Risk Management of Olympic Proportions: Crunching the Numbers and Insuring the London 2012 Games

In anticipation of the London 2012 Olympic Games starting today, the International Olympic Committee (IOC) has faced a myriad of issues, not least the risks, relating to insuring an event that the UK Defence Secretary, Philip Hammond, described as “the biggest security challenge this country has faced for decades”. A quick glance at the sheer extent and magnitude of the Games readily reveals some of these challenges:

2012 in Numbers

London will be the first city in history to hold three Olympic Games.

Construction of the  London Olympic Park required over 200 buildings to be demolished, 1.4 million square metres of site to be cleared, 200 kilometres of electrical cables (installed in two 6km tunnels dug under the Park) and 30 new bridges. In addition 4,000 trees, 74,000 plants, 60,000 bulbs and 350,000 wetland plants have been planted (and 2,000 newts relocated to a nature reserve).

There are no fewer than 50 sites (in England, Scotland & Wales) involved in the Games, which will host 14,700 athletes from 205 countries competing across 26 sports in 34 venues located in London and around the UK. Spectators to the Games will number  around 500,000 visitors each day to the competition venues, 20,000 media and broadcasters, and a worldwide television audience of about five billion (with £5 billion being the estimated advertising revenue).

Equipment required for the Games includes about 600 basketballs, 541 life jackets, 2,700 footballs, 53 swimming lane ropes, 6,000 archery target faces, 165,000 towels, 510 hurdles, 356 pairs of boxing gloves and 99 training dolls for Wrestling and Judo.

 

The precautions being taken to safeguard the Games are even more impressive. In terms of personnel there are 12,000 police officers, 15,000 security staff, and 17,000 military personnel (including 11,800 soldiers). The equipment deployed is also incredible: the Royal Navy’s biggest ship, HMS Ocean, will be stationed in the Thames, while Typhoon jets, E-3D Sentry and VC-10 aircraft, Sea King, Puma and Lynx helicopters and Rapier and Starstreak missile sites are all ready to respond.

 

All of this adds up to the largest peacetime security operation the UK has ever seen and  highlights the ongoing threat of terrorism and the need to appropriately insure the Games.

 

2012 in Insurance

 

Earlier this year, following approximately twelve months of intense negotiations between the IOC and 26 international insurance entities, the IOC announced that it had officially insured the London 2012 Olympic Games for a sum of £62,000,100. The insurance policy is intended to cover any terrorist attack or outbreaks of hostility which might impact the progression of the Games. The £62million sum represents the maximum amount insurers are prepared to take on as financial risk with the amount divided among the 26 sporting federations competing in the Games (which would pay about a fifth of their losses). In addition to this large figure shouldered by global insurance companies there are two other reserves in place: the IOC pool of about £310million; and Pool Re, a UK-backed reinsurer “of last resort” which retains £4.5 billion in assets.

The IOC Pool

The IOC, under the leadership of Jacques Rogge, oversees a pool of £310,000,500 (in comparison, the Athens Olympics was only £105 million) maintained in reserve to cover losses. Insurance coverage for the Games primarily falls into three main categories: liability, event cancellation, and property damage insurance (albeit with some overlap between categories).

The IOC must consider and prepare for most eventualities, including the possibility that the Games will be severely disrupted or  cancelled in their entirety. Such a situation is not without precedent: the Olympic Games have been cancelled three times in the last century as a result of the World Wars. Games organizers will also be mindful of the bomb attacks London suffered just days after the city was awarded the Olympic Games in 2007 or, more recently, last summer’s instances of rioting and looting (Torch bearing of a wholly different kind!). Such developments, though beyond the organisers and IOC’s control, represent significant and unpredictable threats. In addition, natural disasters, outbreaks of viruses, accidents related to massive public transportation disruptions, and even the possibility of cyber terrorism must also be considered. The high profile nature of the Olympics, combined with the presence of the worldwide media spotlight, means that countries, entities and groups might attempt to use the Games as a platform for propagating political or ideological messages. The Atlanta 1996 Games marked terrorist attacks and boycotts while the 1980 USSR Games saw countries band together to boycott the USSR’s invasion of Afghanistan. 39 countries also announced their withdrawal from the 1968 Games following the IOC’s decision to readmit apartheid South Africa as a Game’s participant. The Games’ event cancellation insurance will cover such costs related to rescheduling affected portions of the games including program printing costs, ticket costs, and crowd control considerations. 

 

Pool Re

 

In addition to the formal Olympic Insurance Policy, Pool Re, a UK-backed reinsurer “of last resort” retains a pool of £4.5 billion in assets specifically earmarked to cover the Olympic Games should the need arise. Pool Re was created in 1993 in cooperation with the UK government as a response to the withdrawal of reinsurance cover of the UK market for terrorist attacks, following the IRA bombing of the Baltic Exchange in 1992. Insurers in the UK can reinsure with Pool Re. their commercial property liabilities for terrorism claims in excess of their self-insured retention.

 

The terms of the official insurance contracts signed between the IOC and its international insurers - overseen by broker Marsh - remain strictly confidential and largely shielded from the public eye. Such confidentiality stems from a desire to retain sponsors and to block opportunistic third party claims. Thus, many questions, including whether or not the terms of the signed policy would truly limit all losses and whether or not some facets of the Games will remain outside of coverage, will remain largely unanswered, though widely speculated in the public domain. In turn, the IOC has moved progressively to retain control over insurance risks by requiring athletes, participants and vendors to sign Waivers of Subrogation before interacting with the Olympic Delivery Authority (ODA), which constructs the venues and provides the Games’ infrastructure. In addition to the employee liability insurance and the professional liability insurance maintained by consultants, suppliers and third parties, the Olympic Delivery Committee will also manage risk by offering coverage at all of its sites and facilities. The ODA has, in turn, placed much emphasis on the layout of venues, security provisioning and facility management to keep related law suits remains at a minimum and to serve as a first-line of defence against potential risks.  

 

Conclusion

 

Staggering numbers are involved in the preparation and composition of the Games, which require significant insurance issues to be addressed. Taken together, London is (hopefully) ready for what the Culture, Media and Sports spokesman Baroness Garden of Frognal called the “greatest show on Earth.”

 

As we begin the London 2012 Olympic Games let us all hope that dramatic events are strictly left in the realms of Sport and that the Games pass without incident.

 

**Robert would like to thank Delia Solomon for her assistance in preparing this blog post.

Trying to Settle by Unsettling: Costs Protection in England & Wales

In the 1850's, a prominent frontier lawyer, disturbed by what he saw, felt compelled to offer the following advice in a speech to aspiring lawyers:

“Discourage litigation. Persuade your neighbors to compromise whenever you can.”

In England & Wales, the Civil Procedure Rules (“CPR”) are the rules which govern the conduct of litigation. Most readers will be aware that there is a “loser pays” regime, meaning that there are often costs consequences for the losing party. As a result (and although there is no prohibition against a party making an offer to settle in any way it chooses) there are costs, interest and tactical advantages in making an offer to settle that complies with these rules (Part 36). Part 36 is, therefore, an effective way in which to try to resolve your litigation in England & Wales. For the avoidance of doubt, the term “costs” in this article, follows the English meaning where recoverable costs include fees and charges of the lawyer (attorney) as well as disbursements (including court fees, barristers’ fees and experts’ fees).

Part 36 Offers

A Part 36 Offer is a formal attempt by a party to settle a matter and provides a method to apply pressure to your adversary since it sets out the costs consequences a party will face if it fails to beat the offer. CPR 36.14 determines the costs and interest consequences of a Part 36 offer following judgment (the Court does not normally learn of the existence of offer(s) until the end of the trial (when it takes them into account when determining who should pay the legal costs of the action)).
 

Essentially:

Claimant’s Part 36 offer not beaten.

Where a claimant makes a Part 36 offer which the defendant does not accept and the claimant matches or betters the offer at trial, it is entitled to:

•interest on damages at an enhanced rate;
• costs, assessed on the indemnity basis (whereby costs need not be reasonably incurred to be recoverable and any doubt is resolved in the receiving party's favour); and
• interest on such costs at an enhanced rate.

Defendant’s Part 36 offer not beaten.

Were a defendant makes a Part 36 offer that the claimant does not accept and subsequently fails to beat at trial, the defendant is entitled to:

• costs from the expiry of the relevant period (typically 21 days from the date of the offer); and
• interest on the costs.

Recent Cases on Part 36

There have been several recent decisions concerning the law in this area and the courts’ approach seems to be that it will do what it can to enforce Part 36 offers. The essential points can be distilled as:

• Part 36 is intended to provide a clear and simple framework within which parties can settle litigation.
• Parties who choose to use Part 36 should have a clear understanding of the legal effects of making, accepting and rejecting Part 36 offers.
• Part 36 offers are always open for acceptance by the opposing party up to the trial unless they are actively and expressly withdrawn in writing: rejection of an offer (and/or the making of counter-offers) does not mean that the offer ceases to be available for later acceptance (thus it is possible for several different (and inconsistent) offers to be available for acceptance at the same time).
• Where a claimant recovers more than a defendant's Part 36 offer (whether or not less than the claimant's Part 36 offer) the claimant is normally "the successful party". The starting point is that the successful party should recover its costs from the other side, subject to any adjustment to reflect issues which the successful party has lost or other circumstances.

Offers outside Part 36

It remains possible for a party to chooses to make an offer outside the framework of Part 36 (usually a “Calderbank offer”). A Calderbank offer can provide greater flexibility than a Part 36 offer because it is not governed by strict court rules. On the one hand this is advantageous since it allows the party making the offer to be creative (especially when suggesting terms about the length of time the offer remains open, costs and payment issues). However the disadvantage is that if a party then achieves a better result, unlike for Part 36, the court has wider discretion to decide what weight should be given to the offer when considering costs.

Summary
The American Naval Officer David Porter once said “Litigation is the basic legal right that guarantees every corporation its decade in court”. Although in England & Wales cases tend not to last that long*, it is still worth remembering that Part 36 enables costs, interest and tactical advantages to you in making offers to settle. This may enable you to resolve your litigation at an earlier time whilst avoiding the uncertainty of the Court’s decision. Part 36 therefore provides a useful opportunity - in which one can follow Abraham Lincoln’s advice - to discourage litigation by compromising claims whenever possible.


* The original McDonald's Corporation v Steel & Morris or " McLibel case" is the longest-running case in English history: it began in 1990 when writs were served. The first Judgment (running to 762 pages) was in June 1997; there was then an appeal in 1999; and then an attempt to take the matter to the House of Lords. Then, having run out of litigation in England the case (albeit on several different issues and brought against the government) went to the European Court of Human Rights in Strasbourg with a judgment in 2005.