The risk of watching. (Spectator Liability: Property/Casualty).

After years of dodging baseballs, hockey pucks and errant race cars, spectators are faced with a new threat-terrorism. Liability coverage has become expensive or unavailable for promoters, event organizers and venue owners.

In March, 13-year-old Brittanie Cecil was struck and killed by a hockey puck that flew into the stands during a National Hockey League game in Columbus, Ohio. This tragedy, and last year's terrorist attacks in the United States, brought national attention to the growing risk that spectators face at sports and entertainment events.

The total number of spectator deaths and injuries is unknown, but at least 29 spectators died and 70 were injured by race cars or flying car parts at U.S. auto racing events alone since 1999, according to The Charlotte (N C.) Observer. In addition, spectators have been injured or killed by foul balls at baseball games or crashing planes at air shows--not to mention th dangers from thrashing about in mosh pits at rock concerts.

Although the number of spectators killed or injured is small in comparison with the millions of fans that pack stadiums and arenas each year, spectator liability coverage is a growing concern among promoters, event organizers and venue owners. And now, with the emerging threat of terrorism at sports and entertainment venues, insurers and reinsurers are taking a hard look at writing terror exclusions into spectator liability policies.

Need for Coverage

Any time spectators are present at an event, there is the potential for injury or death. Event organizers, promoters and facility owners are increasingly relying on the specialized coverage of spectator liability, which falls under general liability policies, to protect against such incidents.

"The assumption or perception is that once someone pays for a ticket, you then assume responsibility for that person, making sure they are protected from any harm during the event," said James Chippendale, president of Dallas-based entertainment insurance broker CSI Entertainment Insurance.

Liability exposures vary among events. Motor sports, including car racing, tractor pulls and motorcycle events, have experienced the largest number of spectator deaths among U.S. sporting events and generally have the highest liability exposure attached to them. In the entertainment industry, concert insurance is currently one of the most expensive forms of spectator liability.

In addition, newer stadium designs that bring seats closer to athletes are increasing spectator liability risks.

Spectator liability coverage differs across the globe. International restrictions for liability and cost of liability coverage are significantly less than in the United States, at only about 30% to 40% of the cost of U.S.-based risks, said Mike Price, president of ESIX, a sports- and entertainment-based insurance and risk-management services provider based in Atlanta.

Despite rising premiums and limited availability of coverage, most insurers believe the demand for spectator liability will continue to grow. "It's something that never goes away," said Bill Frazier, president of Frazier Insurance, Richmond, Va. Even in tough economic times, Americans continue to go to baseball games, concerts and special events. "In effect, this is a recession-proof industry," he said.

Terrorism Coverages

U.S. sporting events, amusement parks and large entertainment gatherings have been named as potential targets of terrorist attacks. In fact, insurers say stadiums are the structures most likely to be targeted by terrorists.

"There is more evidence of stadiums, sporting facilities and teams being unable to get terrorism coverage than almost anything else," said Robert Hartwig, chief economist for the Insurance Information Institute. National Football League teams reportedly without terror coverage include the New York Giants, Dallas Cowboys, Chicago Bears, Washington Redskins and Baltimore Ravens, he said, adding that while the Milwaukee Brewers baseball stadium currently has terrorism coverage, costs for this year's policy are nine times those of last year's policy.

The cost of commercial property insurance that covers terrorism has generally risen about 30% nationally, Hartwig said, noting that the cost for coverage of sports facilities has increased far more.

While some policies are now being renewed with terrorism exclusions, many are being offered with limited terrorism coverage, separately or as an endorsement with a specific sublimit.

As a result, some sports franchises are either buying what they can get, even with limited amounts, or are deciding not to purchase coverage, citing cost as the factor, Hartwig said. "When a team or stadium says they couldn't get terrorism coverage, that doesn't necessarily mean they weren't offered it but instead may have just decided not to purchase it," he said.

Terrorism Exclusions

Many insurers and reinsurers have begun writing terrorism exclusions into spectator liability coverages.

During the past several months, most states have approved the Insurance Services Office Inc. wording for terrorism exclusions. Insurers that don't use the wording, or insurers in states where the wording has not been approved, generally offer smaller limits than would otherwise be available with the ISO wording, said Mike Larkin, senior vice president of Roanoke, Ind.-based American Specialty, which provides risk consulting and insurance services for the sports and entertainment industry. Larkin added that the ISO terrorism wording is becoming popular, if not the norm, on most spectator liability policies.

"Everyone ran for their exclusions, because most policies didn't have these protections prior to Sept. 11," said Frazier. In the past, liability policies commonly contained only war exclusions and covered terrorism-related claims that didn't fall under the definition of an act of war.

Now insurers are putting terrorism exclusions on liability and property policies and may be willing to delete those exclusions with additional underwriting information and additional premiums, said Lou Valentic, senior vice president, executive accounts, for K&K Insurance, Fort Wayne, Ind.

A significant portion of Sept. 11-related losses went to reinsurers who accounted for less than 20% of the capital available in the marketplace. "Everyone had to quickly start getting cash flows to make up for losses, and as a result, the first thing they did was stop writing terrorism, because it was peril for which there is no known actuarial data upon which to base rates for the exposure," said Lowery Robinson, president of Duluth, Ga.-based Marketing Etc., a risk-consulting and marketing firm for the sports and entertainment industry. Because of the absence of such reserves, he said, some insurers are now addressing terrorism exclusions as a separate line of business, will develop some way of rating it and will begin building reserves just as they have in other lines of business.

"If purchasers of insurance have significant leverage, they will likely be able to negotiate a policy with fewer exclusions," said Steven Rosenfeld, a partner with Ohrenstein and Brown, a New York City law firm that represents insurers and brokers. "Conversely, if insurers have the leverage, they will be able to negotiate policies with more exclusions."

Several insurers recognized after Sept. 11 that policies didn't provide them with adequate safeguards with respect to terrorism, and claims are now being paid because there weren't exclusions written into policies. In the current market, insurers generally have the upper hand in negotiating terrorism exclusions with respect to large pieces of property, he said. Purchasers sometimes can minimize or remove exclusions, however, if arenas are willing to are willing to pay larger premiums or accept a large portion of the risk.

While some insurers believe most spectator events haven't been greatly affected by exclusions for terrorism and government shutdowns, these exclusions have had an effect on organizers of events in which large sums of money are used to get people to a venue. Promoters of these events are now trying to get a buyback provision to cover their expenses. U.S. carriers are not yet writing terrorism buybacks into policies.

Limited coverage amounts on spectator liability policies also are causing problems. "It used to be easy to get $30 million in coverage, but now just getting $5 million or $10 million is extremely difficult," said ESIX's Price.

"If you have excess, you're king, and if you don't, you're losing business," Frazier said.

Rising Prices

Compared with the rest of the market, spectator liability rates have remained fairly consistent over the past year. However, some insurers anticipate small rate increases will stem from the increased demand for coverage, limited excess and re-evaluated reinsurance contracts.

In addition, businesses are faced with increased premiums resulting from general market conditions, as well as the addition of terrorism coverage. Surcharges from 40% to 200% of the liability and excess premiums for policies to include terrorism coverage are being seen across the country, said K&K's Valentic.

But not all companies and insurers are blaming terrorism coverage for the rise in premiums. The hardening market, which began even before Sept. 11, is also linked to rising prices and availability. For example, Frazier Insurance anticipates a 22% to 25% renewal rate increase in September for its general liability covers. Frazier believes the effects of Sept. 11 are far from over. He said reinsurers are still unclear what their total losses will be, because retrocessions continue to filter in from other sources, and the courts have yet to decide if the airplane attacks on the twin towers of the World Trade Center in New York constitute one or two occurrences.

Some insurers believe the increased pricing effects will be felt across the industry for the next two to three years. "Insurers are likely to continue to raise rates for spectator liability coverage to levels that haven't been seen during the last decade" said Valentic.

Event Cancellation

Event cancellation policies, which protect against the cancellation, postponement, rescheduling or abandonment of an event, often go hand-in-hand with spectator liability coverages. Like many other coverages, however, these policies suffered a tremendous blow after Sept. 11, particularly among writers that took some substantial financial hits from the events.

As the demand for event cancellation protection continues to increase, its availability is becoming a hard-to-come-by commodity. "Prior to Sept. 11, event cancellation was very available at reasonable pricing," said Frazier. However, now many carriers aren't even offering the product, and where they are quoting it, terrorism and government shutdown endorsements are being added, he said.

"This is the area where we will see terrorism really come into play, with exclusions being included in these policies and premiums increasing pretty drastically," said CSI's Chippendale.

RELATED ARTICLE: Rising Premiums Cause Air-Show Cancellations

Higher insurance premiums are to blame for the cancellation of several Canadian air shows this year. The events of Sept. 11 have forced Canadian airports to ask air show operators to purchase expensive insurance coverage for use of airports.

Canadian airports are now required to obtain $50 million in general liability coverage per show site, as well as coverage for war and terrorism risks. Canadian airports have specifically requested that underwriters write into policies that air shows are required to pay premiums for general liability coverage and war and terrorism coverage during the period that air shows are held on their grounds.

"Premium quotes for the required $50 million U.S. coverage are in excess of $70,000, premiums that virtually no Canadian show will be able to pay," said John Cudahy, president of the International Council of Air Shows Inc., a Leesburg, Va.-based trade and professional association for the North American air-show marketplace.

Premiums for that coverage are estimated at C$115,000 (US$73,588) per show site, Cudahy said. Previously, the most coverage any Canadian air show had obtained was C$20 million (US$12.8 million) at a premium of C$ 15,000 (US$9,598), according to the council.

In response to the situation, the council asked the Canadian government to provide the air show industry indemnification and legislative relief similar to that given to airlines and airports following the Sept. 11 terrorist attacks. The council asked that either the airports' requirement for additional insurance for air shows be rescinded or that the coverage be provided as part of the airport's insurance or the government's insurance for airports. The government refused both suggestions.

One of the recent canceled events affected by the demand for coverage was the 2002 London, Ontario, Air-show and Balloon Festival in June. The event typically generates C$5 million (US$3.2 million) annually for the local economy. In addition, Cudahy said that anywhere from seven to 22 other Canadian air shows may face the same situation this year.

"In some situations, the shows will buy policies, and we're working to try, with some success already to lower premiums," Cudahy said, adding that the most recent concrete bid the council received was C$ 110,000 (US$72,000).

Unlike Canada, United States air shows are not affected by these policy provisions. While some war and terrorism coverage is currently being written in the United States, it is not mandated by the government and is so prohibitively expensive that airports aren't purchasing it, said Cudahy.

Spectator Deaths and Injuries

Numerous spectators have been killed or injured over the years during various sports and entertainment events. Spectators have been killed or injured by flying debris from race cars, lightning strikes, overzealous crowds, hockey pucks and baseballs. Below is a list of some spectator incidents:

* Earlier this year, a 13-year-old girl died when an artery was damaged as her head snapped back after being hit by a puck at a National Hockey League game.

* In July 2001, in Amherst, Ohio, two race cars jumped a guard rail and hit a section of bleachers at a race track, killing a driver's wheelchair-bound mother and injuring at least 11 spectators.

* A baseball spectator at the Kansas City Royals' home opener in April 2001 was injured after he fell 12 feet from the left-field bleachers onto the warning track.

* In January 2001, a 15-year-old girl suffered a fatal heart attack when she was crushed at the Big Day Out concert in Australia. Six other fans were taken to a hospital with injuries, including heat exhaustion and back complaints. About 35 spectators suffered minor injuries.

* During the 1996 Summer Olympics, a pipe bomb exploded during a late-night rock concert outside the Olympics venue, killing a 44-year-old Georgia woman and wounding 111 others. A Turkish television cameraman died of a heart attack while covering the incident.

* During the 1991 Open at Hazeltine National Golf Course near Minneapolis, six spectators were struck by lightning, including a 27-year-old man who became the first spectator killed by lightning at a golf tournament.

* On Aug. 28, 1988, at least 400 people were injured during the U.S. Air Force's annual open house show at Ramstein Air Base in Germany. Two Italian Aermacchi MB 339A jets collided and erupted in fire, and one spiraled into the crowd of nearly 200,000 people.

* In 1985, 39 people died and 375 others sustained injuries in a crowd panic during a soccer game in Brussels, Belgium.

* On Dec. 3, 1979, 11 people died during a concert by British rock group The Who at Riverfront Coliseum in Cincinnati. The victims were trampled as a group of concert-goers raced for unreserved seats.