Jacko's grief costs insurers a mint

Superstar Michael Jackson's heartbreak at the death of Diana, Princess of Wales, looks set to cost Lloyd's underwriters $1m. And in the process, the finest minds in the UK insurance market have been focused on an important point of insurance law.

Lords Justices Clarke, Nourse and Aldous have ruled in the case of Quinta Communications SA v Malcolm Warrington and Odyssey Re (London) that the underwriters cannot ward off liability in respect of losses suffered as a result of Jackson's cancellation of a major concert in Barcelona, Spain, in the wake of the Princess's death in 1997.

Quinta's broker, Robertson Taylor, was adamant that Lloyd's Warrington syndicate was liable for the claim. Robertson Taylor paid the claim money to Quinta up-front on the understanding that, should Quinta win, the money would then be repaid to Robertson Taylor. And this, in fact, is what has happened.

The decision gives important pointers, particularly for the UK-based insurance market, which handles a lot of similar showbusiness related insurance.

The dispute centred on the liability of insurers for knock-on losses suffered when one loss-making circumstance leads to another. This case shows that the knock-on losses can be regarded by the courts as an insured liability.

Jackson, who was nearing the end of a European tour, was distraught when news broke that the Princess had been killed. On the day of her death he was scheduled to give a concert in Ostend, Belgium, which was expected to earn $2m. But the depth of his grief was said to be such that it was later diagnosed as post traumatic stress syndrome and as a result the Ostend concert was postponed.

It was re-scheduled for the day which was thought to be the best date to pull in the largest crowd and minimise losses arising from the earlier cancellation, which was the day before the concert in Barcelona.

However, Jackson has a rule that he will not perform concerts on consecutive days, so the Barcelona show was cancelled.

Insurers paid out on the $344,380 losses incurred as a result of the Ostend postponement but they refused to meet the claim for $814,999 in respect of losses on the Barcelona cancellation.

They claimed that by paying out on the Ostend losses they had fulfilled the policy requirements in respect of one lost show and that this entitled them to ward off the claim in respect of the Barcelona cancellation.

That argument won in the High Court, where a judge dismissed Quinta's claim in respect of the Barcelona losses. Now, however, the Appeal Court has reversed the ruling and held that the Lloyd's underwriting syndicate that handled the insurance must also foot the bill for the Barcelona losses.

In a case which gives a signpost ruling for the insurance industry, Lord Justice Clarke said that the link between the Barcelona cancellation and the initial postponement of the Ostend show was sufficient for the two to be classed as one event for insurance purposes. This entitled the promoters to the payout which, after interest and legal costs, is expected to top $1m.

Mark Elborne, insurance partner at Cameron McKenna, acting for Quinta, said there was a clear case that the Barcelona losses were recoverable from insurers on the basis that they had been incurred solely as a result of the Ostend cancellation.

"It was a shame that it took so long and so much in costs to prove this point," he says.

Barlow Lyde & Gilbert acted for the Warrington Syndicate, whose application for leave to appeal to the House of Lords was refused.