Disastrous Fyre Festival Sheds Light on Events Insurance

Already facing numerous lawsuits, Fyre Festival organizer Billy McFarland was arrested on federal charges last week. The government alleged he defrauded investors who bought into Fyre Media Inc., the company behind the music festival that collapsed so spectacularly in the Bahamas a few months back.

But the fiasco’s graduation to prosecution is almost beside the point as far as the festival industry is concerned. Events constructed to attract free-spending youth tend to include some who drink too much or take drugs and consequently do all the risky things that come with both. Organizers already had it tough when it came to getting insurance. Then Fyre Festival came apart, replete with tent cities, stranded teens, broken promises, and a global media spotlight covering it all.

“How exposed is Fyre Media as a company in the case of litigation?” Fyre Media employees presciently asked management in an early May email. The answer has come in about a dozen lawsuits filed since the concert ended with stranded attendees scrambling for shelter and food on a remote island.

A Fyre-like calamity is the greatest fear of most festival organizers. The majority already seek to protect themselves by obtaining insurance, but it doesn’t come cheap, or easy. Insurers typically begin working with mega-festival organizers well in advance, determining exactly what kind of coverage they need. In some cases, risk and claim specialists will even tour facilities in advance and during the festival in an effort to mitigate any potential issues. In an ideal scenario, risk experts remove every danger, and festival-goers stay safe, employees don’t get hurt, the production company doesn’t get sued, and the insurer doesn’t pay out a huge claim. (A lawsuit filed by National Event Services Inc. claimed Fyre Festival didn’t purchase cancellation insurance. McFarland’s attorney declined to comment, and her client has yet to enter a plea in his fraud prosecution. He has a bail hearing Friday in Manhattan federal court.)

Big events, those the caliber of Coachella and Bonnaroo, typically take on at least five kinds of insurance policies: cancellation, including terrorism coverage, general liability, umbrella policies, workers’ compensation, and business auto coverage, explained Peter Tempkins, managing director of entertainment for HUB International. Some will also opt for crime coverage, errors and omissions policies, and directors and officers policies. If videographers are on site, there’s also film insurance.

Festivals can be lucrative, but such policies take out a big chunk. “Music festivals are one of the hardest things to insure because of the alcohol and the drugs,” said Robert Nuccio, president of R.V. Nuccio & Associates Insurance Brokers Inc. “It’s a different exposure. Can you keep the drugs and alcohol away? No.”

Cancellation insurance will typically cost 1 percent to 1.5 percent of the overall cost of an event, as much as $150,000 for a $10 million festival, Tempkins said. General liability coverage is priced per head.

“Depending on the type of event it is and the type of music, that will dictate cost,” he said. General liability coverage for an event without camping can run between 30¢ and 45¢ an attendee, while an overnight event that must protect festival goers could be as much as $1.50 a person. Throw a myriad of other insurance options into the mix, and the cost could be well more than $300,000.

Insurers aren’t always rushing to underwrite these mega policies for events defined by drunk, partying teenagers. The decision is often based on what might be considered to be adult supervision: Before Tempkins agrees to accept a client, he takes a close look at who is managing the festival. “The most important thing to me is not who owns the festival, but who is running the festival. I want to know who the actual boots on the ground are, who is really doing everything,” he said. “I know a lot of production people who do festivals. They’re going to do their job the same way every time, no matter who owns it.”

Specific people in the festival chain-of-command, including the site manager, production manager, security director, and medical director, are also considered when a policy is being written. “Safety is a very, very important component for us,” said Sue McGuirl, head of North American entertainment for Allianz Global Corporate & Specialty, one of the largest event insurers. The company said it’s involved in some aspect of insuring about 90 percent of America’s music festivals. “They need to have evacuation plans, there needs to be a decision-maker if there’s a weather event, there has to be a communications strategy.”

Inevitably, there will be claims, with spectator liability being the most common, said Nuccio. “Most of them are liability claims: slip and fall, molestation, alleged rape, false arrest, false imprisonment, assault, battery.”

In late June, Insomniac Holdings LLC and Live Nation Entertainment Inc. were sued for the wrongful death of attendee Tom Nicholas at the Electric Daisy Carnival festival in Las Vegas, alleging the event made it difficult to access water and medical staff. In 2016, the mother of Emily Michelle Tran, who died at the HARD Summer Festival in 2014 after taking MDMA and having a seizure, sued Live Nation for negligence and wrongful death. Insomniac and Live Nation declined to comment on the litigation.

Risk assessment can help curb spectator lawsuits, but little can be done when the weather takes a turn. Hurricane Irene in 2011 led to issues for several festivals that Tempkins helped insure. Electric Zoo, which he worked with at the time, had to stop construction, then reassemble after the storm passed. Another event he helped insure in Houston suffered from such bad rain that it had to be moved at the last minute.

Insurance, while a great safety blanket, isn’t a magic wand. There are caveats to every agreement, especially when it comes to festivals, Tempkins said.

“I’m not convinced that if Fyre had cancellation coverage, it would’ve covered” the costs of refunding attendees, he said, alluding to allegations made by former employees that the organizers were unprepared for the event. “The cause of that was not outside of their control.”