
Performances are affected but not impossible
This is the most difficult to deal with as events can lead to one party having to decide whether performances go ahead and this decision may well depend on who is at risk and what insurance is in place. But whether you are a venue or a company you cannot insure against a decrease in business caused by the public choosing not to attend.
A principle of insurance law is that only a liability of the insured will be covered. If the agreement provides that the loss is not the responsibility of the venue then the venue?s insurer will not accept the claim. It is crucial therefore to review relevant agreements when assessing whether you have the requisite insurance in place. A venue may expect the presenting company to indemnify it for losses from any missed performance for causes beyond the venue?s control, whether or not the loss is beyond the company?s control. A performing company accepting this term should consider insuring against this risk as the venue?s insurance will not apply. It would be potentially onerous if the venue can make the decision to cancel performances without the company?s agreement.
Changing risks
Terrorism on the scale we have seen recently presents a whole range of issues. It is not just the direct effects (such as physical damage to a venue) but indirect effects that are relevant. It is now more likely that an alert due to a suspect package could prevent rehearsals or the cast attending a performance, which may result in cancelled performances. A co-ordinated series of attacks may result in the public not wanting to go to the theatre or the transport system being severely disrupted so that if performances are not cancelled then audiences will be substantially affected. Venues may choose to close as a result of one or more of these sorts of causes. The losses in all these cases can be substantial. The risks are changing, but also policies themselves are likely to change ? by clarifying or limiting how the direct and in particular indirect losses are treated.
You will not be able to eliminate risk but when reviewing agreements and taking out or renewing insurance you should consider analysing in greater detail the risks you have accepted and how to best deal with them.
Sean Egan is Head of the Arts & Media Department at Bates Wells & Braithwaite Solicitors e: s.egan@bateswells.co.uk; w: http://www.bateswells.co.uk.