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Sorry, We Are Closed – The Government's Budget Haggling And Its Impact On Event Cancellation Insurance

January 23, 2018

By Isabella K. Stankowski-Booker and Jonathan R. MacBride
To read this article in PDF format, please click here.

As the deadline for passing a permanent funding bill expired on January 19, 2018, the United States government shut down for the first time in over four years.  At the heart of the current budget drama is disagreement amongst lawmakers in Congress over the Deferred Action for Childhood Arrivals (DACA) immigration policy, which was instituted by the Obama administration to protect certain individuals who entered the United States illegally as minors from immediate deportation and to afford certain benefits, such as work permits, to this group.  

As of Monday, the impact of the three-day shutdown appeared somewhat limited, mainly due to  Congressional leaders voting in favor of a short-term emergency solution: an interim spending bill that will keep the government open through February 8, 2018. However, the danger is far from over and the upcoming days until February 8 promise to be eventful.  In other words, if lawmakers fail to reach a compromise on the permanent funding bill or fail to pass another interim funding bill after the February 8 deadline expires, more cancellations are likely to follow as government agencies again will be forced to close their doors and government employees will be put on renewed furlough. 

In fact, the most recent events have demonstrated that even a very short shutdown can result in a number of events being cancelled.  For example, the Air Force Academy cancelled all its intercollegiate sports events, including basketball and hockey games, as well as swimming and gymnastics competitions. Likewise, the United States Merchant Marine Academy cancelled all athletic events

We previously discussed the impact of government shutdowns on event cancellation insurance in greater detail in our article "How Government Shutdowns Impact Event Cancellation Policies." In that article-which also provided an overview of the history and mechanisms of government shutdowns in the United States-we identified the issues below. As we continue to monitor the precarious state of the ongoing budget negotiations and brace for the potential of another government shutdown in February, we believe that carriers, brokers, and insureds can benefit from proactively considering the following points:    

Event Venue 

When the government shuts down, so do national parks, monuments, and government buildings. The closure of these venues has a direct impact on sports events, music festivals, art fairs, and movie shoots scheduled to take place at these sites. Even a short government shutdown of a few days can cause significant financial losses to an insured, especially if no contingency plans exist.

Event Attendees 

The parties to an event cancellation policy should also contemplate the audience to which an event caters. Every year, a plethora of conferences, expos, symposia, and trade shows are offered to government employees at the federal, state, or local level. However, during a government shutdown, many of these employees will be prohibited from attending the events, necessitating cancellations. Insureds may also face the difficult situation where the venue itself-which often is a private resort, hotel, or conference center-is not impacted by the shutdown, but the event has no, or significantly reduced, attendance. In addition to causing reduced profits, these situations expose the insured to unexpected costs and the potential commercial pressure to issue refunds. 

Event Speakers, Presenters, And Exhibitors 

Likewise, government employees who have been scheduled to make appearances as speakers, presenters, or exhibitors will likely be prevented from doing so during a government shutdown. This, in turn, may lead to reduced attendance, especially where the event's focus is on a key-speaker or presenter. 

Event Organizers 

To the extent that an event depends on government funding, a government shutdown could have severe consequences. At the center of every government shutdown is a disagreement over a proposed budget and a funding gap. As a result, previously allocated funds may be pulled or frozen, pending a resolution of the dispute.

Government Contractors 

Event cancellation insurers may also want to determine to what extent the insured event depends on the participation and/or attendance of government contractors. Even though government contractors are not government employees, they, too, may be adversely affected by funding gaps and subsequent government shutdowns.

Impact On Travel 

Because many agencies are forced to suspend their services during a government shutdown, event cancellation insurers should also be aware of the indirect consequences of a shutdown. For example, when visas and passports cannot be processed because the responsible agencies remain closed, even events that are not directly related to the government may suffer significantly. Towards this end, imagine an international recording artist, who suddenly cannot enter the United States because her visa has not been issued on time. Similarly, a conference venued in the United States that caters to a largely international audience may experience severe reduced attendance to the extent noncitizens depend on visas to enter the country. 

For more information on this topic contact Isabella Stankowski-Booker at istankowski@zelle.com or Jonathan MacBride at jmacbride@zelle.com.

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