A leading theatre lawyer has warned that a lack of clarity in the government advice for theatres to close may give insurers an excuse not to pay out – which could have a “severe impact for a lot of venues”.
Theatre specialist Neil Adleman, who works for entertainment law firm Harbottle and Lewis, has outlined the legal situation following advice yesterday (March 16) from Boris Johnson that the public should avoid theatres in the fight against coronavirus.
Shortly after the government advice, UK Theatre and the Society of London Theatre announced the closure of all its venues with immediate effect.
Adleman told The Stage there is currently a “strong recommendation” from the government for theatres to close rather than a legal requirement.
“In these difficult times there is a risk that insurance companies will be turning to the legal wording of contracts, rather than taking a more compassionate approach,” Adleman said.
He added: “SOLT and UK Theatre are pushing the Department for Digital, Culture, Media and Sport for more clarity, and clearly if the government were to be more explicit, that would be more helpful.”
Adleman’s comments come as the Association of Business Insurers warns that irrespective of whether or not the government ordered closure of businesses, “the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by coronavirus”.
A statement from ABI added: “Standard business interruption cover – the type the majority of businesses purchase – does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in businesses being unable to trade.
“A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance an enforced closure could help them make the claim, but this will depend on the precise nature of the cover they have purchased so they should check with their insurer of broker to see if they are covered.”
Adleman explained that business interruption cover usually only covers costs of up to four weeks.
According to the lawyer, some insurers may accept that this is force majeure as the current situation is “as good as a government enforced closure, because people were effectively given no choice”, but said the lack of clarity in the wording of the government advice “will give insurers another possible argument to avoid paying out”.
Adleman said: “One of our biggest concerns is that even when insurance claims are successful, it may take a very long time for people to be paid out because the decision the insurer makes to pay someone out may set a precedent. They will have so many people claiming who have the same policy wording and they’re going to think very carefully before making any payouts.”
He added: “One of our concerns is whether people’s cash flow is sufficient and actually even if people’s insurance claims are successful, they need to have enough money to survive until the insurance payout comes, which is some time in the distance.”
Adleman said there is a risk that this will cause some venues to fold.
He added: “All venues are reliant on ticket income […] and therefore if this closure was to go on for any significant period, which certainly looks likely at the moment, it could have a severe impact for a lot of venues.”
The Creative Industries Federation also expressed concern that theatres will be unable to claim compensation for their losses.
Caroline Norbury, chief executive of the Creative Industries Federation and Creative England, said: “As the social distancing measures announced this afternoon are only advisory, rather than an outright ban, we are deeply concerned that creative organisations and cultural spaces will find they are unable to claim compensation for the huge losses they will experience as a result of Covid-19.”
Head of the union BECTU, Philippa Childs, said: “The government needs to be clearer in its guidance and its language so that theatre companies can claim insurance to ensure that staff are not left without pay for weeks on end.
“It is failing to provide the clarity it needs to and this must be addressed immediately.”