SXSW Sues Insurance Company Following Last-Minute 2020 Cancellation

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Austin, Texas, home of SXSW. Photo Credit: Carlos Alfonso

Back in April of 2020, following the last-minute cancellation of SXSW amid the domestic onset of the COVID-19 pandemic, passholders named the Austin-based event in a class-action lawsuit concerning refunds. Now, SXSW itself is officially suing its insurance company for allegedly failing to defend it against the complaint.

Digital Music News first reported on the class-action suit involving SXSW when it was filed in April of 2020. In brief, Massachusetts’s Maria Bromley and Colorado’s Kleber Pauta submitted the complaint to an Austin federal court, alleging that organizers had refused to provide refunds, instead offering to transfer passes to the next SXSW and grant a 50 percent discount on admission to a future edition. Some 80 percent of ticketholders accepted SXSW’s offer, according to legal documents.

As an aside, Bromley fronted almost $1,700 for SXSW 2020’s platinum badge, which included “primary access to ALL events,” per company higher-ups. The precise cost of passes varies depending upon the purchase date, but the platinum badge for SXSW 2022 (scheduled to kick off on March 11th) is currently available for $1,225.

Back to the refund-centered class-action lawsuit against SXSW, the plaintiffs noted that they’d agreed to the happening’s terms and conditions when purchasing badges. Though said terms and conditions made clear that SXSW “does not issue refunds under any circumstances,” the filing parties characterized this portion of the fine print as “unlawful and unenforceable, because enforcing the provision would render SXSW’s obligations under the agreement illusory.”

“Plaintiffs and the Class performed their obligations under the contract by providing payment in consideration for Credentials,” the suit relays. “When the 2020 Festival was cancelled, however, SXSW refused to refund Plaintiffs and the Class the purchase price paid for Credentials.”

Four days back, SXSW – which previously acknowledged that the unprecedented losses ushered in by the 2020 event’s cancellation weren’t covered by its insurance policy – submitted a notice of a proposed class-action settlement in the suit. The initially highlighted complaint against SXSW’s insurance provider, Federal Insurance Company, made its way to the court shortly thereafter.

In the legal showdown between SXSW (50 percent of which now belongs to P-MRC) and Federal, the former entity is requesting that the court issue “a judicial declaration and judgment requiring Federal to defend and indemnify SXSW” in the above-described complaint.

This defense and indemnification should include reimbursement for the litigation’s expenses thus far, “actual and treble damages,” and coverage “against loss, including defense costs, settlement, or any judgment,” per the plaintiffs.

SXSW says at the outset that it purchased a “ForeFront Portfolio 3.0” insurance policy from Federal, proceeding to note that the policy in question provides “Directors & Officers and Entity Liability Coverage,” among two other types of coverage yet. And needless to say, the conference and its legal team cite a substantial portion of the corresponding contract to demonstrate that “Federal is responsible for one hundred percent (100%) of SXSW’s” legal fees for a claim encompassed by the noted coverage.

In terms of the timing of SXSW’s forwarding the lawsuit to Federal, organizers state that they put the insurance company “on notice of the potential for a claim even before any actual claim was made” following SXSW 2020’s cancellation. The class-action suit in particular was delivered to Federal three days after it was filed, according to the text.

But Federal, per SXSW’s lawsuit, opted not to defend the 10-day-long event from the class-action complaint, indicating that a “contract exclusion” and a “professional services exclusion” in their (Federal and SXSW’s) deal exempted it from providing “any defense or indemnification.” (The policy appears to identify legal fees as covered by Federal generally, despite the exclusions’ alleged effects on liability in the SXSW class-action complaint.)

As disclosed in the lawsuit, the relevant portions of the SXSW-Federal agreement relay that the contract exclusion prevents Federal from incurring liability “for Loss on account of any Claim against an Organization [SXSW in this instance]… based upon, arising from or in consequence of any liability in connection with any oral or written contract or agreement” that the client is a party to. A nearly identical clause is in place for a policy client’s failure to render any “professional services.”

The contract exclusion “does not even apply to the Bromley Complaint breach of contract claim, because that claim is not based on liability arising under any oral or written contract,” according to the legal filing, which also notes that the class-action suit’s unjust-enrichment and conversion claims “seek to impose liability against SXSW in the absence of a contract.”

“While the Bromley plaintiffs allege that there is a contract (SXSW’s Terms), and that the Terms’ no-refund policy is unenforceable, they do not allege that SXSW is contractually liable to pay refunds under Terms when a festival is cancelled by a government agency,” the document reads.

Lastly, regarding the professional-services exclusion, it’s alleged that the clause does not “preclude coverage because, under Texas law, ‘professional services’ exclusions only exclude damages that directly stem from the performance of services for others that involve a specialized skill, vocation or training.”

“SXSW organized the festival, determined who should present at the festival, made the travel arrangements for presenters, and made arrangements for the presentations,” the multifaceted complaint proceeds. “These are not professional services, but even if they were, the Bromley plaintiffs did not sue SXSW for damages arising from such services.”

At the time of this piece’s publishing, Federal didn’t appear to have commented publicly on SXSW’s lawsuit. Back in February, Live Nation sued Rhode Island-based insurance company Factory Mutual for allegedly failing to provide policy-related compensation “for property damages and business interruption losses” incurred amid the COVID-19 pandemic.